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Internalization Process

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“Turkish Airlines experiences rapid expansion”. This is the title of an article appeared on November 14, 2013 in the Financial Times.
In the decade 2003-2013 the company expanded enormously, from 65 to 233 aircrafts, the passenger numbers have more than quadrupled and the number of international destinations grew surprisingly from 76 to 199. (See Exhibit 1)
At present, Turkish Airlines appears to be one of the most extensive airline companies with 106 connected countries (the last was added in April 2014). It was also acclaimed as the best European company in the last four years consecutively at the Skytrax World Airline Awards, being the third most profitable carrier after Ryanair and Easyjet.
The expansion continues: with the project of the third Istanbul’s international airport and the announcements of new destinations to countries like Mexico, Philippines and South Sudan. (See Exhibit 2)
How a small Turkish state-owned company became so huge and successful? What are the main challenges it had to face and how did it tackle them? What are the main actual and future issues for a company that is expanding quickly and widely?
We will try to give an answer to these questions in the paper: starting from an essential and short presentation of Turkish Airlines historical evolution, making a synthetic overview of its main strategies and analyzing the past and the future challenges in developing countries such as India.

Turkish Airline historical steps towards internationalization.

The “State Airlines Administration” has been established on the 20th of May 1933, under the supervision of the Ministry of National Defense in Turkey, with a fleet consisting of five planes.
In 1936 the number of planes was increased to eight and the allocated budget was raised to 1 million TL. As time progressed, technological development made possible a concrete improvement in both the interior comforts and the aircraft overall security.
The company continued its expansion in the Turkish market, increasing the destination reached from 3 to 19 in the only 1945.

In 1946, the first step towards globalization was made: on the 12th of February Turkish company launched its first international journey “Ankara-Istanbul-Athens.” This expansion required increasing efforts to achieve a better brand awareness, through advertising campaigns and promotions.
In 1951 Nicosia, Beirut and Cairo were added to the network.

Religion is a strong cultural issue to be considered when doing business, and the State Airlines Administration took advantage of this situation in 1953 when they offered to Muslim pilgrims (the major religion in Turkey) a faster and more comfortable way to get to Hadj.
In the same year the company exploited the ratification of the Chicago Agreement that could make possible the construction of a modern international airport thus enhancing new development opportunities.

The company changed its name in the current one “Turkish Airlines Inc.” (THY) and the new company was established on the 1st of March in 1956 with a 60 million TL capital stock. In order to inhibit unfair competition and to achieve managerial and technical experience by international cooperation, it joined the International Air Transport Association (IATA).

The international expansion continued with a partnership with British Overseas Airways Corporation (BOAC), which paved the way to foreign capital investments. And following the joining of SITA (Airlines Worldwide Telecommunications and Information Services), which improved its communication services, THY doubled its passengers in the biennium 1956-1958.
In the 1960’s, Turkish Airlines kept on expanding in Europe: starting with the essential Frankfurt Airport, they then added flights to the most important European cities such as Brussels, Munich, Amsterdam. Thus, the number of voyages was increased every year and Turkish Airlines managed to known company in Europe. The increasing the number of passengers enabled Turkish Airlines to increase its profits and provided the company with the necessary funds to invest in equipment such as more technological and comfortable planes, according to European standards.
In 1970’s, they reached almost all European countries, and company’s capital was doubled.
Despite this continuous expansion, in those years Turkish Airlines had to face a diffused bad reputation, due to many accidents and delays. (7 accidents in the years 1974-1983). In order to satisfy passengers, Turkish Airlines ideated a survey campaign for domestic market, which showed passengers’ wishes and complaints. According to survey, they made improvements on their duties. Thus, they tried to make a long life commitment between themselves and passengers by taking consideration of the passengers’ wants and needs. This survey helped Turkish Airlines to create a marketing strategy firstly for domestic market, and then also for international ones. On a technical side, the changes in the Turkish government brought a renovated interest in THY as an ambassador in the world: thus the fleet was rejuvenated, security improved at highest level and a new technical center for light and heavy maintenance was built in Yesilkoy Airport.

