healthcare
SOLUTION: Woodbury University International Business Discussion Questions
SOLUTION: Woodbury University International Business Discussion Questions.
Starwood, Marriott, and Cuba
A Short Case Prepared for the AU NetImpact Chapter’s Faculty and Alumni
Case Competition, 2016
by Heather Elms, with help from Iryna Casteel, Elizabeth Doane, Jolie Roetter and Mark Starik
Note: This case is an annotated version of “US Hotel Company Starwood to Run 3 Cuban
Hotels” (by Michael Weissenstein, Washington Post, Sunday, March 20, 2016.)
“HAVANA (AP) – Starwood signed a deal on Saturday to renovate and run three Cuban hotels,
returning U.S. chains to the island more than 50 years after American hotels were taken over by
Fidel Castro’s socialist revolution.1
All Cuban hotels are state-owned so the deal puts a major U.S. corporation directly in business
with the Communist government under a special U.S. license that pushes Washington’s legal
dismantling of the Cuban trade embargo further than ever before.2 In a once-unimaginable
arrangement, a hotel owned by the tourism arm of the Cuban military will become a Sheraton
Four Points.
The deal comes on the eve of President Barack Obama’s historic visit to Cuba, which will open a
new era between the former Cold War foes that has American travelers and businesses eagerly
eyeing opportunities on the island nation 90 miles (145 kilometers) south of Florida.3
Starwood’s chief of Latin America operations, Jorge Giannattasio, said the company will invest
millions to renovate and rebrand the Quinta Avenida, Santa Isabel and Inglaterra hotels4, train
1 Non-US
chains (including Spain’s Melia Hotels International) have held management contracts with Cuba’s
stateowned
hotels for years. Pre-revolution (1959) and associated nationalizations (1960), many Cuban hotels were
American owned and/or operated, including the Hotel National and the Hotel Tryp Habana Libre (previously the
Habana Hilton, which served as Fidel Castro’s headquarters during the initial months of the revolution, and
operated by Melia since 1996, when it was also renovated.)
2 Cuban
President Raúl Castro, who recently “reiterated his intention to step down 2 years from now, at age 86”
continues to identify the U.S. embargo as “the principal obstacle” to Cuba’s economic development. “Obama’s
efforts to use his executive powers to bypass the embargo ‘are positive, but insufficient [although ‘we recognize
that President Obama and senior administration officials oppose it and have repeatedly called on Congress to
repeal it’],’ Castro said.” (Karen DeYoung, “Raúl Castro, 84, Says He’ll Step Down in Two Years, Calls for Younger
Leaders”, Washington Post, April 19, 2016). It remains unclear whether the winner of the upcoming U.S.
presidential election will pursue the Obama administration’s efforts.
3 American
Airlines currently operates daily charter flights between the U.S. and Cuba, but a number of U.S. airline
companies (including American and JetBlue) are competing for the rights to commercial flights (Bart Jansen, “US
Airlines Fight for Rights to Cuba”, USA Today, March 18, 2016). Carnival Corporation has also announced that
their intentions to “begin sailing to Cuba every other week beginning May 1, the first time a cruise ship has sailed
from the U.S to Cuba in more than 50 years” (DeYoung, 2016, above), may be delayed by a Cuban government
policy that prohibits people born in Cuba from traveling there by sea (Chabeli Herrera, “Carnival Opens Bookings
for Cuban-born Guest Pending a Change in Cuba Policy”, Miami Herald, April 18, 2016).
4 All
are located in Havana. The Quinta Avenida is located in the Miramar district, which borders the Old Havana
district, where both the Santa Isabel and Inglaterra Hotels are located. The Old Havana district is a UNESCO World
Heritage site. Both the reconstruction and operation of hotels include numerous environmental opportunities and
and hire new staff and reopen the hotels by the end of the year. The Quinta Avenida is owned by
Gaviota, a military-run tourism conglomerate. The Santa Isabel and Inglaterra, which are run by
other state agencies, will be operated as part of Starwood’s Luxury Collection brand.
It’s unclear, however, how long Starwood can be called an American company. On Friday,
Starwood called off a $12.2 billion buyout agreement with Marriott in favor of an offer from a
group of investors led by the Chinese insurance company Anbang.5
Cuban hotels are notorious for their ramshackle furnishings and poor service. Giannattasio said
the Cuban Starwood hotels would be refitted with everything from new mattresses to improved
kitchen equipment and safety measures and managed by teams of expatriate Starwood
employees.6
challenges. A number of voluntary certifications regarding hotel construction/reconstruction and operations have
been developed in the U.S. and elsewhere, and a number of major hotel chains have adopted various
environmental measures over the past two decades. These include the Kimpton Hotel’s Earth Care program,
Starwood Hotel’s Global Citizenship Sustainability and Social Responsibility programs, Marriott Hotel’s Corporate
Responsibility program, the Hyatt Thrive program, and many other environmentally-oriented programs of smaller
hotel chains and standalone hotels. Seldom, however, do such programs account for the environmental impacts of
their customers’ transportation and consumption off hotel property, nor wider community or biodiversity aspects
of the regions in which those hotels are located. Beyond Havana, there are a variety of hotels throughout the
island, including on the Hicacos Peninsula off Cuba’s northern coast, widely recognized as a tourist destination for
its beautiful beaches. The Peninsula includes the resort town of Veradero. Melia, for example, operates a number
of hotels in Havana and in Veradero. The Cuban government claims to want to limit further development on the
Peninsula in an effort to protect its natural environment.
5 In the meantime, however (on April 8, 2016) “the stockholders of both companies approved proposals relating to
Marriott’s acquisition of Starwood, which will create the world’s largest hotel company…As previously announced,
the parties have cleared the pre-merger antitrust review in the United States and Canada and multiple other
jurisdictions. The transaction remains on track to close mid-2016 pending completion of Starwood’s planned
divestiture of its timeshare business expected on or around April 30, 2016, obtaining remaining regulatory
approvals, including in the European Union and China, and the satisfaction of other customary closing conditions.”
(Starwood Hotels Press Release, April 8, 2016.) “The final terms of the offer were hammered out in Havana, while
the two US companies’ chief executives were accompanying President Barack Obama on his historic visit to
Cuba…[and included a] break-up fee payable if either one walks away from the proposed deal from $400m to
$450m.” (James Fontanella-Khan & Arash Massoudi, “Starwood Backs $13.6bn Marriott Bid”, Financial Times,
March 22, 2016.)
6 “Some of the Cuban staff members at the Hotel Inglaterra said they were a bit worried about whether Starwood
would let them keep their jobs, but they were mostly excited to start working with their American bosses. The
Cuban government will retain ownership of the physical property, and like all foreign companies in Cuba, Starwood
will have to hire workers through a state agency. A Cuban national landmark, the hotel opened in 1886, advertised
as ‘the best appointed house in the city.’ A young war correspondent named Winston Churchill stayed there in
1895 when Cubans launched an uprising against Spanish colonial rule. Ania Mastrapa, the public relations
manager who doubles as the hotel’s unofficial historian, said the Starwood executives fell in love with the property
when they first visited a few months ago. ‘Everyone knows that they’re going to bring improvements and raise the
standards of the hotel,’ she said. Mastrapa said she was confident the new managers would want to keep her.
‘I’ve worked here 20 years,’ she said. ‘Who else could tell the story of this place with so much affection?’”(Nick
Miroff, “Obama’s Visit Comes as American Businesses Rushing Back to Cuba”, Washington Post, March 21, 2016).
Cuban law prevents widespread direct hiring of Cuban workers by foreign firms. International
companies complain that their inability to directly hire Cuban employees, and if necessary
demote or fire underperforming staff, hinders their ability to provide satisfactory customer
service.
Giannattasio said he was confident that Starwood would have enough flexibility and control to
maintain the company’s standards in Cuba, although he declined to comment on details of the
firm’s arrangement with the Cuban government. Starwood will receive a fee for its branding and
management services.
The number of visitors to Cuba surged nearly 20 percent last year, with nearly 80 percent more
Americans flying to the island.7 The surge has overwhelmed Cuba’s decrepit tourism
infrastructure and left hotels above capacity.
Numbers are expected to rise even more sharply this year with the start of as many as 110
commercial flights a day from the United States, one of dozens of moves the U.S. administration
has made to punch holes in the trade embargo as part of a broader normalization of relations with
Cuba since Obama and Raul Castro declared detente on Dec. 17, 2014.
