MABE Reference Doc 1
MABE Reference Doc 1
MABE Reference Doc 1
To proceed with a case analysis, several issues and problems that Mabe has encountered
should be addressed. The first issue that can be addressed is Mabe’s joint venture (JV) in Russia
which has come with some headaches. One of which is intense competition and its early
presence as a new entrant. Cultural differences and the immediate nature of being an early
entrant character has plunged Mabe into an interesting and complex quagmire. Mabe has no
manufacturing facilities and only has presence in the nation’s major metropolitan areas.
Fagor’s relationship with Mabe regarding the Russian market entry is another cause for
concern. It should be noted that both firms do not compete in their key markets and regions. This
relationship is controversial and comes with its own considerations. How do these two firms
collaborate regarding decision-making, cultural integration, learning, scope, measure
performance, and plan? These are all factors that should have been confidently analyzed. For
instance, learning would have been predominantly Mabe learning from Fagor as the firm had
more experience in Russia in terms of cultural/societal integration. The two firms went so far as
to amalgamate production lines in the Russian market. Another display of the partnership was
Fagor’s adoption of the Action Learning method, which was obtained from Mabe which was
adapted from the General Electric (GE) alliance.
Another issue is the possibility of Mabe selecting a different market or region to enter
other than Russia. In the case, BRIC countries were considered for potential entry and Mabe had
entered Brazil and was reluctant to enter India and China due to there plethora of complexities.
Brazil was entered alongside Latin America and proved to be a fruitful endeavor. Russian was
selected predominantly on the fact that Fagor would support them and vice versa. An
underestimated parameter that wasn’t taken into purposeful consideration was Samsung’s
existing manufacturing presence in Europe. This should have been a clear signal to Mabe
regarding its competitors intentions and potential advantages.
Mabe’s JV with GE was positive for both parties and efforts toward international
expansion proved to be successful. The Overconfidence effect propagated by Mabe executives
may appear to be a downfall for the organization. Mabe’s Latin American expansion and Russian
expansion proved to be different in many aspects. The Latin American expansion resulted in
great success and this initiative was aided by miniscule language barriers, cultural/societal
similarities, and congruent time zones. The Russian augmentation was too rapid and was not
extensively considered. Substantial language and cultural barriers could prove to be catastrophic
for Mabe combined with the outcomes of the 2007-2008 financial crisis which directly impacted
consumer spending. Thus, with these issues Mabe must learn how to expand to foreign markets
without a “cookie cutter” approach and must learn this rapidly in order to succeed with a
competitive advantage.
Internal Analysis
Financial Analysis
Figures obtained from Exhibits 4 and 5, Mabe’s Balance Sheet and Income Statement
2006-2008 (in 1000s USD), IVEY PUBLISHING. MABE: Learning to be a Multinational. 2013.
2006 2007 2008
As depicted in the table above, Mabe’s current ratio and Net Income has been on a
downward trend leading up to 2008, which could signal a solvency issue if it worsens. Since
Mabe’s revenues have remained fairly consistent, it appears that Mabe could be taking on a lot of
debt, which is apparent from their acquisitions of DAKO in 2003, Camco in 2005, and Atlas in
2008 which could all lead to increased debt burdens on Mabe depending on how they financed
these acquisitions.
The Gross Profit Margin and Net Income during these years indicates that Mabe has
continuously generated high revenues, with an increasing gross profit margin. These signs
indicate that Mabe is operating efficiently, however the large variance in Net Income each year
can signal financial troubles. One of the main reasons for the large drop in 2008 Net Income can
be attributed to the global financial crisis of 2008 which lowered currency values and consumer
spending, causing Mabe to experience a $101,400 exchange loss.
Overall, the financial statements indicate that Mabe experienced growth during 2006 and
2007, however the financial crisis of 2008 had a substantial impact on Mabe’s growth. It can be
assumed that Mabe can still remain as a world leader in the appliance market as the world
recovers from the financial crisis, and Mabe’s JV into Russia must be heavily considered to
determine whether they can succeed.
VRIO Anaylsis
Resource: Valuable? Rare? Inimitable? Organized to
Exploit?
