ROYAL DANISH BEARINGS

IB CASE STUDY MAY 2013

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KEY BUSINESS CONCEPTS:
Multinational Company
Secondary Sector
Market Size
Growth

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* What is a MNC? A company which has production and /or
marketing operations in two or more countries.
* Why do firms want to go multinational?
- Increase market base, expand brand name and image
- Move closer to suppliers and/or customers, to decrease
transportation costs
- To hurdle government restrictions such as tariffs, taxes, import
regulations
- To benefit from economies of scale, to spread risks
* Problems encountered by MNCs:
- Legal, Social-Cultural, Infrastructure, Competition



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* Effects of MNCs on host countries:
- Creation employment
- Offer a wider range of products (goods and services)
- Payment of taxes and transfer of skills and technology
- Exploit natural resources, damage to the environment
- Kill small local businesses
- Expose society to a lifestyle (brands, products) it cannot afford


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* Define secondary sector.
The secondary sector of the economy is also known as the
manufacturing sector which converts raw materials into finished
goods.
* What is meant by market size?
Market size refers to the total number of existing and potential
customers of a given market.
Factors which determine market size: demographic characteristics,
economic conditions - purchasing power, culture, customs and
traditions, substitute goods
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* Factors which contributed to the expansion of the market size of
the ball-bearing industry in the 20
th
century:
- Continued growth of the output of mechanical devices such as
vehicles, airplanes, wheel suspension, space shuttles, and more.
RELATE TO INTERNAL AND EXTERNAL ECONOMIES OF SCALE
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KEY BUSINESS CONCEPTS:
Business-2-Business market
Internal / Organic Growth
Economies of Scale Internal and External
Location Decision

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B2B market refers to the firm catering to the needs of other businesses, it
operates in the industrial market.
Advantages for RDB: focuses on a niche specialized market, produces high
quality products, can be familiarized with the specific needs of their
customers, be highly profitable
Disadvantages for RDB: smaller market base, attracts competition,
Define Organic/Internal Growth: Growth from within in which the firm
uses its own resources to increase its size.
Advantages of Internal Growth for RDB: maintain ownership structure
Disadvantages for RDB: saved cash is used and is not available for other
purposes, it may take longer than external growth

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Economies of Scale is the advantage of growth in which the
average cost of production per unit decreases as the firm increases
its scale of operations.
Types of Economies of Scale enjoyed by RDB:
Internal: Purchasing, Technical, Labor, Managerial, Financial,
Marketing
External: Improvements in the Industry: increase in the labor pool,
transportation and communication networks
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Factors which influenced the location decision of RDB:
Proximity to market
Availability and quality of labor
Personal preference of the shareholders (Denmark and neighboring
countries)
Effects of the firms decisions on its Stakeholders:
Society creation of thousands of jobs, support for company towns
Shareholders national and regional pride
Employees generations of families working for the firm

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KEY BUSINESS CONCEPTS:
Product Positioning Map
Competition Analysis
Michael Porters Generic Strategies
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PRICE
QUALITY
RDB
UAB
FIB
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Michael Porters Generic Strategies to build Competitive Advantage:
Cost Leadership: aim to be the low-price leader, FIB
Differentiation: focus on high quality, RDB
Focus: Cost or Quality
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KEY BUSINESS CONCEPTS:
Competition Competitive Environment
Strengths of RDB: well-established reputation for high quality
and high market share, strong brand image
Threats: entry of Japanese competition due to low labor costs
Market Share = the sales of the firm as a percentage of the
total sales of the market in which it participates.


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Market Share = (Sales of the firm Total Sales of the Market) x 100
Market Leader is the firm with the highest market share
Benefits of being the Market Leader:
Can set Price
Brand loyalty
Demand is price inelastic
Prestige and image

Japan in the 1970s
- Economy was developing
- Increasing wages
- Moved to JIT production
- More flexible, able to respond quickly to customer needs
- USP and competitive advantage
- Met ISO standards
- Exported to different trading blocs
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KEY BUSINESS CONCEPTS:
Just-in-Time Production
Unique Selling Point
Competitive Advantage
International Quality Standards
Regional Trading Blocs
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Unique Selling Point the characteristic of a brand or firm which
makes it different from its competitors.
Competitive Advantage the advantage that a firm has to generate
higher sales and margins over its competitors
what are firm possesses that enables it to beat its competition
RDBs USP quality, well-established reputation
Japanese brands USP flexibility and quick response time