On Tuesday, the Obama administration removed the last meaningful restrictions on travel to
Cuba, announcing that it would allow individuals to visit the island for “people to people”
educational trips.8 While the ban on U.S. tourism technically remains in place, it becomes an
honor system that is essentially unenforceable.
Americans will have to keep records for five years about what they did in Cuba, but won’t have
to submit them unless asked. The Obama administration previously loosened requirements by
allowing organized trips without advance U.S. permission and independent travel for specific
purposes like religious activities or sports events.”
Case Instructions:
Since the above was written, much has changed. Marriott completed its $13B purchase of
Starwood in September, 2016. Donald J. Trump was elected as President of the United States
in November, 2016. Fidel Casto died shortly thereafter. In June 2017, President Trump
announced a new policy on Cuba. The Quinta Avenida hotel has been re-branded as a Four
Points by Sheraton (to mixed reviews). Jorge Giannattasio, Starwood’s Chief of Latin
America operations has left for SBE Hotels Group.
Please imagine that Tim Sheldon, Marriott’s President of their Caribbean & Latin America
(CALA) region, has hired your team to develop a strategy for the future success of Marriott
International, Inc. in Cuba. Please focus on stating your recommendations and the critical
issues they address.
7 “Cuba received a record 3.52 million visitors last year, up 17.4 percent from 2014. American visits rose 77
percent to 161,000, not counting hundreds of thousands of Cuban-Americans.” (Jaime Hamre, “Surge of
Americans Tests Limits of Cuba’s Tourism Industry”, Reuters, January 26, 2016.)
8 Many stakeholders have, however, expressed concern about Cuba’s human rights record (e.g., Human Rights
Watch, World Report 2016, Cuba Chapter.)
The Banana Wars and Chiquita, Inc.
A Short Case Prepared by Professor Heather Elms
(this case relies heavily on Deborah Spar’s 2001 Harvard Business School case,
“Chiquita Brands International (A)”)
The long-standing “banana wars” between the United States (U.S.) and the European
Union (EU) continue. “Although the climate of the European mainland is too cool to
produce bananas, producers in Spain’s Canary Islands; the French overseas departments
of Martinique and Guadeloupe; and Portugal’s Madeira and Azores provide about onefifth of EU banana consumption and have long been allowed to ship a duty-free quota of
775,000 metric tons a year to the EU. Latin American producers have not enjoyed those
preferences. In the most recent attempt to resolve the dispute, a World Trade
Organization panel ruled that the EU is still breaking international trade rules by
providing import preferences to these countries. Following the lead of the U.S. and
Ecuador, three more Latin American producers – Colombia, Nicaragua and Panama have lodged their own complaints.” (Field, 2008: 1).
The foundations of the EU’s modern duty-free quota of 775K metric tons for their former
colonies in Africa, the Caribbean, and the Pacific (the ACP countries) date back to 1993,
when “the newly formed [EU] unified its banana policy, restricting Latin American
bananas—Chiquita’s main export—in favor of ACP providers.” (Bucheli, 2005: 1). This
unification of policy was associated with the Maastricht Treaty (or Treaty on European
Union) of 1992, which officially transformed the European Economic Community
(EEC—established in 1957) into the EU, and created its broad single market (the treaty
went into effect in 1993). With foundations in the European Coal and Steel Community
(ECSC) established in 1951, many of the adaptations necessary for the creation of the
EU’s market (including and in addition to bananas) were identified in the Single
European Act of 1987 (European Union, 2009). Previous to 1993, variations existed:
Germany, for example did not give preference to ACP bananas, while the UK and France
did (Bucheli, 2005).
“Following World War II, Chiquita became Europe’s main banana provider, exporting to
Germany (its principal European market), as well as to Great Britain and other countries.
Chiquita provided bananas from both places [Latin American and ACP countries]….But
in 1986, confident of its dominance in the European banana market, the company sold its
British subsidiary Fyffes, its main marketer of ACP bananas. Chiquita saw the fall of
communism in the late 1980s and the creation of the EU in the early 1990s as great
opportunities to increase sales. Anticipating a growing market, the company invested,
with debt, in more production facilities in Latin America.” (Bucheli, 2005: 1) Dole,
Chiquita’s strongest competitor in Europe, instead increased investments in ACP
production facilities.
Keith Lindner, then President & COO of Chiquita Brands International, explained the
company’s situation at the end of 1994 as, “For many years, world trade has been
1
characterized by multilateral arrangements that reduce or eliminate restrictions on the
international flow of goods. In direct contrast to this trend, the [EU] has imposed an
increasingly restrictive and discriminatory trade policy on the Latin American banana
industry in the last several years. This has been the primary cause of the significant
losses Chiquita Brands International has posted since 1992, following a long record of
profitable growth.” (Chiquita Brands International Annual Report, 1994, cited in Spar,
1996: 1). Lindner was 35 years old. His father, Carl, had acquired the company in 1984,
and acted as Chairman of the Board and CEO. Previous to this acquisition, the company
had operated under the names United Fruit Company (UFC, established 1899) and United
Brands (from 1970). UFC “grew to dominate the international banana trade and to affect
profoundly the economic and social conditions of the Caribbean and Latin American
countries that grew and shipped its bananas.” (Spar, 1996: 2; see also Striffler & Moberg,
2003). UFC was commonly referred to as “‘la pulpa’ 1, or the octopus, by those who saw
the company as a highly visible extension of U.S. political and economic hegemony in
the region…it owned vast tracts of land in Jamaica, Cuba, Costa Rica, Panama,
Colombia, and Nicaragua, as well as the equally vast transportation networks that it
needed to move its bananas quickly and across long distances. It also developed
extensive political connections over time, working closely with the governments of its
producing regions, and helping them to earn the infamous label of ‘banana republics.’ In
many of the countries in which it operated, the UFC wielded disproportionate power,
blending its control of bananas, railroads, and politicians into a legendary, often
incendiary mix….In 1911 and 1912, President Taft sent the [M]arines into Honduras to
protect investments which UFC claimed to be threatened by the country’s political
instability. Also in 1911, UFC [was] implicated in a conspiracy to break U.S. neutrality
laws and overthrow the Honduran government.” (Spar, 1996: 3). “In 1961, [UFC] lent
part of its Great White Fleet to the CIA and Cuban exiles in the U.S. who were plotting to
overthrow Castro” (Chapman, 2007). Chapman additionally (2007, cited in Phelan, 2008:
1) claims that over the course of its existence, UFC controlled as much as 90% of the
global market, “with coups d’etat among its specialties. [UFC] had possibly launched
more exercises in ‘regime change’ on the banana’s behalf than had even been carried out
in the name of oil.’”
The Banana Industry
“In 1994, just six…firms dominated the global banana industry. They included U.S.based Chiquita and Dole, by far the largest of the major producer/distributors, as well as
the Fresh Produce division of Del Monte, which had been spun off from its corporate
parent in 1989. Geest PLC and Fyffes PLC, both based in the [EU], were smaller than
the two U.S. industry leaders, but still competed vigorously for market share, especially
in the European market. Noboa, a private company based in Ecuador, was also a major
player. Together, these six companies controlled almost all of the global banana market,
valued in 1991 at approximately $5.1B. Although these companies’ production was still
located primarily in the equatorial plantations of Latin America, the Caribbean, Africa,
and the Philippines, their sales were overwhelmingly concentrated in the developed
country markets of North American, the [EU], and Asia. The [EU] was the largest of
1
Or “el pulpo” (see Chapman, 2007; Bucheli & Jones, 2005).
2
these markets, accounting for roughly 40% of world imports by volume, 60% of which
came from Latin America. North America was the second largest consumer with
approximately 35% of world imports; Japan and other Asian countries absorbed another
15% of global banana shipments; and the remaining 10% supplied the rest of the world.
High transportation costs and perishability were crucial in determining the pattern of
supply across the world’s markets. Thus, bananas from the Philippines and other Asian
sources were shipped to Japan, while exports from Latin America, the Caribbean, and
Africa went primarily to the North American and European markets. Latin America, the
heart of [Chiquita’s] operations, was still the largest banana producing region in the
world, accounting for roughly 75% of global shipments by volume. The Philippines
accounted for an additional 10%; bananas from [ACP] represented another 10%; and a
handful of other countries supplied the balance of world banana shipments.” (Spar, 1996;
5).
