Deck 16: Strategic Elements of Competitive Advantage

Question 1

Outline Porter's five forces model of industry competition. How are the various barriers to entry relevant to global marketing?

Answer 1

Following are the five forces of P 's model for the industry competition:
1) Threat of new entrants
2) Threat of substitute goods or services
3) Bargaining power of buyers
4) Bargaining power of suppliers
5) Competitive rivalry
Threat of New Entrants:
It depends on the presence or absence of entry barriers. With globalization of industries, the threat on new entrants increases in local markets. Established brands sometimes block the access to distribution channels to discourage would-be entrants. Strong global brands may constitute an entry barrier by offering product differentiation.
T hreat of Substitute Goods or Services:
It restricts the company's ability to increase prices. Pressure from global competition often compels local companies to look for production sources in low-wage countries.
Bargaining Power of Buyers:
Firms impose control and obtain low prices in different industries.
Bargaining Power of Suppliers:
When suppliers become effective with worldwide standards, they are allowed companies to drive very hard bargains with manufacturers; and others who rely on their products.
Rivalry among Competitors:
Competitive rivalry can be intense, especially among global industries such as consumer electronics, automobiles, and pharmaceuticals.
Global marketing has the many connections as many barriers to entry are existed in the market. A cost has to be paid by the firms when they enter into the global market. But the firms already which are existed need not to be paid. Because of barriers to entry, a firm can leave its threat of entry and can earn more profits.

Question 2

How does the five partners (flagship) model developed by Rugman and D'Aveni differ from Porter's five forces model?

Answer 2

P's competitive advantage model is too simplistic as compared to complexity of current global environment. R and D, therefore, have developed an alternative framework based on business networks known as the flagship model. According to them long-term global industries' competitiveness is primarily a matter of competition between business systems instead of rivalry between firms.
An important difference between flagship model and five forces model is that P's model is based on the concept of corporate individualism and individual business transactions.
For instance, Microsoft's immense supplier power allows it to rule, and even grow at the expense of the computer manufacturers to whom it supplies its OS and applications.
The flagship model, on the other hand, is apparent in the strategies adopted by global automakers. It places the firm at the center of a five partner's structure. They form a business system consisting of two types of relationships.

Question 3

Briefly describe Hamel and Prahalad's framework for competitive advantage.

Answer 3

Competitive advantage refers to a match between a firm's unique competencies and the factors crucial for success within the industry. A company delivers superior perceived value relative to its competitors in the industry when it achieves this match. A company is required to have a clear understanding of the area in which it competes, as well as the entire business environment.
According to H and P's model of competitive advantage, competitive innovation implies competitive risks within manageable area. It uses four successful approaches used by the competitors of country J.
Following are the approaches:
1) Layers of Advantage: A company with a wide portfolio of advantages faces less risk in competitive confronts. Successful companies easily establish layers of advantage on over another, and build steady portfolios.
2) Loose Bricks: This approach takes advantage of the "loose bricks" refers to those market segments that competitors ignore while focusing narrowly focused on a market segment.
3) Changing the Rules: This approach involves altering the rules of engagement and denying playing by the rules that industry leaders had set.
4) Collaborating: This strategy involves the use of the know-how developed by other companies. Such collaboration may be in the form of licensing joint ventures, agreements, or partnerships.

Question 4

How can a nation achieve competitive advantage?

Question 5

According to current research on competitive advantage, what are some of the shortcomings of Porter's model?

Question 6

What is the connection, if any, between national competitive advantage and company competitive advantage? Explain.

