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Case study 10.2 General Motors, GM Daewoo, and Hyundai

Case study 10.2 General Motors, GM Daewoo, and Hyundai

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Case study 10.3

However, having more new models will only be effective if

they are well designed, of high quality, and competitively

priced. The fact that GM Daewoo has lost market share

to H

­ yundai, and its American parent has also lost market

share to Hyundai in the US, should be a matter of concern.

One of General Motors problems was that for many

years the company continued to base its plans on assumptions that they would attain a larger market share and

sales, while the opposite continued to occur. Honda and

Toyota continued to gain market share as they simply provided cars that were generally of higher quality and lower

price. It may well be that GM Daewoo’s current problems

include issues of quality, labor productivity, and price as

well as the design of its cars.

The proposal to change its brand name in Korea seems

to be counterproductive. The country’s consumers show

a preference for domestic products when available, and

a change in name would make it seem more foreign.

It would also likely be unpopular with the workers who

don’t want to be seen as employees of a foreign firm.



References

Griffiths, J. (2004). Daewoo cars to be rebranded Chevrolet

in Europe. Financial Times, September 24, 17.

Moon, I., Edmondson, G. and Welch, D. (2004), Daewoo:

GM’s hot new engine. Businessweek, November 29, 52–3.

Song, Jung-a (2010). GM eyes renaming Daewoo in S Korea.

Financial Times, March 11, 18.

Song, Jung-a and Betts, A. (2010). Hyundai drives ahead as

profits increase fivefold. Financial Times, April 23, 16.



Questions

1. Should GM Daewoo go ahead with their plans

to introduce three new models when sales have

already fallen. Why?

2. Should GM Daewoo change the brand name

used on their cars sold in Korea from GM Daewoo

to Chevrolet? Why?

3. Should GM Daewoo examine other factors such

as the comparative prices, quality, design, and

perhaps labor cost with respect to Hyundai? Why?



Case Study 10.3

The Pampered Chef

(Adapted from Erin Casey, ‘Bringing families together’,

Direct Selling News, September 2006, pp. 16–20.

Reprinted with permission of Direct Selling News,

www._directsellingnews._com)

Three things set The Pampered Chef, a direct selling

company, apart from its competition in the housewares

industry: a passion for providing unique, quality products,

a dedication to ensuring customers know how to make

the most of the products they purchase, and a mission to

bring friends and family together through sharing meals.

Chief Executive Officer Marla Gottschalk says all

three elements come together at The Pampered Chef’s

trademark Cooking Shows. ‘Our consultants offer customers a unique advantage that they will not be able to

find anywhere else,’ she says. ‘Retailers can’t show every

customer how to use the products they sell or allow

them to try them out before they buy them. At a Cooking

Show, our customers are encouraged to do exactly that.

And they get to do it in a relaxed, friendly atmosphere.’

The Pampered Chef would not be the successful company it is today were it not for its unique, interactive

approach to sharing its products at Cooking Shows. Consultants teach customers how simple it can be to use the



tools in their own kitchens. A by-product of that education

is consultants and customers learn to enjoy cooking.

In addition to new products and ideas, consultants

share new recipes at Cooking Shows. The company has

a team of home economists, food scientists and culinary

professionals who work in the company’s six test kitchens to test products and develop new recipes. Whether

customers are looking for healthy and nutritious meals,

impressive appetizers or scrumptious sweets, they’ll

always find a tasty selection of goodies on the menu at a

Pampered Chef Cooking Show.



A look back

The Pampered Chef has a history of offering consultants

the resources and support they need to create a life of

their choosing along with an opportunity that encourages

family interaction, especially at mealtime.

That’s what Doris Christopher was trying to do for her

family when she began the business more than 25 years

ago. Christopher and her husband, Jay, worked together,

brainstorming about business options that would suit

their family’s lifestyle.



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Chapter 10  Product decisions

As a former home economist and educator, Christopher

was able to draw on her experience to create a business

that fit her life and would, in time, fit the lives of thousands

of men and women around the world. By the fall of 1980,

Christopher decided a home-based party plan was the right

business mode. Christopher headed to Chicago’s famed

Merchandise Mart to find the tools she would offer her

customers. They borrowed $3,000 from Jay’s life insurance

policy for inventory and set up an office in their basement.

Since that humble beginning, the company has

expanded from the basement of the Christopher’s suburban home to a 780,000-square-foot headquarters near

Chicago. With nearly 1,000 employees and tens of thousands of independent consultants in the United States,

Canada, and Germany, the company has expanded its

reach and touches the lives of men and women from

every economic level. The firm was also in the UK, but is

expected to close UK offices in 2015–16.

Christopher had no intention of building a multimillion-dollar business. But through the company’s growth

from a one-woman shop to a successful international business, the company’s mission of bringing families together

has remained constant.



Quality makes the difference

When Christopher began the business, she recognized the

need for quality kitchen tools – items that would stand the

test of time and deliver the desired results consistently. The

professional-quality tools she became familiar with in her

career as a home economist weren’t available to the general

public. Today, while stores carry a variety of kitchen utensils,

the quality, durability and performance of The Pampered

Chef’s products continue to exceed customer expectations.

