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I. Video-Case (1)
Not Made in the USA1
www.mhhe.com/business/management/videos/POM_V2/Flashvideo/NotMadeinUSA.html
From toys to tennis shoes to toasters, many products Americans buy these days come from China. Could U.S. consumers get by without Chinese-made goods? That‘s the question Sara Bongiorni and her family tried to answer when they decided to go for an entire year without buying any products made in China. She chronicled the experience in a book, A Year Without “Made in China.”
The Bongiorni family had nothing against China. Rather, it was an experiment to see the extent to which Americans depend on reasonably-priced Chinese imports. ―Two days after Christmas, it dawned on me that our home was absolutely full of things made in China,‖ says Sara Bongiorni. She wondered what it could take in willpower and ingenuity to go a whole year without Chinese products. She found out it takes not only willpower and ingenuity, but also research, extra cash, and going without some items.
Sara couldn‘t find a non-Chinese-made, reasonably-priced coffeepot to replace the one that stopped working. Her husband, Kevin, had to leave his tools lying on a garage workbench instead of hanging neatly on a pegboard, because tool hangers for pegboards all come from China. Replacing his $20 Chinese-made sunglasses when they broke set the couple back about $150 for a pair made in the United States. New shoes for their fast-growing young son cost $65, more than they would normally spend. Toy shopping was especially challenging, since most toys attractive to children are made in China. Since
Star Wars light sabers were out, a less-exciting sword from Thailand had to do. For the Bongiorni‘s young daughter, a tiny German-made doll costing $20 wasn‘t a satisfactory replacement for a glittery, Chinese-made, $5 Barbie.
The Bongiorni family‘s experience is aptly summed up in the book‘s subtitle, One Family‘s True Life Adventure in the Global Economy. The global economy seems far removed from individuals, but ―you‘re mixed up in it, right in your living room,‖ Sara says. ―You see these things on a store shelf and you forget that individual people make these items that are all over your house.‖
Most low-cost goods in American stores come from China, now Asia‘s top exporter and the largest exporter to the United States. One fourth of that country‘s exports are sold here. Chinese imports have increased six-fold over the past decade to $322 billion, compared with $313 billion in Canadian exports and $146 billion in Japanese exports.
The U.S. trade deficit with China has surpassed $256 billion. For every dollar in U.S. exports to China, the United States imports nearly $5 worth of Chinese goods.
The proliferation of Chinese imports means not only that Americans can buy many items at low prices, but also that Chinese workers can enjoy a higher standard of living. Whereas China‘s economy was once run by the government, now private industry has taken hold, contributing nearly $300 billion to the country‘s economy. Although the wages would be low in the United States, Chinese workers in the many apparel and electronics factories earn several times what their parents make as farmers and are able to buy furniture and TV sets or save to buy a house.
Questions (35 Points)
1. How does this video illustrate the global economy?
2. Why are goods from China often priced lower than they would be if made in other countries?
3. Do you think many Americans are concerned about where products are made? Do you know anyone who checks the country of origin before buying something?
II. Mini-Case
Foreign or Domestic? 2
Connie Hatley is a very successful businesswoman who has holdings in a wide variety of industries. Hatley recently was approached by one of the Big Three automakers and offered a multi-dealership arrangement. In return for investing $50 million in facilities, the auto manufacturer would be willing to give her five dealerships spread throughout the United States. These locations, for the most part, are in rural areas, but over the next decade, these locales likely will become much more populated. In addition, the company pointed out that a large percentage of new cars are purchased by individuals who prefer to buy in rural locations, because prices at these dealerships tend to be lower. Hatley has been seriously considering the offer, although she now has a competitive alternative.
A South Korean auto manufacturer has approached Hatley and offered her the same basic deal. Hatley indicated that she was wary of doing business with a foreign firm so far away, but the Korean manufacturer presented her with some interesting auto sales data: (1) Between 1981 and 2001, the South Korean share of the U.S. auto market went from 0 to over 3 percent. (2) South Korean automakers are capturing market share in the United States at a faster rate than any other competitor. (3) New technology is being incorporated into these Korean-built cars at an unprecedented rate, and the quality is among the highest in the industry. (4) Although the Big Three (GM, Ford, and DaimlerChrysler) hold a large share of the U.S. auto market, their market share among those 45 years of age or younger is declining and being captured by foreign competitors. (5) The South Korean firm intends to increase its share of the U.S. market by 20 percent annually.
