04 Apr Reread ?the Country Focus Quantitative Easing, Inflation, and the Value of the ?????U.S. Dollar? in Chapter 10 and address these two questions:? What ?????does the 2010 purchase
Case Analysis #3
- Reread the Country Focus “Quantitative Easing, Inflation, and the Value of the U.S. Dollar” in Chapter 10 and address these two questions:
- What does the 2010 purchase by the Federal Reserve of $600 billion in U.S. government bonds tell you about U.S. fiscal policy? What was the Federal Reserve trying to accomplish?
- Why did the Federal Reserve receive so much criticism for its policy of quantitative easing? Do you agree with the critics? Was the policy simply mercantilism in disguise?
- Reread the opening case “Red Bull, A Leader in International Strategy” in Chapter 12 and address these two questions:
- How would you describe the strategic positioning of Red Bull? Can you think of any other company that has followed a similar strategy?
- Discuss the marketing strategy used by Red Bull. How has its association with extreme sports events made it easier for it to create a global product and global image?
- Reread the Management Focus “General Motors on the Upswing” in Chapter 13 and address these two questions:
- Why did GM enter into a joint venture with SAIC when the company decided to begin operations in China? Do you think GM could have been successful on its own?
- How has the relationship between GM and SAIC developed over time? Would you say this is a successful joint venture?
Case Analysis #3
1. Reread the Country Focus “Quantitative Easing, Inflation, and the Value of the U.S. Dollar” in Chapter 10 and address these two questions:
· What does the 2010 purchase by the Federal Reserve of $600 billion in U.S. government bonds tell you about U.S. fiscal policy? What was the Federal Reserve trying to accomplish?
· Why did the Federal Reserve receive so much criticism for its policy of quantitative easing? Do you agree with the critics? Was the policy simply mercantilism in disguise?
2. Reread the opening case “Red Bull, A Leader in International Strategy” in Chapter 12 and address these two questions:
· How would you describe the strategic positioning of Red Bull? Can you think of any other company that has followed a similar strategy?
· Discuss the marketing strategy used by Red Bull. How has its association with extreme sports events made it easier for it to create a global product and global image?
3. Reread the Management Focus “General Motors on the Upswing” in Chapter 13 and address these two questions:
· Why did GM enter into a joint venture with SAIC when the company decided to begin operations in China? Do you think GM could have been successful on its own?
· How has the relationship between GM and SAIC developed over time? Would you say this is a successful joint venture?
Case Analyses must follow the following guidelines:
1. You must give a quality analysis of the cases based on the key terms showing mastery, using clear logic, and supporting facts. Also, the analysis must directly address the case using chapter readings and research.
2. Case Analyses test the understanding of key elements of International Business, therefore, they must be thoroughly addressed.
3. You must use citations with references to document information obtained from sources. The key elements and concepts of International Business are found in the sources listed in the syllabus (it is your duty to search for them, read, analyze, evaluate, summarize, paraphrase in your answers, and cite the authors who wrote the articles, books, term papers, memoirs, studies, etc. What it means is that you will have not less than 5 references from the listed sources.
4. Grammatically correct paper, no typos, and must have obviously been proofread for logic.
5. Avoid direct quotes, you must paraphrase and cite. If you direct quote (two words or three words, mission statements, phrases, etc.) you must include in your citation parenthesis page number or paragraph number. When you direct quote Brand taglines or Mission Statements, you must include the Brand name or Company name in the citation parenthesis.
6. Key terms or Questions must be typed out as headings, with follow up analysis or answers in paragraph format, and a summary or conclusion to contextualize your analyses at the end of the paper.
The Cases Analyses must be in APA format
Chapter 10: c o u n tr y F O C U S
Quantitative Easing, Inflation, and the Value of the U.S. Dollar
In fall 2010, the U.S. Federal Reserve (the Fed) decided to expand the U.S. money supply by
entering the open market and purchasing $600 billion in U.S. government bonds from bondholders, a technique known as quantitative easing. Where did the $600 billion come from? The Fed simply created new bank reserves and used this cash to pay for the bonds. It had, in effect, printed money. The Fed took this action in an attempt to stimulate the U.S. economy, which, in the aftermath of the 2008–2009 global financial crisis, was struggling with low economic growth and high unemployment rates. The Fed had already tried to stimulate the economy by lowering short-term interest rates, but these were already close to zero, so it decided to lower medium- to longer-term rates; its tool for doing this was to pump $600 billion into the economy, increasing the supply of money and lowering its price, the interest rate. The Fed pursued further rounds of quantitative easing in 2011 through to 2013. In 2014, with the U.S. economy getting stronger and unemployment falling below 6 percent, the Fed progressively reduced its bond buying program. It ended the program in October 2014. By that time, the Fed had effectively pumped more than $3.5 trillion into the U.S. economy.