In 1980’s, Turkish Airline continued the expansion, and, in its 50th year, it reached 3 continents all around the world with 5775 employees and 2.5 million passengers. Particularly relevant for this paper is the creation of New Delhi route in 1987.
The focus of the company was on First Class, high quality services, with the specific target of the wealthy part of population.
One year later the American Continent, the fourth served by the company, was reached with a flight route to New York: one third of the 3.5 million passengers of THY were now international.

In 1990’s, Turkish Airlines and Lufthansa established The Sun Express Airlines, with equal stocks. This indicated that Turkish Airlines was already one of the most important airlines companies, able to negotiate with a giant like Lufthansa. Turkish Airlines had now 14 domestic flights and 55 flights in international. Therefore, it gave prominence to both inside and outside design of planes. At the same time, they also changed uniforms of employees, making them more elegant. Besides, they also changed their catering services, which were suitable for people who preferred to eat vegetables, and did not want to eat high calories so there was a multiple choice menu in all flights. Turkish Airlines keeps being a high-quality, expensive, company: focusing on business and first class: this is shown in the 2009 advertising campaign “Feel like a star” and in the attention for comforts and on board menus.

Strategies (to be revised)

Many people who live all over the world chose Turkish Airlines because of its high quality standards and comforts. Turkish Airlines is a prominent global company all around the world and it also continues to develop using some strategies such as flight network unlimited customer satisfaction.

-Flight Network:
To increase the number of passengers and earn more money, it applies influential network and marketing strategies. Turkish Airlines spreads its network by joining new flight points, having developing into a brand which is famous all around the world. The reason for this is that Turkish Airlines is known as a company, which is the one of the largest company according to travel almost all the world.

-Geographical Location of Istanbul and Towards Becoming the Largest Transfer Hub Worldwide:
Istanbul is an important city, which is a bridge between East and West regions. Therefore, Istanbul is a privileged city because of being central which enables voyages to decrease flight time and also it has a considerable cost when compared to another flight points. Because of these reasons, they built airport in Istanbul to meet these needs. Therefore, Istanbul Ataturk Airport is one of the biggest airports all around the world. In 2012, 9 million international passengers transferred from Istanbul to other countries.

-Growth Strategy in Africa:
Because Africa has grown expeditiously in a flight sector, Turkish Airlines realize this growing and then they start to invest this region in order to spread the world. Turkish Airlines wants to make a connection between Africa and other countries as main binding.

-Unlimited Customer Satisfaction and Superior Service Quality:
Turkish Airlines tries to internalize unlimited customer satisfaction and respect to all their passengers so they prefer employees who are young and dynamic and also safety and innovative planes for making happy to their passengers. Moreover, with the globalization of the all over the world, people need to travel more and more because of holiday, business travel etc. Therefore, Turkish Airlines takes consideration into this situation and they increased their services according to customers’ wants. They serve people considering world standards. Furthermore, they provide training for employees in order to being cheerful and how they behave to customers. They target to introduce Turkish hospitality to passengers. In this direction, they created a slogan, which is called “Globally Yours.” It means that passengers feel that they are at home while they are traveling.

-Subsidiaries:
While at the beginning of 2000’s Turkish Airlines had only one subsidiary, in order to increase their achievements, it has 12 subsidiaries, which are located almost in Turkey. (Exhibit ??) Turkish Airlines that is a global network carrier in the Star Alliance, ensure passengers to have extensive opportunities and flight choices.

-Brand Awareness:
In order to increase brand awareness, Turkish Airlines makes important projects and uses social media effectively. Along with these, they make advertisements worldwide by benefiting advantage of famous people such as Kobe Bryant and Messi and created a slogan that is “Flying to More Countries Than Any Other Airline.” (Exhibit (Kobe Advertisement)) Moreover, they also want to communicate with passengers more and get involved to passengers’ daily lives to increase brand awareness.

-Low Operational Cost:
Turkish Airlines proceeds with cost management projects to minimize their operational cost and also maximize their profits. Therefore, they tries to keep their fleet age young and influentially. Moreover, they want to save fuel efficiently. In order to minimize cost, they want to invest technological staffs and also go up to employees’ efficiency.