‘People come back to The Pampered Chef because they love

it,’ says Independent Advanced Director Yolanda Easton,

‘not because they have to keep replacing their products.’

What makes The Pampered Chef’s tools and cookware

special? Since 1980, when Christopher first searched

the Chicago Merchandise Mart for the perfect tools for

her business, The Pampered Chef has looked for kitchenware that meets the company’s strict standards. ‘Superior functionality and quality are our key criteria – that’s

what makes a Pampered Chef product unique,’ says Lisa

Flynn, Vice President of Product Development. ‘Our

Product Development Team is composed of experienced

specialists who have their finger on the pulse of the marketplace, and are trained to identify emerging trends and

new opportunities,’ she says. ‘We add new products to our

line based on the needs of our customers and our ability

to improve upon what’s currently in the marketplace. And

we constantly re-evaluate existing products to determine



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which need to be updated with improved features and

technology.’



Test, test and retest

Once the team determines a product’s specifications, they

work with a manufacturer to re-develop a prototype. ‘The

prototypes are tested in our own test kitchens,’ Flynn says.

‘Here, they’re used and reused in an actual home environment – in the dishwasher, microwave, freezer and oven.

That way, we can accurately assess how they will hold up

to normal daily use and whether they will perform the way

we want them to.’’’ Staffed with home economists and culinary professionals – individuals as demanding of the products as their customers – the test kitchens are busy places.

‘We often go through several rounds of prototype development before a product meets our standards,’ Flynn says.

The company also submits products to abuse testing to

determine potential breakdown points and how the product

can be made more durable. ‘Every test that’s done provides

learning that enables us to make the product easier to use,

and more functional and durable than what’s available on the

market,’ says Fran Coursey, Director of Product Development.

Along with in-house testing, the company’s Quality

Assurance Team sends some products, such as cutlery and

cookware, to a third party for a more extensive and scientific

testing. ‘We send out anything that requires a high level of

repetitive testing, for example to test the quality of steel in

our cutlery and its ability to maintain sharpness,’ Flynn says.

Thorough testing, continuous evaluation and a highly

collaborative relationship between the company and its

vendors are critical elements in the product-development

process, as are the opinions of the company’s consultants. ‘Our consultants are another important source of

information and inspiration,’ Coursey says. ‘They are our

front line, so to speak, because they’re out there every day

talking to customers, hearing what their needs are. We

encourage our consultants to share their product ideas

with us. They often give us feedback on new products

they would like added to the line, as well as suggested

improvements for existing products.’



Dishing out cooking skills in a fun way

With so many women entering the work force full time

in the late 70s and early 80s, Christopher knew that, in

addition to offering quality kitchen tools, educating her

customers about using them would be important. ‘What

I considered simple, basic, essential tools were things

others didn’t have in their kitchens, much less know how

to use,’ she says. Cooking Shows continue to provide customers with tools and resources that help them save time

in their kitchens. Retail stores simply can’t compete with







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Case study 10.3

this fun, hands-on approach. For many consultants, the

knowledge that they’re helping customers by offering

them a valuable service is extremely rewarding.

‘I’m teaching my hosts and guests something that allows

to decrease the stress around family mealtime by giving

them the tools to make cooking so much easier,’ Independent Director Deb Skrzynecki says. ‘I love seeing their faces

light up and hearing them say, “Hey, I can do that!”’

Consultants learn not only about tools through The

Pampered Chef, but about ingredients and meal preparation. That education gives consultants the confidence to

put their own twists on Cooking Shows. Theme shows are

one way consultants share their enthusiasm for particular

culinary tastes. From ‘death by chocolate’ shows and Italian feasts, to Cooking Shows focusing on health-conscious

cooking, consultants can express their creativity while sharing some of their favorite tips. Some consultants enjoy putting on a performance, while others keep the presentation

simple, making a point to encourage guest participation.

Regardless of the consultant’s style, guests enjoy spending

time with friends, learning about the products and easy

food-preparation techniques and tasting new recipes.



Global appeal

The Pampered Chef’s business model serves up rewarding

careers to tens of thousands in the United States, Canada,

the United Kingdom and Germany. They are drawn to the

company’s unique service, innovative products and powerful earnings opportunity. ‘When it comes to meal preparation, people want three things: They want to spend less

time in the kitchen, they want to enjoy the time they spend

there, and they want what they prepare to be easy to make

yet spectacular to look at and wonderful to taste,’ says Rick

Voke, Executive Vice President, Global Operations and

Strategy with The Pampered Chef. ‘This is true whether you

live in Kansas City, Mo.; Toronto; or Birmingham, England.

Our products are so simple to use, and our recipes so creative and easy to make, their appeal transcends borders.’

The Pampered Chef creates recipes specifically for every

taste. ‘We have food professionals who specialize in the

taste preferences and cooking styles for each of our markets,’ Voke says. And, to make sure customers get consistent

results, recipes destined for the United Kingdom and Germany are tested in a kitchen styled after a typical European

kitchen. The success of The Pampered Chef in Canada, the

United Kingdom and Germany shows that people everywhere love the products and the business opportunity. ‘We

have large, independent sales forces in Canada and in the

United Kingdom, and we have a growing sales force in Germany,’ Voke says. ‘Obviously this model has tremendous

global appeal.’ That global appeal has been evident since



The Pampered Chef opened its doors in Toronto in 1996.

