A Research Paper

On

“Global Expansion of Organizations”

By

Mr. Pratik Prakash Bhosale

Under the Guidance of

Dr. Cecile Morris

Submitted to

ABMTC

In partial fulfillment of the requirement for the award of the degree of

DOCTORATE OF BUSINESS ADMINISTRATION [D.B.A]

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Apple

Apple Inc. is the creation of Steve Jobs and Steve Wozniak. It is the manufacturer of
computers, computer software, digital media products, and other consumer electronic items.
The most recognized and successful products include the Macintosh line of computers, and
the Apple iPad, iPod, and iPhone. The company has been in business for over thirty years.
The brand began with the creation of its first computer the Apple I, which was a "hobby
computer." Apple Computer was not actually founded until 1976 and its first full computer, the
Apple II, was not released to the public until one year later in 1977. Since its inception, the
company has flourished. In recent years, under the leadership of the late Steve Jobs, Apple
moved to the top of the technology chain. Following the passing of Jobs, Apple continues to
thrive under the leadership of the new CEO Tim Cook, with annual sales on the rise.

Apple is a company that rarely follows the innovations of its competitors. This is at the core of
why it such a phenomenal success and why it is different from other computer companies. In
fact, it is often ahead of other companies in its innovations, such as the iPad, iPod and
iPhone. The creation of the Macintosh was what originally put Apple on the path of success.
This line of computers stood out from personal computers in several ways, including
appearance and functionality. Apple prides itself in creating items that engineers and
executives want and need. In this way they create items that people need and want, as
opposed to creating items that consumers must be convinced that they need. The company
also appeals to people who are not tech-savvy. Its products are kept simple, usually with one
version of an item released at a time as opposed to multiple versions of a single product.
Products made by Apple are also kept as simple as the level of technology will allow, which is
appealing for many of its consumers.

Corporate Governance guidelines of Apple, Inc

Overview
It is the paramount duty of the Board of Directors to oversee the CEO and other senior
management in the competent and ethical operation of the Company on a day-to-day basis
and to assure that the long-term interests of the shareholders are being served. To satisfy this
duty, the directors will take a proactive, focused approach to their position, and set standards
to ensure that the Company is committed to business success through maintenance of the
highest standards of responsibility and ethics.

Directors bring to the Company a wide range of experience, knowledge and judgment, and
bring these skills to bear for the Company. These varied skills mean that good governance
depends on far more than a "check the box" approach to standards or procedures. The
governance structure in the Company is designed to be a working structure for principled
actions, effective decision-making and appropriate monitoring of both compliance and
performance.

Ethics
The board expects its directors, as well as officers and employees, to act ethically at all times
and to acknowledge their adherence to the Company’s code of conduct. The board will not
permit the waiver of any ethics policy for any director or executive officer.

Apple Inc. Organizational Structure:

Apple’s organizational structure is one of the factors contributing to the company’s successful
innovation. A firm’s organizational structure can create opportunities for business growth.
However, it can also impose limits on how the firm develops. In Apple’s case, the
organizational structure is mainly a traditional hierarchy, with some key elements from other
types of organizational structure. The success of the company is linked to innovation and the

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leadership of Steve Jobs, but its organizational structure is partly responsible for ensuring
support for such leadership.
Now, under Tim Cook’s leadership, Apple has made some small changes in its organizational
structure to suit market and industry demands.

Apple’s organizational structure is effective in supporting business performance to ensure

leadership in the industry. However, further changes in this organizational structure can help
improve Apple’s capabilities, especially in the area of rapid and creative innovation and
design.

Features of Apple’s Organizational Structure

Apple’s organizational structure enables the firm to continue innovating rapidly. The creation
of new products like Apple Watch is linked to the support from the firm’s organizational
structure. The following are the most significant characteristics of Apple’s organizational
structure:
 Spoke-and-wheel hierarchy
 Function-based grouping
 Product-based grouping

Spoke-and-Wheel Hierarchy
A bird’s-eye view of Apple’s organizational structure shows considerable hierarchy. In the
past, everything went through Steve Jobs’ office. Jobs made all the major decisions.
However, under Tim Cook’s leadership, this hierarchy in Apple’s organizational structure has
slightly changed. There is now more collaboration among different parts of the company, such
as software teams and hardware teams. Apple’s vice presidents have more autonomy, which
was almost absent under Jobs. Thus, the company’s organizational structure is now less stiff,
but still has a spoke-and-wheel hierarchy where Tim Cook is at the centre

Function-Based Grouping
The upper tier of Apple’s organizational structure has function-based grouping, which is an
element derived from the functional type of organizational structure. Each senior vice
president who reports to Tim Cook handles a business function. For example, Apple has an
SVP for industrial design, an SVP for marketing, and another SVP for retail. In this aspect of
the organizational structure, Apple’s top leaders address business needs in terms of function
areas.