Critics were quick to attack the Fed’s moves. Many claimed that the policy of expanding the money supply would fuel inflation and lead to a decline in the value of the U.S. dollar on the
foreign exchange market. Some even called the policy a deliberate attempt by the Fed to debase the value of the U.S. currency, thereby driving down its value and promoting U.S. exports, which, if true, would be a form of mercantilism.
However, these charges may be unfounded for two reasons. First, at the time, the core U.S. inflation rate was the lowest in 50 years. In fact, the Fed actually feared the risk of deflation (a persistent fall in prices), which is a very damaging phenomenon. When prices are falling, people hold off their purchases because they know that goods will be cheaper tomorrow than they are today. This can result in a collapse in aggregate demand and high unemployment. The Fed felt that a little inflation—say, 2 percent per year—might be a good thing. Second, U.S. economic growth had been weak, unemployment was high, and there was excess productive capacity in the economy. Consequently, if the injection of money into the economy did stimulate demand, this would not translate into price inflation because the first response of businesses would be to expand output to utilize their excess capacity. Defenders of the Fed argued that the important point, which the critics seemed to be missing, was that expanding the money supply leads to only higher price inflation when unemployment is relatively low and there is not much excess capacity in the economy, a situation that did not exist in fall 2010. As for the currency market, its reaction was muted. At the beginning of November 2010, just before the Fed announced its policy, a trade-weighted index of the value of the dollar against a basket of other major currencies stood at 72. At the end of January 2014, it stood at 78—a slight appreciation. In short, currency traders did not seem to be selling off the dollar or reflecting worries about high inflation rates.
By March 2016, with the program over, there was no sign of a surge in price inflation in the U.S. economy. Indeed, inflation rates remained near historic lows. Moreover, far from weakening, the U.S. dollar had increased in value against most currencies, and the index value stood at 92. The Fed, it would seem, had been right and the critics were wrong.
Sources: P. Wallsten and S. Reddy, “Fed’s Bond Buying Plan Ignites Growing Criticism,” The Wall Street Journal, November 15, 2010; S. Chan, “Under Attack, the Fed Defends Policy of Buying Bonds,” International Herald Tribune, November 17, 2010; “What QE Means for the World; Positive Sum Currency Wars,” The Economist, February 14, 2013.
Chapter 12: Red Bull, A Leader In International Strategy
Where does Red Bull hail from? Many people in the United States and in many other countries as well think that Red Bull is a local product in their country since Red Bull does such a fantastic job of marketing the company everywhere. Red Bull plays up the amazing energy, go-getter attitude, and fun risk-taking that the brand symbolizes in everything they do around the globe, “Red Bull gives you wings,” as their slogan says. To support the company’s international strategy, Red Bull hosts a number of extreme sporting events around the world. These include the Red Bull Indianapolis Grand Prix in the United States, Red Bull Air Race in the United Kingdom, Red Bull Soapbox Race in Jordan, Red Bull Cliff Diving World Series, Red Bull Air Race, Red Bull Crashed Ice, and stand-out stunts such as Stratos space diving. In addition, Red Bull maintains numerous other notable strategic placements globally of their brand.
Now, the answer to the opening question is that Red Bull is from Austria, although saying that it is an Austrian-Thai company may work also! In 1984, Austrian entrepreneur Dietrich Mateschitz and Thai businessperson Chaleo Yoovidhya founded Red Bull GmbH. While working for German manufacturer Blendax (later acquired by Procter & Gamble), Mateschitz traveled to Thailand and met Chaleo, owner of TC Pharmaceutical. The two struck a cord and eventually started Red Bull a couple of years after they met. Today, Red Bull is viewed as one of the world’s top companies for its international strategy, in particular for its international marketing strategy (keep that in mind when you read Chapter 16: Global Marketing and Business Analytics later). Worldwide, Red Bull has the highest market share of all energy drinks, with more than 6 billion cans sold annually (that’s almost one can for every person in the world).