‘We made the decision to expand into Canada because, as

the company grew in the United States, there was quite a

demand for our product on the Canadian side of the border,’ Voke says. ‘The business took off right from the start.’

The company enjoys success in all Canadian provinces. In

July the company celebrated its 10-year anniversary in

Canada. After a successful launch in Canada, The Pampered Chef researched European markets and determined

the United Kingdom would be a good fit for its products and

business opportunity. ‘We started in the UK in 1999, and it

is currently our fastest-growing operation,’ Voke says. With

continued record growth the company has independent

consultants in Scotland, Northern Ireland and across Great

Britain. The most recent international expansion was in

Germany in 2000, where the company continues to experience growth in its independent force and sales.



Preparing for the future

Doris Christopher set out to create a business that would

meet her family’s financial goals and the needs of a changing society. The Pampered Chef’s phenomenal growth and

stronghold in the marketplace persuaded Christopher

that her business would continue to thrive, regardless of

her position in the company.

‘A business leader has a responsibility to her stockholders, employees, vendors and customers, to assure them

that their future is intact,’ Christopher says. ‘Over the years,

Jay and I have seen a lot of good people hurt because they

worked for, or did business with, a company that did not

have a succession plan in place.’ With concern, and respect,

for the company’s consultants, co-workers and vendors,

the Christophers established a company succession plan. In

October 2002, The Pampered Chef was acquired by Warren Buffett’s holding company, Berkshire Hathaway.

While the decision wasn’t simple, it was solid. Buffett’s

management style allows The Pampered Chef to operate

as it always has on a daily basis. At the same time, the

ownership transfer, coupled with The Pampered Chef’s

solid team of professional management, offers the company a stable and secure future [ . . . ].

Wisdom and sincerity are words that come to mind

when Doris Christopher’s name is mentioned. From the

beginning, her leadership set the foundation for a company whose mission to bring families together is as relevant today as it was 25 years ago, when the first Cooking

Show was held.



Question

1. Evaluate Pampered Chef’s approach to new

product development for the global market.



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Chapter 10  Product decisions



Case Study 10.4

The internationalization of Chinese brands

(Adapted from a presentation made by Andrew Papadimos, Australian Catholic University, at the International

Business and Economy Conference, Honolulu, Hawaii,

January 5–8, 2006.)

China’s entrance into the World Trade Organization in

December 2001 meant the opening of China’s domestic

market to foreign competition. However, it also opened the

doors of other member countries to Chinese competition.

When Western and Japanese multinational corporations

enter foreign markets, they also carry with them their own

brands, capital and technology. Can Chinese corporations

do the same? Chinese companies like TCL and Haier have

taken the first successful steps in the internationalization

of Chinese enterprises, and have demonstrated that Chinese corporations do have limited success overseas. Their

experiences have also become templates for the increasing

number of Chinese enterprises that are stepping out into

the international market. However, there are still many

problems facing Chinese companies on their path to internationalization, as the famous Chinese wool manufacturer

Hengyuanxiang discovered when it ventured abroad.

While Hengyuanxiang has great brand recognition at

home, its name is meaningless internationally. Also, the

names of other famous Chinese companies such as Lebaidi

and Yangzi die out once management has been handed

over to international corporations.

For Chinese brands to survive, therefore, they must

develop, but to develop they need to internationalize. Brand

internationalization for enterprises from developing nations

faces all sorts of challenges, and this piece will examine the

problems and issues surrounding Chinese companies in

their journey toward brand internationalization.



Changing the name

Chinese brand names originate with the Chinese enterprise, and all copyrights are owned by that enterprise.

They are registered as Chinese characters at startup,

and, as in the West, the company tries to make the name

catchy, sometimes even including geographic and personal names. Chinese brand names may also be registered using Pinyin Romanization, eg. = Changhong =

Rainbow. Chinese brand names have two major flaws:

1. Because international recognition of Chinese brand

names is low, Chinese companies are unable to enter

host markets in the same way as globally recognized

US brands such as IBM, DELL or Coca-Cola.



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2. Even if Chinese brands do have a Romanized version,

Westerners will still have difficulty pronouncing it

because of linguistic differences. This issue alone can

mean the death of Chinese products in foreign markets.

The basic principles of brand name development are

that brands should be easy to recognize, easy to remember

and easy to pronounce. Chinese brands meet none of these

requirements when they enter international markets.

All of the internationally successful Chinese brands

changed their names long ago. [ ] has become Haier;

(Haixin) has become Hisense; TCL (simply no Chinese

name); (Meide) has become Midea, etc. The first step for

internationalizing Chinese companies, therefore, is to

make their brand more globally recognizable.

During the 1970s and 1980s, Japanese companies

were faced with similar problems when they first entered

the international market. When Matushita arrived in the

United States, it changed its name to Panasonic; became

Canon; and in an attempt to hide its Japanese trace, was

renamed Konica. Adapting Chinese brand names to the

linguistic styles and customs of the local country is at the

core of Chinese brand internationalization.

