In this article we are starting with the case of Pepsi. The government of India while allowing the entry of Pepsi had put forth a series of stringent conditions like introduction of the latest food processing technologies, high quota of exports, local partnership, use of Indian brand names, etc.
Pepsi whose basic intention was to consolidate its entry into the Indian market decided to cope with the demands and approached the entire issue strategically and finally succeeded in its mission.
To quote Pepsi… ‘We had to operate in difficult circumstances; our launch was patchy’…. Virulent anti-Pepsi lobby and competitive propaganda made it difficult. But like most big businesses, Pepsi Foods has been keeping up its effort it mobilize support among influential politicians. Pepsi managed to get quite a few well wishers from among the members of Parliament and ministers – Friends of the project.
Pepsi embarked on massive campaign among politicians of the opposition parties, the first of its kind by a foreign company in India.
Pepsi dispatched over 100 video cassettes to key political personalities across all major political parties. The cassettes, containing recordings of the company’s initial operations in the state of Punjab highlighted Pepsi’s contribution to the state’s economic growth.
Along with the cassette, recipients also received a small booklet providing details of Pepsi’s major achievements and the future plans.
To build political support, Pepsi pleaded … ‘We seek equity and fairness and to be judged on fact and merit. We would like to be given an opportunity to make a brief 30-minute presentation to you and your colleagues. We have accepted what is perhaps the toughest set of terms and have every intention to execute our obligations ….Most of our turnover is going to be from exports just as the government wants. Next year, exports alone should be Rs 200 crore … Another factors that one of our major segments is processed foods, a core sector activity for India… 75 per cent of our turnover in India come from exports and processed food.. Even with expansion this equation will not change’.
Going Global – case of Matsushita:
By building more than 150 plants in 38 countries, Matsushita gas teamed to master distant markets and diverse cultures.
First overseas venture in 1961 in Thailand followed by dozens of mini Matsushitas around the world – jack of all trade factories producing electric iron, rice cooker, heater,, washer, radio, TV, vacuum cleaner, etc …
Next two decades, Matsushita roared into the US, Europe, Middle East, Latin America and Africa. Many overseas factories were put up by transplanting its older production units from Japan, moving them lock, stock ad robots to some far away market/JV.
Four decades of global business has made Matsushita’s Panasonic and national bands world famous.
Products to suit local markets:
By late 1980s, overseas units started modifying products to meet. Matsushita’s marketing specialist for micro-wave ovens in Europe says: British like crispy fat on top of meat, so their ovens need stronger heating element. Germans like potatoes overcooked, but British like them crunchy so the cooking controls different design. It’s hard for engineers sitting in Japan to understand all that.
Matsushita soon began adding full fledged R&D labs t its overseas units, with authority to redesign any product/component. It was part of a larger strategy to create export centers for TVs, ACs, etc., that could be priced more competitively if produced with lower-cost labor parts outside Japan.
Spotting countries to make them export bases:
In tune with this strategy Malaysia became the showcase export centre producing nearly a quarter of Matsushita’s ACs and TVs, then big investment in China and Vietnam. It entered India later in the 1990s.
It set up a mini Matsushita in 1965. Business grew slowly but steadily; during 1970s Matsushita opened four more ventures to take and service ACs, appliances, and consumer electronics.
Looking for conducive environment in 1980s, the ever strengthening yen and labor shortage back home further strengthened the case for producing more outside Japan, Singapore and Thailand were considered, but opted again for Malaysia because it had more open land, better infrastructure and supportive government. And almost every one speaks and reads a little English, the language the company used in most of its foreign operations.
99 percent staff locals: Since 1987 Matsushita set up 13 new units in Malaysia. By 1995, total employment here came to 23,500 people; only 230 were Japanese. By mid-1990s, 90 per cent of Matsushita’s Malaysian output of TVs and ACs were exported to other countries in South East Asia, the Middle East and also to Japan.
Cultural side: Matsushita’s Malaysia set up was a cultural mosaic of Muslim Malays, ethnic Chinese and Indians. But luckily, Malaysia’s different races are used to accommodating other cultures and so they think of Japanese as just another culture. That made it much easier for Japanese company to manage them than some other nationalities.
Healthy competition between subsidiary and home office: An independent R&D was rewarding. For instance, Matsushita’s Malaysian engineers came up with a computerized control system, more versatile than any in the home base. It was copied back home. The Malaysian units aim was: Let us catch up with Japan. Soon its slogan was outdated as the Malaysian unit started outperforming the home office in both quality and efficiency.
In China too Matsushita followed the Malaysian model, though the Chinese Government won’t let it export much. 16 JVs were set up by 1994; Matsushita planned 30 manufacturing plants across China.
Saving set up cost and lead time: A JV in Beijing making color TV tubes, employing 2,600 people, producing a million tubes a year, is using an old plant dismantled in Japan and assembled in Beijing.
Handling cultural differences: It was not easy to induct the Chinese into Matsushita’s rigid work culture. Of course there have been problems. At first people weren’t very punctual. Chinese are weak on teamwork and they don’t want to share knowledge with co-workers. But Matsushita is working on that.
Enters microchips business though cheap acquisition: In 1991, Matsushita paid US National Semiconductor $90 million for its Washington unit and invested $60 million for modernizing it. Total outlay was a fraction of the cost of a comparable new factory.
Turns around the unprofitable unit: This unit had never made a profit as its chips were too specialized; only the defense business could use it; scope was highly limited. Matsushita made money by opting for simpler chips, cheaper to produce and having broader markets. Benefit of integration too was there; half the production could be used in its own electronics products.
High ethics: In this acquired company, Matsushita managed to find job for every employee who wanted to stay. Founder, Konosuke Matsushita always said: When you go abroad, do not eat another person’s pie. So he grandfathered people at their existing salaries, though some were assigned to lesser jobs. The no-lay off policy struck a warm chord between the American employees and their new Japanese employers.
The cultural dynamics: An American executive in the unit says: They also really watch the nickels. They ask us to use both sides of a piece of paper, vacuum our own floors and turn out the lights when we are not in our offices. It can be frustrating until you realize that it is one big reason they are making a profit.
And the Unit’s Japanese President says: American workers have better technical skills than Japanese but they are less willing to change/tinker with the manufacturing process to make it better. Also, here 5 o’clock is 5 o’clock, and everyone goes home; in Japan, if the work isn’t done, they stay to the finish.
The one goal that remains:
According to Matsushita, it is falling short of only one goal – bringing the best of its foreign managers into the corporation’s highest ranks. They recognize that to become a truly global company they have to have diversity in top management. That might be realized in the 21st century. In short, the gist of the Matsushita prescription for global is as follows:
The Matsushita prescription
Be a good corporate citizen in every county, respecting cultures, customs and languages.
Give overseas operations your best manufacturing technology.
Keep number of expatriate executives down and groom local managers to take over.
Let plants set their own rules, fine tuning manufacturing processes to match skills of workers
Develop local R&D to tailor products to market
Encourage competition among overseas units and with plants back home.