Discussion Questions

626 Part 7 Cases

Sources Maury Wright, “LED Business News: Cree and Philips Report Mixed Results,” LEDs Magazine, January 25, 2017; Ellen Proper, “Philips Falls Under FDA Scrutiny Over Heart Defibril- lators,” Bloomberg Businessweek, January 24, 2017; “Philips to Implement a New Management Structure in Healthcare to Im- prove Performance,” eHealthNews, July 8, 2014; John Markoff, “Why Light Bulbs May Be the Next Hacker Target,” The New York Times, November 3, 2016.

Case Discussion Questions 1. Why did Philips’ organizational structure make

sense early on in its existence? Why did this structure start to create problems for the company later on?

2. What was Philips trying to achieve by tilting the balance of power in its structure away from national organizations and toward the product divisions? Why was this hard to achieve?

3. What was the point of the organizational changes made by Cor Boonstra? What was he trying to achieve? Do you agree with Frans van Houten’s decision to keep the same three divisions when he became CEO?

4. Philips reorganized multiple times, from 21 divisions to 9 divisions and subsequently just 3 divisions. Why do you think it did this? What is it trying to achieve? Can a company reorganize its structure this often and maintain competitiveness?

Boonstra as CEO in 2001, decided Philips was still not sufficiently focused on global markets. He reorganized yet again, this time around with just three global divi- sions: electronics, health care, and lighting. These are also the three divisions that are in place under the most recent CEO, Frans van Houten, who became the CEO of Philips in 2011. Under Houten’s leadership, the goal is that Philips should strive to make the world healthier and more sustainable through innovation. The compa- ny’s goal is to improve the lives of 3 billion people a year by 2025 (the world has about 7.4 billion people).

To achieve the goal of improving the lives of 3 billion people, the slogan for the health care division is “creating the future of health care.” Philips is a global leader in the health care domain and the company’s lofty goal is admi- rable. It is guided by the understanding that there is a pa- tient in the center of everything it does in the field of health care, and its focus is on creating the ideal experi- ence for all patients around the world, young and old. Philips Lighting is about “enhancing lives with light” by delivering innovative and energy-efficient solutions. The Consumer Lifestyle division is dedicated to “helping peo- ple achieve a healthier and better life.”

The three divisions are responsible for product strat- egy, global marketing, and shifting of production to low- cost locations (or outsourcing production). The divisions also took over some sales responsibilities, particularly dealing with global retail chains such as Walmart, Tesco, and Carrefour. To accommodate national differences, however, some sales and marketing activities remained located at the national organizations.

protection, GM saw its U.S. market share slip from 44 to just 19 percent. The troubled company emerged from bankruptcy a few months later as a smaller enterprise with fewer brands, and yet, going forward some believe that the new GM could be a much more profitable enterprise. And 2016 showcased GM’s profitability: “By nearly every mea- sure, 2016 was a great year,” GM Chair and CEO Mary Barra told investors and analysts in February 2017. One major reason for this optimism was the success of its joint ventures in China.

GM entered China in 1997 with a $1.6 billion invest- ment to establish a joint venture with the state-owned Shanghai Automotive Industry Corporation (SAIC) to build Buick sedans. At the time, the Chinese market was tiny (fewer than 400,000 cars were sold in 1996), but GM was attracted by the enormous potential in a country of more than 1.4 billion people, a country that also was ex- periencing rapid economic growth. While GM initially recognized that it had much to learn about the Chinese

Just a few years ago, the global marketplace was not kind to General Motors Corporation (GM), but the company is on a much-needed upswing with record earnings in 2016 and strong global optimism for the next several years. The Chinese market, in particular, is becoming one of the most important foreign markets for GM. General Motors, of course, is a U.S.-based multinational corporation head- quartered in Detroit, Michigan. The company was founded in 1908 in Flint, Michigan, and Mary Barra is currently the company’s CEO. In 2016, GM had revenues of $166 billion and more than 216,000 employees, produced almost 10 million vehicles, and consisted of four core divi- sions (Buick, Chevrolet, Cadillac, and GMC).