Challenges (To be revised)

While Turkish Airlines is the best airline in Europe according to Skytrax traveler website in United Kingdom and also Turkish Airlines has a growing trend which is positively, it faces with some problems related to cultural, and economical.

As you know, almost all Turkish people are Muslims. According to terms of Islam, most people do not prefer to eat pork meat. Because Turkish Airlines had been established in Turkey, they give importance to their religion and culture while they become a global company. Therefore, they do not serve pork meat in their meals. Moreover, they explain this situation such a like that “all meals served on Turkish Airlines flights are included in the category of Moslem Meal (MOML) and are in accord with Islamic religious beliefs.” (Exhibit ?) In these circumstances, many foreign people who prefer to eat pork have a problem when they use Turkish Airlines for their voyages. For instance, a person who travels from United States to Turkey prefers Turkish Airlines for his/her voyage. In this long flight, s/he wants to have a dinner by eating pork meat. However, Turkish Airlines does not offer such an opportunity for foreign people. S/he may face a trouble for preferring Turkish Airlines or not. This case affects ratio of sales negatively especially in international flights which means Turkish Airlines may be influenced by this incident adversely. For a global company, they should be open-minded to other cultures.

Along with cultural challenge, there is also an economical challenge. The problem is that when compared to other airlines, Turkish Airlines’ tickets are more expensive, even their promotion tickets. (Exhibit ?) Even if other airlines do not offer quality services like Pegasus, they provide passenger to purchase cheap tickets. Therefore, these airlines reach the large masses. This situation causes an economical problem in terms of Turkish Airlines. Depending on this challenge, in the future, they may face with economical problem. It’s because, there is an economical crises in United States and Europe. According to crises, in Turkish Airlines’ 2013 annual report, there was a negative trend in revenue passenger km. Although Turkish Airlines was not affected so much compare to other airlines, if the crises continue, other airlines especially European airlines such as Ryan Air may turn this situation to an advantage by entering Turkish market which will cause that Turkish Airlines’ shares may decrease in the market. They should take into consideration these economic crises and competitors by offering some promotions. In order to continue this global development, Turkish Airlines should handle with cultural and economical challenges by creating new solutions like offering new alternative services and promotions.
Expanding in the Indian Market, challenges and opportunities

The Far East market represents for Turkish Airline both a challenging reality and a huge opportunity: the Available Seat Kilometer for that region, an index that measures the carried-passengers capacity times the kilometers of flight, consist of 27% of the company total, against the 12,1% of European region; and, according to a CAPA (Centre for Asia Pacific Aviation) research, in summer 2013 Turkish Airlines was adding approximately 1000 seats per week to South East Asia, with an increment of 20% in comparison with summer 2012.
All these statistics, as we will show in the present paragraph, represent on one hand an encouraging opportunity of business development, on the other hand a difficult challenge to tackle, as the fuel costs for operations in those countries are increasing considerably.
An important role is played by the developing Indian market: at present it is the 9th in the world in terms of dimension, and the projections show that in 2020 it may jump to the 3rd place, with an outstanding passenger load of 420 millions.
In 2012 the Indian government started efforts to liberalize the airline sector by allowing foreign companies to buy up to 49% of local companies. The advent of new companies, together with government tie-ups, is increasing competition: but India is a challenge that THY cannot escape from.
Mehmet Akay, General Manager, Western & Southern India in 2013 confirmed this concept, affirming that “The country is a key market for us”.
The first Indian destination was New Delhi, reached by Turkish Airlines in 1987, but the company truly started Indian operations in 2003 and gained its popularity starting from 2009, when daily flights from Mumbai and New Delhi were introduced.
At present India is served with 14 weekly flights connecting the central hub of Istanbul with the two main airports. This, though, appears not to be sufficient for a market characterized by a huge potential growth and by a growing middle class.
At the same time, three kind of threats make the Indian market as dangerous as attractive, and they require a great effort by THY.
First of all, as previously mentioned, the more and more intense competition in the sector. The Indian government since 2012 is attempting to liberalize the airline market: the first step was the aforementioned possibility for foreign companies to buy a stake of 49% in Indian carriers, but this decision was recently completed, in 2014, with the lift of the preexisting ban for huge planes, “superjumbo”, in Indian skies.
These measures will surely shake the airline sector, with some companies adopting this “newly allowed” technology, others modifying actual routes and many others planning mergers. "Whenever a market player introduces a strategic move that brings down costs and improves efficiency, it puts pressure on other players" affirmed Amber Dubey (partner and head, Aerospace and Defense at global consultancy KPMG) in a recent interview for CNBC.
Hard competition is mixing with unavoidable increasing costs: airport and fuel taxes are really high, and for a foreign company like Turkish Airlines also the Rupee’s free fall and the consequent fluctuation of local money against US Dollar is a huge threat: “An airline’s major expense is imported jet fuel. On the contrary our revenues are in rupees. The falling Indian rupee has become a major challenge for individual Indian travelers and corporate, planning a trip to Europe or US. Thanks to our diverse passenger profile we hope to achieve our financial targets for 2013” affirmed Mehmet Akay with a frowning tone.
This also explain why the Low Cost IndiGo was in 2013 the only country’s profitable company with its $125 million profit, while CAPA estimated an overall industry loss of $1,65 billions.
The last challenge for THY in India is that, despite the optimistic and enthusiastic projections about future development, Indian market cannot be easily exploited: as previously said, the company can only offer a daily flight, from only two airports, and cannot expand in internal regional flights. Bilateral agreements are extremely necessary, but still difficult to implement.
Despite all these difficulties, in 2013 Turkish Airlines eventually manage to achieve satisfying results in India. Mehmet Akay reports “Our load factor in India was around 85 per cent in 2013, during which we had more than 300,000 passengers on our Delhi and Mumbai flights. We hope to have better figures in 2014 since our network keeps growing steadily”.