Question 7

Volkswagen
Volkswagen executives acknowledge that If they are to triple the number of vehicles sold in the United States, they must make cars that appeal to American drivers. A potential stumbling block in Volkswagen's quest for global leadership in the auto industry is the fact that the company unveiled new versions of several key vehicles within the span of just a few months.
Company Background
Historically, one of VW's sources of competitive advantage has been its core competence in the design and manufacture of small, fuel-efficient gasoline engines. Diesel engines are another strength; both types of engines offer the kind of money-saving performance that drivers seek when gasoline prices are high. Several VW models also rank high for crash safety. Given these strengths, why does VW currently rank only third among global automakers? And why has it captured only 3 percent of the U.S. car market? Christian Klinger, Volkswagen Group board member and the executive in charge of sales and marketing for the Volkswagen brand, offers this explanation: "We need the right products and local production," he says. "In the past maybe we had the right product but not the right price. Or the right price and not the right product."
Volkswagen enjoys the distinction of being the number 1 carmaker in Europe and the third largest in the world. Worldwide, the company sold 9.07 million vehicles in 2012. The compact Golf is the bestselling car in Europe. Volkswagen's market share in Western Europe is 24.4 percent; in Central and Eastern Europe, its share is 15.4 percent. When the new midsize Passat was introduced, initial European demand for it was so strong that there was an eight-month waiting list. The company can boast that its giant Wolfsburg plant is home to the most automated production line in the world, capable of completing 80 percent of a car's assembly by machine. Outside Europe, Volkswagen has also achieved considerable success. In Mexico, for example, the company's share of the passenger car market is 16.7 percent. Volkswagen is also the number 1 Western auto manufacturer in China, where it commands nearly 21 percent of the market.
A deeper understanding of Volkswagen's place in the auto industry requires an overview of then-chairman Carl Hahn's attempts to implement his vision of VW as Europe's first global automaker. Indeed, management guru Peter Drucker credited Volkswagen for developing the first truly global strategy more than 30 years ago. By 1970, the Beetle was a mature product in Europe; sales were still moderately strong in the United States and were booming in Brazil. Drucker described what happened next:
The chief executive officer of Volkswagen proposed switching the German plants entirely to the new model, the successor to the Beetle, which the German plants would also supply to the United States market. But the continuing demand for Beetles in the United States would be satisfied out of Brazil, which would then given Volkswagen do Brasil the needed capability to enlarge its plants and to maintain for another ten years the Beetle's leadership in the growing Brazilian market. To assure the American customers of the "German quality" that was one of the Beetle's main attractions, the critical parts such as engines and transmissions for all cars sold in North America would, however, still be made in Germany. The finished car for the North American market would be assembled in the United States.
Unfortunately, this visionary strategy failed. One problem was resistance on the part of German unions. A second problem was confusion among American dealers about a car that was equally "made in Germany," "made in Brazil," and "made in the USA." Two decades later, as described in an interview with the Harvard Business Review, Hahn's strategic plan for the 1990s and beyond called for a decentralized structure of four autonomous divisions. In pursuit of this vision, Hahn invested tens of billions of dollars in Czechoslovakia's Skoda autoworks and SEAT in Spain. The Volkswagen, Audi, Skoda, and SEAT units each would have its own chief executive. As a whole, the company would be capable of turning out more than 4 million cars annually in low-cost plants located close to buyers. The company's R D center, however, would continue to be in Germany. Highly automated plants in Germany would provide components such as transmissions, engines, and axles to assembly operations in other parts of the world.
In Spain, VW hoped to take advantage of labor rates 50 percent lower than those in West Germany and roughly on par with those paid by Japanese companies with factories in Britain. Because labor makes up a larger share of production costs for subcompacts than for larger models, and because annual demand in Spain amounted to 500,000 cars, Spain was an attractive location for small-car production. Besides serving the domestic market, VW intended to use Spain as a production source that would allow it to cut prices and boost margins in Europe. Between 1986 and 1990, VW paid the Spanish government a total of $600 million in exchange for 100 percent ownership of SEAT The company increased Spanish production from 350,000 to 500,000 vehicles; the popular Golf model represented about one-quarter of the output. VW then invested $1.9 billion in a new plant in Martorell capable of producing 300,000 cars each year.
Similar reasoning was behind VW's 1991 purchase of a 31 percent stake in Skoda from the Czechoslovak government. Located northeast of Prague in the city of Mlada Boleslav, the Skoda works enjoyed the distinction of being the most efficient plant in the former Soviet bloc. However, product quality was low, and the plant was a major source of pollution. With an eye to doubling production to 450,000 cars, VW pledged to invest $5 billion by the end of the decade. VW's presence also persuaded TRW, Rockwell International, and other parts suppliers interested in serving Skoda and other automakers in Central and Eastern Europe to establish operations in the Czech Republic.
However, to maintain their low-cost position and ensure quality control, VW and Skoda executives went a step beyond the Japanesestyle "lean production" system that emphasizes just-in-time delivery from nearby suppliers: Several different suppliers manufactured components such as seats, instrument panels, and rear axles inside the plant itself. As Skoda CFO Volkhard Kohler explained in 1994, "We have to organize better than in the Western world and use supplier integration. Wages will increase, so we have to find other ways of being cost-effective. Supplier integration is part of the new thinking and what we do here can be a model for the West." Professor Daniel Jones of the Cardiff University Business School supported the effort: "It's physically integrated, but in terms of management and performance each runs his own show. It makes a lot of sense because you have the direct integration of [the] people making the parts and the people putting them in the car," he said in an interview.
Hahn also earmarked $3 billion for a project in which he took a keen personal interest: investment in the former East Germany, where he was born. On October 3, 1990, German reunification added 16 million people to Volkswagen's home-country market virtually overnight. Under communism, the citizens of East Germany had a choice of basically one car: the notoriously low-quality Trabant. Hahn's strategy for a reunited Germany included building a new, $1.9 billion factory that would employ 6,500 workers and produce a quarter of a million Golf and Polo models each year. The investment was justified in part by forecasts that East Germans would buy 750,000 cars each year; VW aimed to capture a third of that market, equal to its share in West Germany,
Ferdinand Piech, an autocratic leader with an engineering background who was "steely eyed and intense," succeeded Hahn as chairman in 1993. At the time, the company still had stakes in SEAT and Skoda. He immediately declared a state of crisis in the company and began taking drastic actions; cost cutting topped the list. Piech trimmed VW's worldwide employment, starting with 20,000 jobs in 1993. Piech also pledged to slash the number of auto platforms underlying VW's nameplates from 16 to 4 within a few years. During his tenure, a new car, the Passat, was launched, as were redesigned Jetta and Beetle models. He acquired three luxury automakers: Lamborghini, Bugatti, and Bentley. Piech also elevated the status of engineering in the company, and spending on R D soared. Piech quickly gained a reputation for making key decisions himself.