This certainly does not mean, though, that all Chinese

brands must change their names when going abroad. For

example, Chinese companies which trade on their products’ unique Chinese qualities and characteristics would

be foolish to change names. Examples include the company Tongren Temple, which is a maker of Chinese medicine or Chinese restaurants. In these instances, Chinese

characters and Pinyin Romanization become a distinct

marketing advantage in the sale of such products to Western consumers.



Establishing international brand recognition

After many years of competitive low prices, an impression

has been created that Chinese goods are inferior to those

produced by other countries, especially in Europe, the

United States and Australia. As a consequence, even more

barriers to the internationalization of Chinese brands are

created. But where are the greatest difficulties? It is in

establishing brand recognition, for without brand recognition and prestige value, a brand has no value at all.

How can Chinese companies establish brand prestige

overseas? One method is to proceed gradually, and first

establish market prestige and brand consciousness in developing nations and regions. For example, if Konka opens a







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Case study 10.4

factory in India and TCL opens one in Vietnam, and their

operations slowly take root, brand prestige will establish itself gradually. But there are still some serious flaws

in this method: although establishing brand recognition

in ­developing countries’ markets is easier and quicker than

in developed markets, establishing brand prestige always

needs to follow a course of moving from the unfamiliar to

the familiar, and from initial suspicion to trust. Opening

up a market in an undeveloped country, then a developing

country, and finally a developed country is time-consuming

and strenuous. Moreover, the easier the access to a country or area, the more is its capacity to be limited. While the

company may have established prestige in the undeveloped country, it cannot translate this experience to other

countries in the region. For example, establishing brand

prestige in Vietnam does not help brand recognition in the

Malaysian or Thai markets, and the so-called easy markets

may actually not be that easy to enter. They may possibly be

already crammed full of other multinational corporation’s

products (such as in the case of Vietnam), or be politically or

economically unstable (such as Afghanistan).

Therefore, starting with the seemingly easy markets,

and moving on to more difficult ones to establish international prestige is usually time-consuming and ineffective.

This is also a major reason why Chinese enterprises give

up on exporting their brands in favor of producing OEMs.

If we hark back to the experience of Japanese companies, we can then see that the only way to really achieve

brand internationalization is through the process of

starting with the difficult markets, and then moving

on to the easier ones. It took Sony a decade of hard

work before it first entered the American market in the

1950s, and then found it easier to expand to other parts

of the world. Japan’s domestic electrical appliance and

automobile industries soon followed the same pattern.

Brand internationalization is therefore best achieved

by companies taking the difficult road before the easy.

For example, the reason Haier entered the international

market was not because it had entered the Southeast

Asian and South American markets first, but because

it had come to a standstill in the US market. Matushita,

Sony, Toyota also captured the American market first,

and then moved on to the European, Latin American and

African markets. Moreover, Hisense entered the South

African market after it discovered a blank spot, and rapidly expanded across other borders. Why did it do this?

Because South Africa is the most developed country on

the African continent and is where competition is at its

most intense. Acceptance of a brand name in the South

African market meant acceptance throughout Africa.

But Hisense’s success in Africa did not help its success in



developing the European and American markets. Haier,

however, had a different experience. Success in the American market was akin to global approval of its quality and

good standing, and helped it establish markets in more

than 100 countries in a very short time frame. A market may therefore seem impenetrable at first, but once a

niche market has been found in a country, further breakthroughs become easier and market expansion continues.



Is Chinese brand internationalization

exportation or localization?

Another issue regarding Chinese brand internationalization

is whether products should be domestically produced with

a view for sales overseas, or whether Chinese companies

should carry out production overseas. There are currently

two opposing views in regard to this issue. The first view

is firmly opposed to establishing factories overseas. It sees

China’s large population and cheap labor as the chief reason for its cheap manufacturing costs. It is also why China

has become the world’s production processing base for

electrical appliances, clothing and electronic products. The

argument goes that while Europe, the US, Japan and other

developed countries are moving their production bases to

China, if China sets up factories in these countries, it will

sacrifice its cost superiority. Therefore, proponents of this

view approve the internationalization of Chinese brands,

but also place Chinese labels on Chinese products that are

being sold overseas, thus being a form of localization.

Another viewpoint suggests that, while Chinese companies should exploit the cost superiority of domestic

production, when the time is ripe, and the Chinese market has reached its capacity, China must internationalize

its production base and establish factories overseas. What

are the advantages of this? On the one hand overseas

market information can be better understood, and faster

market responses made. On the other hand, it relays a

message to the customer that Chinese corporations are

ready to solve problems as necessary, and meet the needs

of overseas customers.

The latter opinion is the more convincing. The internationalization of Chinese brands is not an urgent demand,

but rather one that is more of a long-term strategy. China

possesses cost superiority today, but, in ten or twenty

years, this advantage may vanish. Brand names need to

live much longer. Therefore, it is inevitable that Chinese

brands will internationalize, and this demands both overseas managed factories and internationalization. Even in

the short term, Chinese corporations must leave China.

What can Chinese corporations learn from Western

MNCs? All MNCs have their antennas in the global market, and are extremely aware of market conditions. They





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Chapter 10  Product decisions

possess brand superiority, and their brands (such as CocaCola, Sony etc.) have taken root in consumers’ minds.