Several characteristics appeared to be associated with the structure of the industry:
1) banana production and distribution required cleared, drained, and irrigated land;
2) bananas only grew in equatorial climates, which were often characterized by
difficult conditions;
3) bananas remained particularly vulnerable to bad weather and disease, so required
multiple crop management techniques;
4) bananas were “uniquely perishable, and [could not] be processed readily by
freezing or canning” (Spar, 1996: 4)—thus requiring complex logistical systems;
5) despite attempts to the contrary through branding, bananas remained a commodity
Case Analysis
Respond to Keith Linder’s statement about Chiquita’s situation at the end of 1994
by providing recommendations about how to improve Chiquita’s performance (see
his quote from the 1994 annual report on p. 1-2 of this case.)
In identifying the critical issues facing Chiquita, be sure to identify the
sources of these issues. Provide evidence from the case to support your
argument about why these issues developed, as well as using evidence from
the case to support your recommendations.
o Hint: there appear to be a least three broad sources:
macroenvironmental, industry, & company.
3
Exhibit 1: Chiquita Brands International Consolidated Statements of Income, 1991-1994
(reprinted in Spar, 2001)
($000s)
Net sales
Cost of goods sold
Gross profit
SG&A
Depreciation &
Amortization
Restructuring
Operating income
Interest expense
Non-operating
income
Profit before taxes
Income taxes
Income from
continuing
operations
Discontinued
operations
Extraordinary
items
Net income
Shares outstanding
Market value
equity
1994
3,961,720
3,293,341
668,379
442,780
115,816
1993
2,532,925
1,993,552
539,373
332,934
102,591
1992
2,723,250
2,309,425
413,825
368,675
80,438
1991
2,604,128
2,027,669
576,459
324,240
54,401
NA
109,783
(169,521)
24,538
NA
103,848
(169,789)
26,860
61,300
(96,588)
(155,036)
34,916
NA
197,818
88,406
50,597
(35,200)
(13,500)
(48,700)
(39,081)
(12,000)
(51,081)
(216,708)
(5,000)
(221,708)
160,009
(49,100)
110,909
NA
NA
(62,332)
17,586
(22,840)*
NA
NA
NA
(71,540)
49,031
671,973
(51,081)
48,510
557,865
(284,040)
48,164
830,829
128,495
49,926
1,997,040
Closing stock price
Earnings per share
Dividends per
share
Interest coverage
13.63
-1.45
.20
11.5
-1.05
.44
17.25
-5.90
.68
40
2.57
.55
.79
.78
-.74
2.81
* Extraordinary loss from prepayment of debt.
4
Exhibit 2: Chiquita Brands International Consolidated Balanced Sheets, 1991-1994
(reprinted in Spar, 2001)
($000s)
Cash
Marketable
Securities
Receivables
Inventories
Other current
assets
Total current assets
1994
178,855
0
1993
151,226
0
1992
387,969
25,212
1991
712,005
113,442
353,725
351,730
33,932
273,106
307,073
39,054
199,684
350,578
107,280
214,835
311,984
156,318
918,242
770,459
1,070,723
1,508,584
Net PP&E
Investments and
other assets
Other non-current
Intangibles
Total Assets
1,433,858
309,721
1,427,191
282,914
1,374,913
252,439
977,310
269,507
75,030
165,170
2,902,021
93,340
166,759
2,740,753
0
182,549
2,880,260
0
181,943
2,937,344
Notes payable
Accounts payable
Long term debt,
current portion
Accrued expenses
Total current
liabilities
130,163
270,033
91,032
112,796
202,923
79,411
136,765
226,860
92,521
146,756
256,125
41,065
162,589
653,817
108,536
503,666
132,239
588,385
104,545
548,491
1,364,877
238,518
1,438,378
196,711
1,411,319
206,033
1,202,839
218,089
2,257,212
2,138,755
2,205,737
1,969,419
190,639
16,434
52,270
16,170
52,270
16,055
NA
16,642
505,800
(52,940)
(15,124)
644,809
494,240
39,318
NA
601,998
490,369
116,193
NA
674,887
533,627
417,656
NA
967,925
2,902,021
2,740,753
2,880,624
2,937,344
Long term debt
Other long term
liabilities
Total liabilities
Preferred stock
Common stock,
net
Capital surplus
Retained earnings
Other equities
Total shareholders’
equity
Total liabilities &
net worth
5
Exhibit 3: Global Banana Companies (1994)
Chiquita
Dole
Fyffes
Geest
Noboa
Del Monte Produce
Total Sales
3,961,720
3,841,566
1,408,309
1,057,437
700,000
600,000
Sales of Bananas
2,377,032
960,400
563,324
528,719
280,000
240,000
Net Income
(71,540)
67,883
39,398
14,867
21,000
18,000
References:
Bucheli, M., 2005. Banana war maneuvers. Harvard Business Review November.
Bucheli, M. & Jones, G. 2005. The octopus and the generals: The United Fruit
Company in Guatemala. Cambridge, MA; Harvard Business School Press.
Chapman, P., 2007. Rotten fruit. Financial Times May 4.
Field, A.M., 2008. Bananas: Battered & bruised. Journal of Commerce: May 26.
Kurtz-Phelan, D., 2008. Big fruit. New York Times March 2 (a review of Chapman, P.,
2007. Bananas: How the United Fruit Company Shaped the World. Edinburgh,
Scotland: Cannongate Books.)
Spar, D. 2001. Chiquita Brands International. Cambridge, MA; Harvard Business
School Press.
Striffler, S. & Moberg, M. (Eds.), 2003. Banana wars: Power, production & history in
the Americas. Durham: Duke University Press.
6
Team Global Business and Country
Attractiveness Project
1
About Project
Name of the Company: Tesla, Inc.
Line of Business: Automobile
Countries for Evaluation: Saudi Arabia, Oman and Bahrain
Team Members:
2
Company Details
• Tesla, Inc. was established in 2003
• Headquarters at Palo Alto, California, USA
• Business of designing and selling electric cars
• Main Models: Model 3, Model Y, Model S, Model X, Cybertruck, Tesla Semi and a new Tesla Roadster
• As on December 31, 2019
• Revenue – $24.6 B
• Net Loss – $862 Million
• Employees – 48,016
• Total Vehicles Manufactured – 367656
(Tesla, 2020)
3
Global Competitors
Company Name
Tesla
Headquarters
Palo-Alto,
CA
Sales
Profitability
Models
Kia Motors
BMW
Seoul, South Munich,
Korea
Germany
Nissan
Volkswagen
Yokohama,
Japan
Wolfsburg,
Germany
$24,578 M $47,102 M $113,589 M $69,818 M $275,334 M
(-) $862 M
– $5,474 M
$365 M
$21,037 M
Model 3,
Model Y,
Kia Nero EV, BMW i3,
Model S,
Nissan Leaf E-Golf, E-Up
Kia Seoul EV BMW i8
Model X,
Cybertruck,
Hyundai
Chevrolet
Motors
Seoul,
South
Korea
$85,690 M
$2,641 M
Detroit,
Michigan,
U.S
$80,600 M
$6,700 M
ioniq,
Kona
Bolt EV
(Tesla, 2020)
4
Country Profile: Saudi Arabia
Policies towards FDI
Legal Regime
Political & Security Environment
Economic Policies
– Keen to open the economy for FDI
– Encourage FDI in sectors like transportation, health, ICT, media, mining energy
– Restriction on 11 core infrastructure and oil based industries
– Low score on legal systems and regime
– Mainly Sharia law
– Commercial Laws are not fully developed
– Kingdom and monarchy
– Potentially risky country than other countries like Bahrain and Oman
– 83rd freest market to do business
– Offers various FTZ, free ports and incentives to work
– Saudi’s financial sector is capital market is relatively open
– The banking system of Saudi Arabia is well capitalized and healthy
(U.S. Department of States, 2019)
5
Country Profile: Oman
Policies towards FDI
Legal Regime
– Conducive environment for FDI and 100% ownership allowed
– Free Trade Agreement (FTA) between Oman and U.S.