With great fanfare, VW announced in March 1993 that it had succeeded in luring a new production chief away from General Motors. José Ignacio López de Arriortúa was expected to play a major role in cost cutting at VW, but he arrived amid accusations of industrial espionage. The controversy did not stop López from doing what he had been hired to do. He broke long-term contracts with many of VW's suppliers and put new contracts up for bid; as a result, a higher percentage of components were now sourced outside Germany. At VW's new General Pachecho plant in Buenos Aires, López subcontracted various aspects of production to a dozen outside companies. VW workers built a few crucial parts such as the chassis and power train; suppliers were responsible for various other tasks such as assembling instrument panels. In the end, however, the espionage controversy cost López his job, and Piech settled the civil case by agreeing to pay GM $100 million and buy $1 billion in GM parts.
Even though his tenure at VW was brief and stormy, the positive aspects of the López legacy endured. Maryann Kellar, author of a book about VW, calls the Czech experiment "something that has been talked about for years as the next great productivity and cost enhancement move by the industry." In 1996, Skoda rolled out the Octavia, the first new car developed by the Czech plant during the Volkswagen era and the first to use a VW chassis platform. Piech also won concessions from IG Metall, the German autoworkers union. The union agreed to 2.5 percent annual pay raises and a pledge of job security. In addition, the workday for many assembly-line workers was reduced to five hours and 46 minutes-in essence, a four-day week. CFO Bruno Adelt estimated that all the agreed-upon changes would boost productivity 4 to 5 percent.
Even as VW expanded production in emerging markets and introduced production efficiencies, it was devising a comeback strategy for the United States. Mexican production of a new version of the legendary Beetle began in 1997, with a U.S. launch in 1998. As board member Jens Neumann said, "The Beetle is the core of the VW soul. If we put it back in people's minds, they'll think of our products more." Like its predecessor, the new Beetle had curved body panels and running boards. However, it was a front-wheel-drive model with more headroom and legroom. Despite being priced at about $15,000, 10 percent higher than the company's entry-level Golf, the new Beetle was initially a huge success. Sales were strong through 2000; then, as the buzz surrounding the vehicle died down, sales began to slip. In 2003, hoping to recapture some "cool" and reenergize the Beetle brand, a convertible model was introduced.
Volkswagen in the Twenty-First Century
After Bernd Pischetsrieder became chairman of Volkswagen AG in April 2002, he presided over the launch of several key new vehicles. The $35,000 Volkswagen Touareg was the company's first SUV Named after a nomadic African tribe that makes an annual journey across the Sahara, the Touareg was introduced just as SUV sales were starting to decline in the United States. Car and Driver magazine named the Touareg the "best luxury SUV" of 2003. Another new vehicle was the Phaeton, the first superluxury model to bear the VW nameplate. Developed at a cost of $700 million, Phaeton boasted the world's finest automotive air conditioning system and carried a price tag of $85,000. Together, the Touareg and Phaeton were compelling evidence that Volkswagen intended to move upmarket.
For Pischetsrieder, 2006 was a turbulent year; he lost a boardroom battle with Chairman Piech over the ongoing efforts to cut costs and remain competitive in the face of increased Asian competition. At the beginning of 2007, another key executive resigned. Wolfgang Bernhard, chairman of the Volkswagen brand group, had initiated a series of cost-cutting measures; both Germany's powerful labor unions and Chairman Piech were opposed to some of his actions.
In 2007, Martin Winterkorn took the helm at VW. Winterkorn moved swiftly to reboot the cost-cutting efforts of his predecessors. A production technology pioneered by Scania, the Swedish truck manufacturer, utilizes a modular approach. Because it reduces both complexity and costs, modular architecture is being used in a variety of industrial settings. In addition to Volkswagen, Daimler, Siemens, and Electrolux are also using modular designs and production processes. As a Volkswagen spokesperson put it, "With the modular production toolbox we will in the future be able to build different models and different brands on the same production line."
In essence, the approach means that cars will be assembled from common building blocks that have standard interfaces. VW will use four core modular baukasten (toolboxes) as the basis for four vehicle types across eleven brands: small city cars, midsize cars, mid-engine sports cars, and large vehicles. However, the commonality will not result in a standardized, "one-size-fits-all" product design. Rather, it will allow VW to create vehicles such as the new Audi Q3 that respond to specific regional needs and preferences. It is the responsibility of Walter de Silva, VW's design chief, to make sure all the company's cars share a common design language without losing their distinctive identities. And, how does an Italian designer fit in with the corporate culture at a German car company? As de Silva notes, "There is obviously a very special chemistry between German engineering and Italian creativity-it's something you can't explain."
Product Strategy: Jetta
Having conquered key emerging markets and modernized its production processes, VW must now shore up its U.S. business. To accomplish this, executives are determined to "Americanize" VW's cars; the first example of this effort was the 2011 Jetta. Developed at a cost of $1 billion, the new model was produced at VW's N80 assembly plant in Mexico City. The new Jetta arrived at dealers in fall 2010 backed by an advertising campaign that emphasized the $15,995 sticker price. The advertising tagline was "Great. For the price of good." The 2011 model was bigger than its 2010 predecessor, and cost-cutting changes were made to the rear brakes and suspension.
Product Strategy: Beetle
Industry observers are closely following the launch of the third- generation Beetle. The original Beetle (also known as the Bug) featured an air-cooled engine (no radiator!) that was located above the rear tires. The Beetle was very popular in both Europe and the United States, where about 5 million were sold between 1949 and 1979. In the American market, an advertising campaign created by Bill Bernbach has achieved mythic status in the industry. Bernbach is credited with launching the Creative Revolution by "telling the truth" about cars and encouraging buyers to "Think Small."
After VW retooled its German plant for a successor to the Beetle, production was shifted to Brazil. The Beetle was absent from the U.S. market from 1979 until 1999, at which time the second-generation Beetle was launched. The United States was the primary target market for the New Beetle, which was produced at VW's plant in Puebla, Mexico. The designers retained the distinctive, iconic profile of the original so that the new version would be instantly recognizable. It also featured whimsical touches such as a flower vase on the dashboard; however, the launch ad campaign promised, "Less flower. More power."
Other automakers rushed to capitalize on the nostalgia craze that VW was tapping; the BMW Mini Cooper was one notable success. The New Beetle was especially popular with women, but it was discontinued in 2010. The third-generation Beetle went on sale in the fall of 2011. The new Bug was designed for the global market; besides the United States, China, Europe, and Mexico are expected to be key. The new car has a bigger engine and is more sporty in appearance than its predecessors. VW hopes to attract more male buyers while still appealing to women.
Product Strategy: Passat
As noted at the beginning of the chapter, the first cars rolling off the line at VW's new Chattanooga plant were Passat sedans. However, production will soon shift to an NMS-"New Midsize Sedan." This entails risks, as David Sargent, a vice president at J.D. Power and Associates, notes: "Brand-new plants with brand-new models historically have struggled to produce world-class quality. Not to say a plant can't do that, but it's a struggle."
The new plant Is also capable of producing diesel-powered cars; however, diesel versions of Its current offerings account for only about one-quarter of VW's U.S. sales. Although diesel engines get higher mileage than gasoline engines, they are simply not popular with the majority of U.S. drivers. By contrast, diesels are very popular in Europe. However, it remains to be seen whether VW can change entrenched American attitudes toward diesels, especially since diesel models typically carry a price premium compared to their gasoline-powered counterparts.
Christoph Stürmer is a director at IHS Global Insight consultancy. Summarizing the strategic challenges facing Volkswagen, he said, "VW has to get it right. Get adjusted to American standards of what on-the-road quality is. It's a big challenge for a company so deep-dyed German."
CEO Winterkorn intends to make VW the world's number 1 automaker by 2018. Do you think this is an attainable goal, or is it an "exaggerated" or "stretch" goal designed to motivate employees?