Product-Based Grouping
The lower tier of Apple’s organizational structure has product-based grouping, which is an
element derived from the divisional type of organizational structure. Below the senior vice
presidents, there are many vice presidents for different outputs or products. For example,
Apple has a VP for iOS apps, a VP for iPad, and another VP for consumer apps. This aspect
of the organizational structure enables Apple to address specific products or product
components.

Advantages & Disadvantages of Apple’s Organizational Structure

Strong Control
The hierarchy in Apple’s organizational structure supports strong control over the
organization. Theoretically, hierarchy empowers top leaders like Tim Cook to control
everything that goes on in the organization. Through the hierarchy, function-based grouping
and product-based grouping in this organizational structure, Apple ensures that Cook and the
senior VPs control all organizational processes.

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Limited Flexibility
Apple’s organizational structure has the downside of low flexibility. Hierarchy typically
prevents lower levels of the structure to flexibly respond to business needs and market
demands. However, Tim Cook has already made slight improvements by increasing
collaboration among different parts of the firm. Still, Apple’s organizational structure does not
support rapid changes because everything must go through Tim Cook and the senior VPs.

4
Walmart

Wal-Mart Stores, Inc is an American public corporation that runs a chain of large discount
department stores and a chain of warehouse stores. In 2010 it was the world's largest public
corporation by revenue, according to the Forbes Global 2000 for that year. The company was
founded by Sam Walton in 1962, incorporated on October 31, 1969, and publicly traded on
the New York Stock Exchange in 1972. Wal-Mart, headquartered in Bentonville, Arkansas, is
the largest majority private employer and the largest grocery retailer in the United States. In
2009, it generated 51% of its US$258 billion sales in the U.S. from grocery business. It also
owns and operates the Sam's Club retail warehouses in North America. Wal-Mart has 8500
stores in 15 countries, with 55 different names.

The company operates under its own name in the United States, including the 50states. It
also operates under its own name in Puerto Rico. Wal-Mart operates in Mexico as Walmex, in
the United Kingdom as Asda in Japan as Seiyu, and in India as Best Price. It has wholly-
owned operations in Argentina, Brazil, and Canada. Wal-Mart's investments outside North
America have had mixed results: its operations in the United Kingdom, South America and
China are highly successful, while it was forced to pull out of Germany and South Korea when
ventures there were unsuccessful.

Failure of Wal-mart in Germany

Wal-mart entered in Europe via Germany in 1997 through acquisition of Spar Handel and
Wertkauf stores. Wal-mart changed all the stores of these companies into Wal-mart stores.
Walmart hoped to replicate its US success in Europe using the same strengths of Everyday
low prices (EDLP), efficient operations, strong organizational culture and good customer
service. Lot of analysts believed that the domestic retail players would not be able to compete
with the North American giant and that the domestic retail industry would suffer (Bergmann,
2000). However, this was not to happen. The company was not able to replicate its success in
Europe. In fact, they had to exit Germany in 2006 and has not achieved leadership position in
England.

Reasons for Failure

PEST Analysis
This analysis would give a good overview of the external environment prevalent in Germany
at the time when Wal-mart made an entry into the country:

-Political: The policies in Germany were not conducive to the entrance of big retailers in the
country. The number of maximum hours allowed per week was amongst the lowest in the
world. Also, there was a very stringent policy against price cut. Retailers were not allowed to
sell goods below the cost price. It was also difficult to get a license to enter in the retail
industry of the country. There were various regulations that rendered WalMart’s resources of
economies of scale and network control useless in Germany (Christopherson, 2007)

- Economic: Germany is the biggest retail market in Europe and the GNP of the country in
2000 was 2 trillion Euros with the total population of 80 million people. Retail industry in
Germany is very competitive and low margin industry. Wal-mart entered the country because
of the big market, but during that time the industry in the country was saturated (Senge,
2004).