– Legal system not very trustworthy and transparent
– The power to make laws are in the monarchy governed parliament and is not participative
– Legal system is code based and follows English, French and Sharia laws
– All the business disputes are settled through commercial courts
Political & Security Environment – Largely peaceful country with no border or internal disputes
Economic Policies
– FDI’s in Oman has been slow despite low corporate tax rates and no personal or capital gains tax
-Quota and localization for Oman nationals and that is in range of 10% to 90%
– The financial markets are strong and there are no restrictions on flow of capital and currency
– Banking system is also healthy and robust as it is well-capitalized
(U.S. Department of States, 2019)
6
Country Profile: Bahrain
Policies towards FDI
Legal Regime
– Government keen to have FDI in all the sectors
– 100% ownership and zero corporate, personal or capital gains tax
– Sharia is the main law
– modern laws like civil, criminal and family courts are also operational
– The country also has the framework of commercial law also practiced English language
– Laws related to FDI are accommodating and flexible
– Bahrain also has bankruptcy and insolvency laws
Political & Security Environment – Moderately stable and safe
Economic Policies
– Incentives for FDIs like special zones, special grants and exemption of import duties and likewise
– Strong localization and mandatory to employ Bahrain nationals
– The Central Bank of Bahrain (CBB) manages and regulates the financial sector
– Most of the Bahrain banks are Basel II compliant
– Many U.S. banks like Citi, J P Morgan and American Express have their presence in Bahrain
(U.S. Department of States, 2019)
7
Critical Issues
Expansion in International Markets for:
• Increasing the profits and reducing per unit cost
• Expand in new markets worldwide
• Creating new customer base
• Creating the awareness about electric cars
(Tesla, 2020)
8
Choice of Country
Choice of Country: BAHRAIN
Reasons:
• financial and economic systems are matured and robust than Oman and Saudi Arabia
• Politically, Bahrain is more stable
• Legal and Regulatory framework is more advanced
• ZERO corporate, personal and capital gains tax
• Modern day laws like bankruptcy and insolvency also exist
9
Choice of Entry Strategy
• Tesla, Inc. can use “transnational” strategy
• Other strategies to support:
• Direct Selling
• Certified pre-owned schemes
• Diversification
• Localization
• Positioning of showroom and galleries
(Yoon, 2019)
10
Strategic Recommendations
1. First mover advantage and almost NIL competition.
2. Support by government in setting up high end car showrooms across the country
3. Focused Differentiation:
• Can sell luxury cars at high price
• Inelastic demand
• Pride of owning a Tesla brand
(Rabouin, 2019)
11
References:
•
Rabouin. (2019, October 30). Tesla’s global aspirations are dividing the markets. Retrieved from https://www.axios.com/:
https://www.axios.com/tesla-global-expansion-china-stock-market-7467886e-8d18-4d60-b1b1-f384da0c911e.html
•
Tesla. (2020, February 07). Annual Report 2019 10-K. Retrieved from https://tesla.gcs-web.com/: https://tesla.gcs-web.com/staticfiles/07bfcb70-aba1-4a27-af09-4f101678320c
•
U.S. Department of States. (2019). 2019 Investment Climate Statements: Saudi Arabia. Retrieved from https://www.state.gov/:
https://www.state.gov/reports/2019-investment-climate-statements/saudi-arabia/
•
U.S. Deptt of States. (2019). 2019 Investment Climate Statements: Bahrain. Retrieved from https://www.state.gov:
https://www.state.gov/reports/2019-investment-climate-statements/bahrain/
•
US Deptt of States. (2019). 2019 Investment Climate Statements: Oman. Retrieved from https://www.state.gov/:
https://www.state.gov/reports/2019-investment-climate-statements/oman/
•
Worldpopulation. (2020). Gulf Countries 2020. Retrieved from https://worldpopulationreview.com/:
https://worldpopulationreview.com/countries/gulf-countries/
•
Yoon, E. (2019, May 15). Tesla’s Strong Brand Gives It Unusual Expansion Potential. Retrieved from https://hbr.org:
https://hbr.org/2019/05/teslas-strong-brand-gives-it-unusual-expansion-potential
•
Yuying, & Qingrun. (2018, March 10). Tesla’s International Expansion Strategy. Retrieved from
https://globalmarketingprofessor.com/: https://globalmarketingprofessor.com/teslas-international-expansion-strategy/
12
Foreign Exchange Markets, continued
• Companies use foreign exchange markets, e.g.,
• To convert payments they receive
• To convert payments they need to make
• For currency speculation
• To insure against foreign exchange risk
• Risks given adverse consequences of unpredictable changes in exchange rates
• If company is converting payments they receive and host currency devalues, the
company gets less—and may have to increase prices to cover the change
• If company is converting payments they need to make and host currency
appreciates, the company needs to pay more—and may have to increase prices to
cover the change
– Can use forward exchange rate contracts or currency swaps
Exchange Rates
• Because exchange rate movements influence the profitability of trade and
investment, companies want to be able to forecast them
• While no simple/agreed explanation, factors include:
•
•
•
•
•
•
•
•
•
Inflation (incl. price inflation, increases in money supply)
Nominal interest rate (as reflects expectations about future inflation), Real interest rate
Return on currency denominated assets (e.g., local stocks)
Balance of Payments (Current (Trade) and Capital Accounts)
Fiscal Balance (Government budget)
Foreign currency reserves
Domestic/International borrowing
Economic growth, Political/social turmoil
Market psychology (e.g., self-fulfilling prophecies, herd and contagion effects )
Regional Economic Integration: Levels
• Free trade area
Most regional agreements: e.g., NAFTA (now USMCA, pending)
Each member has own policies with non-members
• Customs union
Common external trade policy
e.g., Andean Pact (Bolivia, Colombia, Ecuador, Peru)
• Common market
Allows free movement of factors of production (labor/capital)
e.g., EU—but EU has moved beyond
Regional Economic Integration: Levels, continued
• Economic Union
Common currency, harmonization of tax rates, common monetary & fiscal
policy
EU, though not all EURO, and differences in tax rates etc. remain
• Political Union
Central political structure coordinating
EU Parliament and Council of Ministers
economic, social, foreign policy
Regional Economic Integration: Levels, continued
• Economic
• Allows specialization in efficient production, resulting in greater world production
• Trade Creation
• Growth (including knowledge sharing)
• Exploit gains from free trade and investment
• Political
• Incentives for cooperation/reduction of conflict
• Impediments:
• Costs to certain groups
• Concerns over national sovereignty
• Trade diversion
Global Operations
Overarching theme is that multinational companies need to:
• Trade when most advantageous to do so
Including outsourcing/offshoring
• Invest when most advantageous to do so
Including production, marketing and R&D
• Market locally and globally
• Hire locally and globally
• The transnational strategy suggests that companies will concentrate production,
marketing and R&D, etc. in favorable locations, but may also establish complete
value chains in certain locations
Global Production: Where to produce?
Country factors
• Political economy, culture, relative factor costs, location externalities (labor,
related industries), trade/investment barriers, transportation costs, future
exchange rate movements
Technological factors
• Fixed costs, minimum efficient scale, flexibility of technology
Product factors
• Value to weight ratio (want high/low), need universality
Concentrate production or decentralize?
Outsourcing Production: Make-or-buy Decisions
Key theory explaining is transaction cost economics
If market is more expensive to use (including search and contracting costs) than
producing/providing it yourself (including administrative costs), make it
•
= Vertical integration
• If market is less expensive to use, buy it
• Vertical integration may reduce costs, facilitate adjacent processes,
facilitate investments in specific assets, protect technology, improve
scheduling
• The market may reduce costs, increase flexibility, establish relationships
(incl. local purchases)
• Alliances are another option, but all are a balance
Global Marketing
• “Marketing mix” is the set of choices offered, and based on
Differences in political economy (including level of development),
national culture, product standards, distribution channels, etc.
• Marketing segmentation based on identification of distinct groups
of consumers
And leads to different product attributes, pricing, distribution channels,
communication strategies
Strategic Role of HRM
• Staffing, management development, performance evaluation and compensations
decisions further complicated by differences across labor markets, culture,
political economy (political/economic/legal)
• Compensation (including benefit) practices vary
• Labor laws vary (including about unionization and equal employment)
• Expectations of employees vary
• Need to build “cadre” of managers capable of managing a multinational
enterprise, and otherwise staff
• Bias towards expatriates (citizens of another country) for management roles, but
not others
Purchase answer to see full
attachment
A Short Case Prepared for the AU NetImpact Chapter’s Faculty and Alumni
Case Competition, 2016
by Heather Elms, with help from Iryna Casteel, Elizabeth Doane, Jolie Roetter and Mark Starik
Note: This case is an annotated version of “US Hotel Company Starwood to Run 3 Cuban
Hotels” (by Michael Weissenstein, Washington Post, Sunday, March 20, 2016.)