Question 8

Volkswagen
Volkswagen executives acknowledge that If they are to triple the number of vehicles sold in the United States, they must make cars that appeal to American drivers. A potential stumbling block in Volkswagen's quest for global leadership in the auto industry is the fact that the company unveiled new versions of several key vehicles within the span of just a few months.
Company Background
Historically, one of VW's sources of competitive advantage has been its core competence in the design and manufacture of small, fuel-efficient gasoline engines. Diesel engines are another strength; both types of engines offer the kind of money-saving performance that drivers seek when gasoline prices are high. Several VW models also rank high for crash safety. Given these strengths, why does VW currently rank only third among global automakers? And why has it captured only 3 percent of the U.S. car market? Christian Klinger, Volkswagen Group board member and the executive in charge of sales and marketing for the Volkswagen brand, offers this explanation: "We need the right products and local production," he says. "In the past maybe we had the right product but not the right price. Or the right price and not the right product."
Volkswagen enjoys the distinction of being the number 1 carmaker in Europe and the third largest in the world. Worldwide, the company sold 9.07 million vehicles in 2012. The compact Golf is the bestselling car in Europe. Volkswagen's market share in Western Europe is 24.4 percent; in Central and Eastern Europe, its share is 15.4 percent. When the new midsize Passat was introduced, initial European demand for it was so strong that there was an eight-month waiting list. The company can boast that its giant Wolfsburg plant is home to the most automated production line in the world, capable of completing 80 percent of a car's assembly by machine. Outside Europe, Volkswagen has also achieved considerable success. In Mexico, for example, the company's share of the passenger car market is 16.7 percent. Volkswagen is also the number 1 Western auto manufacturer in China, where it commands nearly 21 percent of the market.
A deeper understanding of Volkswagen's place in the auto industry requires an overview of then-chairman Carl Hahn's attempts to implement his vision of VW as Europe's first global automaker. Indeed, management guru Peter Drucker credited Volkswagen for developing the first truly global strategy more than 30 years ago. By 1970, the Beetle was a mature product in Europe; sales were still moderately strong in the United States and were booming in Brazil. Drucker described what happened next:
The chief executive officer of Volkswagen proposed switching the German plants entirely to the new model, the successor to the Beetle, which the German plants would also supply to the United States market. But the continuing demand for Beetles in the United States would be satisfied out of Brazil, which would then given Volkswagen do Brasil the needed capability to enlarge its plants and to maintain for another ten years the Beetle's leadership in the growing Brazilian market. To assure the American customers of the "German quality" that was one of the Beetle's main attractions, the critical parts such as engines and transmissions for all cars sold in North America would, however, still be made in Germany. The finished car for the North American market would be assembled in the United States.
Unfortunately, this visionary strategy failed. One problem was resistance on the part of German unions. A second problem was confusion among American dealers about a car that was equally "made in Germany," "made in Brazil," and "made in the USA." Two decades later, as described in an interview with the Harvard Business Review, Hahn's strategic plan for the 1990s and beyond called for a decentralized structure of four autonomous divisions. In pursuit of this vision, Hahn invested tens of billions of dollars in Czechoslovakia's Skoda autoworks and SEAT in Spain. The Volkswagen, Audi, Skoda, and SEAT units each would have its own chief executive. As a whole, the company would be capable of turning out more than 4 million cars annually in low-cost plants located close to buyers. The company's R D center, however, would continue to be in Germany. Highly automated plants in Germany would provide components such as transmissions, engines, and axles to assembly operations in other parts of the world.
In Spain, VW hoped to take advantage of labor rates 50 percent lower than those in West Germany and roughly on par with those paid by Japanese companies with factories in Britain. Because labor makes up a larger share of production costs for subcompacts than for larger models, and because annual demand in Spain amounted to 500,000 cars, Spain was an attractive location for small-car production. Besides serving the domestic market, VW intended to use Spain as a production source that would allow it to cut prices and boost margins in Europe. Between 1986 and 1990, VW paid the Spanish government a total of $600 million in exchange for 100 percent ownership of SEAT The company increased Spanish production from 350,000 to 500,000 vehicles; the popular Golf model represented about one-quarter of the output. VW then invested $1.9 billion in a new plant in Martorell capable of producing 300,000 cars each year.
Similar reasoning was behind VW's 1991 purchase of a 31 percent stake in Skoda from the Czechoslovak government. Located northeast of Prague in the city of Mlada Boleslav, the Skoda works enjoyed the distinction of being the most efficient plant in the former Soviet bloc. However, product quality was low, and the plant was a major source of pollution. With an eye to doubling production to 450,000 cars, VW pledged to invest $5 billion by the end of the decade. VW's presence also persuaded TRW, Rockwell International, and other parts suppliers interested in serving Skoda and other automakers in Central and Eastern Europe to establish operations in the Czech Republic.
However, to maintain their low-cost position and ensure quality control, VW and Skoda executives went a step beyond the Japanesestyle "lean production" system that emphasizes just-in-time delivery from nearby suppliers: Several different suppliers manufactured components such as seats, instrument panels, and rear axles inside the plant itself. As Skoda CFO Volkhard Kohler explained in 1994, "We have to organize better than in the Western world and use supplier integration. Wages will increase, so we have to find other ways of being cost-effective. Supplier integration is part of the new thinking and what we do here can be a model for the West." Professor Daniel Jones of the Cardiff University Business School supported the effort: "It's physically integrated, but in terms of management and performance each runs his own show. It makes a lot of sense because you have the direct integration of [the] people making the parts and the people putting them in the car," he said in an interview.
Hahn also earmarked $3 billion for a project in which he took a keen personal interest: investment in the former East Germany, where he was born. On October 3, 1990, German reunification added 16 million people to Volkswagen's home-country market virtually overnight. Under communism, the citizens of East Germany had a choice of basically one car: the notoriously low-quality Trabant. Hahn's strategy for a reunited Germany included building a new, $1.9 billion factory that would employ 6,500 workers and produce a quarter of a million Golf and Polo models each year. The investment was justified in part by forecasts that East Germans would buy 750,000 cars each year; VW aimed to capture a third of that market, equal to its share in West Germany,
Ferdinand Piech, an autocratic leader with an engineering background who was "steely eyed and intense," succeeded Hahn as chairman in 1993. At the time, the company still had stakes in SEAT and Skoda. He immediately declared a state of crisis in the company and began taking drastic actions; cost cutting topped the list. Piech trimmed VW's worldwide employment, starting with 20,000 jobs in 1993. Piech also pledged to slash the number of auto platforms underlying VW's nameplates from 16 to 4 within a few years. During his tenure, a new car, the Passat, was launched, as were redesigned Jetta and Beetle models. He acquired three luxury automakers: Lamborghini, Bugatti, and Bentley. Piech also elevated the status of engineering in the company, and spending on R D soared. Piech quickly gained a reputation for making key decisions himself.
With great fanfare, VW announced in March 1993 that it had succeeded in luring a new production chief away from General Motors. José Ignacio López de Arriortúa was expected to play a major role in cost cutting at VW, but he arrived amid accusations of industrial espionage. The controversy did not stop López from doing what he had been hired to do. He broke long-term contracts with many of VW's suppliers and put new contracts up for bid; as a result, a higher percentage of components were now sourced outside Germany. At VW's new General Pachecho plant in Buenos Aires, López subcontracted various aspects of production to a dozen outside companies. VW workers built a few crucial parts such as the chassis and power train; suppliers were responsible for various other tasks such as assembling instrument panels. In the end, however, the espionage controversy cost López his job, and Piech settled the civil case by agreeing to pay GM $100 million and buy $1 billion in GM parts.
Even though his tenure at VW was brief and stormy, the positive aspects of the López legacy endured. Maryann Kellar, author of a book about VW, calls the Czech experiment "something that has been talked about for years as the next great productivity and cost enhancement move by the industry." In 1996, Skoda rolled out the Octavia, the first new car developed by the Czech plant during the Volkswagen era and the first to use a VW chassis platform. Piech also won concessions from IG Metall, the German autoworkers union. The union agreed to 2.5 percent annual pay raises and a pledge of job security. In addition, the workday for many assembly-line workers was reduced to five hours and 46 minutes-in essence, a four-day week. CFO Bruno Adelt estimated that all the agreed-upon changes would boost productivity 4 to 5 percent.
Even as VW expanded production in emerging markets and introduced production efficiencies, it was devising a comeback strategy for the United States. Mexican production of a new version of the legendary Beetle began in 1997, with a U.S. launch in 1998. As board member Jens Neumann said, "The Beetle is the core of the VW soul. If we put it back in people's minds, they'll think of our products more." Like its predecessor, the new Beetle had curved body panels and running boards. However, it was a front-wheel-drive model with more headroom and legroom. Despite being priced at about $15,000, 10 percent higher than the company's entry-level Golf, the new Beetle was initially a huge success. Sales were strong through 2000; then, as the buzz surrounding the vehicle died down, sales began to slip. In 2003, hoping to recapture some "cool" and reenergize the Beetle brand, a convertible model was introduced.
Volkswagen in the Twenty-First Century
After Bernd Pischetsrieder became chairman of Volkswagen AG in April 2002, he presided over the launch of several key new vehicles. The $35,000 Volkswagen Touareg was the company's first SUV Named after a nomadic African tribe that makes an annual journey across the Sahara, the Touareg was introduced just as SUV sales were starting to decline in the United States. Car and Driver magazine named the Touareg the "best luxury SUV" of 2003. Another new vehicle was the Phaeton, the first superluxury model to bear the VW nameplate. Developed at a cost of $700 million, Phaeton boasted the world's finest automotive air conditioning system and carried a price tag of $85,000. Together, the Touareg and Phaeton were compelling evidence that Volkswagen intended to move upmarket.
For Pischetsrieder, 2006 was a turbulent year; he lost a boardroom battle with Chairman Piech over the ongoing efforts to cut costs and remain competitive in the face of increased Asian competition. At the beginning of 2007, another key executive resigned. Wolfgang Bernhard, chairman of the Volkswagen brand group, had initiated a series of cost-cutting measures; both Germany's powerful labor unions and Chairman Piech were opposed to some of his actions.
In 2007, Martin Winterkorn took the helm at VW. Winterkorn moved swiftly to reboot the cost-cutting efforts of his predecessors. A production technology pioneered by Scania, the Swedish truck manufacturer, utilizes a modular approach. Because it reduces both complexity and costs, modular architecture is being used in a variety of industrial settings. In addition to Volkswagen, Daimler, Siemens, and Electrolux are also using modular designs and production processes. As a Volkswagen spokesperson put it, "With the modular production toolbox we will in the future be able to build different models and different brands on the same production line."
In essence, the approach means that cars will be assembled from common building blocks that have standard interfaces. VW will use four core modular baukasten (toolboxes) as the basis for four vehicle types across eleven brands: small city cars, midsize cars, mid-engine sports cars, and large vehicles. However, the commonality will not result in a standardized, "one-size-fits-all" product design. Rather, it will allow VW to create vehicles such as the new Audi Q3 that respond to specific regional needs and preferences. It is the responsibility of Walter de Silva, VW's design chief, to make sure all the company's cars share a common design language without losing their distinctive identities. And, how does an Italian designer fit in with the corporate culture at a German car company? As de Silva notes, "There is obviously a very special chemistry between German engineering and Italian creativity-it's something you can't explain."
Product Strategy: Jetta
Having conquered key emerging markets and modernized its production processes, VW must now shore up its U.S. business. To accomplish this, executives are determined to "Americanize" VW's cars; the first example of this effort was the 2011 Jetta. Developed at a cost of $1 billion, the new model was produced at VW's N80 assembly plant in Mexico City. The new Jetta arrived at dealers in fall 2010 backed by an advertising campaign that emphasized the $15,995 sticker price. The advertising tagline was "Great. For the price of good." The 2011 model was bigger than its 2010 predecessor, and cost-cutting changes were made to the rear brakes and suspension.
Product Strategy: Beetle
Industry observers are closely following the launch of the third- generation Beetle. The original Beetle (also known as the Bug) featured an air-cooled engine (no radiator!) that was located above the rear tires. The Beetle was very popular in both Europe and the United States, where about 5 million were sold between 1949 and 1979. In the American market, an advertising campaign created by Bill Bernbach has achieved mythic status in the industry. Bernbach is credited with launching the Creative Revolution by "telling the truth" about cars and encouraging buyers to "Think Small."
After VW retooled its German plant for a successor to the Beetle, production was shifted to Brazil. The Beetle was absent from the U.S. market from 1979 until 1999, at which time the second-generation Beetle was launched. The United States was the primary target market for the New Beetle, which was produced at VW's plant in Puebla, Mexico. The designers retained the distinctive, iconic profile of the original so that the new version would be instantly recognizable. It also featured whimsical touches such as a flower vase on the dashboard; however, the launch ad campaign promised, "Less flower. More power."
Other automakers rushed to capitalize on the nostalgia craze that VW was tapping; the BMW Mini Cooper was one notable success. The New Beetle was especially popular with women, but it was discontinued in 2010. The third-generation Beetle went on sale in the fall of 2011. The new Bug was designed for the global market; besides the United States, China, Europe, and Mexico are expected to be key. The new car has a bigger engine and is more sporty in appearance than its predecessors. VW hopes to attract more male buyers while still appealing to women.
Product Strategy: Passat
As noted at the beginning of the chapter, the first cars rolling off the line at VW's new Chattanooga plant were Passat sedans. However, production will soon shift to an NMS-"New Midsize Sedan." This entails risks, as David Sargent, a vice president at J.D. Power and Associates, notes: "Brand-new plants with brand-new models historically have struggled to produce world-class quality. Not to say a plant can't do that, but it's a struggle."
The new plant Is also capable of producing diesel-powered cars; however, diesel versions of Its current offerings account for only about one-quarter of VW's U.S. sales. Although diesel engines get higher mileage than gasoline engines, they are simply not popular with the majority of U.S. drivers. By contrast, diesels are very popular in Europe. However, it remains to be seen whether VW can change entrenched American attitudes toward diesels, especially since diesel models typically carry a price premium compared to their gasoline-powered counterparts.
Christoph Stürmer is a director at IHS Global Insight consultancy. Summarizing the strategic challenges facing Volkswagen, he said, "VW has to get it right. Get adjusted to American standards of what on-the-road quality is. It's a big challenge for a company so deep-dyed German."
In VW's advertising, the "Das Auto" tagline encourages potential buyers to associate the brand with its German heritage. Is this the right approach for VW?