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-Social: People in Germany were very price conscious when it came to the retailing industry.
Many more people considered themselves as price conscious rather than quality and service
conscious. As a result, the retail industry in Germany was least profitable as compared to
other industries in Germany as well as retail industry of other countries. Overall, the culture in
Germany was very different than that in US.

-Technological: The technology used by German retailers was among the best in the world.
They used the available technology such as IT systems and RFID to improve the efficiency of
their businesses. German firms had resources of highly skilled labour, technological logistics
application and complex network coordination (Christopherson,2007)

Retail industry: Porter’s Analysis

Porter’s Analysis (Porter, 1985) will give us a good idea of the various factors at play in the
retail industry in Germany.

-Competitors: The retail industry in Germany was least profitable as compared to other
industries in Germany as well as retail industry of other countries. The profits were less than
one percent of sales for most of the retailers and very few were able to generate healthy
returns on capital. Most of the retail operations were run by family owned businesses and the
focus was not on shareholder returns. The market during early 2000 was consolidating at that
point with percentage of revenues by top players in the industry increasing. The top 5
companies accounted for the market share of 63%.

-Customer power: Customers were very price conscious and held high buying power
Over retailers since there was no cost of switch over and the product available was same
at all the retail locations. Most of the customers were influenced by prices rather than
quality and service.

-Supplier power: Lot of suppliers worked due to relationship building with the relationship
between suppliers and existing big players being very strong. Also, suppliers preferred
retailers who would give them high volumes. Manufacturers enjoyed much higher power in
Germany, as opposed to the US market where the power lie in the hands of the retailers
(Christopherson, 2007)

-Threat of substitutes: There was little threat of substitute for retailers. Though online retailing
was increasing, it was very small in comparison to the physical retail shops.

-Barriers to entry: It was difficult for a new entrant to enter in the German retail industry since
the political climate and the policies were not encouraging in this regard. Also, supplier
relationship and cultural integration proved to be big barriers in the industry.

Entry Strategy of Wal-mart and Reasons for failure

Wal-mart made an entry in Germany through two acquisitions. One of the acquisitions has
been widely described as flawed and resulting in huge failures. Also, Wal-mart was unable to
culturally integrate its US management team with German team on ground and this lead to
huge friction. The company also did not always follow the law and received bad publicity due
to this. Following section discusses these reasons in detail

Bad Acquisitions Strategy

The second acquisition of Spar by Wal-mart was highly flawed and proper study and analysis
was not done by Wal-mart before making the acquisition. The stores were located in poor

6
locations and there was no uniformity in the operations. In a rush to expand, Wal-mart ended
up paying much more than what Spar was worth for. The company wasn’t able to achieve the
minimum sales in order to generate sustainable profits.

Failure with Cultural Integration

Lack of cultural integration is one of the biggest reasons of failure of mergers and acquisitions
and the same happened with Wal-mart in Germany. Many employees left Wal-mart after
acquisition and there was mistrust between the new management and existing employees.
Walmart forced the usage of English as the official language in the company and the new
management made no efforts to connect with existing employees.
Wal-Mart’s employees were unhappy about the low pay in the company and were not happy
with the quality of products that they sold. Wal-mart was not able to lay down employees in
Germany as easily as it did in US. There were stringent laws in this regard and the labour
unions were very strong.

Failure of Everyday Low Prices Strategy

The basis of Wal-mart’s success in most of the markets has been its strategy of everyday low
prices where they undercut the competitors and gain market share. However, in Germany the
price cut was matched by competitors and Wal-mart was unable to provide goods at cheaper
price. Also, the goods made available were not at high discount and some newspapers and
magazines exposed the low price promise as an empty one. Wal-Mart was unable to achieve
cost leadership since it was unable to attain economies of scale and control over retail
Network (Christopherson, 2007)

Lack of Customer Satisfaction

Wal-mart has enjoyed high customer satisfaction in US market, but was unable to replicate
this in Germany. Wal-mart was unable to tweak its services according to the German
preferences and ended up paying the price in form of dropping customer satisfaction.

Conclusion
As a result of all the failures discussed in the report, Wal-mart exited from the German market
in 2006. The retail industry in Germany was not attractive enough to enter and the acquisition
made by Wal-mart was not based on good judgment. The macro environment as well as
industry was not attractive. Also, Wal-mart was unable to come up with a proper positioning in
Germany and the company was not able to culturally integrate the US management with
German workers.

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