“HAVANA (AP) – Starwood signed a deal on Saturday to renovate and run three Cuban hotels,
returning U.S. chains to the island more than 50 years after American hotels were taken over by
Fidel Castro’s socialist revolution.1
All Cuban hotels are state-owned so the deal puts a major U.S. corporation directly in business
with the Communist government under a special U.S. license that pushes Washington’s legal
dismantling of the Cuban trade embargo further than ever before.2 In a once-unimaginable
arrangement, a hotel owned by the tourism arm of the Cuban military will become a Sheraton
Four Points.
The deal comes on the eve of President Barack Obama’s historic visit to Cuba, which will open a
new era between the former Cold War foes that has American travelers and businesses eagerly
eyeing opportunities on the island nation 90 miles (145 kilometers) south of Florida.3
Starwood’s chief of Latin America operations, Jorge Giannattasio, said the company will invest
millions to renovate and rebrand the Quinta Avenida, Santa Isabel and Inglaterra hotels4, train
1 Non-US
chains (including Spain’s Melia Hotels International) have held management contracts with Cuba’s
stateowned
hotels for years. Pre-revolution (1959) and associated nationalizations (1960), many Cuban hotels were
American owned and/or operated, including the Hotel National and the Hotel Tryp Habana Libre (previously the
Habana Hilton, which served as Fidel Castro’s headquarters during the initial months of the revolution, and
operated by Melia since 1996, when it was also renovated.)
2 Cuban
President Raúl Castro, who recently “reiterated his intention to step down 2 years from now, at age 86”
continues to identify the U.S. embargo as “the principal obstacle” to Cuba’s economic development. “Obama’s
efforts to use his executive powers to bypass the embargo ‘are positive, but insufficient [although ‘we recognize
that President Obama and senior administration officials oppose it and have repeatedly called on Congress to
repeal it’],’ Castro said.” (Karen DeYoung, “Raúl Castro, 84, Says He’ll Step Down in Two Years, Calls for Younger
Leaders”, Washington Post, April 19, 2016). It remains unclear whether the winner of the upcoming U.S.
presidential election will pursue the Obama administration’s efforts.
3 American
Airlines currently operates daily charter flights between the U.S. and Cuba, but a number of U.S. airline
companies (including American and JetBlue) are competing for the rights to commercial flights (Bart Jansen, “US
Airlines Fight for Rights to Cuba”, USA Today, March 18, 2016). Carnival Corporation has also announced that
their intentions to “begin sailing to Cuba every other week beginning May 1, the first time a cruise ship has sailed
from the U.S to Cuba in more than 50 years” (DeYoung, 2016, above), may be delayed by a Cuban government
policy that prohibits people born in Cuba from traveling there by sea (Chabeli Herrera, “Carnival Opens Bookings
for Cuban-born Guest Pending a Change in Cuba Policy”, Miami Herald, April 18, 2016).
4 All
are located in Havana. The Quinta Avenida is located in the Miramar district, which borders the Old Havana
district, where both the Santa Isabel and Inglaterra Hotels are located. The Old Havana district is a UNESCO World
Heritage site. Both the reconstruction and operation of hotels include numerous environmental opportunities and
and hire new staff and reopen the hotels by the end of the year. The Quinta Avenida is owned by
Gaviota, a military-run tourism conglomerate. The Santa Isabel and Inglaterra, which are run by
other state agencies, will be operated as part of Starwood’s Luxury Collection brand.
It’s unclear, however, how long Starwood can be called an American company. On Friday,
Starwood called off a $12.2 billion buyout agreement with Marriott in favor of an offer from a
group of investors led by the Chinese insurance company Anbang.5
Cuban hotels are notorious for their ramshackle furnishings and poor service. Giannattasio said
the Cuban Starwood hotels would be refitted with everything from new mattresses to improved
kitchen equipment and safety measures and managed by teams of expatriate Starwood
employees.6
challenges. A number of voluntary certifications regarding hotel construction/reconstruction and operations have
been developed in the U.S. and elsewhere, and a number of major hotel chains have adopted various
environmental measures over the past two decades. These include the Kimpton Hotel’s Earth Care program,
Starwood Hotel’s Global Citizenship Sustainability and Social Responsibility programs, Marriott Hotel’s Corporate
Responsibility program, the Hyatt Thrive program, and many other environmentally-oriented programs of smaller
hotel chains and standalone hotels. Seldom, however, do such programs account for the environmental impacts of
their customers’ transportation and consumption off hotel property, nor wider community or biodiversity aspects
of the regions in which those hotels are located. Beyond Havana, there are a variety of hotels throughout the
island, including on the Hicacos Peninsula off Cuba’s northern coast, widely recognized as a tourist destination for
its beautiful beaches. The Peninsula includes the resort town of Veradero. Melia, for example, operates a number
of hotels in Havana and in Veradero. The Cuban government claims to want to limit further development on the
Peninsula in an effort to protect its natural environment.
5 In the meantime, however (on April 8, 2016) “the stockholders of both companies approved proposals relating to
Marriott’s acquisition of Starwood, which will create the world’s largest hotel company…As previously announced,
the parties have cleared the pre-merger antitrust review in the United States and Canada and multiple other
jurisdictions. The transaction remains on track to close mid-2016 pending completion of Starwood’s planned
divestiture of its timeshare business expected on or around April 30, 2016, obtaining remaining regulatory
approvals, including in the European Union and China, and the satisfaction of other customary closing conditions.”
(Starwood Hotels Press Release, April 8, 2016.) “The final terms of the offer were hammered out in Havana, while
the two US companies’ chief executives were accompanying President Barack Obama on his historic visit to
Cuba…[and included a] break-up fee payable if either one walks away from the proposed deal from $400m to
$450m.” (James Fontanella-Khan & Arash Massoudi, “Starwood Backs $13.6bn Marriott Bid”, Financial Times,
March 22, 2016.)
6 “Some of the Cuban staff members at the Hotel Inglaterra said they were a bit worried about whether Starwood
would let them keep their jobs, but they were mostly excited to start working with their American bosses. The
Cuban government will retain ownership of the physical property, and like all foreign companies in Cuba, Starwood
will have to hire workers through a state agency. A Cuban national landmark, the hotel opened in 1886, advertised
as ‘the best appointed house in the city.’ A young war correspondent named Winston Churchill stayed there in
1895 when Cubans launched an uprising against Spanish colonial rule. Ania Mastrapa, the public relations
manager who doubles as the hotel’s unofficial historian, said the Starwood executives fell in love with the property
when they first visited a few months ago. ‘Everyone knows that they’re going to bring improvements and raise the
standards of the hotel,’ she said. Mastrapa said she was confident the new managers would want to keep her.
‘I’ve worked here 20 years,’ she said. ‘Who else could tell the story of this place with so much affection?’”(Nick
Miroff, “Obama’s Visit Comes as American Businesses Rushing Back to Cuba”, Washington Post, March 21, 2016).
Cuban law prevents widespread direct hiring of Cuban workers by foreign firms. International
companies complain that their inability to directly hire Cuban employees, and if necessary
demote or fire underperforming staff, hinders their ability to provide satisfactory customer
service.
Giannattasio said he was confident that Starwood would have enough flexibility and control to
maintain the company’s standards in Cuba, although he declined to comment on details of the
firm’s arrangement with the Cuban government. Starwood will receive a fee for its branding and
management services.
The number of visitors to Cuba surged nearly 20 percent last year, with nearly 80 percent more
Americans flying to the island.7 The surge has overwhelmed Cuba’s decrepit tourism
infrastructure and left hotels above capacity.
Numbers are expected to rise even more sharply this year with the start of as many as 110
commercial flights a day from the United States, one of dozens of moves the U.S. administration
has made to punch holes in the trade embargo as part of a broader normalization of relations with
Cuba since Obama and Raul Castro declared detente on Dec. 17, 2014.