But not long ago, GM was hurt by a deep recession in the United States and plunging vehicle sales. GM capped off the 2000–2010 decade, where it had progressively lost market share to foreign rivals such as Toyota, by entering Chapter 11 bankruptcy. Between 1980, when it dominated the U.S. market, and 2009, when it entered bankruptcy

General Motors and Chinese Joint Ventures

Cases 627

It is the future, however, that has people excited. From a market of about 9 million passenger and commercial vehicles sold in China in 2008 to 28 million in 2016, the Chinese vehicle market is booming compared with the United States and Europe. China has now become GM’s largest market in vehicles sold. GM also plans to expand its Chinese dealer network to more than 5,000, and it plans to have 17 assem- bly plants in China—more than the 12 it has in the United States. Driving this expansion are forecasts from GM that demand in China will reach 35 million vehicles a year by 2022, a huge increase from the 28.5 million vehicles sold in 2016. Underlying these forecasts are the still relatively low vehicle penetration rates in China. China has about 85 vehi- cles per 1,000 people compared to around 800 vehicles for every 1,000 people in the United States.

Sources Phoenix Kwong, “China 2016 Car Sales Surge at Fastest Rate in Three Years,” China Business, January 12, 2017; Melissa Bur- den, “GM Sells Record 3.87 Million Vehicles in China,” The Detroit News, January 5, 2017; Brent Snavely, “GM Earns $9.43 Billion in 2016; UAW Workers Get Record Profit Sharing,” De- troit Free Press, February 7, 2017; Tom Krisher, “General Mo- tors Exudes Optimism, Raises Outlook for 2017,” US News and World Report, January 10, 2017; K. Naughton, “GM’s China Bet Mimics Toyota’s Bet on U.S. Last Century,” Bloomberg.com, April 29, 2013.

Case Discussion Questions 1. GM entered the Chinese market at a time when

demand was very limited. Why? What was the strategic rationale?

2. Why did GM enter through a joint venture with SAIC? What are the benefits of this approach? What are the potential risks?

3. Why did GM not simply license its technology to SAIC? Why did it not export cars from the United States?

4. Why has the joint venture been so successful to date? 5. As of 2018, GM appears to be increasing its strategic

commitments to China by building more factories and opening more dealerships. Why is the company making these bets? Do you think it is doing the right thing?

market, and would probably lose money for a few years in the early years, GM executives believed it was crucial to establish operations and to team up with SAIC (one of the early leaders in China’s emerging automobile indus- try) before its global rivals did. The decision to enter a joint venture was not a hard one. Not only did GM lack knowledge and connections in China, but Chinese gov- ernment regulations made it all but impossible for a for- eign automaker to go it alone in the country.

While GM was certainly not alone in investing in China—many of the world’s major automobile companies entered into some kind of Chinese joint venture during this time period—General Motors was among the largest investors in the country. Only Volkswagen, whose man- agement shared GM’s view, made a similar-size invest- ment. Other car manufacturers adopted a more cautious approach, investing smaller amounts and setting more limited goals.

By 2007, GM had expanded the range of its partner- ship with SAIC to include vehicles sold under the names of Chevrolet, Cadillac, and Wuling. The two companies had also established the Pan-Asian Technical Automotive center to design cars and components not just for China, but also for other Asian markets. At this point, it was al- ready clear that both the Chinese market and the GM– SAIC joint venture were exceeding GM’s initial expectations. Not only was the joint venture profitable, but it was also selling more than 900,000 cars and light trucks annually by 2007, placing it second only to Volk- swagen in the market among foreign nameplates at that time (some 8 million cars and light trucks were sold in China in 2007). Today, GM sells about 4 million vehicles annually in China, and the country’s car market is about 28 million vehicles per year. GM’s Cadillac, Buick, and Baojun brands set sales records in China in 2016.

Much of the GM–SAIC joint venture’s success could be attributed to its strategy of designing vehicles explicitly for the Chinese market. For example, in a complex joint ven- ture involving GM, SAIC, and also Liuzhou Wuling Mo- tors Co., GM produced a tiny minivan, the Wuling Sunshine. The van costs about $5,000, has a 0.8-liter en- gine, hits a top speed of 60 mph, and weighs less than 1,000 kilograms—a far cry from the heavy SUVs GM was known for in the United States. For China, the vehicle was perfect, making it the best seller in the light truck sector.

storefront in Torrance, California, followed by exporting to Mexico in 1992, the company is a gelatin dessert busi- ness with core customer target markets in the United States and Mexico, but with exporting to several coun- tries worldwide. Lulu is the nickname of the founder, Maria de Lourdes Sobrino.

The opening line of the “About” section of Lulu’s Des- serts website—www.lulusdessert.com—is “Pull up a chair and join in the festival of flavors with Lulu’s Gelatin Des- serts.” Taking basic ingredients and creating a myriad of flavors has led to worldwide exporting success for Lulu’s Dessert Corporation. Started in 1982 in a 700-square-foot

Exporting Desserts by a Hispanic Entrepreneur