Question 9

Volkswagen
Volkswagen executives acknowledge that If they are to triple the number of vehicles sold in the United States, they must make cars that appeal to American drivers. A potential stumbling block in Volkswagen's quest for global leadership in the auto industry is the fact that the company unveiled new versions of several key vehicles within the span of just a few months.
Company Background
Historically, one of VW's sources of competitive advantage has been its core competence in the design and manufacture of small, fuel-efficient gasoline engines. Diesel engines are another strength; both types of engines offer the kind of money-saving performance that drivers seek when gasoline prices are high. Several VW models also rank high for crash safety. Given these strengths, why does VW currently rank only third among global automakers? And why has it captured only 3 percent of the U.S. car market? Christian Klinger, Volkswagen Group board member and the executive in charge of sales and marketing for the Volkswagen brand, offers this explanation: "We need the right products and local production," he says. "In the past maybe we had the right product but not the right price. Or the right price and not the right product."
Volkswagen enjoys the distinction of being the number 1 carmaker in Europe and the third largest in the world. Worldwide, the company sold 9.07 million vehicles in 2012. The compact Golf is the bestselling car in Europe. Volkswagen's market share in Western Europe is 24.4 percent; in Central and Eastern Europe, its share is 15.4 percent. When the new midsize Passat was introduced, initial European demand for it was so strong that there was an eight-month waiting list. The company can boast that its giant Wolfsburg plant is home to the most automated production line in the world, capable of completing 80 percent of a car's assembly by machine. Outside Europe, Volkswagen has also achieved considerable success. In Mexico, for example, the company's share of the passenger car market is 16.7 percent. Volkswagen is also the number 1 Western auto manufacturer in China, where it commands nearly 21 percent of the market.
A deeper understanding of Volkswagen's place in the auto industry requires an overview of then-chairman Carl Hahn's attempts to implement his vision of VW as Europe's first global automaker. Indeed, management guru Peter Drucker credited Volkswagen for developing the first truly global strategy more than 30 years ago. By 1970, the Beetle was a mature product in Europe; sales were still moderately strong in the United States and were booming in Brazil. Drucker described what happened next:
The chief executive officer of Volkswagen proposed switching the German plants entirely to the new model, the successor to the Beetle, which the German plants would also supply to the United States market. But the continuing demand for Beetles in the United States would be satisfied out of Brazil, which would then given Volkswagen do Brasil the needed capability to enlarge its plants and to maintain for another ten years the Beetle's leadership in the growing Brazilian market. To assure the American customers of the "German quality" that was one of the Beetle's main attractions, the critical parts such as engines and transmissions for all cars sold in North America would, however, still be made in Germany. The finished car for the North American market would be assembled in the United States.
Unfortunately, this visionary strategy failed. One problem was resistance on the part of German unions. A second problem was confusion among American dealers about a car that was equally "made in Germany," "made in Brazil," and "made in the USA." Two decades later, as described in an interview with the Harvard Business Review, Hahn's strategic plan for the 1990s and beyond called for a decentralized structure of four autonomous divisions. In pursuit of this vision, Hahn invested tens of billions of dollars in Czechoslovakia's Skoda autoworks and SEAT in Spain. The Volkswagen, Audi, Skoda, and SEAT units each would have its own chief executive. As a whole, the company would be capable of turning out more than 4 million cars annually in low-cost plants located close to buyers. The company's R D center, however, would continue to be in Germany. Highly automated plants in Germany would provide components such as transmissions, engines, and axles to assembly operations in other parts of the world.
In Spain, VW hoped to take advantage of labor rates 50 percent lower than those in West Germany and roughly on par with those paid by Japanese companies with factories in Britain. Because labor makes up a larger share of production costs for subcompacts than for larger models, and because annual demand in Spain amounted to 500,000 cars, Spain was an attractive location for small-car production. Besides serving the domestic market, VW intended to use Spain as a production source that would allow it to cut prices and boost margins in Europe. Between 1986 and 1990, VW paid the Spanish government a total of $600 million in exchange for 100 percent ownership of SEAT The company increased Spanish production from 350,000 to 500,000 vehicles; the popular Golf model represented about one-quarter of the output. VW then invested $1.9 billion in a new plant in Martorell capable of producing 300,000 cars each year.
Similar reasoning was behind VW's 1991 purchase of a 31 percent stake in Skoda from the Czechoslovak government. Located northeast of Prague in the city of Mlada Boleslav, the Skoda works enjoyed the distinction of being the most efficient plant in the former Soviet bloc. However, product quality was low, and the plant was a major source of pollution. With an eye to doubling production to 450,000 cars, VW pledged to invest $5 billion by the end of the decade. VW's presence also persuaded TRW, Rockwell International, and other parts suppliers interested in serving Skoda and other automakers in Central and Eastern Europe to establish operations in the Czech Republic.
However, to maintain their low-cost position and ensure quality control, VW and Skoda executives went a step beyond the Japanesestyle "lean production" system that emphasizes just-in-time delivery from nearby suppliers: Several different suppliers manufactured components such as seats, instrument panels, and rear axles inside the plant itself. As Skoda CFO Volkhard Kohler explained in 1994, "We have to organize better than in the Western world and use supplier integration. Wages will increase, so we have to find other ways of being cost-effective. Supplier integration is part of the new thinking and what we do here can be a model for the West." Professor Daniel Jones of the Cardiff University Business School supported the effort: "It's physically integrated, but in terms of management and performance each runs his own show. It makes a lot of sense because you have the direct integration of [the] people making the parts and the people putting them in the car," he said in an interview.
Hahn also earmarked $3 billion for a project in which he took a keen personal interest: investment in the former East Germany, where he was born. On October 3, 1990, German reunification added 16 million people to Volkswagen's home-country market virtually overnight. Under communism, the citizens of East Germany had a choice of basically one car: the notoriously low-quality Trabant. Hahn's strategy for a reunited Germany included building a new, $1.9 billion factory that would employ 6,500 workers and produce a quarter of a million Golf and Polo models each year. The investment was justified in part by forecasts that East Germans would buy 750,000 cars each year; VW aimed to capture a third of that market, equal to its share in West Germany,
Ferdinand Piech, an autocratic leader with an engineering background who was "steely eyed and intense," succeeded Hahn as chairman in 1993. At the time, the company still had stakes in SEAT and Skoda. He immediately declared a state of crisis in the company and began taking drastic actions; cost cutting topped the list. Piech trimmed VW's worldwide employment, starting with 20,000 jobs in 1993. Piech also pledged to slash the number of auto platforms underlying VW's nameplates from 16 to 4 within a few years. During his tenure, a new car, the Passat, was launched, as were redesigned Jetta and Beetle models. He acquired three luxury automakers: Lamborghini, Bugatti, and Bentley. Piech also elevated the status of engineering in the company, and spending on R D soared. Piech quickly gained a reputation for making key decisions himself.
With great fanfare, VW announced in March 1993 that it had succeeded in luring a new production chief away from General Motors. José Ignacio López de Arriortúa was expected to play a major role in cost cutting at VW, but he arrived amid accusations of industrial espionage. The controversy did not stop López from doing what he had been hired to do. He broke long-term contracts with many of VW's suppliers and put new contracts up for bid; as a result, a higher percentage of components were now sourced outside Germany. At VW's new General Pachecho plant in Buenos Aires, López subcontracted various aspects of production to a dozen outside companies. VW workers built a few crucial parts such as the chassis and power train; suppliers were responsible for various other tasks such as assembling instrument panels. In the end, however, the espionage controversy cost López his job, and Piech settled the civil case by agreeing to pay GM $100 million and buy $1 billion in GM parts.
Even though his tenure at VW was brief and stormy, the positive aspects of the López legacy endured. Maryann Kellar, author of a book about VW, calls the Czech experiment "something that has been talked about for years as the next great productivity and cost enhancement move by the industry." In 1996, Skoda rolled out the Octavia, the first new car developed by the Czech plant during the Volkswagen era and the first to use a VW chassis platform. Piech also won concessions from IG Metall, the German autoworkers union. The union agreed to 2.5 percent annual pay raises and a pledge of job security. In addition, the workday for many assembly-line workers was reduced to five hours and 46 minutes-in essence, a four-day week. CFO Bruno Adelt estimated that all the agreed-upon changes would boost productivity 4 to 5 percent.
Even as VW expanded production in emerging markets and introduced production efficiencies, it was devising a comeback strategy for the United States. Mexican production of a new version of the legendary Beetle began in 1997, with a U.S. launch in 1998. As board member Jens Neumann said, "The Beetle is the core of the VW soul. If we put it back in people's minds, they'll think of our products more." Like its predecessor, the new Beetle had curved body panels and running boards. However, it was a front-wheel-drive model with more headroom and legroom. Despite being priced at about $15,000, 10 percent higher than the company's entry-level Golf, the new Beetle was initially a huge success. Sales were strong through 2000; then, as the buzz surrounding the vehicle died down, sales began to slip. In 2003, hoping to recapture some "cool" and reenergize the Beetle brand, a convertible model was introduced.
Volkswagen in the Twenty-First Century
After Bernd Pischetsrieder became chairman of Volkswagen AG in April 2002, he presided over the launch of several key new vehicles. The $35,000 Volkswagen Touareg was the company's first SUV Named after a nomadic African tribe that makes an annual journey across the Sahara, the Touareg was introduced just as SUV sales were starting to decline in the United States. Car and Driver magazine named the Touareg the "best luxury SUV" of 2003. Another new vehicle was the Phaeton, the first superluxury model to bear the VW nameplate. Developed at a cost of $700 million, Phaeton boasted the world's finest automotive air conditioning system and carried a price tag of $85,000. Together, the Touareg and Phaeton were compelling evidence that Volkswagen intended to move upmarket.
For Pischetsrieder, 2006 was a turbulent year; he lost a boardroom battle with Chairman Piech over the ongoing efforts to cut costs and remain competitive in the face of increased Asian competition. At the beginning of 2007, another key executive resigned. Wolfgang Bernhard, chairman of the Volkswagen brand group, had initiated a series of cost-cutting measures; both Germany's powerful labor unions and Chairman Piech were opposed to some of his actions.
In 2007, Martin Winterkorn took the helm at VW. Winterkorn moved swiftly to reboot the cost-cutting efforts of his predecessors. A production technology pioneered by Scania, the Swedish truck manufacturer, utilizes a modular approach. Because it reduces both complexity and costs, modular architecture is being used in a variety of industrial settings. In addition to Volkswagen, Daimler, Siemens, and Electrolux are also using modular designs and production processes. As a Volkswagen spokesperson put it, "With the modular production toolbox we will in the future be able to build different models and different brands on the same production line."
In essence, the approach means that cars will be assembled from common building blocks that have standard interfaces. VW will use four core modular baukasten (toolboxes) as the basis for four vehicle types across eleven brands: small city cars, midsize cars, mid-engine sports cars, and large vehicles. However, the commonality will not result in a standardized, "one-size-fits-all" product design. Rather, it will allow VW to create vehicles such as the new Audi Q3 that respond to specific regional needs and preferences. It is the responsibility of Walter de Silva, VW's design chief, to make sure all the company's cars share a common design language without losing their distinctive identities. And, how does an Italian designer fit in with the corporate culture at a German car company? As de Silva notes, "There is obviously a very special chemistry between German engineering and Italian creativity-it's something you can't explain."
Product Strategy: Jetta
Having conquered key emerging markets and modernized its production processes, VW must now shore up its U.S. business. To accomplish this, executives are determined to "Americanize" VW's cars; the first example of this effort was the 2011 Jetta. Developed at a cost of $1 billion, the new model was produced at VW's N80 assembly plant in Mexico City. The new Jetta arrived at dealers in fall 2010 backed by an advertising campaign that emphasized the $15,995 sticker price. The advertising tagline was "Great. For the price of good." The 2011 model was bigger than its 2010 predecessor, and cost-cutting changes were made to the rear brakes and suspension.
Product Strategy: Beetle
Industry observers are closely following the launch of the third- generation Beetle. The original Beetle (also known as the Bug) featured an air-cooled engine (no radiator!) that was located above the rear tires. The Beetle was very popular in both Europe and the United States, where about 5 million were sold between 1949 and 1979. In the American market, an advertising campaign created by Bill Bernbach has achieved mythic status in the industry. Bernbach is credited with launching the Creative Revolution by "telling the truth" about cars and encouraging buyers to "Think Small."
After VW retooled its German plant for a successor to the Beetle, production was shifted to Brazil. The Beetle was absent from the U.S. market from 1979 until 1999, at which time the second-generation Beetle was launched. The United States was the primary target market for the New Beetle, which was produced at VW's plant in Puebla, Mexico. The designers retained the distinctive, iconic profile of the original so that the new version would be instantly recognizable. It also featured whimsical touches such as a flower vase on the dashboard; however, the launch ad campaign promised, "Less flower. More power."
Other automakers rushed to capitalize on the nostalgia craze that VW was tapping; the BMW Mini Cooper was one notable success. The New Beetle was especially popular with women, but it was discontinued in 2010. The third-generation Beetle went on sale in the fall of 2011. The new Bug was designed for the global market; besides the United States, China, Europe, and Mexico are expected to be key. The new car has a bigger engine and is more sporty in appearance than its predecessors. VW hopes to attract more male buyers while still appealing to women.
Product Strategy: Passat
As noted at the beginning of the chapter, the first cars rolling off the line at VW's new Chattanooga plant were Passat sedans. However, production will soon shift to an NMS-"New Midsize Sedan." This entails risks, as David Sargent, a vice president at J.D. Power and Associates, notes: "Brand-new plants with brand-new models historically have struggled to produce world-class quality. Not to say a plant can't do that, but it's a struggle."
The new plant Is also capable of producing diesel-powered cars; however, diesel versions of Its current offerings account for only about one-quarter of VW's U.S. sales. Although diesel engines get higher mileage than gasoline engines, they are simply not popular with the majority of U.S. drivers. By contrast, diesels are very popular in Europe. However, it remains to be seen whether VW can change entrenched American attitudes toward diesels, especially since diesel models typically carry a price premium compared to their gasoline-powered counterparts.
Christoph Stürmer is a director at IHS Global Insight consultancy. Summarizing the strategic challenges facing Volkswagen, he said, "VW has to get it right. Get adjusted to American standards of what on-the-road quality is. It's a big challenge for a company so deep-dyed German."
Which rivals present the strongest competitive threats to VW's strategic plans?

Question 10

Volkswagen
What are some of the risks inherent in VW's relentless d to become the world's number 1 auto maker?