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Define JIT Production. A type of stock control management in which
stocks arrive / are manufactured only as they are needed.
Advantages of JIT: flexibility, saves on storage expenses, does not tie
up liquidity (cash), stocks are new, firm can respond to changes in
technology,
Disadvantages: high risk of stock-out and being unable to meet
unexpected surges in demand resulting in unsatisfied customers,
unable to fully benefit from economies of scale, requires close
coordination and communication of employees
Explain how JIT production contributes to a firms USP and
competitive advantage.
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International Quality Standards ISO
- Strength of a firm, enhances brand image and prestige
- Quality assurance techniques

Regional Trading Blocs a group of countries who devise and
implement common trading policies and regulations (tariffs and
non-tariff regulations)

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Benchmarking (HL only)
-The process of identifying the best practice in an industry in relation to
products, processes and operations. It is the standards laid down by the
best businesses in the industry which others want to emulate.
-Benefits: serves as a guide instead of simple guesswork; looks at
customers perceptions making it more effective to meet needs and
wants; can help lower production costs and improve competitiveness.
-Limitations: collection of information can be time consuming and costly;
can be seen as copying and being second best; implementation and
results of findings need time and finances.

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Kaizen (HL only)
-The Japanese term for continuous improvement and which is an
integral part of total quality culture and assurance. Employees are
organized into small groups and their role is to identify changes and
improvements to be made, they identify problems and propose
solutions.
Benefits: Focus is on creating high quality, eliminates waste,
motivates employees
Limitations: Kaizen groups do not have decision-making power, they
can only propose solutions and make suggestions.


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Define Total Quality Management a philosophy which embeds
quality in every step of the production process.
Advantages for RDB: assures high quality performance and
efficiency, reduces wastage, motivates employees, enhances brand
image and loyalty
Disadvantages for RDB: requires highly trained employees which is
expensive, process is time-consuming and can demotivate/frustrate
employees in the beginning, bureaucratic and filled with paper-
work and documentation
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KEY BUSINESS CONCEPTS:
Leadership and Motivation
Tall Organizational Structure
Empowerment
Total Quality Management
Benchmarking (HL only)
Kaizen (HL only)


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Characteristics of a tall structure: long chain of command, many levels in
the hierarchy, narrow span of control
Advantages: smaller teams are easier to control and employees are more
motivated because of the close relationship with the manager,
communication within the team is more effective, higher degree of
delegation of authority and decision-making, tends towards
decentralization
Disadvantages: more expensive as there are more management positions,
far psychological distance between the top and bottom may result in
demotivation and communication between levels may take time and may
be distorted.
Relate to MOTIVATION Theory Maslow, Herzberg, Mayo (HL)
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KEY BUSINESS CONCEPTS:
Profitability the ability to generate profits, Sales>Costs
Brand Loyalty the repetitive purchase and preference of customers of a
brand over time therefore reducing the risk of transferring to a competing
brand.
Gross Profit Margin - the percentage of profit generated after discounting
direct costs from total sales.
Net Profit Margin the percentage of profit generated after discounting
direct costs and overhead expenses from total sales thereby measuring
the profitability of the entire sales effort of the firm.
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Ways to increase Gross Profit:
- Implement marketing techniques to increase Sales
- Change pricing policy taking into consideration elasticity of
demand.
- Reduce direct costs
Ways to increase Net Profit:
- Reduce overhead expenses
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Weakness of RDB
- High pollution levels, unethical business practice
- Valdemar ignored the problem
- Declining GPM and NPM
Threats for RDB
- Pressure groups are demanding action from RDB

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KEY BUSINESS CONCEPTS:
Private Limited Company
Paternalistic and Autocratic Leadership styles
Collective Bargaining Agreements
Motivation Theory


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What is a private limited company? An incorporated business organization
whose shares are owned by friends, family and known associates who
enjoy limited liability.
Advantages of a Private Limited Company: the firm has its own legal
identity separate from its shareholders, enjoy continuity, shareholders
have limited liability, firm can raise capital by issuing shares to known
associates, friends and family
Disadvantages of a Private Limited Company: process of incorporation is
costly and time-consuming, financial documents must be published,
shares cannot be sold in the stock market thereby limiting the amount of
capital it can raise.
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Paternalistic Leadership Style leadership style in which the leader
looks after the welfare of his subordinates similar to a father-child
relationship
Advantages: close relationship between manager-subordinate,
highly-motivating, results in job security, creates a family culture,
employees are loyal
Disadvantages: may lose focus and control, creates dependence
instead of autonomy at work,
RELATE TO MOTIVATION THEORY
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Characteristics of an autocratic leader: makes all the decisions, simply
gives orders and expects full obedience, ignores opinions and ideas of
subordinates, does not delegate authority and responsibility, assumes all
of the responsibilities
Autocratic Leadership is best used when/during: a crisis/emergency
situation, when decisions have to be made quickly, when the workforce is
low-skilled or demotivated, in a tall organization structure in which control
has to be maintained.
Major setback created by Autocratic Leadership: employees are
demotivated
Valdemar applied autocratic leadership when the workers collective
bargaining agreements were being negotiated. WHY?