Compared with Chinese corporations, they also have vast

superiority in research and development, and are able to

design products that meet the needs of the international

market. China’s only advantage is its low production

costs. But now that Western and Japanese MNCs are using

Chinese OEMs (original equipment manufacturers) on

a large scale, and taking away this cost advantage from

local companies, how can Chinese enterprises compete?

Chinese brand internationalization must do the opposite of what Western and Japanese MNCs have done in the

past. Western and Japanese MNCs have entered China,

and so Chinese MNCs must venture out so that they too can

have an equally keen market antenna and reaction capacity. Hisense has said that nobody can understand local

people more than local people. Just as important is the low

international confidence level in Chinese brands. In order

to express the determination and sincerity of Chinese corporations, China must establish manufacturing bases and

retail networks overseas and gradually establish local consumers’ confidence and trust. In summary, Chinese brand

internationalization must continue, and go along the road

to overseas factories sooner or later. If it doesn’t, it will be

impossible for Chinese companies to internationalize their

brands’ images and international prestige.



To OEM or not to OEM?

At present China’s manufactured goods, especially consumables, are mostly exported as rebadged products.

This is the case with Changhong, Midea, Gree Airconditioning, Shinco, and Galanz, who rebadge for companies

such as Sanyo, Mitsubishi, Carrier, etc. In an article entitled ‘The two sides of Galanz’ in the March 2002 edition

of Sino-Foreign Management, Galanz’s Vice President

Yu Yao Chang stated ‘What are brands? Brands are gold

stacks.’ He then asked himself, ‘How many stacks of gold

do we have?’ His meaning was that China does not have

the money nor resources to internationalize its brands,

and is only capable of manufacturing OEMs. With this in

mind, Galanz has positioned itself to be one of the world’s

largest production workshops, and allows multinational

corporations to manage the marketing networks. Galanz,

therefore, makes brands to order.

China’s largest DVD manufacturer, Shinco, is also

doing the same. Midea’s President, He Xiangjian, clearly

said in an interview for the same article, ‘I have yet to see

one Chinese factory that has been set up overseas become

successful in selling its own products under its own brand,

including Haier. While it may be true that TCL’s operations

in Vietnam posted a profit at the end of 2002, this one



instance to date is hardly sufficient to give Chinese enterprises sufficient courage to enter the international market.

Certainly there is another viewpoint which believes

that producing OEMs is a way of better understanding the

needs of the international market, and is a way of preparing Chinese organizations for the eventual internationalization of their own brands. There is a lot of validity to

this argument. Manufacturing OEMs can enable Chinese

companies to grasp the product’s production technology,

enhance the enterprise’s management level, and allow it

to understand what types of product foreign markets are

seeking. But, after all, the manufacturing process and

marketing networks are in the hands of the foreign corporation, and consumers purchase not only the product, but

the brand. Ultimately, it is the owner of the brand that is

responsible for the consumer. Most consumers recognize

a brand more than a product.

Also, once a multinational corporation finds a better

production base, it will move there. Even though rebadging

raises the management levels and technical abilities of Chinese corporations, they will always be behind with those

of the multinational corporation. The Secretary-General of

China’s Electrical Appliances Association, Mr. Jiang Feng,

has frankly stated that OEM products are popularist and

mainly used for mid- to low-grade products. The Vice President of Siemens (China) responsible for sales of electrical

appliances, Dong Quanxin, also indicated that, because

it will be very difficult for Chinese producers of electrical

appliances to reach Siemens’ technical standards within

the next 3–5 years, Chinese producers will not be manufacturing high-end products for Siemens. Obviously, therefore, it is highly unlikely that producing OEMs will greatly

enhance the technical ability of Chinese enterprises, and

is also unlikely to bridge the gap in technical disparities

between them and foreign multinational corporations.

It is impossible for Chinese enterprises to truly understand the international market by producing OEMs. International markets are constantly changing, and, by only

producing OEMs, Chinese corporations are closing themselves off by staying in their workshops and passively

responding to orders from outside. An understanding of

global markets and economic fluctuations is vital to the

success of international corporations. Chinese companies

therefore have to try and break the cultural and linguistic

constraints and venture forth into the open world.

Therefore, by producing only OEMs, it will be impossible for China to attain the technical support abilities,

the HR skills and the ‘combat readiness’ that is needed

for the internationalization of Chinese brands. Only

the products made in China will be for sale in international markets. But brand internationalization and





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Case study 10.5

product internationalization are two completely different

concepts.

Product internationalization occurs when your products are available for sale in many countries, but consumers don’t care where they are made. They only care about

the prestige and quality guarantees that are manifested

through the brand name. OEMs cannot influence the internationalization of Chinese brands, and so Chinese companies must persist in exporting their own local brand names.



Conclusion

In conclusion, there are huge hurdles facing the internationalization of Chinese brands. The time line is long and

the costs will be enormous. But in order to create truly

international brands on the scale of Coca-Cola, McDonald’s, Toyota, Sony, Phillips, or the like, China’s entrepreneurs cannot base their decisions on the poor short-term



results for one specific time period at one location, such

as the case with Haier to date. Establishing a brand name

and brand prestige needs patience and a lot of money. But

the payback for China in terms of economic profits, and

indeed its national dignity, is potentially enormous.