Question 11

IKEA
IKEA has been called "one of the most extraordinary success stories in the history of postwar European business. However, the first few years of the twenty-first century were difficult for IKEA, the $31 billion global furniture powerhouse based in Sweden. The euro's strength dampened financial results, as did an economic downturn in Central Europe. The company faces increasing competition from hypermarkets, "do-it-yourself" retailers such as Walmart, and supermarkets that are expanding into home furnishings. During his tenure as CEO from 1999 to 2009, Anders Dahlvig stressed three areas for improvement: product assortment, customer service, and product availability.
With stores in 40 countries, the company's success reflects founder Ingvar Kamprad's "social ambition" of selling a wide range of stylish, functional home furnishings at prices so low that the majority of people could afford to buy them. The store exteriors are painted bright blue and yellow, Sweden's national colors. Shoppers view furniture on the main floor in scores of realistic-looking settings arranged throughout the cavernous showrooms.
At IKEA, shopping is a self-service activity; after browsing and writing down the names of desired items, shoppers can pick up their furniture on the lower level. There, they find "flat packs" containing the furniture in kit form; one of the cornerstones of IKEA's low-cost strategy is having customers take their purchases home in their own vehicles and assemble the furniture themselves. The lower level of a typical IKEA store also contains a restaurant, a grocery store called the Swede Shop, a supervised play area for children, and a baby care room.
IKEA's unconventional approach to the furniture business has enabled it to rack up impressive growth in an industry in which overall sales have been flat. Sourcing furniture from a network of more than 1,600 suppliers in 55 countries helps the company maintain its low-cost, high-quality position. During the 1990s, IKEA expanded into Central and Eastern Europe. Because consumers in those regions have relatively little purchasing power, the stores offer a smaller selection of goods; some furniture is designed specifically for the cramped living styles typical in former Soviet bloc countries.

Exhibit 16-11 IKEA currently has eleven stores in China; the Xu Hui store in Shanghai is one of the Swedish company's top performers by revenues. In keeping with IKEA's standardized global retail concept, the Chinese stores are spacious and clean. All locations feature restaurants where visitors can enjoy Swedish meatballs and other meal items. In some cases, the restaurants have also become a favorite meeting place for dating clubs that allow older Chinese to socialize.
Source: Doug Kanter/Bloomberg via Getty Images.
Throughout Europe, IKEA benefits from the perception that Sweden is a source of high-quality products and efficient service. Currently, Germany and the United Kingdom (UK) are IKEA's top two markets. The United Kingdom represents IKEA's fastest-growing market in Europe. Although Britons initially viewed the company's less-is-more approach as cold and "too Scandinavian," they were eventually won over. IKEA currently has 18 stores in the UK, and plans call for opening more in this decade. As Allan Young, creative director of London's St. Luke's advertising agency, noted, "IKEA is anticonven- tional. It does what it shouldn't do. That's the overall theme for all IKEA ads: liberation from tradition."
In 2005, IKEA opened two stores near Tokyo; more stores are on the way as the company expands in Asia. IKEA's first attempt to develop the Japanese market in the mid-1970s resulted in failure. Why? As Tommy Kullberg, former chief executive of IKEA Japan, explained, "In 1974, the Japanese market from a retail point of view was closed. Also, from the Japanese point of view, I do not think they were ready for IKEA, with our way of doing things, with flat packages and asking the consumers to put things together and so on." However, demographic and economic trends are much different today. After years of recession, consumers are seeking alternatives to paying high prices for quality goods. Also, IKEA's core customer segment-post-baby boomers in their thirties-grew nearly 10 percent between 2000 and 2010. In Japan, IKEA will offer home delivery and an assembly service option.
The coming years will bring big changes at IKEA. In 2013, Peter Agnefjall became the company's new chief executive. He plans to continue the company's sustainability initiatives, including the possibility of leasing kitchens to consumers. As Steve Howard, chief sustainability officer, said, "We want a smarter consumption, and maybe people are less attached to ownership." However, some observers question IKEA's sustainability bona fides, noting that its low-priced furniture contributes to a "throw it away" mentality when a piece breaks. Howard responds to such criticism by noting that "People have needs to be met-they need wardrobes, sofas, kitchens. The most important thing is to meet those needs in the most sustainable way possible." For example, in France, one factory sources half its wood from recycled IKEA products that are ground up and repurposed as bookshelves, tables, and other new products.
Review the characteristics of global and transnational companies in Chapter 1. Based on your reading of the case, would IKEA be described as a global firm or a transnational firm?

Question 12

IKEA
IKEA has been called "one of the most extraordinary success stories in the history of postwar European business. However, the first few years of the twenty-first century were difficult for IKEA, the $31 billion global furniture powerhouse based in Sweden. The euro's strength dampened financial results, as did an economic downturn in Central Europe. The company faces increasing competition from hypermarkets, "do-it-yourself" retailers such as Walmart, and supermarkets that are expanding into home furnishings. During his tenure as CEO from 1999 to 2009, Anders Dahlvig stressed three areas for improvement: product assortment, customer service, and product availability.
With stores in 40 countries, the company's success reflects founder Ingvar Kamprad's "social ambition" of selling a wide range of stylish, functional home furnishings at prices so low that the majority of people could afford to buy them. The store exteriors are painted bright blue and yellow, Sweden's national colors. Shoppers view furniture on the main floor in scores of realistic-looking settings arranged throughout the cavernous showrooms.
At IKEA, shopping is a self-service activity; after browsing and writing down the names of desired items, shoppers can pick up their furniture on the lower level. There, they find "flat packs" containing the furniture in kit form; one of the cornerstones of IKEA's low-cost strategy is having customers take their purchases home in their own vehicles and assemble the furniture themselves. The lower level of a typical IKEA store also contains a restaurant, a grocery store called the Swede Shop, a supervised play area for children, and a baby care room.
IKEA's unconventional approach to the furniture business has enabled it to rack up impressive growth in an industry in which overall sales have been flat. Sourcing furniture from a network of more than 1,600 suppliers in 55 countries helps the company maintain its low-cost, high-quality position. During the 1990s, IKEA expanded into Central and Eastern Europe. Because consumers in those regions have relatively little purchasing power, the stores offer a smaller selection of goods; some furniture is designed specifically for the cramped living styles typical in former Soviet bloc countries.

Exhibit 16-11 IKEA currently has eleven stores in China; the Xu Hui store in Shanghai is one of the Swedish company's top performers by revenues. In keeping with IKEA's standardized global retail concept, the Chinese stores are spacious and clean. All locations feature restaurants where visitors can enjoy Swedish meatballs and other meal items. In some cases, the restaurants have also become a favorite meeting place for dating clubs that allow older Chinese to socialize.
Source: Doug Kanter/Bloomberg via Getty Images.
Throughout Europe, IKEA benefits from the perception that Sweden is a source of high-quality products and efficient service. Currently, Germany and the United Kingdom (UK) are IKEA's top two markets. The United Kingdom represents IKEA's fastest-growing market in Europe. Although Britons initially viewed the company's less-is-more approach as cold and "too Scandinavian," they were eventually won over. IKEA currently has 18 stores in the UK, and plans call for opening more in this decade. As Allan Young, creative director of London's St. Luke's advertising agency, noted, "IKEA is anticonven- tional. It does what it shouldn't do. That's the overall theme for all IKEA ads: liberation from tradition."
In 2005, IKEA opened two stores near Tokyo; more stores are on the way as the company expands in Asia. IKEA's first attempt to develop the Japanese market in the mid-1970s resulted in failure. Why? As Tommy Kullberg, former chief executive of IKEA Japan, explained, "In 1974, the Japanese market from a retail point of view was closed. Also, from the Japanese point of view, I do not think they were ready for IKEA, with our way of doing things, with flat packages and asking the consumers to put things together and so on." However, demographic and economic trends are much different today. After years of recession, consumers are seeking alternatives to paying high prices for quality goods. Also, IKEA's core customer segment-post-baby boomers in their thirties-grew nearly 10 percent between 2000 and 2010. In Japan, IKEA will offer home delivery and an assembly service option.
The coming years will bring big changes at IKEA. In 2013, Peter Agnefjall became the company's new chief executive. He plans to continue the company's sustainability initiatives, including the possibility of leasing kitchens to consumers. As Steve Howard, chief sustainability officer, said, "We want a smarter consumption, and maybe people are less attached to ownership." However, some observers question IKEA's sustainability bona fides, noting that its low-priced furniture contributes to a "throw it away" mentality when a piece breaks. Howard responds to such criticism by noting that "People have needs to be met-they need wardrobes, sofas, kitchens. The most important thing is to meet those needs in the most sustainable way possible." For example, in France, one factory sources half its wood from recycled IKEA products that are ground up and repurposed as bookshelves, tables, and other new products.
At the end of Chapter 11, it was noted that managers of IKEA stores have a great deal of discretion when it comes to setting prices. In terms of the ethnocentric/polycentric/ regiocentric/geocentric (EPRG) framework, which management orientation is in evidence at IKEA?

Question 13

IKEA
IKEA has been called "one of the most extraordinary success stories in the history of postwar European business. However, the first few years of the twenty-first century were difficult for IKEA, the $31 billion global furniture powerhouse based in Sweden. The euro's strength dampened financial results, as did an economic downturn in Central Europe. The company faces increasing competition from hypermarkets, "do-it-yourself" retailers such as Walmart, and supermarkets that are expanding into home furnishings. During his tenure as CEO from 1999 to 2009, Anders Dahlvig stressed three areas for improvement: product assortment, customer service, and product availability.
With stores in 40 countries, the company's success reflects founder Ingvar Kamprad's "social ambition" of selling a wide range of stylish, functional home furnishings at prices so low that the majority of people could afford to buy them. The store exteriors are painted bright blue and yellow, Sweden's national colors. Shoppers view furniture on the main floor in scores of realistic-looking settings arranged throughout the cavernous showrooms.
At IKEA, shopping is a self-service activity; after browsing and writing down the names of desired items, shoppers can pick up their furniture on the lower level. There, they find "flat packs" containing the furniture in kit form; one of the cornerstones of IKEA's low-cost strategy is having customers take their purchases home in their own vehicles and assemble the furniture themselves. The lower level of a typical IKEA store also contains a restaurant, a grocery store called the Swede Shop, a supervised play area for children, and a baby care room.
IKEA's unconventional approach to the furniture business has enabled it to rack up impressive growth in an industry in which overall sales have been flat. Sourcing furniture from a network of more than 1,600 suppliers in 55 countries helps the company maintain its low-cost, high-quality position. During the 1990s, IKEA expanded into Central and Eastern Europe. Because consumers in those regions have relatively little purchasing power, the stores offer a smaller selection of goods; some furniture is designed specifically for the cramped living styles typical in former Soviet bloc countries.