How did Turkish Airlines tackle the aforementioned challenges, what are its actual measures? We will firstly present the current situation and the main strategies adopted by THY. On a second step we will focus on the cultural issues and challenges to be faced while doing business in India, and finally we will try to propose future plans in order to continue expanding at a global level and in India in particular.

Competition and local expansion are challenges that are strictly linked. Turkish Airlines, according to the words of its GM Mehmet Akay, feels strong in its deluxe position. High quality standards and five-star comforts, together with “Unlimited customer satisfaction”, are the key words for a company that is always aiming for excellence. In fact, Skytrax World Airline Awards crowned for the 4th time in a raw THY as the best European airline company, and at a global level it is retrieving positions year after year, being 5th in 2014. These continuous differentiation processes weaken, though not eliminating, threats by new and existing competitors.
This is the vision of THY General Manager for Northern and Eastern India, Adnan Aykac: “Turkish Airlines believes in providing the best offers and facilities to its passengers and maintaining high standards of service. This has always been our prime focus and we believe that the brand and its services speak for itself. We also believe that competitions are healthy as they give you the zeal to further improve and enhance your quality. Hence, our superior and extraordinary services set us apart and help us maintain our top position.”
Also the geographical position helps Turkish Airlines: Istanbul, THY’s hub, is in a central position and allows comfortable and interesting opportunities for people travelling towards and from Far East countries. Despite these reassuring factors, the Turkish company didn’t and cannot rest on its laurels.
Concerning the chance of expanding in India: THY repeatedly expressed the intention of adding new Indian destinations and increasing the number of flights from the existing ones, but this depend on the essential provision in the bilateral agreement. In order to tackle this issue, Turkish Airlines in 2012 expanded its Sale Codeshare Agreement with the state-owned Air India: this provides THY customers with the opportunity of flying to and from Indian destinations using a Turkish Airline code, although the flights are managed by the partner company.
"This partnership with Air India is aligned with our plans to further expand and strengthen our presence in this region. We look forward to working with Air India and providing even more travel options for our customers" explained Adnan Aykac.
On the other hand, Turkish Airlines is constantly monitoring Indian aviation sector, looking for good opportunities of investment, in response to government attempt of liberalization. Again, Adnan Aykac in 2012 affirmed: "After the new foreign direct investment norms in India's aviation sector, we have been watching the Indian market. At present we do not have an actionable proposal or plan, but the options are there and as soon as a good opportunity comes, our management will not hesitate to invest." At present, though, no direct investments have been made by Turkish Airlines.
Finally, Turkish Airlines cannot do anything to control Rupee’s volatility, which remains a scaring threat: this way, imported fuel price keeps on eroding profits and the tough competition doesn’t allow airline companies in India to increase fares.
As part of its corporate strategy, however, Turkish Airlines recognize the importance of fuel consumption efficiency and management as a base for company sustainability and long term profitability: fuel costs making up more than 35% of all operational costs. Considering also environmental responsibility, THY has thus focused its efforts to make its operations and technologies “energy efficient”. The graphic in (Exhibit 5) shows the improvements in fuel and operation efficiency, made by Turkish Airlines since the implementation, in 2008, of the Fuel Efficiency Program.