Questions

1. Evaluate the process followed by Chinese

companies to gain brand-name recognition

internationally.

2. Is the experience of Japanese companies in

the 1950s and later really applicable to Chinese

companies today? Explain.

3. Can Chinese SMEs internationalize their brands

or is this only possible for larger firms? Why or

why not?



Case Study 10.5

Royal Philips Electronics

(This case is adapted from Capell, K. (2006). Thinking

Simple at Philips. Reprinted from December 11 2006

issue of Bloomberg Businessweek, p. 50, by special

permission, copyright © 2006 by Bloomberg L.P. and

from the Philips website www.philips.com, accessed

23 June 2010.)

In late 2004, British fashion designer Sara Berman

received an unexpected telephone call from Andrea

­R agnetti, chief marketing officer for Royal Philips Electronics. Figuring the Dutch company wanted her to design

some sort of wearable technology, she was prepared to

politely decline the proposal. Instead, she spent an hour

engaged in a freewheeling discussion on the meaning of

simplicity, and by the end of the chat she had accepted

Ragnetti’s invitation to join Philips’ Simplicity Advisory

Board, a new panel of outside experts.

What does a fashion designer know about technology?

Not much. But that’s the point. To drive change following

a radical restructuring, Philips reckoned it needed a fresh

perspective from creative types with no ties to the company. So it formed the simplicity board, a group of specialists in health care, fashion, design, and architecture.

‘Philips was too inward-looking,’ Ragnetti says. ‘To really

embed simplicity into the company’s DNA, we needed an

element of vision.’



Change agents

The five-member board’s mission is to help Philips focus

on ‘sense and simplicity,’ which is what the company

called a new branding initiative to underpin its transformation from a high-volume electronics maker into a

design-led company concentrating on health, lifestyle,

and technology.

Each member of the Simplicity Advisory Board comes

from a different cultural and professional background.

While the board members bring a mix of experience and

cultures, they all share the company’s passion for simplicity.

Berman, who heads a successful clothing label, is helping

the company explore new opportunities in consumer products. Dr. Peggy J. Fritzsche, a radiology professor in California, advises Philips on its $8 billion medical-equipment

business. Gary Chang, a leading architect in China, serves

as a brand ambassador in the mainland. John Maeda, a

graphic designer and professor at Massachusetts Institute of Technology, is working to fine-tune the emotional

appeal of the company’s wares. Ken Okuyama is active in

automotive and transportation design and is a professor at

the Art Center College of Design in the United States.

On a practical level, the board is helping Philips

rethink what its customers want. For two years, members



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Chapter 10  Product decisions

met for several days every month or two in cities such as

Rome, Paris, or New York. Today they no longer meet as

a group, but each is on call to help Philips create intuitive, easy-to-use products that meet specific needs. ‘In the

past, companies just developed the technology and hoped

someone would buy it,’ says Ragnetti. ‘Now we are starting from the point of discovering what exactly consumers

want a product to do.’



‘Mind-opening’

Philips has given the board members free rein to kick the

tires. When the consumer electronics unit was ready to

launch its Wireless Audio Center, a system for listening

to different tunes in multiple rooms around the house,

Maeda gave it a whirl. His verdict: Too much computer

jargon such as ‘booting up, please wait.’ ‘His suggestions

were mind-opening,’ says Geert van Kuyck, Philips’ senior

vice president of global marketing. Maeda’s input ‘made

us ask questions we hadn’t asked before.’

The outside perspective came in handy when assessing

Philips’ fast-growing medical business. As a practicing radiologist, Fritzsche noted that medical equipment is often too

complex. Although the quality of images has grown dramatically, Fritzsche says the greater detail and quantity have

increased the burden on radiologists. Offering so much data

led to information overload instead of better diagnoses.



With Fritzsche’s insights, Philips is working to make its gear

more intuitive, allowing doctors to spend more time with

patients and less grappling with technology.

For Philips, the promise of simplicity isn’t just about

making products that are easier to use. The bigger challenge is rewiring the entire organization. The board’s primary contribution, says Berman, is ‘using creative chaos to

affect lasting change.’ That’s trickier than it might sound.

‘Simplicity,’ says Maeda, ‘is actually a very complex topic.’

In practical terms, the board acts as a think tank and

sounding board for Philips, providing counsel and guidance on a number of projects and issues in the healthcare,

lifestyle, and technology areas.



Questions

1. Evaluate the use of the Simplicity Advisory Board

by Philips. Is this really a good idea for such a

company? Explain your answer.

2. Could other types of companies find value in

creating similar boards? If so, what types of

companies?

3. Is the use of advisory boards limited to one on

the desire for simplicity or could other types of

advisory boards be valuable giving advice on

such matters as cost savings, market penetration,

etc.? Explain your answer.



Case Study 10.6

The Boeing Company

(Reprinted with permission from Marketing News,

published by the American Marketing Association,

­Elizabeth A. Sullivan, ‘Building a better brand,’ 15

­September 2009, pp. 14–17.)

