Volvo Case
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Ans1 : Volvos motives for acquiring Samsung CED in 1998 :
Scale economies and Product alterations: In large scale process, for companies like VOLVO exports reduce costs over more units of output. For such products, especially if they are standardized or undifferentiated from those of competitors, the cost per unit drops significantly as output increases .The more the the product has to be altered to the foreign market, the more likely it is that production will shift abroad.
Vertical Integration: It is a companys control of the different stages of making its product from raw materials through production to its final distribution. One way to help assure this flow is to gain voice in the management of one or more of the foreign operations by investing in it.
Rationalized Production: companies produce different components or different portions of their product line in different parts of the world to take advantage of low labor costs, capital and raw materials. Another advantage of this type of rationalization is smoother earnings when exchange rates fluctuate.
Product-Life Cycle Theory: For market and costs reasons ,production often moves from one country to another as product moves through its life cycle. Volvo found it profitable to produce mature product in emerging economies of like South Korea.
Volvo CE needed to obtain a competitive excavator line, because
Excavators comprise a very large share (33%) of the global construction equipment market, and Volvo CE was too small in this product line.
Volvo CE wanted to establish an Asian industrial hub and strengthen its position in Asia
It was a way to enter in the large excavator market in Korea and to introduce Volvo CEs other products in this market.
Obstacles facing Volvo
The business was suffering losses; pay was based on longevity of service, and employees had little incentive and responsibility in the organization; little pride in the companys products.
Ans2: Korean banks had been a tool state industrial policy,with the government ordering banks to make loans to certain companies even if they were not healthy.The Korean won fell in 97,causing the government to raise interest rates to support the won.During the crisis Korea began to negotiate with IMF which relesed funds to help it pay off its foreign debts.IMF encouraged Korea to open up its banking sector to foreign investment,and thus removing many restrictions.
South Korean government gave incentives to their companies to make direct investments in order to : (expectations)
Gain supplies of strategic resources
Develop spheres of influence
The business processes in place at the time of acquisition had evolved (until 1998) in response to many individual and independent requirements at Samsung – and throughout a
period of time when the construction equipment business in Korea did not face substantial global competition. Moreover, Samsungs information systems architecture was characterized by independent applications covering sales, production, accounting, and human resources.The companys business processes were relatively inefficient because they had been predicated upon a lack of visibility into operations and had tendencies to generate inaccurate information.
Ans 3: Volvo CE Korea had inherited business processes that were not performing at the levels necessary to enable it to grow profitably in the emerging competitive environment, which was characterized by global rivals with strong capabilities in process reengineering. The time frames required to commit finished goods to customers and to develop new components were not competitive, and inventory carrying costs and other expenses
inhibited achievement of adequate financial returns. Even fundamental administrative business processes were not performing well; for example, it took nearly two weeks to
complete the month-end closing cycle. The infrastructure