On Tuesday, the Obama administration removed the last meaningful restrictions on travel to
Cuba, announcing that it would allow individuals to visit the island for “people to people”
educational trips.8 While the ban on U.S. tourism technically remains in place, it becomes an
honor system that is essentially unenforceable.
Americans will have to keep records for five years about what they did in Cuba, but won’t have
to submit them unless asked. The Obama administration previously loosened requirements by
allowing organized trips without advance U.S. permission and independent travel for specific
purposes like religious activities or sports events.”
Case Instructions:
Since the above was written, much has changed. Marriott completed its $13B purchase of
Starwood in September, 2016. Donald J. Trump was elected as President of the United States
in November, 2016. Fidel Casto died shortly thereafter. In June 2017, President Trump
announced a new policy on Cuba. The Quinta Avenida hotel has been re-branded as a Four
Points by Sheraton (to mixed reviews). Jorge Giannattasio, Starwood’s Chief of Latin
America operations has left for SBE Hotels Group.
Please imagine that Tim Sheldon, Marriott’s President of their Caribbean & Latin America
(CALA) region, has hired your team to develop a strategy for the future success of Marriott
International, Inc. in Cuba. Please focus on stating your recommendations and the critical
issues they address.
7 “Cuba received a record 3.52 million visitors last year, up 17.4 percent from 2014. American visits rose 77
percent to 161,000, not counting hundreds of thousands of Cuban-Americans.” (Jaime Hamre, “Surge of
Americans Tests Limits of Cuba’s Tourism Industry”, Reuters, January 26, 2016.)
8 Many stakeholders have, however, expressed concern about Cuba’s human rights record (e.g., Human Rights
Watch, World Report 2016, Cuba Chapter.)
The Banana Wars and Chiquita, Inc.
A Short Case Prepared by Professor Heather Elms
(this case relies heavily on Deborah Spar’s 2001 Harvard Business School case,
“Chiquita Brands International (A)”)
The long-standing “banana wars” between the United States (U.S.) and the European
Union (EU) continue. “Although the climate of the European mainland is too cool to
produce bananas, producers in Spain’s Canary Islands; the French overseas departments
of Martinique and Guadeloupe; and Portugal’s Madeira and Azores provide about onefifth of EU banana consumption and have long been allowed to ship a duty-free quota of
775,000 metric tons a year to the EU. Latin American producers have not enjoyed those
preferences. In the most recent attempt to resolve the dispute, a World Trade
Organization panel ruled that the EU is still breaking international trade rules by
providing import preferences to these countries. Following the lead of the U.S. and
Ecuador, three more Latin American producers – Colombia, Nicaragua and Panama have lodged their own complaints.” (Field, 2008: 1).
The foundations of the EU’s modern duty-free quota of 775K metric tons for their former
colonies in Africa, the Caribbean, and the Pacific (the ACP countries) date back to 1993,
when “the newly formed [EU] unified its banana policy, restricting Latin American
bananas—Chiquita’s main export—in favor of ACP providers.” (Bucheli, 2005: 1). This
unification of policy was associated with the Maastricht Treaty (or Treaty on European
Union) of 1992, which officially transformed the European Economic Community
(EEC—established in 1957) into the EU, and created its broad single market (the treaty
went into effect in 1993). With foundations in the European Coal and Steel Community
(ECSC) established in 1951, many of the adaptations necessary for the creation of the
EU’s market (including and in addition to bananas) were identified in the Single
European Act of 1987 (European Union, 2009). Previous to 1993, variations existed:
Germany, for example did not give preference to ACP bananas, while the UK and France
did (Bucheli, 2005).
“Following World War II, Chiquita became Europe’s main banana provider, exporting to
Germany (its principal European market), as well as to Great Britain and other countries.
Chiquita provided bananas from both places [Latin American and ACP countries]….But
in 1986, confident of its dominance in the European banana market, the company sold its
British subsidiary Fyffes, its main marketer of ACP bananas. Chiquita saw the fall of
communism in the late 1980s and the creation of the EU in the early 1990s as great
opportunities to increase sales. Anticipating a growing market, the company invested,
with debt, in more production facilities in Latin America.” (Bucheli, 2005: 1) Dole,
Chiquita’s strongest competitor in Europe, instead increased investments in ACP
production facilities.
Keith Lindner, then President & COO of Chiquita Brands International, explained the
company’s situation at the end of 1994 as, “For many years, world trade has been
1
characterized by multilateral arrangements that reduce or eliminate restrictions on the
international flow of goods. In direct contrast to this trend, the [EU] has imposed an
increasingly restrictive and discriminatory trade policy on the Latin American banana
industry in the last several years. This has been the primary cause of the significant
losses Chiquita Brands International has posted since 1992, following a long record of
profitable growth.” (Chiquita Brands International Annual Report, 1994, cited in Spar,
1996: 1). Lindner was 35 years old. His father, Carl, had acquired the company in 1984,
and acted as Chairman of the Board and CEO. Previous to this acquisition, the company
had operated under the names United Fruit Company (UFC, established 1899) and United
Brands (from 1970). UFC “grew to dominate the international banana trade and to affect
profoundly the economic and social conditions of the Caribbean and Latin American
countries that grew and shipped its bananas.” (Spar, 1996: 2; see also Striffler & Moberg,
2003). UFC was commonly referred to as “‘la pulpa’ 1, or the octopus, by those who saw
the company as a highly visible extension of U.S. political and economic hegemony in
the region…it owned vast tracts of land in Jamaica, Cuba, Costa Rica, Panama,
Colombia, and Nicaragua, as well as the equally vast transportation networks that it
needed to move its bananas quickly and across long distances. It also developed
extensive political connections over time, working closely with the governments of its
producing regions, and helping them to earn the infamous label of ‘banana republics.’ In
many of the countries in which it operated, the UFC wielded disproportionate power,
blending its control of bananas, railroads, and politicians into a legendary, often
incendiary mix….In 1911 and 1912, President Taft sent the [M]arines into Honduras to
protect investments which UFC claimed to be threatened by the country’s political
instability. Also in 1911, UFC [was] implicated in a conspiracy to break U.S. neutrality
laws and overthrow the Honduran government.” (Spar, 1996: 3). “In 1961, [UFC] lent
part of its Great White Fleet to the CIA and Cuban exiles in the U.S. who were plotting to
overthrow Castro” (Chapman, 2007). Chapman additionally (2007, cited in Phelan, 2008:
1) claims that over the course of its existence, UFC controlled as much as 90% of the
global market, “with coups d’etat among its specialties. [UFC] had possibly launched
more exercises in ‘regime change’ on the banana’s behalf than had even been carried out
in the name of oil.’”
The Banana Industry
“In 1994, just six…firms dominated the global banana industry. They included U.S.based Chiquita and Dole, by far the largest of the major producer/distributors, as well as
the Fresh Produce division of Del Monte, which had been spun off from its corporate
parent in 1989. Geest PLC and Fyffes PLC, both based in the [EU], were smaller than
the two U.S. industry leaders, but still competed vigorously for market share, especially
in the European market. Noboa, a private company based in Ecuador, was also a major
player. Together, these six companies controlled almost all of the global banana market,
valued in 1991 at approximately $5.1B. Although these companies’ production was still
located primarily in the equatorial plantations of Latin America, the Caribbean, Africa,
and the Philippines, their sales were overwhelmingly concentrated in the developed
country markets of North American, the [EU], and Asia. The [EU] was the largest of
1
Or “el pulpo” (see Chapman, 2007; Bucheli & Jones, 2005).
2
these markets, accounting for roughly 40% of world imports by volume, 60% of which
came from Latin America. North America was the second largest consumer with
approximately 35% of world imports; Japan and other Asian countries absorbed another
15% of global banana shipments; and the remaining 10% supplied the rest of the world.
High transportation costs and perishability were crucial in determining the pattern of
supply across the world’s markets. Thus, bananas from the Philippines and other Asian
sources were shipped to Japan, while exports from Latin America, the Caribbean, and
Africa went primarily to the North American and European markets. Latin America, the
heart of [Chiquita’s] operations, was still the largest banana producing region in the
world, accounting for roughly 75% of global shipments by volume. The Philippines
accounted for an additional 10%; bananas from [ACP] represented another 10%; and a
handful of other countries supplied the balance of world banana shipments.” (Spar, 1996;
5).