Why is it called Red Bull? The name reflects its founders’ backgrounds and the unique history of the enterprise. Thai company Krating Daeng had been founded by Chaleo; when Mateschitz met Chaleo, they created Red Bull as a spinoff and modified the ingredients in the energy drink to suit the tastes of Westerners. In Thai, daeng means red and krating is a large wild bovine in Southeast Asia informally referred to in English as a bull. Thus Red Bull, which is sold in a tall, slim bluesilver can. Krating Daeng is in a shorter gold can. Red Bull is viewed as an Austrian company and
Krating Daeng as a Thai company. While Red Bull is the best-selling energy drink in most parts of the world, both Red Bull and Krating Daeng are sold worldwide (in about 165 countries).
In many ways, Red Bull’s extreme-event marketing strategy is what drives their international business strategy. The events sponsored by Red Bull exemplify the brand that Red Bull has become, that it tries to strategically nurture, and that has built the company its reputation, really a “brand myth,” that has become a legend. Red Bull mass markets its products in a unique way. They don’t do regular marketing, and their overall international business strategy is somewhat unorthodox. Contrary to most other multinational corporations, the events and the teams they support (e.g., soccer/football clubs RB Leipzig, FC Red Bull Salzburg, FC Liefering, Red Bull Brasil, New York Red Bulls, and Formula One teams Red Bull Racing and Scuderia Toro Rosso) drive the company’s international business strategy.
Aside from these extreme events and sporting teams, Red Bull’s packaging also plays a
significant part in its global appeal and is core to its international business strategy. Some say that Red Bull really looks like a product that fits the idea of a global economy. It’s not in a normal can or bottle and its design has a much broader appeal to a wider global audience. It’s not an American product in look and content, nor is it an Asian product in look or content, or the look and content of any other world area. By lacking a clear geographic focus, its sleek look appeals to customers globally who can form their own connection to the product. Thus the product seems adaptable to each local environment in which it is sold. Plus, Red Bull’s consistent packaging worldwide has helped the brand go global with a very consistent international business strategy.
Red Bull has created an international business strategy by focusing on a universal product
concept, unique and standout packaging, and extreme event sponsorship without also tackling the
architecture of the company itself. Most other multinational corporations have to balance their focus on marketing strategy and organizational infrastructure to operate a well-functioning international strategy. Red Bull drives certain concepts hard and that works superbly well for them. They communicate their clear and consistent messages via their own Red Bull Media House, inspirational videos and activities on social media, and content marketing that is uniquely customized to diverse audiences. They focus on people having freedom and fun and rely on user-generated content where customers share their own exciting lifestyles.•
Sources: Hanna Fleishman, “13 Businesses with Brilliant Global Marketing Strategies,” HubSpot, February 9, 2018; Alex Siminoff, “Red Bull Stomps All Over Global Marketing,” Art + Marketing, April 28, 2017; Nitin Pangarkar and Mohit Agarwal, “The Wind Behind Red Bull’s Wings,” Forbes, June 24, 2013; Celine Cnossen, Yuan Li, Neha Sampath, Whitney Taylor-Maisano, and Viktor Tsonev, “What Gives Red Bull Wings: Creating a Successful Market-Oriented Organization,” American Marketing Association, April 24, 2018; and “Global Energy Drinks Market Opportunities 2018: Red Bull GmbH, Rockstar, Monster Energy, Amway Global,” Market Watch, March 14, 2018
Chapter 13: management FOCUS
General Motors on the Upswing
The late 2000s were not kind to General Motors Corporation (GM), but the company is on a muchneeded upswing. The Chinese market, in particular, is becoming one of the most important foreign markets for GM. General Motors, of course, is a U.S.-based multinational corporation headquartered in Detroit, Michigan. GM was founded in 1908 in Flint, Michigan, and Mary Barra is the company’s CEO. In 2019, GM had revenues of $149 billion and more than 180,000 employees, produced almost 10 million vehicles, and consisted of four core divisions (Buick, Chevrolet, Cadillac, and GMC).