For culture aspects in India: we still need more information about marketing campaigns, employees and organizational structure. We will also check Mumbai and New Delhi airport websites.
We will write again to Turkish airlines trying to achieve this “non secret” information unavailable on the web.

Appendix

Exhibit 1 – Turkish Airlines International Expansion

Year | Domestic | International | Total | 1998 | 32 | 66 | 98 | 1999 | 35 | 73 | 108 | 2000 | 35 | 78 | 113 | 2001 | 28 | 76 | 104 | 2002 | 26 | 77 | 103 | 2003 | 27 | 76 | 103 | 2004 | 27 | 75 | 102 | 2005 | 28 | 79 | 107 | 2006 | 28 | 103 | 131 | 2007 | 32 | 107 | 139 | 2008 | 33 | 109 | 142 | 2009 | 37 | 119 | 156 | 2010 | 41 | 130 | 171 | 2011 | 40 | 149 | 189 | 2012 | 36 | 181 | 217 | 2013 | 42 | 199 | 241 | * As of 1.12.2013 | | Name of the Company | Activity | % of THY | Location | Establishment Year | GÜNEŞ EKS.(SUN) | Air Transport | 50 | Turkey | 1990 | THY TECHNİC | Technical Maintenance | 100 | Turkey | 2006 | THY DO&CO | Treat | 50 | Turkey | 2007 | P&W T.T. MAINTENANCE | Technical Maintenance | 49 | Turkey | 2008 | BH AIRLINES | Air Transport | 49 | Bosnia Herzegovina | 2008 | TGS | Land Services | 50 | Turkey | 2008 | THY-OPET | Fuel - Oil | 550 | Turkey | 2010 | THY-GOODRİCH | Motor Maintenance | 440 | Turkey | 2010 |
Source: Turkish Airlines

Exhibit 2 – Turkish Airlines Worldwide Network

Exhibit 3 – Turkish Airlines Partnership for services
Exhibit 4 - Turkey to South Asia (seats per week): 19-Sep-2011 to 17-Nov-2013

Source: CAPA – Centre for Aviation and Innovata

Exhibit 5 – Turkish Airlines: Indian Independence Day
Source: Turkish Airlines - “Environmental and Social Responsibility Report”

Exhibit 6 – Turkish Airlines: Indian Independence Day

Bibliography * “Turkish Airlines experiences rapid expansion” by Piotr Zalewski, Financial Times, November 14, 2013 * Turkish Airline Website * Turkish Airlines 2014 Months Financial Report and 2013 Financial Report * 2012 and 2013 Turkish Airlines Annual Report * Coskun KILIC, THY Chief Financial Officer, presentation at the New York Airfinance Conference 2014. * Mehmet Akay, General Manager, Western & Southern India, Interview * Turkish airlines launch new destinations to India * 'Full-fledged war' awaits India's airline sector, Ansuya Harjani, CNBC, 7th February 2014 * CAPA (Centre for Asia Pacific Aviation), “Turkish Airlines: narrowing the strategic Gulf”, June 2013 * World Airline Awards - Skytrax * Manisha Singhal, “Turkish airlines eyes investment in Indian carrier”, July 2013 * Turkish Airlines “Environmental and Social Responsibility Report”