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KEY BUSINESS CONCEPTS:
Risk Profile Valdemar was risk-averse.
Decision-Making Process Valdemar consulted with
experts, Delphi Technique (HL)
Contingency Plans (HL) -
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KEY BUSINESS CONCEPTS:
Job Production method which produces one unique output
made to the specifications of the customer.
Adv: high quality, can charge a premium price, specialized,
unique products, high customer satisfaction, wide product
range and assortment
Disadv: does not enjoy economies of scale, requires expensive
specialized labor, long working capital cycle, specialized
machines and tools are kept idle,
Batch Production method which produces several varieties of the
same (or similar) product in batches; a batch must first be
finished before starting another batch.
Advantages: several varieties are produced, can enjoy economies of
scale, can produce large quantities of similar products
Disadvantages: results in idle time in between batches when
machines are being re-configured, requires storage space for raw
materials and finished goods,


Flow Production a type of mass production in which a large
quantity of identical outputs is produced using a continuous
process, usually 24 hours.
Advantages: large quantity output, maximizes economies of scale,
uses specialized but unskilled cheap labor, lower costs of production
Disadvantages: large set-up costs, inflexible to changes in
technology, requires storage for raw materials and finished goods,
ties up liquidity


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KEY BUSINESS CONCEPTS:
SWOT Factors Anna Holstein
Ethical Business Practices Green Manufacturing
Advantages: enhance brand image, motivate employees,
create a USP for the firm, avoids problems with government
and pressure groups
Disadvantages: costly to implement, high expenses in the
short-run, may distract firm from its objectives, needs training
and development
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KEY BUSINESS CONCEPTS:
Scientific Decision-Making decision making process which are
based on objective quantifiable facts and evidences rather than
opinions and ideas. Adv: reduces risk of failure, easier to justify.
Disadvantages: takes time to collect evidence, degree of inflexibility
External Environment and Trends Opportunities and Threats for
RDB
Relocation moving to a different location closer to RDBs
customers, involves high costs, affects location inertia, results in
the lose of customers, redundancy,
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Working Capital: the capital available for the daily running of the firm.
Working Capital = Current Assets Current Liabilities
WC Cycle generation and use of Cash (Cash-Production Costs-Sales)
Shorter cycle CASH is generated quickly without losing the value of
Stocks.
** Moving closer to customers (Brazil, India, China) will reduce response
time and improve logistics therefore improving the working capital cycle.
Why?

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KEY BUSINESS CONCEPTS
Workforce Planning
Customer Profile
Corporate Social Responsibility
Carbon Footprint
Innovation and Research & Development

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Workforce Planning the management process of predicting and
identifying the quantity and quality of employees needed to
achieve the firms objectives.
Recruitment Selection Training and Development Motivation
Appraisal Termination of Employment/Redundancy
Explain the importance for RDB of having a workforce with a better
cultural understanding of its customers.
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Innovation refers to the development of new products and/or new
uses to a an existing product.
Carbon Footprint:

Research and Development: the first stage in the product life cycle,
involves high costs and spending, a good R&D strategy is a strength
of a firm
To what extent is Innovation important for RDB?
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KEY BUSINESS CONCEPTS:
Vision the ideal position the firm wants to achieve in the far
future.
** Vision Mission Aim Strategic Objectives Operational
Objectives
Downsizing reduction in the size of the firm by eliminating job
positions.
Offshoring moving operations to a foreign country off shore to
move closer to the market, reduce production costs, hurdle import
regulations
Redundancy terminating the employment contract of an
employee due to the elimination of the job position itself.
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Recruitment the process of attracting the most suitable candidates to an
available job position.
Internal senior managers will be offered key positions in new factories
Advantages: familiarity with the RDB and its culture, quicker to fill positions,
motivates managers
Disadvantages: maintains dead wood ideas, can create conflict and intrigue
among managers
External RDB will relocate and recruit employees in the host country.
Advantages: knowledge of and familiarity with the culture and laws of the host
country, create goodwill with the local community, lower labor costs
Disadvantages: need to be trained and will take time to adapt to the firms
culture,

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KEY BUSINESS CONCEPTS:
Marketing the process of identifying, satisfying and anticipating
the customers needs and wants
Objectives S-M-A-R-T goals which a firm aims to achieve
Advertising and Promotion: a function of Marketing to inform,
persuade and remind customers.
Brand Awareness the knowledge of the brand by its market base.
Primary and Secondary Market Research
Direct Selling Promotion and Place, a distribution channel and
BTL promotion technique. Frequently used in B2B Marketing.