Boeing, the Chicago-based aerospace giant, is known

for its commercial aircraft. The 93-year-old company is

the no. 2 manufacturer in the world of such planes, behind

Blagnac, France-based Airbus. But Boeing produces much

more than just commercial jets. It also makes military aircraft, integrated defense systems, missiles, satellites and

communications systems. It’s the no. 2 contractor for the

Pentagon, second only to Lockheed Martin Corp. It works

with NASA to help operate the space shuttle and International Space Station, and with the US Army as a systems

integrator. Boeing employs more than 158,000 people in

the United States and 70 other countries, has customers



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in more than 90 countries and is one of the United States’

largest exporters.

In short, Boeing is a multifaceted B-to-B behemoth.

But while the Boeing brand might be familiar to the marketplace, until recently the company lacked a cohesive

brand identity or communications strategy to unify its

disparate enterprises. A few years ago, Boeing set out to

integrate its various businesses into one company, one

visual identity and one brand. And in early 2008, Boeing

launched the One campaign, a comprehensive internal

and external branding effort to drive a ‘one brand’ culture

and unify how the company connects with the outside

world.

Boeing execs understand that, regardless of its size, a

company needs to present a cohesive identity to clearly

define where the company stands within the marketplace







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Case study 10.6

and how it intends to serve its customers. In other words,

every company needs to leverage the power of ‘One.’



‘One brand’

For a B-to-B brand whose power and legacy already resonate within the marketplace, a comprehensive brand

overhaul, many years in the making, might seem unnecessary. But ‘the choice for the company is a house of brands

versus a branded house. Boeing chose the branded house.’

A strong, cohesive brand lends instant recognition to new

products, positions a company well against competition

and withstands any negative impacts within the marketplace. And probably one of the most important [benefits of a unified brand] is internally, it makes us more

cohesive.

Many years ago, Boeing’s visual identity was all over

the map. Boeing grew over the years through a series of

mergers and acquisitions, and although every business

segment shared the Boeing label, each had its own marketing material, signage, color palette, you name it. There

were more than 200 different styles of letterhead and

business cards.

Over the years, Boeing execs have worked to create

a cohesive communication style. And with the ‘current

brand refresh,’ as company calls it, Boeing is taking

hold of the aforementioned rope to tie the company’s

visual dements, culture and outwardly facing brand

together.



‘One look’

The aerospace industry’s as whole is becoming more

sophisticated in how it approaches the marketplace. So in

2006 and 2007, Boeing conducted a series of audits of all

communication materials to see how it was measuring up.

The company found that cohesion was sorely lacking, and

marketing materials appeared dated and disjointed.

In early 2008, Boeing execs put together a cross-departmental, ‘super-unwieldy’ team of employees from

communications, creative services, customer relations,

marketing, sales, HR and other ‘internal organs’ to hash

out what the Boeing brand’s visual identity should be.

They called in assistance from the company’s ad agency,

Chicago-based Draftfcb; Seattle-based corporate design

firm Methodologie Inc.; and Paul Haverly, an aviation

design consultant. They all set out to cut through Boeing’s visual clutter, create a unified brand, reduce costs

and drive efficiency by promoting consistent design

principles.

The team researched the brand’s personality, promise and mission. Team members understood that to create an authentic sense of ‘oneness,’ they had to identify



which characteristics Boeing’s many enterprises have in

common.

The first phase of the process concluded with ‘the initial distillation of all of [the gathered information] into

the brand DNA,’ says Dale Hart, Methodologie’s partner

and creative director. The team came up with a triple

helix; enterprising spirit, or why Boeing does what it

does; precision performance, or how Boeing gets things

done; and defining the future, or what Boeing achieves as

a company.

Using that simply stated but carefully honed framework, the team created a design roadmap for the Boeing

brand called the brand visualizer. Methodologie, which

had experience building brand mapping systems for other

clients, assembled the brand visualizer to guide all design

decisions – creating a company color palette, pinpointing

one company typeface, defining the company’s voice and

communications style, and determining how photos and

images should be used.

‘In a company the size of Boeing … they have many,

many agencies articulating their brand, as well as many

people on the staff articulating the brand,’ says Janet

DeDonato, Methodologie’s founding partner and strategic director. ‘It had to be a really broad and encompassing

system … It’s hard to figure out a system that will work for

everybody.’

For example, one employee who worked with military

customers said the design was trending toward a light,

ephemeral typography that wouldn’t correctly convey

who Boeing is to his customers. He said the company

needed something with enough weight to suit both commercial and military enterprises. The team then spent five

days doing type studies to find a font with some edge and

eventually chose Helvetica, Newcomb says.

The resulting system is structured enough to keep

everyone on the same page from a branding and design

perspective, but flexible enough to accommodate products ‘from zero elevation up to 30,000 feet and beyond,’

Hart says.

Of course, it’s all well and good to create a comprehensive system like this, but the true test of a company’s

success is employee buy-in. For that, the brand visualizer’s simplicity is key, says Sandy Kolkey, executive vice

president and group management director at Draftfcb

and manager of the Boeing account. ‘It’s like the difference between getting a 400-page PowerPoint deck and

getting the executive summary. No one reads the 400page deck.’