Appendix 2 – IT Case Studies
Accenture
In 2001 the newly formed Accenture consulting company had to face several challenges, following the split up from Andersen Consulting, the IT infrastructure management was one of the key decisions to be taken.
IT had a fundamental role in an organization like Accenture: 75% of its employees were most of the time travelling or out of company’s offices, and they extremely needed to be connected at any time. Accenture had only one year to reorganize its IT structure, and many changes had to be made: the inherited system was mainly fragmented and the different applications hardly coordinated, Internet technology was not correctly used to access databases and key systems, and finally the monitoring of whole company status was made impossible by a large number of different accounting and human resources software systems.
The goals Accenture wanted to achieve were of three kinds: the reorganization should have brought to an integrated system, which then could have allowed achieving scale economies and a higher cost efficiency.
These will be the threads of our analysis: how did Accenture pursue its goals?
Creating value through IT structure can be achieved through the adoption of a new and efficient system, but it is extremely necessary that this new “standard” is effectively understood and accepted by employees and managers: our analysis will be thus divided in two areas, coinciding with two different orders of challenges and measures adopted by the company: internal and external.
From an internal point of view: IT services were now managed with “business within business” logic, thus enhancing a balanced and customer-driven level of service. This vision brought to an efficient management of new projects: only mission-critical applications were now implemented and new projects were actually implemented only after a ROI analysis, to be presented by the promoting group, which thus became responsible for them. This internal customer-driven approach would notably increase efficiency, but had to face pushback from a part of the organization, especially the IT department.
Accenture successfully managed this issue, communicating wisely with its employees on the huge increase in competitiveness this process would bring, and thus achieving great results in terms of integration and cost efficiency: extremely important results, if we consider that Accenture started its activity just after the dotcom bubble burst and had to face all the consequences of 11th September attack.
From the external point of view, Accenture’s attention was focused on two decisions: the adoption between a “best of breed” and a “one platform” approach, and the choice of IT activities that had to be outsourced.
Firstly, a best of breed approach had the advantage of having the best available technology at any time, but considering the aforementioned three goals Accenture was pursuing, choosing a “one platform” approach seemed more reasonable. The latter option allowed the company to achieve economies of scale, also by using global support centers, and to save on IT specialist trainings, since they were not facing continuous changes in software and organization. Moreover, the goal of integration would be more easily achieved adopting a single vendor, since the application could thus “talk” to each other and create synergies.
The shortcoming of this decision was a low negotiation power, and the need for a stable partner, to avoid the risk of failure that could cause enormous problems to Accenture.
The company wisely tackled these risks choosing Microsoft as a partner, taking advantage of its solid financial position, its global presence and the high grade of integration of its applications.
Similarly, Accenture pursued its strategy of integration in financial and hr management, choosing a single partner as SAP.
Secondly, the outsourcing strategy was focused on cost reductions, due to the difficult economical situation in 2001.
First of all, 68% of the IT personnel was at that time located in low-labor-cost countries, such as China and India, this way Accenture could achieve economies of location. It then decided to adopt a core light personnel strategy, employing only 14% inside the company, and affording for the remaining 86% on outsourced forces. Outsourcing process applied to all the activities, except the most critical and highly confidential.
Summing up, cost efficiency, due to economies of scale and location, to the “one platform” approach and to an efficient project selection and monitoring, and high integration and coordination, between software and people (generating positive synergies) brought Accenture to be one of the companies with the lowest IT cost per employee, with a cost saving of an astonishing 69% in the decade 2001-2010 (see Exhibit 8 in the case study). At the same time, cost efficiency coexisted with an increasing flexibility and an overall satisfying technological quality: both these factors boosted Accenture’s core activities and its value creation targets.