Exhibit 16-11 IKEA currently has eleven stores in China; the Xu Hui store in Shanghai is one of the Swedish company's top performers by revenues. In keeping with IKEA's standardized global retail concept, the Chinese stores are spacious and clean. All locations feature restaurants where visitors can enjoy Swedish meatballs and other meal items. In some cases, the restaurants have also become a favorite meeting place for dating clubs that allow older Chinese to socialize.
Source: Doug Kanter/Bloomberg via Getty Images.
Throughout Europe, IKEA benefits from the perception that Sweden is a source of high-quality products and efficient service. Currently, Germany and the United Kingdom (UK) are IKEA's top two markets. The United Kingdom represents IKEA's fastest-growing market in Europe. Although Britons initially viewed the company's less-is-more approach as cold and "too Scandinavian," they were eventually won over. IKEA currently has 18 stores in the UK, and plans call for opening more in this decade. As Allan Young, creative director of London's St. Luke's advertising agency, noted, "IKEA is anticonven- tional. It does what it shouldn't do. That's the overall theme for all IKEA ads: liberation from tradition."
In 2005, IKEA opened two stores near Tokyo; more stores are on the way as the company expands in Asia. IKEA's first attempt to develop the Japanese market in the mid-1970s resulted in failure. Why? As Tommy Kullberg, former chief executive of IKEA Japan, explained, "In 1974, the Japanese market from a retail point of view was closed. Also, from the Japanese point of view, I do not think they were ready for IKEA, with our way of doing things, with flat packages and asking the consumers to put things together and so on." However, demographic and economic trends are much different today. After years of recession, consumers are seeking alternatives to paying high prices for quality goods. Also, IKEA's core customer segment-post-baby boomers in their thirties-grew nearly 10 percent between 2000 and 2010. In Japan, IKEA will offer home delivery and an assembly service option.
The coming years will bring big changes at IKEA. In 2013, Peter Agnefjall became the company's new chief executive. He plans to continue the company's sustainability initiatives, including the possibility of leasing kitchens to consumers. As Steve Howard, chief sustainability officer, said, "We want a smarter consumption, and maybe people are less attached to ownership." However, some observers question IKEA's sustainability bona fides, noting that its low-priced furniture contributes to a "throw it away" mentality when a piece breaks. Howard responds to such criticism by noting that "People have needs to be met-they need wardrobes, sofas, kitchens. The most important thing is to meet those needs in the most sustainable way possible." For example, in France, one factory sources half its wood from recycled IKEA products that are ground up and repurposed as bookshelves, tables, and other new products.
What does it mean to say that, in terms of Porter's generic strategies, IKEA pursues a strategy of "cost focus"?

Question 14

LEGO
The LEGO Company is a $4 billion global business built out of the humblest of materials: interlocking plastic toy bricks. From its base in Denmark, the family-owned LEGO empire extends around the world and has at times included theme parks, clothing, and computer-controlled toys. Each year, the company produces about 15 billion molded plastic blocks as well as tiny human figures to populate towns and operate gizmos that spring from the imaginations of young people. LEGO products, which are especially popular with boys, are available in more than 130 countries; in the key North American market, the company's overall share of the construction-toy market has been as high as 85 percent.
Kjeld Kirk Kristiansen, the grandson of the company's founder as well as the main shareholder, served as CEO from 1979 until 2004. Kristiansen says that LEGO products stand for "exuberance, spontaneity, self-expression, concern for others, and innovation." (The company's name comes from the Danish phrase leg godt, which means "play well.") Kristiansen also attributes his company's success to the esteem the brand enjoys among parents. "Parents consider LEGO not as just a toy company but as providing products that help learning and developing new skills," he says.
LEGO has always been an innovator. For example, Mybots was a $70 toy set that included blocks with computer chips embedded to provide lights and sound. A $200 Mindstorms Robotics Invention System allows users to build computer-controlled creatures. To further leverage the LEGO brand, the company also formed alliances with Walt Disney Company and Lucasfilms, creator of the popular Star Wars series. For several years, sales of licensed merchandise relating to the popular Harry Potter and Star Wars movie franchises sold extremely well.
After a disappointing Christmas 2003 season, LEGO was left with millions of dollars worth of unsold goods. The difficult retail situation was compounded by the dollar's weakness relative to the Danish krone; LEGO posted a record loss of $166 million for 2003. The company then unveiled a number of new initiatives aimed at restoring profitability. A new line, Quattro, consisting of large, soft bricks, is targeted directly at the preschool market. Clikits is a line of pastel- colored bricks targeted at young girls who want to create jewelry.
In 2004, after LEGO had posted several years of losses, Jorgen Vig Knudstorp succeeded Kristiansen as LEGO's chief executive. Knudstorp convened a task force consisting of company executives and outside consultants to review the company's operations and business model. The task force discovered that LEGO's sources of competitive advantage-creativity, innovation, and superior quality-were also sources of weakness. The company had become overly complex, with 12,500 stock-keeping units (SKUs), a palette of 100 different block colors, and 11,000 suppliers.

Exhibit 16-12
Source: AP Images.
Acknowledging that the company's forays into theme parks, children's clothing, and software games had been the wrong strategy, Knudstorp launched a restructuring initiative known as "Shared Vision." Within a few months, cross-functional teams collaborated to reduce the number of SKUs to 6,500; the number of color options was slashed by 50 percent. Production was outsourced to a Singaporean company with production facilities in Mexico and the Czech Republic, resulting in the elimination of more than 2,000 jobs.
Knudstorp also decided to focus on the company's retail customers, which include Toys 'R' Us, Metro, Karstadt, and Galeria. After surveying these customers, Knudstorp and his task force learned that the customers do not require express product deliveries. This insight prompted a change to once-weekly deliveries of orders that are placed in advance. The result: Improved customer service and lower costs. In the 3-year period from 2005 to 2008, on-time deliveries increased by 62 percent to 92 percent. LEGO also logged improvements in other key performance indicators, such as package quality and quantity In 2008, LEGO was awarded the European Supply Chain Excellence Award in the category "Logistics and Fulfillment."
In terms of competitive advantage, Knudstorp has noted, "A bucket of bricks is the core of the core." Still, he adds, "There's more to being a global successful company than being able to build a plastic brick." Evidence of the company's magic touch can be found in LEGO Friends, a new theme targeting girls that has sold extremely well. Moreover, the company's forays into video games such as Lego Batman 2, children's books such as The Lego Ideas Book, and TV series on the Cartoon Network have proven to be successful as well.
Jørgen Vig Knudstorp became CEO in 2004. Assess the key strategic decisions he has made, including outsourcing and divesting the theme parks.

Question 15

LEGO
The LEGO Company is a $4 billion global business built out of the humblest of materials: interlocking plastic toy bricks. From its base in Denmark, the family-owned LEGO empire extends around the world and has at times included theme parks, clothing, and computer-controlled toys. Each year, the company produces about 15 billion molded plastic blocks as well as tiny human figures to populate towns and operate gizmos that spring from the imaginations of young people. LEGO products, which are especially popular with boys, are available in more than 130 countries; in the key North American market, the company's overall share of the construction-toy market has been as high as 85 percent.
Kjeld Kirk Kristiansen, the grandson of the company's founder as well as the main shareholder, served as CEO from 1979 until 2004. Kristiansen says that LEGO products stand for "exuberance, spontaneity, self-expression, concern for others, and innovation." (The company's name comes from the Danish phrase leg godt, which means "play well.") Kristiansen also attributes his company's success to the esteem the brand enjoys among parents. "Parents consider LEGO not as just a toy company but as providing products that help learning and developing new skills," he says.
LEGO has always been an innovator. For example, Mybots was a $70 toy set that included blocks with computer chips embedded to provide lights and sound. A $200 Mindstorms Robotics Invention System allows users to build computer-controlled creatures. To further leverage the LEGO brand, the company also formed alliances with Walt Disney Company and Lucasfilms, creator of the popular Star Wars series. For several years, sales of licensed merchandise relating to the popular Harry Potter and Star Wars movie franchises sold extremely well.
After a disappointing Christmas 2003 season, LEGO was left with millions of dollars worth of unsold goods. The difficult retail situation was compounded by the dollar's weakness relative to the Danish krone; LEGO posted a record loss of $166 million for 2003. The company then unveiled a number of new initiatives aimed at restoring profitability. A new line, Quattro, consisting of large, soft bricks, is targeted directly at the preschool market. Clikits is a line of pastel- colored bricks targeted at young girls who want to create jewelry.
In 2004, after LEGO had posted several years of losses, Jorgen Vig Knudstorp succeeded Kristiansen as LEGO's chief executive. Knudstorp convened a task force consisting of company executives and outside consultants to review the company's operations and business model. The task force discovered that LEGO's sources of competitive advantage-creativity, innovation, and superior quality-were also sources of weakness. The company had become overly complex, with 12,500 stock-keeping units (SKUs), a palette of 100 different block colors, and 11,000 suppliers.

