2016 Operational Management of International Business

Section A:

  1. In what appears to be a clear case of different cultural ethics, in March 2016 Fonterra announced that it would in future pay suppliers 90 days after receiving an invoice. This is in stark contrast to the previous method of paying on the 20th day of the following month. This is a European corporate approach to paying suppliers rather than the traditional Kiwi way. Explore the different cultural ethical positions underlying this decision, and suggest an acceptable solution to the problem.
  2. In terms of supply chain management, are traditional nation-specific small business methods naturally contrary to Anglo-Saxon multi-national corporate business methods? Illustrate your answer with relevant examples.

Section B:
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  1. Quantitative and qualitative approaches are used for demand forecasting. Various methods can be adopted for each approach. Please describe the most important methods in both qualitative and the qualitative forecasting.
  2. British economist John Dunning developed a theoretical model, which is called the eclectic paradigm, by combining the three types of advantages to provide an explanation to internationalisation of firms. Explain this theory and evaluate its strengths and weaknesses.

Part C: Case study questions
Questions 1 & 2 refer to the case study “Dell and the case of the exploding laptops”

  1. Based on the quality gaps model, identify the quality gaps which existed in Dell’s laptop computer case.
  2. What are the likely causes of quality gaps in the case?
    Questions 3 & 4 refer to the case study “Sony’s PlayStation 3: Virtual reality?”
  3. New product development is important for business success. In the case of Sony’s development of PlayStation 3, what are the benefits Sony intended to gain from development of this new product?
  4. Sony had a number of problems in its development of PlayStation 3, what are the problems and what are the likely causes of these problems?

Case study one
Dell and the case of the exploding laptops
In August 2006, Dell the world’s biggest computer maker at the time announced the recall of approximately 4.1 million laptops with lithium-ion batteries, made by Sony. Dell said that “under rare conditions, it is possible for these batteries to overheat, which could cause a risk of fire”. The recall would be the biggest in Dell’s history. The announcement was the first acknowledgement by Dell of a problem that had been pointed out by stories of spontaneously combusting laptops that had been passing around the internet for some time. The most vivid illustration of the problem was a widely circulated radio clip of a laptop exploding into flames at a conference in Japan. Some people claimed Dell had been aware of the overheating problem for at least two years.
Obtaining a suitable power source for laptops has remained a technological challenge for computer manufacturers since their inception. In 1993, Dell was forced to recall an early model and temporarily withdraw from the laptop market after some units overheated. In 2000, Dell also recalled laptops after a manufacturing defect caused overheating that could lead to fire. Dell is far from alone in having battery problems. Apple, HP and Compaq are amongst those also affected over the years. Industry experts claim that technological developments in batteries have just not been keeping pace with the demands of the units they power. As one pointed out, “Fast chips use more power; software makers are introducing more applications; consumers are using bigger displays to watch movies”. Another claimed that “Lithium-ion batteries have a thermal run-away feature. Although this type of battery is environmentally safer, cheaper and lighter than some alternatives, it is very susceptible to blowing up if the temperature exceeds the specific limits”.
However, Professor Peter Bruce, a lithium-ion expert at St Andrews University in Scotland said it was important not to exaggerate the risk. “The worldwide production of lithium-ion batteries exceeded one billion in 2007”. He said. “The proportion of cells causing problems is statistically minute: 99.999 percent function perfectly well. The problems are more related to quality control and reliability of manufacturing rather than to any intrinsic in lithium-ion technology”. Such views have led some to question Dell’s operations. These are highly engineered products – there is not a lot of wriggle room in the specification”, said Ted Schadler, Vice-President of Forrester Research. “The pressures of getting computers to market in the quickest possible time and at the lowest possible cost put manufacturers under strain”, he added.
Some analysts said that if Dell handled the product recall well, there might be no lasting damage. However, it did come at a sensitive time when the company was under fire for poor customer service and slowing sales growth. Other commentators said that it could be more damaging for Sony as the producer of the batteries, given the Japanese company’s reputation for quality in the consumer electronics industry. For as long as anyone can remember, Sony’s reputation has been encapsulated in its advertising slogan: “it is a Sony”. One analyst said, “Sony is supposed to have a premium brand and they are supposed to have control of their manufacturing”. Sony’s predicament worsened when a week after Dell initiated the recall, Apple followed suit, recalling 1.8 million notebooks with Sony batteries.
Despite the damage to both companies’ reputations, it looked as if the product recall itself would not be too costly. One analyst estimated that the recall could cost US$400 million. Sony would contribute towards the costs of a recall. “Dell will pay some of the costs, and Sony will pay some of the costs”, Sony announced.