‘The main thing is getting people to understand the concept … That’s the hard part,’ Newcomb adds. Once employees understand the reason behind the branding strategy

and design, they can implement the guidelines, tools



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Chapter 10  Product decisions

and best practices correctly, he says. Employee training is

underway and the company has held design and branding

workshops. Every employee in the company has access to

the brand map and to a company brand network online,

whether or not his job description requires it, for one simple reason: ‘Everyone should be managing the brand.’



‘One company’

Over the past few years, Boeing has leveraged its brand’s

silo-busting power wherever and however possible,

extending that thickly threaded rope throughout the company to create a sense of camaraderie and shared purpose

among the disparate enterprises.

Even before embarking on the brand refresh project, the company began working to bond its employees

together through internal communications. A set of newsletters, for example, are sent out to managers and employees to keep them up to speed on the company’s daily

goings-on. And the company has been working on a series

of internal motivational videos featuring Boeing employees taking about their jobs and achievements.

‘In 2007, Boeing parlayed the internal motivational

video effort into an external B-to-B-to-C advertising

effort known as the ‘That’s Why We’re Here’ campaign.

Like the motivational videos, the ads feature real Boeing

employees from a diverse range of business segments talking about what Boeing does and what the Boeing brand

stands for.

The campaign has been a huge hit with Boeing employees, which has served to strengthen the ‘One company’

strategy. In a company survey, seven out of ten respondents said that the campaign ‘expresses the way I feel about

Boeing’ and nine out of ten found the campaign appealing. ‘It was a 65% increase over the previous campaign.’



Prepare for Takeon

Richard Aboulafia, vice president of analysis at Teal

Group Corp., a Fairfax, VA-based aerospace and defense

industry research group, says Boeing has an ‘extremely

strong’ brand, but he’s wary of giving an all-out endorsement for the external manifestations of the ‘One brand,

One company’ strategy.

‘Is branding important? Sure. Is creating a unified company and making it look like you’re one company? Sure,’

he says. ‘On balance, I think it’s good’ to have a cohesive

brand. But if Boeing’s brand is intrinsically unified, negative occurrences in one area of the company can reflect

poorly on other areas as well. For example, issues that

occur in the construction of Boeing’s much-anticipated



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and much-delayed 787 Dreamliner aircraft also could

reflect poorly on Boeing’s military or information systems

businesses, Aboulafia surmises.

The flipside of that coin is that a cohesive, well-executed brand can create more favorable perceptions of the

company and can act as a buffer for the company’s image,

says Richard Ford, executive creative director of the New

York office of Landor Associates, a global branding firm.

‘It’s more about keeping stock prices high and about making sure that Boeing has some kind of halo around it …

a positive impression of the brand that would protect the

brand from damage, should it occur,’’ says Ford, an expert

in aviation branding. ‘I think they’re on the right track, at

least as far as the [brand] clean-up goes,’ he says. ‘But I

think there’s a lot more for Boeing in the future and this is

just the beginning.’

A global, multipronged business, Boeing is making

strides in branding itself as one company versus a conglomerate of smaller businesses, banking on the power

of internal branding and a cohesive marketing communications strategy to put it ahead of its competitors. And

as mentioned earlier, when it comes to branding, a true

measure of success is employee buy-in. If the Boeing

brand rings true to the people who represent it, and those

people want to take care in representing it well, then the

brand is well-positioned to succeed.



Questions

1. Evaluate Boeing’s strategy for ‘Becoming One.’

2. Is the approach used by Boeing suitable for other

companies, including B-to-C companies? Discuss.

3. What did Boeing’s team on brand identity come

up with as the three elements they thought should

be considered as making up ‘the company’s

DNA?’ Do you agree with their list?

4. Why did Boeing go to three outside groups (ad

agency, design firm, aviation design consultant)

to assist in developing ‘one brand’?

5. In very brief summary, what methods did the

company use to get people to understand the

branding strategy?

6. Do you think that it is really possible for a brand

to help create a sense of camaraderie and shared

purpose among employees? Why or why not?

7. What has been the reaction of the employees to

the program?

8. Discuss any potential downside to such broad

and strong branding.



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CHAPTER



11



Pricing decisions



Learning outcomes

In Chapter 11 we look at:













fundamental export pricing strategies and relationships to domestic price

policies

factors that must be considered in determining an export price: costs,

competition, legal/political considerations, company policies

the effects of the Internet and World Wide Web, and other advances

in communications, on pricing as:

— a threat to prices and brands

— an opportunity for balancing demand over time, and

— a means of improving economic growth and social welfare







problems from changing exchange rates, the choice of currency to be used,

and hedging possibilities







price quotations, terms, and calculations







transfer pricing



Three cases are provided at the end of the chapter. Case 11.1, RAP Engineering and Equipment Company, requires the student to develop two different price calculations and to

explain the implications regarding responsibilities for arrangements and liabilities for each.

Case 11.2, Capitool Company, explores the issue of transfer pricing policies. Case 11.3,

Strato Designs, involves questions regarding the possible use of hedging.



Introduction

The management of prices and price policies in export marketing is somewhat more complex than in domestic marketing. Due to increasing complexity of markets, price decisions

are becoming more critical than ever. All markets are becoming more segmented, which

results in firms having to broaden their product lines with different products aimed at different types of customer. Gone are the days when Coca-Cola could offer a single brand to



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