Strategy of Yes - Allows Yes - “By early Yes - Costly Yes - Mabe is
acquisitions them to enter new 2003, more than a strategy that taking advantage of
and JVs with markets and third of all gas requires heavy expanding their
other brands lower costs and electric capital and brands through
ranges and investment risk acquisitions and
refrigerators sold JVs.
in the U.S. had
been
manufactured in
Mabe plants.”
All in all, it can be understood that Mabe can sustain a competitive advantage over their
competitors because of their ability to take advantage of their unique resources and capabilities
in ways that other competitors may not be able to do. These resources and capabilities can
continue to be developed and exploited as Mabe expands into Russia and other countries.
External Analysis
PESTEL
Political: The Russian government is enhancing attractiveness of foreign investment by
offering $10 billion fund. The election of the new president in 2012 was the big concern for foreign
investors. Investors are waiting until Russian President Vladimir Putin completely assumes power
before making further investment decisions. Tremendous disturbance over business activity from
the Russian government negatively impacts the investors decisions. A reversal of privatization
stemming from the 1990s is unlikely to exist in Russia. Before entering the Russian market,
investors have to consider the difficult and complex political environment and prepare adequate
countermeasures for avoiding political risk.
Economical: Russia belongs to Brazil, Russia, India, and China (BRIC) group of countries
which are predicted to be the largest industrialized countries size by 2050. The greatest disposable
income level of Russia among BRIC countries contributes to a steep rise in consumption. Since
the financial crisis of 2007-2008 severely endangered the economy of Russia and it took a long
time to recover, Russia experienced a huge loss of private capital and a significant decline in profit
margin during the crisis. However, this situation had improved and returned back to the peak at
the end of 2011. Overall, the gross domestic product of the BRIC countries continues to increase.
Environmental: In order to achieve success, product and operational energy and water
efficiency/consumption must be improved. Mabe appears to possess this competitive advantage
because it is providing products which are environmentally friendly combined with high energy
efficiency. More cost savings could even be passed on to consumers by providing peak energy
capacities by region on the actual product.
Legal: Russia provides a legal concern for potential entrants and investors due to poor legal
safeguards and enforcement regimes and the high incidents of corruption and bribery. Corrupt law
enforcement and judicial system result in weak capital market institutions and poor protection of
private property rights. These create a hostile business environment for foreign investors and new
entrants.
All three alternatives were evaluated based on the alignment with company vision and
mission, financial implications and the level of risk.
Financial Implications 2 2 2
Total Points: 5 7 6
Recommendation
Based on the evaluation of alternatives, we suggest that Mabe continues with the JV in
Russia with Fagor. There were significant revenues before the 2008 financial crisis and Mabe
was not responsible for the market crashing. Mabe and Fagor can expect to recover from their
losses in the future. Even though there is a high barrier of entry, obtaining work visas and
dealing with low trust of outsiders, the young and motivated workforce will be able to carry the
companies and support their missions.
Mabe already has a lot invested in the Russian market and to exit the JV would be a
waste of time, money and resources. Finding a new market to enter would be difficult because
each country has government regulations, cultural norms and appliance companies established.
To increase the likelihood of success on this JV, Mabe should implement a few small changes.
Short Term: Contact Fagor to establish how they will build appliances locally while
following all reasonable Russian business practices. It is important to respect the host countries
norms when expanding internationally. This increases employee motivation and satisfaction
while decreasing employee turnover. AS this is a JV, decisions will need to be made and agreed
upon with Fagor to minimize the chance of misunderstandings and miscommunications.
Long Term: Mabe should prioritize the products that have been doing well in the
targeted market. They should reduce the production of products that are not as popular as others.
As Vladimir Putin was recently re-elected, Mabe should connect with his office for additional
support as he promotes foreign investments. They could get a bursary or promotion from the
nation’s leader which would generate interest and loyalty.
Contingency Plan
As this alternative is moderately risky, Mabe should consider a plan of action to take if
things do not go as planned. If the market does not improve and continues to worsen in 2012, Mabe
should abandon their JV in Russia by 2014. In the worst-case scenario, Mabe could then look for
another market to enter. They should focus on BRIC countries but if there are no viable options
available, they can expand their horizons.