Case study two
Sony’s PlayStation 3: Virtual reality?
In May 2006, it all looked so promising for computer gaming enthusiasts at the E3 Games Expo in Los Angeles. Sony used the industry’s biggest and most important trade show to unveil their long awaited PlayStations (PS3) and announced its launch date and selling price. Sony’s PlayStation 2 had hitherto dominated game console sale, having sold more than 100 million units, establishing the Japanese company as the industry’s leading brand with a market share of around 70 percent. However, those looking to move up to PS3 found themselves very disappointed.
In line with ugly industry rumours, the launch date was given as November 2006, rather than as expected in May of that year. The price of PS3 was also felt to be expensive. It would be available in two versions, priced as US$499 and US$599, although this was later discounted by around 20%. These would be much higher than the prices of its two rivals, Microsoft’s Xbox 360, which has already been on sale for a year, and Nintendo’s Wii, which would also be available later in 2006. Like PS3, Wii was also previewed at E3 and had received rave reviews. Nintendo’s offering had wowed the crowds with its unorthodox motion-sensing wand-like controller. This enables game-players to wield the controller like a sword or swing it like a tennis racket. “It is fun!” declared Ankarino Lara of the games website Gamespot. “The Wii offers games that are accessible for family and friends at low cost”.
PS3, on the other hand received a fairly lukewarm reception. “It is hard to be over-excited about what Sony has shown”, said Margaret Robertson, editor of the game magazine Edge. Although PS3 uses a next generation technology called Blu-ray, gamers at the show were less impressed with what was on display. There was nothing wrong with the games Sony demonstrated, but they looked very much like games on the Xbox 360. The PS3’s tilt- sensitive controller was seen as ill-conceived compared with the controller for the Wii. Also, Sony’ online service for the PS3, which will link gamers and allow them to download extra content, seemed very limited to Microsoft’s Xbox Live service.
It was clear that Sony would have its work cut out if it was to remain the king of home console gaming. Microsoft’s successful early launch of its Xbox 360 had given it a head start over both its rivals. It aimed to consolidate this by launching a raft of new games. Xbox 360 sales had already exceeded 5 million, and Microsoft predicted that it would reach 10 million by November. Many gamers might not be prepared to wait for PS3. On the other hand, those that did wait might be tempted by Nintendo’s Wii, which seemed to offer a new way of playing video games.
By September, things had got worse for Sony. The launch of the PS3 had been planned for the lucrative pre-Christmas shopping period. However, Sony was forced to announce that its availability would be seriously hampered in the US and Japan, with the numbers of units halved from 4 million to 2 million. Also, there would be no launch in Europe until March 2007.
Ken Kutaragi, President of Sony Computer Entertainment, blamed the delay on a failure by the Blu-ray Disc Association to agree technical specifications for Blu-ray discs. Blu-ray is locked in a DVD standards war with a rival high-definition disco format, HD-DVD, backed by Toshiba. As the leader of the Blu-ray camp, Sony hopes the PS3 will ensure victory by pulling Blu-ray players into millions of homes, thereby encouraging gamers to buy films on Blu-ray discos too.
Industry rumours, however, also suggested that Sony had had technical problems in mass producing the diode for the PS3 Blu-ray disc laser – something of an embarrassment for a company famed for its manufacturing expertise. However, Sony is not the only company that needs blue laser diodes; they are also used in players using the competing HD-DVD standards. The only company other than Sony that can manufacture blue laser in any numbers is Nichia, also of Japan. Nichia, whose maverick scientist, Shuji Nakamura invented the blue laser, said they were struggling with the mass production of the diodes. Some industry analysists think Sony is using the problems with Blu-ray to justify a longer delay to the PS3. The delays would give it time to increase manufacturing, and enable software developers to finish their designs of new games, to ensure that PS3 has a reasonable selection by November. However, Sony is in a precarious position. It has, in effect, bet the company on the success of the PS3 and Blu-ray. Any further delay would mean the company would be in very serious trouble.

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