Li & Fung
In 2011 Li & Fung appeared to be one of the most extraordinarily profitable supply chain companies, with an average growth of more than 20% in the last decade, and core operating profits continuously increasing despite the global crisis. In 2010 the operating profit was $725 millions, marking a +41% from 2009.
In a nutshell, we may affirm that this success is due to a double sided ability: reactivity to market changes and adaptation to new environments and costumer needs. These two macro-skills are the basis for every strategic decision taken by L&F, which is the centre of our analysis.
Market-Changes Reactivity. In 1950s, considering its impossibility to satisfy the massive overseas demand expansion, the company sold its factories and changed business, focusing only on trading. In the 1980s Li & Fung exploited the opening up of China and its low labor costs, outsourcing the labor intensive activities. In these years the company took its characteristic structure: labor intensive activities were outsourced in China, while high value activities remained in Hong Kong.
The last change to be faced by L&F is still ongoing, and it’s consciously described by L&F deputy chairman William Fung: “We face a whole brave new world, when Asia becomes an important market. Our simple model, a company that orchestrates the supply chain, sourced primarily from the developing parts of the world and sold to the developed parts of the world, has to be changed.” China will become the world’s largest consumer market, overtaking US, and this growing importance is clearly shown in Exhibit 9, with the “Turnover by Export market” facing a huge growth of China from 2010 to 2011.
The ability to exploit and satisfy market needs is the second extraordinary ability of L&F; we will now examine the main strategies implemented and their realization.
From an internal point of view, a fundamental role has been played by the “Three Year Plan” strategy, which enhances productivity and a long term view, also encouraging and motivating employees and thus reducing its turnover.
Acquisitions were the main way of expanding the business: whenever L&F saw opportunities in new markets or segments, it “filled the mosaic” by acquiring competitors. This focus on acquisition processes is clearly evident if we notice that in fifteen years (1995-2010) L&F completed over 70 acquisitions. Naturally, the company grew a huge expertise in planning and managing these processes, focusing on the delicate integration of acquired companies and using the IT to serve efficiently its growing and fundamental network.
The IT was also fundamental to pursue L&F fundamental activities of coordinating the numerous production locations and providing a “just in time” coordination to its customers.
All of these strategies and Li & Fung’s market adaptation skills are clearly evident if we analyze the company expansion in the US. Responding to a lacking need, especially from small companies, for an efficient logistic and design management of imported products, LF decided to go onshore in the US market, becoming a company of 6 billion dollars in only 6 years. In Europe things soon turned out to be different, but once again the company managed to correct its strategy, adapting to the different market environment.
Coming again, in the end of our analysis, to the actual challenges, we can notice that Li and Fung is still carefully adapting and exploiting changes in the economic scenario. Making treasure of all its expertise, it is facing the growing importance of Asian market through LF Asia. Again, foreseeing future opportunities, the expansion started with an acquisition, and now the company is taking advantage of its good relationship with exporters companies and its ties with foreign countries in order to satisfy Chinese companies’ need for efficient and quality sourcing options out of China and it is exploiting its capacity of introducing new brands in that market.
Concluding, Li & Fung continues expanding and faces new opportunities: the global crisis pushes retailers to outsource more aggressively and Asian countries development opens to the possibility of cross selling.
If L&F will keep on focusing on customer needs and, quoting Rockowitz words, will be able to avoid becoming bureaucratic, its future promises to be quite rosy.

Lenovo
Lenovo is now the global leader in personal computer sector, having achieved a market share of 16,9 in 2013, overtaking HP, with 16,2%. In the third fiscal trimester of 2013 its profit was $205 millions, counting $9,4 billion revenues: let us then briefly present the main steps of its expansion and its main strategies.
Lenovo’s global expansion started recently, in 2005, with the acquisition of IBM Personal Computer Division, but before that date the company was just a very small player, owning only 2% of market share. Established in 1984 by a team of researchers, the company grew fast, and in 1997 became leader in Chinese Market. Lenovo’s strategy, following the logic of “Protect and Attack”, was clearly focused on consolidating the domestic and Asian market, before expanding globally. In 2003 an important strategic move was the Rebranding operation, that cleverly brought to a name that both Chinese and global consumers could associate to positive values.
Its real springboard for global expansion, IBM acquisition, was though problematic: Lenovo had no experience in international acquisitions, its products were very different in terms of quality from IBM’s ones, the financial effort was considerable and the American political environment hostile with takeovers by Chinese companies.
Still, Lenovo managed to complete and “digest” the acquisition and in 2009 started consolidating its market power, through a reorganization of its foreign operations in two areas: “Mature” and “Developing” markets.
The main issue that it had to tackle was a weak brand recognition, tackled in Germany with the acquisition of Medion, an important pc manufacturer, with an operation that was however difficult to replicate.
Concluding, Lenovo is now a completely global company, still focusing on its native market, but aiming at the global leadership, according to its CEO’s Yang Yuanqing words, in the whole sector of personal technology.