Several characteristics appeared to be associated with the structure of the industry:
1) banana production and distribution required cleared, drained, and irrigated land;
2) bananas only grew in equatorial climates, which were often characterized by
difficult conditions;
3) bananas remained particularly vulnerable to bad weather and disease, so required
multiple crop management techniques;
4) bananas were “uniquely perishable, and [could not] be processed readily by
freezing or canning” (Spar, 1996: 4)—thus requiring complex logistical systems;
5) despite attempts to the contrary through branding, bananas remained a commodity
Case Analysis
Respond to Keith Linder’s statement about Chiquita’s situation at the end of 1994
by providing recommendations about how to improve Chiquita’s performance (see
his quote from the 1994 annual report on p. 1-2 of this case.)
In identifying the critical issues facing Chiquita, be sure to identify the
sources of these issues. Provide evidence from the case to support your
argument about why these issues developed, as well as using evidence from
the case to support your recommendations.
o Hint: there appear to be a least three broad sources:
macroenvironmental, industry, & company.
3
Exhibit 1: Chiquita Brands International Consolidated Statements of Income, 1991-1994
(reprinted in Spar, 2001)
($000s)
Net sales
Cost of goods sold
Gross profit
SG&A
Depreciation &
Amortization
Restructuring
Operating income
Interest expense
Non-operating
income
Profit before taxes
Income taxes
Income from
continuing
operations
Discontinued
operations
Extraordinary
items
Net income
Shares outstanding
Market value
equity
1994
3,961,720
3,293,341
668,379
442,780
115,816
1993
2,532,925
1,993,552
539,373
332,934
102,591
1992
2,723,250
2,309,425
413,825
368,675
80,438
1991
2,604,128
2,027,669
576,459
324,240
54,401
NA
109,783
(169,521)
24,538
NA
103,848
(169,789)
26,860
61,300
(96,588)
(155,036)
34,916
NA
197,818
88,406
50,597
(35,200)
(13,500)
(48,700)
(39,081)
(12,000)
(51,081)
(216,708)
(5,000)
(221,708)
160,009
(49,100)
110,909
NA
NA
(62,332)
17,586
(22,840)*
NA
NA
NA
(71,540)
49,031
671,973
(51,081)
48,510
557,865
(284,040)
48,164
830,829
128,495
49,926
1,997,040
Closing stock price
Earnings per share
Dividends per
share
Interest coverage
13.63
-1.45
.20
11.5
-1.05
.44
17.25
-5.90
.68
40
2.57
.55
.79
.78
-.74
2.81
* Extraordinary loss from prepayment of debt.
4
Exhibit 2: Chiquita Brands International Consolidated Balanced Sheets, 1991-1994
(reprinted in Spar, 2001)
($000s)
Cash
Marketable
Securities
Receivables
Inventories
Other current
assets
Total current assets
1994
178,855
0
1993
151,226
0
1992
387,969
25,212
1991
712,005
113,442
353,725
351,730
33,932
273,106
307,073
39,054
199,684
350,578
107,280
214,835
311,984
156,318
918,242
770,459
1,070,723
1,508,584
Net PP&E
Investments and
other assets
Other non-current
Intangibles
Total Assets
1,433,858
309,721
1,427,191
282,914
1,374,913
252,439
977,310
269,507
75,030
165,170
2,902,021
93,340
166,759
2,740,753
0
182,549
2,880,260
0
181,943
2,937,344
Notes payable
Accounts payable
Long term debt,
current portion
Accrued expenses
Total current
liabilities
130,163
270,033
91,032
112,796
202,923
79,411
136,765
226,860
92,521
146,756
256,125
41,065
162,589
653,817
108,536
503,666
132,239
588,385
104,545
548,491
1,364,877
238,518
1,438,378
196,711
1,411,319
206,033
1,202,839
218,089
2,257,212
2,138,755
2,205,737
1,969,419
190,639
16,434
52,270
16,170
52,270
16,055
NA
16,642
505,800
(52,940)
(15,124)
644,809
494,240
39,318
NA
601,998
490,369
116,193
NA
674,887
533,627
417,656
NA
967,925
2,902,021
2,740,753
2,880,624
2,937,344
Long term debt
Other long term
liabilities
Total liabilities
Preferred stock
Common stock,
net
Capital surplus
Retained earnings
Other equities
Total shareholders’
equity
Total liabilities &
net worth
5
Exhibit 3: Global Banana Companies (1994)
Chiquita
Dole
Fyffes
Geest
Noboa
Del Monte Produce
Total Sales
3,961,720
3,841,566
1,408,309
1,057,437
700,000
600,000
Sales of Bananas
2,377,032
960,400
563,324
528,719
280,000
240,000
Net Income
(71,540)
67,883
39,398
14,867
21,000
18,000
References:
Bucheli, M., 2005. Banana war maneuvers. Harvard Business Review November.
Bucheli, M. & Jones, G. 2005. The octopus and the generals: The United Fruit
Company in Guatemala. Cambridge, MA; Harvard Business School Press.
Chapman, P., 2007. Rotten fruit. Financial Times May 4.
Field, A.M., 2008. Bananas: Battered & bruised. Journal of Commerce: May 26.
Kurtz-Phelan, D., 2008. Big fruit. New York Times March 2 (a review of Chapman, P.,
2007. Bananas: How the United Fruit Company Shaped the World. Edinburgh,
Scotland: Cannongate Books.)
Spar, D. 2001. Chiquita Brands International. Cambridge, MA; Harvard Business
School Press.
Striffler, S. & Moberg, M. (Eds.), 2003. Banana wars: Power, production & history in
the Americas. Durham: Duke University Press.
6
Team Global Business and Country
Attractiveness Project
1
About Project
Name of the Company: Tesla, Inc.
Line of Business: Automobile
Countries for Evaluation: Saudi Arabia, Oman and Bahrain
Team Members:
2
Company Details
• Tesla, Inc. was established in 2003
• Headquarters at Palo Alto, California, USA
• Business of designing and selling electric cars
• Main Models: Model 3, Model Y, Model S, Model X, Cybertruck, Tesla Semi and a new Tesla Roadster
• As on December 31, 2019
• Revenue – $24.6 B
• Net Loss – $862 Million
• Employees – 48,016
• Total Vehicles Manufactured – 367656
(Tesla, 2020)
3
Global Competitors
Company Name
Tesla
Headquarters
Palo-Alto,
CA
Sales
Profitability
Models
Kia Motors
BMW
Seoul, South Munich,
Korea
Germany
Nissan
Volkswagen
Yokohama,
Japan
Wolfsburg,
Germany
$24,578 M $47,102 M $113,589 M $69,818 M $275,334 M
(-) $862 M
– $5,474 M
$365 M
$21,037 M
Model 3,
Model Y,
Kia Nero EV, BMW i3,
Model S,
Nissan Leaf E-Golf, E-Up
Kia Seoul EV BMW i8
Model X,
Cybertruck,
Hyundai
Chevrolet
Motors
Seoul,
South
Korea
$85,690 M
$2,641 M
Detroit,
Michigan,
U.S
$80,600 M
$6,700 M
ioniq,
Kona
Bolt EV
(Tesla, 2020)
4
Country Profile: Saudi Arabia
Policies towards FDI
Legal Regime
Political & Security Environment
Economic Policies
– Keen to open the economy for FDI
– Encourage FDI in sectors like transportation, health, ICT, media, mining energy
– Restriction on 11 core infrastructure and oil based industries
– Low score on legal systems and regime
– Mainly Sharia law
– Commercial Laws are not fully developed
– Kingdom and monarchy
– Potentially risky country than other countries like Bahrain and Oman
– 83rd freest market to do business
– Offers various FTZ, free ports and incentives to work
– Saudi’s financial sector is capital market is relatively open
– The banking system of Saudi Arabia is well capitalized and healthy
(U.S. Department of States, 2019)
5
Country Profile: Oman
Policies towards FDI
Legal Regime
– Conducive environment for FDI and 100% ownership allowed
– Free Trade Agreement (FTA) between Oman and U.S.