Hurt by a deep recession in the United States and plunging vehicle sales, GM capped off the 2000s decade, where it had progressively lost market share to foreign rivals such as Toyota, by Page 373 entering Chapter 11 bankruptcy. Between 1980, when it dominated the U.S. market, and 2009, when it entered bankruptcy protection, GM saw its U.S. market share slip from 44 to just 19 percent. The troubled company emerged from bankruptcy a few months later a smaller enterprise with fewer brands, and yet going forward, some believe that the new GM could be a much more profitable enterprise. One major reason for this optimism is the success of its joint ventures in China.
GM entered China in 1997 with a $1.6 billion investment to establish a joint venture with the state-owned Shanghai Automotive Industry Corporation (SAIC) to build Buick sedans. At the time, the Chinese market was tiny (fewer than 400,000 cars were sold in 1996), but GM was attracted by the enormous potential in a country of more than 1.4 billion people that was experiencing rapid economic growth. While the company initially recognized that it had much to learn about the Chinese market and would probably lose money for a few years in the early years, GM executives believed it was crucial to establish operations and to team up with SAIC (one of the early leaders in China’s emerging automobile industry) before its global rivals did. The decision to enter a joint venture was not a hard one. Not only did GM lack knowledge and connections in China, but Chinese government regulations made it all but impossible for a foreign automaker to go it alone in the country.
While GM was not alone in investing in China—many of the world’s major automobile companies entered into some kind of Chinese joint venture during this time period—it was among the largest investors. Only Volkswagen, whose management shared GM’s view, made a similar-sized investment. Other companies adopted a more cautious approach, investing smaller amounts and setting more limited goals.
By 2007, GM had expanded the range of its partnership with SAIC to include vehicles sold under the names of Chevrolet, Cadillac, and Wuling. The two companies had also established the Pan-Asian Technical Automotive Center to design cars and components not just for China but also for other Asian markets. At this point, it was already clear that both the Chinese market and the joint venture were exceeding GM’s initial expectations. Not only was the venture profitable, but it was also selling more than 900,000 cars and light trucks in 2007, an 18 percent increase over 2006, placing it second only to Volkswagen in the market among foreign nameplates. Equally impressive, some 8 million cars and light trucks were sold in China in 2007, making China the second-largest car market in the world, ahead of Japan and behind the United States. In 2015, GM sold about 3.16 million vehicles in China, up from some 2.4 million vehicles sold in 2010.
Much of the venture’s success could be attributed to its strategy of designing vehicles explicitly for the Chinese market. For example, together with SAIC, GM produced a tiny minivan, the Wuling Sunshine. The van costs $3,700, has a 0.8-liter engine, hits a top speed of 60 mph, and weighs less than 1,000 kilograms—a far cry from the heavy SUVs GM is known for in the United States. For China, the vehicle was perfect, making it the best seller in the light truck sector.
It is the future, however, that has people excited. From a market of about 9 million passenger and commercial vehicles sold in China in 2008 to 25 million in 2019, the Chinese vehicle market is booming compared with those in the United States and Europe. China has now become GM’s largest market in vehicles sold. GM also plans to expand its Chinese dealer network to more than 5,000, and it plans to have 17 assembly plants in China, more than the 12 it has in the United States. Driving this expansion are forecasts from GM that demand in China will reach 35 million vehicles a year by 2022, a huge increase from the 25 million vehicles sold in 2019. Underlying these forecasts are the still relatively low vehicle penetration rates in China. China has about 85 vehicles per 1,000 people compared to around 800 vehicles for every 1,000 people in the United States.
Sources: S. Schifferes, “Cracking China’s Car Market,” BBC News, May 17, 2007; N. Madden, “Led by Buick, Carmaker Learning Fine Points of Regional China Tastes,” Automotive News, September 15, 2008, pp. 186–90; “GM Posts Record Sales in China,” Toronto Star, January 5, 2010, p. B4; “GM’s Sales in China Top US,” Investor’s Business Daily, January 25, 2011, p. A1; and K. Naughton, “GM’s China Bet Mimics Toyota’s Bet on U.S. Last Century,” Bloomberg.com, April 29, 2013.
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