IBM Business Driven Research
IBM Research is the last surviving of a huge group of industrial research laboratories, which have instead gone progressively out of market. The lasting success of this company is due to a wise management of research projects, which have always been market-driven: in fact, always focusing at a practical use or inspired by practical problems or needs.
It was firstly in the 80s, when IBM management felt the risk of shifting towards a pure, and thus fruitless, research approach. Starting from the semiconductors and packaging department, Jim McGroddy, who later would become director of IBM Research, changed the way of working in the research field, forcing project managers and researchers to work together, inaugurating the effective “business driven” method.
The second measure taken by McGroddy was pushing research nearer costumer needs, understanding that the only way of surviving was a right balance of long run research and short-term, practical application of it.
An important example of practical problem-driven research is the “Spoken Web”, a project ideated to exploit the wide and capillary distribution of mobile phones in India. IBM is operating in India since 1997 and this market is becoming more and more important, along with the huge growth of Indian population and economy. The Spoken web is included in the category of “Emerging market solutions”: a branch of IBM India Research focused on the efficient processing of a huge amount of data and transactions.
This project aimed at creating a huge network without using the World Wide Web, since only 7% of Indian population in 2010 had access to the Internet. The idea was very practical, and procured to IBM an award from the President of India, but at the same time highlighted once more the importance of an economic return for research. Nobody, at present, still has paid for this useful and potentially revolutionary technology, and this evidenced the lack of an efficient business model sustaining the project. The lesson to be learnt from IBM experience is that a balance between long and short term view is always necessary, in particular in a company based only on research: short term incomes are the essential basis to build and afford a long term and revolutionary research projects.

Common Patterns
The four presented cases show the key role played by Human Resource Management, especially in processes of reorganization and acquisition. Accenture had to change its IT paradigm, facing the pushback of a part of its employees, the same challenge that IBM Research faced in the 80-90s, when McGroddy introduced his successful idea of business-driven research, which needed a strong collaboration between project managers and researchers. In the case study it is not clearly stated, but surely this kind of issues and challenges had to be faced by Lenovo and Li & Fung, any time they acquired a company (IBM, Medion, …), in order to integrate and creating synergies between people.
When planning new projects, a cost benefit analysis is extremely important: Accenture adopted a ROI oriented model, thus managing more efficiently the choice of new applications, and IBM case clearly shows the fundamental role of research projects marketability for the survival of the company. Every business project must generate value, may it be a monetary income or a “soft benefit”, in a good balance between short and long term view.
Acquisitions play a strategic role in both Lenovo and Li & Fung cases. These two companies acquired competitors, dealing impeccably with all the challenges that the processes entailed, in order to expand their market share and, most of all, to strengthen their strategic position.
Accenture and Li & Fung cases also highlight the importance of a good outsourcing process. Activities that can be outsourced must be selected carefully, but if the process is well managed, it generates economies of scale and location that boost company expansion and improve its positioning. This is the case, for example, of Accenture outsourcing SAP processes in Madrid and in Argentina.
Finally, of course IT has a fundamental importance in the cases that have been presented. IT structure has been the main challenge to be faced by Accenture in 2001, and has determined the success of the company, while a wrong management could have brought to the company collapse. At the same time, it is fundamental in a global supply chain company like Li & Fung, allowing to coordinate its multiple production locations and to exploit its just-in-time strategy.
In conclusion, it is clear that IT is nowadays indispensable for every company, it provides huge opportunities in terms of reactivity to market changes and exploitations of emerging customer needs, and allows an efficient and coordinated internal management. In many cases, IT is not company’s core business (Like in Li & Fung and Accenture) but the analysis of these papers shows evidently that, though not always creating value directly, IT infrastructure constitute the essential and fundamental basis for every business activity, project and strategy, and it thus worthy of the best and most careful attentions from the management.

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