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Market Research the systematic collection of the markets ideas, opinion
and behaviour.
Primary Market Research research data which did not previously exist
and which are collected from first-hand sources. Examples: interviews,
survey, observation, experiments
Advantages: current/ new data, relevant to the context of the research,
kept confidential
Disadvantages: costly and time-consuming, highly depends on the skill of
the researcher, sample size may be too small and will lead to a flawed
conclusion,
Secondary Research Data research data which exists and had
been collected for another purpose. Examples: past company
documents, government statistics, industry information,
competitions documents
Advantages: cheaper and faster to collect, huge range of sources
available, provides insights to a whole industry.
Disadvantages: out-of-date, data may be incomplete and/or
irrelevant as it was collected for another purpose, the format
have to be adjusted, it is not confidential
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KEY BUSINESS CONCEPTS:
Strategy the plan to achieve the firms objectives,
medium-to-short term activities
Sources and Uses of Finance
Use is for Capital Expenditure, long term
Sources must match the Use.
Public Limited Company

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Internal Source of Finance to raise 50%: sale of assets
Advantages: does not change the ownership structure of the firm
Disadvantages: limited amounts, make take time to sell the asset
External Source of Finance: issue shares, company to go public
Public Limited Company a limited liability company which trades its
shares in the stock market.
Advantages: large amount can be raised quickly
Disadvantages: dilutes the ownership of the Holstein family, legal
paperwork is costly and time-consuming, subject to strict controls of the
government, competition can buy ownership into the company.

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KEY BUSINESS CONCEPTS:
Public-Private Partnerships (HL only)
Motivation social contract with the workforce
Scale of Operation size of the operation
Stakeholders, Internal and External
Relocation moving its operations to a new location
Conflict and Resolution (HL only)
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KEY BUSINESS CONCEPTS:
Stakeholders any and all persons and groups who are
affected directly or indirectly by a firms decision. Internal and
External.
Cell Production (HL only)
Strategic and Tactical/Operational Objectives
Motivation Workforce Planning
Strategic Alliance

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Commission a type of financial motivation in which the employee
earns a percentage of total sales generated.
Advantages: motivates the employee to sell more resulting in the
increase in Sales and Profits of the firm
Disadvantages: employee may lose focus and sacrifice quality of
service as they aim to simply close the sale to earn commision, may
result in competition and conflict among employees which may lead
to demotivation, does not promote teamwork as employees
become individualistic in attitude and behavior.

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ORGANIZATIONAL OBJECTIVES
Objectives must be SMART
Specific Measureable Agree Upon Realistic Time Bound
Strategic Objectives are medium to long term goals set by senior managers and board
of directors for the whole organization often involving the use of many resources
and are difficult to change or revise once they are established. The organizations
over-all strategic objectives contribute to the realization of the Mission-Vision of
the organization.
Tactical/Operational Objectives are specific short term goals which are set by senior
managers for each department thereby involving fewer resources and are often
easier to change or revise. The tactical objectives of each department contribute
to achieving the strategic objectives of the whole organization.

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Strategic Alliance a form of external growth in which two or more
firms cooperate and share resources to achieve mutual benefits
while maintaining its operations independent. (different from a
JV as in a SA, the firms do not set up a new company together)
Advantages: gain synergy, share of expertise and resources,
improves the chances of success, improves customer
satisfaction and brand loyalty, expand brand awareness, benefit
from economies of scale
Disadvantages: creates dependency, sharing of information reduces
confidentiality, culture clash,

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KEY BUSINESS CONCEPTS:
Source of Finance External
Green production processes which protects the environment.
CSR
Ethics the obligation to behave in a manner which is moral and
beneficial for your stakeholders.
First-Mover Advantage is the edge a firm earns by entering a
particular market or industry ahead of its competitors.
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Globalization is the growing integration and interdependence of the
worlds societies, economies and political systems
Opportunities presented by Globalization:
- Increased customer base, enhanced brand recognition
- Improved and cheaper transportation and communication networks
- Rise of global brands, rise of a common culture
- Increased occurrences of external growth (Mergers & Acquisitions,
Joint Ventures, Franchises, Strategic Alliances)
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Challenges presented by Globalization
- Fiercer competition, faster innovation of products
- Higher demands from the consumer
- Culture clashes and Legal complications