Exhibit 16-12
Source: AP Images.
Acknowledging that the company's forays into theme parks, children's clothing, and software games had been the wrong strategy, Knudstorp launched a restructuring initiative known as "Shared Vision." Within a few months, cross-functional teams collaborated to reduce the number of SKUs to 6,500; the number of color options was slashed by 50 percent. Production was outsourced to a Singaporean company with production facilities in Mexico and the Czech Republic, resulting in the elimination of more than 2,000 jobs.
Knudstorp also decided to focus on the company's retail customers, which include Toys 'R' Us, Metro, Karstadt, and Galeria. After surveying these customers, Knudstorp and his task force learned that the customers do not require express product deliveries. This insight prompted a change to once-weekly deliveries of orders that are placed in advance. The result: Improved customer service and lower costs. In the 3-year period from 2005 to 2008, on-time deliveries increased by 62 percent to 92 percent. LEGO also logged improvements in other key performance indicators, such as package quality and quantity In 2008, LEGO was awarded the European Supply Chain Excellence Award in the category "Logistics and Fulfillment."
In terms of competitive advantage, Knudstorp has noted, "A bucket of bricks is the core of the core." Still, he adds, "There's more to being a global successful company than being able to build a plastic brick." Evidence of the company's magic touch can be found in LEGO Friends, a new theme targeting girls that has sold extremely well. Moreover, the company's forays into video games such as Lego Batman 2, children's books such as The Lego Ideas Book, and TV series on the Cartoon Network have proven to be successful as well.
LEGO's movie-themed products, keyed to popular film franchises such as Harry Potter, Lord of the Rings, and Spider- Man, include detailed construction plans. Do you think this is the right strategy?

Question 16

LEGO
The LEGO Company is a $4 billion global business built out of the humblest of materials: interlocking plastic toy bricks. From its base in Denmark, the family-owned LEGO empire extends around the world and has at times included theme parks, clothing, and computer-controlled toys. Each year, the company produces about 15 billion molded plastic blocks as well as tiny human figures to populate towns and operate gizmos that spring from the imaginations of young people. LEGO products, which are especially popular with boys, are available in more than 130 countries; in the key North American market, the company's overall share of the construction-toy market has been as high as 85 percent.
Kjeld Kirk Kristiansen, the grandson of the company's founder as well as the main shareholder, served as CEO from 1979 until 2004. Kristiansen says that LEGO products stand for "exuberance, spontaneity, self-expression, concern for others, and innovation." (The company's name comes from the Danish phrase leg godt, which means "play well.") Kristiansen also attributes his company's success to the esteem the brand enjoys among parents. "Parents consider LEGO not as just a toy company but as providing products that help learning and developing new skills," he says.
LEGO has always been an innovator. For example, Mybots was a $70 toy set that included blocks with computer chips embedded to provide lights and sound. A $200 Mindstorms Robotics Invention System allows users to build computer-controlled creatures. To further leverage the LEGO brand, the company also formed alliances with Walt Disney Company and Lucasfilms, creator of the popular Star Wars series. For several years, sales of licensed merchandise relating to the popular Harry Potter and Star Wars movie franchises sold extremely well.
After a disappointing Christmas 2003 season, LEGO was left with millions of dollars worth of unsold goods. The difficult retail situation was compounded by the dollar's weakness relative to the Danish krone; LEGO posted a record loss of $166 million for 2003. The company then unveiled a number of new initiatives aimed at restoring profitability. A new line, Quattro, consisting of large, soft bricks, is targeted directly at the preschool market. Clikits is a line of pastel- colored bricks targeted at young girls who want to create jewelry.
In 2004, after LEGO had posted several years of losses, Jorgen Vig Knudstorp succeeded Kristiansen as LEGO's chief executive. Knudstorp convened a task force consisting of company executives and outside consultants to review the company's operations and business model. The task force discovered that LEGO's sources of competitive advantage-creativity, innovation, and superior quality-were also sources of weakness. The company had become overly complex, with 12,500 stock-keeping units (SKUs), a palette of 100 different block colors, and 11,000 suppliers.

Exhibit 16-12
Source: AP Images.
Acknowledging that the company's forays into theme parks, children's clothing, and software games had been the wrong strategy, Knudstorp launched a restructuring initiative known as "Shared Vision." Within a few months, cross-functional teams collaborated to reduce the number of SKUs to 6,500; the number of color options was slashed by 50 percent. Production was outsourced to a Singaporean company with production facilities in Mexico and the Czech Republic, resulting in the elimination of more than 2,000 jobs.
Knudstorp also decided to focus on the company's retail customers, which include Toys 'R' Us, Metro, Karstadt, and Galeria. After surveying these customers, Knudstorp and his task force learned that the customers do not require express product deliveries. This insight prompted a change to once-weekly deliveries of orders that are placed in advance. The result: Improved customer service and lower costs. In the 3-year period from 2005 to 2008, on-time deliveries increased by 62 percent to 92 percent. LEGO also logged improvements in other key performance indicators, such as package quality and quantity In 2008, LEGO was awarded the European Supply Chain Excellence Award in the category "Logistics and Fulfillment."
In terms of competitive advantage, Knudstorp has noted, "A bucket of bricks is the core of the core." Still, he adds, "There's more to being a global successful company than being able to build a plastic brick." Evidence of the company's magic touch can be found in LEGO Friends, a new theme targeting girls that has sold extremely well. Moreover, the company's forays into video games such as Lego Batman 2, children's books such as The Lego Ideas Book, and TV series on the Cartoon Network have proven to be successful as well.
Using Porter's generic strategies framework, assess LEGO in terms of the company's pursuit of competitive advantage.

Question 17

LEGO
The LEGO Company is a $4 billion global business built out of the humblest of materials: interlocking plastic toy bricks. From its base in Denmark, the family-owned LEGO empire extends around the world and has at times included theme parks, clothing, and computer-controlled toys. Each year, the company produces about 15 billion molded plastic blocks as well as tiny human figures to populate towns and operate gizmos that spring from the imaginations of young people. LEGO products, which are especially popular with boys, are available in more than 130 countries; in the key North American market, the company's overall share of the construction-toy market has been as high as 85 percent.
Kjeld Kirk Kristiansen, the grandson of the company's founder as well as the main shareholder, served as CEO from 1979 until 2004. Kristiansen says that LEGO products stand for "exuberance, spontaneity, self-expression, concern for others, and innovation." (The company's name comes from the Danish phrase leg godt, which means "play well.") Kristiansen also attributes his company's success to the esteem the brand enjoys among parents. "Parents consider LEGO not as just a toy company but as providing products that help learning and developing new skills," he says.
LEGO has always been an innovator. For example, Mybots was a $70 toy set that included blocks with computer chips embedded to provide lights and sound. A $200 Mindstorms Robotics Invention System allows users to build computer-controlled creatures. To further leverage the LEGO brand, the company also formed alliances with Walt Disney Company and Lucasfilms, creator of the popular Star Wars series. For several years, sales of licensed merchandise relating to the popular Harry Potter and Star Wars movie franchises sold extremely well.
After a disappointing Christmas 2003 season, LEGO was left with millions of dollars worth of unsold goods. The difficult retail situation was compounded by the dollar's weakness relative to the Danish krone; LEGO posted a record loss of $166 million for 2003. The company then unveiled a number of new initiatives aimed at restoring profitability. A new line, Quattro, consisting of large, soft bricks, is targeted directly at the preschool market. Clikits is a line of pastel- colored bricks targeted at young girls who want to create jewelry.
In 2004, after LEGO had posted several years of losses, Jorgen Vig Knudstorp succeeded Kristiansen as LEGO's chief executive. Knudstorp convened a task force consisting of company executives and outside consultants to review the company's operations and business model. The task force discovered that LEGO's sources of competitive advantage-creativity, innovation, and superior quality-were also sources of weakness. The company had become overly complex, with 12,500 stock-keeping units (SKUs), a palette of 100 different block colors, and 11,000 suppliers.

Exhibit 16-12
Source: AP Images.
Acknowledging that the company's forays into theme parks, children's clothing, and software games had been the wrong strategy, Knudstorp launched a restructuring initiative known as "Shared Vision." Within a few months, cross-functional teams collaborated to reduce the number of SKUs to 6,500; the number of color options was slashed by 50 percent. Production was outsourced to a Singaporean company with production facilities in Mexico and the Czech Republic, resulting in the elimination of more than 2,000 jobs.
Knudstorp also decided to focus on the company's retail customers, which include Toys 'R' Us, Metro, Karstadt, and Galeria. After surveying these customers, Knudstorp and his task force learned that the customers do not require express product deliveries. This insight prompted a change to once-weekly deliveries of orders that are placed in advance. The result: Improved customer service and lower costs. In the 3-year period from 2005 to 2008, on-time deliveries increased by 62 percent to 92 percent. LEGO also logged improvements in other key performance indicators, such as package quality and quantity In 2008, LEGO was awarded the European Supply Chain Excellence Award in the category "Logistics and Fulfillment."
In terms of competitive advantage, Knudstorp has noted, "A bucket of bricks is the core of the core." Still, he adds, "There's more to being a global successful company than being able to build a plastic brick." Evidence of the company's magic touch can be found in LEGO Friends, a new theme targeting girls that has sold extremely well. Moreover, the company's forays into video games such as Lego Batman 2, children's books such as The Lego Ideas Book, and TV series on the Cartoon Network have proven to be successful as well.
What risk, if any, is posed by LEGO's movement into multimedia categories such as video games and television?

Question 18

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:
How can a company measure its competitive advantage? How does a firm know if it is gaining or losing competitive advantage? Cite a global company and its source of competitive advantage.

Question 19

Go to mymktlab.com for Auto-graded writing questions as well as the following Assisted-graded writing questions:
Give an example of a company that illustrates each of the four generic strategies that can lead to competitive advantage: overall cost leadership, cost focus, differentiation, and focused differentiation.