Hatley is very impressed with these data and forecasts. Recently, however, the Korean auto company‘s sales and market share have been declining, and she remains uneasy about having to deal with someone located halfway around the world. ―If I don‘t receive scheduled deliveries, whom do I call?‖ she asked one of her vice presidents. ―Also, we don‘t speak their language. If there is a major problem, how are we going to really communicate with each other? I like the proposal, and I‘d take it if I were sure that we wouldn‘t have communication problems. However, $50 million is a lot of money to invest. If a mistake is made, I‘m going to lose a fortune. They did experience some problems last year, and their sales were off that year. Of course, if the South Koreans are right in their long-range forecasts and I have no major problems dealing with them, my return on investment is going to be almost 50 percent higher than it will be with the U.S.
manufacturer.‖
Questions (30 points)
1. What specific types of communication problems might Hatley encounter in dealing with the South Koreans? Can these problems be resolved, or will they simply have to be tolerated?
2. Based on communication problems alone, should Hatley back away from the deal or proceed? Give your recommendation; then defend it.
3. What negotiation approaches might Hatley use if she wants to continue with the deal in order to increase her confidence that it will be successful?
III. Video Case (2)
“Starbucks is Finally Ready to Open in Italy”, CEO Howard Schultz Says 3
(Please click the link below to watch the video)
Starbucks is making a big bet on Italy, the home of espresso, with plans to debut in Milan late next year with a sprawling, super-premium Reserve Roastery in a turn-of-the-century post office building on Piazza Cordusio. Wooing Italian coffee drinkers is a long-term goal of Chairman and Chief Executive Howard Schultz, who is handing off the top job in April to focus on building out the company‘s high-end brands as executive chairman. The world‘s biggest coffee seller had initially planned to open its first cafe in Milan this year, but Schultz on Monday said Starbucks for the first time had decided to open a Roastery before a traditional shop. It is now ―banking‖ a small number of sites for stores in Milan, whose openings will follow the Roastery debut, Schultz said.
Starbucks Roastery properties are playgrounds for coffee enthusiasts and significant investments for the company, which aims to dominate the craft coffee segment carved out by smaller, so-called ―third-wave‖ chains such as Blue Bottle and Intelligentsia in the United States.
Starbucks (SBUX, -0.44%) debuted its first Roastery in its hometown of Seattle in December 2014, spending a reported $20 million on that 15,000-square-foot facility.
Schultz has frequently said that he was inspired to open his first coffee shop after visiting Milan and admiring the city‘s thriving cafe culture. ―This store will be the culmination of a great dream of mine—34 years in the making—to return to Milan‖ with an immersive retail experience, Schultz said in a statement. Italy has the seventh highest per capita coffee consumption in Europe, according to the European Coffee Federation. Italian artisan baker Rocco Princi will be the exclusive food provider for Starbucks‘ 25,500-square-foot Milan Roastery in the Palazzo Delle Poste building and all other locations. Starbucks made a financial investment and struck a global licensing deal with Princi last year.
Starbucks previously said that Italian businessman Antonio Percassi would open the first Starbucks cafe in Milan in early 2017 under a licensing arrangement. The Percassi group, which owns cosmetics chain Kiko and has a franchising deal in Italy with U.S. lingerie chain Victoria‘s Secret, will own and operate the Milan coffee shops that will open after the Roastery, a Starbucks spokeswoman said.
Starbucks‘ also has Reserve Roastery projects underway in Shanghai, Manhattan and Tokyo. The company plans to build as many as 30 such projects over time.
Questions (35 Points)
1. After more than 40 years in business and locations in countries around the world. Starbucks is getting ready to open its first store in Italy. Discuss Starbucks’ approach to the market. Why did it take the company so long to develop a presence in Italy? Why is this market different from others?
2. Discuss the cultural challenges facing Starbucks in Italy. How can the company convince Italians to buy an American product based originally on an Italian culture?