– Legal system not very trustworthy and transparent
– The power to make laws are in the monarchy governed parliament and is not participative
– Legal system is code based and follows English, French and Sharia laws
– All the business disputes are settled through commercial courts
Political & Security Environment – Largely peaceful country with no border or internal disputes
Economic Policies
– FDI’s in Oman has been slow despite low corporate tax rates and no personal or capital gains tax
-Quota and localization for Oman nationals and that is in range of 10% to 90%
– The financial markets are strong and there are no restrictions on flow of capital and currency
– Banking system is also healthy and robust as it is well-capitalized
(U.S. Department of States, 2019)
6
Country Profile: Bahrain
Policies towards FDI
Legal Regime
– Government keen to have FDI in all the sectors
– 100% ownership and zero corporate, personal or capital gains tax
– Sharia is the main law
– modern laws like civil, criminal and family courts are also operational
– The country also has the framework of commercial law also practiced English language
– Laws related to FDI are accommodating and flexible
– Bahrain also has bankruptcy and insolvency laws
Political & Security Environment – Moderately stable and safe
Economic Policies
– Incentives for FDIs like special zones, special grants and exemption of import duties and likewise
– Strong localization and mandatory to employ Bahrain nationals
– The Central Bank of Bahrain (CBB) manages and regulates the financial sector
– Most of the Bahrain banks are Basel II compliant
– Many U.S. banks like Citi, J P Morgan and American Express have their presence in Bahrain
(U.S. Department of States, 2019)
7
Critical Issues
Expansion in International Markets for:
• Increasing the profits and reducing per unit cost
• Expand in new markets worldwide
• Creating new customer base
• Creating the awareness about electric cars
(Tesla, 2020)
8
Choice of Country
Choice of Country: BAHRAIN
Reasons:
• financial and economic systems are matured and robust than Oman and Saudi Arabia
• Politically, Bahrain is more stable
• Legal and Regulatory framework is more advanced
• ZERO corporate, personal and capital gains tax
• Modern day laws like bankruptcy and insolvency also exist
9
Choice of Entry Strategy
• Tesla, Inc. can use “transnational” strategy
• Other strategies to support:
• Direct Selling
• Certified pre-owned schemes
• Diversification
• Localization
• Positioning of showroom and galleries
(Yoon, 2019)
10
Strategic Recommendations
1. First mover advantage and almost NIL competition.
2. Support by government in setting up high end car showrooms across the country
3. Focused Differentiation:
• Can sell luxury cars at high price
• Inelastic demand
• Pride of owning a Tesla brand
(Rabouin, 2019)
11
References:
•
Rabouin. (2019, October 30). Tesla’s global aspirations are dividing the markets. Retrieved from https://www.axios.com/:
https://www.axios.com/tesla-global-expansion-china-stock-market-7467886e-8d18-4d60-b1b1-f384da0c911e.html
•
Tesla. (2020, February 07). Annual Report 2019 10-K. Retrieved from https://tesla.gcs-web.com/: https://tesla.gcs-web.com/staticfiles/07bfcb70-aba1-4a27-af09-4f101678320c
•
U.S. Department of States. (2019). 2019 Investment Climate Statements: Saudi Arabia. Retrieved from https://www.state.gov/:
https://www.state.gov/reports/2019-investment-climate-statements/saudi-arabia/
•
U.S. Deptt of States. (2019). 2019 Investment Climate Statements: Bahrain. Retrieved from https://www.state.gov:
https://www.state.gov/reports/2019-investment-climate-statements/bahrain/
•
US Deptt of States. (2019). 2019 Investment Climate Statements: Oman. Retrieved from https://www.state.gov/:
https://www.state.gov/reports/2019-investment-climate-statements/oman/
•
Worldpopulation. (2020). Gulf Countries 2020. Retrieved from https://worldpopulationreview.com/:
https://worldpopulationreview.com/countries/gulf-countries/
•
Yoon, E. (2019, May 15). Tesla’s Strong Brand Gives It Unusual Expansion Potential. Retrieved from https://hbr.org:
https://hbr.org/2019/05/teslas-strong-brand-gives-it-unusual-expansion-potential
•
Yuying, & Qingrun. (2018, March 10). Tesla’s International Expansion Strategy. Retrieved from
https://globalmarketingprofessor.com/: https://globalmarketingprofessor.com/teslas-international-expansion-strategy/
12
Foreign Exchange Markets, continued
• Companies use foreign exchange markets, e.g.,
• To convert payments they receive
• To convert payments they need to make
• For currency speculation
• To insure against foreign exchange risk
• Risks given adverse consequences of unpredictable changes in exchange rates
• If company is converting payments they receive and host currency devalues, the
company gets less—and may have to increase prices to cover the change
• If company is converting payments they need to make and host currency
appreciates, the company needs to pay more—and may have to increase prices to
cover the change
– Can use forward exchange rate contracts or currency swaps
Exchange Rates
• Because exchange rate movements influence the profitability of trade and
investment, companies want to be able to forecast them
• While no simple/agreed explanation, factors include:
•
•
•
•
•
•
•
•
•
Inflation (incl. price inflation, increases in money supply)
Nominal interest rate (as reflects expectations about future inflation), Real interest rate
Return on currency denominated assets (e.g., local stocks)
Balance of Payments (Current (Trade) and Capital Accounts)
Fiscal Balance (Government budget)
Foreign currency reserves
Domestic/International borrowing
Economic growth, Political/social turmoil
Market psychology (e.g., self-fulfilling prophecies, herd and contagion effects )
Regional Economic Integration: Levels
• Free trade area
Most regional agreements: e.g., NAFTA (now USMCA, pending)
Each member has own policies with non-members
• Customs union
Common external trade policy
e.g., Andean Pact (Bolivia, Colombia, Ecuador, Peru)
• Common market
Allows free movement of factors of production (labor/capital)
e.g., EU—but EU has moved beyond
Regional Economic Integration: Levels, continued
• Economic Union
Common currency, harmonization of tax rates, common monetary & fiscal
policy
EU, though not all EURO, and differences in tax rates etc. remain
• Political Union
Central political structure coordinating
EU Parliament and Council of Ministers
economic, social, foreign policy
Regional Economic Integration: Levels, continued
• Economic
• Allows specialization in efficient production, resulting in greater world production
• Trade Creation
• Growth (including knowledge sharing)
• Exploit gains from free trade and investment
• Political
• Incentives for cooperation/reduction of conflict
• Impediments:
• Costs to certain groups
• Concerns over national sovereignty
• Trade diversion
Global Operations
Overarching theme is that multinational companies need to:
• Trade when most advantageous to do so
Including outsourcing/offshoring
• Invest when most advantageous to do so
Including production, marketing and R&D
• Market locally and globally
• Hire locally and globally
• The transnational strategy suggests that companies will concentrate production,
marketing and R&D, etc. in favorable locations, but may also establish complete
value chains in certain locations
Global Production: Where to produce?
Country factors
• Political economy, culture, relative factor costs, location externalities (labor,
related industries), trade/investment barriers, transportation costs, future
exchange rate movements
Technological factors
• Fixed costs, minimum efficient scale, flexibility of technology
Product factors
• Value to weight ratio (want high/low), need universality
Concentrate production or decentralize?
Outsourcing Production: Make-or-buy Decisions
Key theory explaining is transaction cost economics
If market is more expensive to use (including search and contracting costs) than
producing/providing it yourself (including administrative costs), make it
•
= Vertical integration
• If market is less expensive to use, buy it
• Vertical integration may reduce costs, facilitate adjacent processes,
facilitate investments in specific assets, protect technology, improve
scheduling
• The market may reduce costs, increase flexibility, establish relationships
(incl. local purchases)
• Alliances are another option, but all are a balance
Global Marketing
• “Marketing mix” is the set of choices offered, and based on
Differences in political economy (including level of development),
national culture, product standards, distribution channels, etc.
• Marketing segmentation based on identification of distinct groups
of consumers
And leads to different product attributes, pricing, distribution channels,
communication strategies
Strategic Role of HRM
• Staffing, management development, performance evaluation and compensations
decisions further complicated by differences across labor markets, culture,
political economy (political/economic/legal)
• Compensation (including benefit) practices vary
• Labor laws vary (including about unionization and equal employment)
• Expectations of employees vary
• Need to build “cadre” of managers capable of managing a multinational
enterprise, and otherwise staff
• Bias towards expatriates (citizens of another country) for management roles, but
not others
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SOLUTION: Woodbury University International Business Discussion Questions