The globalization of a rural company? – Business Case Study

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This is my case study that is about (The globalization of a rural company). It has several questions that I must answer these questions and you should indicate the question in the case study. Frist of all, you should briefly summarize the key facts about 150 words. I will provide you the resources that you should look at it. Second, you should discuss each question that I have given to you in the assessment. The word count 200 in the each question. Please make your writing clear and easy to flow and reasonable language.
GLOBALISATION CHAPTER 1
51
a. Consider Boeing’s decision to outsource much of the production of the Dreamliner 787. What benefits does this strategy offer?
What are the drawbacks? Discuss.
b. How has globalisation made Boeing’s approach to the production of the Dreamliner possible?
10. CASE ANALYSIS Read the following Closing Case and answer the questions that follow.
Elm Inc.: The globalisation of a rural company
Professor Makoto Kanda, Meiji Gakuin University
Small to medium-sized enterprises (SMEs) are not smaller
versions of multinational corporations (MNCs)—they face
limitations in resources and manpower. Therefore, even
under ideal conditions, SMEs can find it challenging to
globalise. However, this can be further confounded if the
firm is located in a rural area where there is little industrial
infrastructure. Elm Inc. (Elm) is one such SME located in
the rural heartland of Kagoshima prefecture, Japan, that
has overcome the limitations of its size and location to
achieve global success.
The company was founded in 1977 as Yaoki Electronics
Inc. by engineering graduate Terumasa Miyahara, the
younger of two brothers. He commenced the business
after completing his studies in Osaka and returning to his
rural hometown.
The business had humble beginnings, starting with
custom-made electronic appliances for Kagoshima
Matsushita Electronics (KME, now Panasonic Semiconductor
Solutions) to assist with streamlining KME’s
factory automation.
This contract with KME laid a solid foundation for the
business. Terumasa not only gained a steady income and
an opportunity to enhance his technical and operational
knowledge; importantly, he gained the entrepreneurial
acumen to operate a business successfully.
In 1980, his elder brother Takakazu joined the business
and together the two brothers founded Elm Inc. The
name encompasses the words ‘electronics management’,
‘machine’, and mu (‘dream’ in Japanese), which defines the
domain and vision of the company. ‘I believe that division of
labour between us is one of the secrets … to our success. My
brother creates business ideas and I implement them. He is
very good at finding promising business’ says Terumasa.
In the early years the brothers were very hands-on with
their business—responsible for developing new products
as the lead engineers within the company. However, over
time they relinquished their engineering roles to focus on
managing the firm—the elder brother is the president and
the younger brother is the vice-president of the company.
By 2015 they had 51 employees and a sales volume of
1.8 billion yen per annum.
The founders’ vision for Elm is to be an innovative R&Doriented
company that focuses on product development
and original equipment manufacturing (OEM) for other
companies. The first product developed by the company
in 1982 was a high-resolution receiving system for
the Japanese weather satellite Himawari, for use by
universities and research laboratories. The receivers were
marketed by two large firms, Seiko Epson and Maspro
Denkoh, via sales agreements.
Other products developed by the company included
semiconductor inspection equipment for KME. In 1987 it
developed and automated a colour video checker that
inspects 60 objects per second with a spectrum of 500
colours. In 1989 a joint office with Arikawa Kikoh was
opened to market mechatronics products for factories
by combining Arikawa’s mechanics and Elm’s electronics
technologies.
Elm achieved success by following this niche strategy and
enjoyed steady growth for nearly a decade. Unfortunately,
by the end of the 1980s Japan faced an economic downturn
and demand for Elm’s products suffered.
The economic downturn and the lack of demand for its
products necessitated a change in strategy. The company
required a market and clientele with a steady demand.
Kagoshima prefecture is famous for its agriculture
products. However, servicing the agriculture market in
Japan is a challenge, since markets are too small to realise
economies of scale. Undoubtedly there is a strong need
for mechanisation and labour-saving equipment within
this sector. Although it is not attractive for big companies
to enter, the industry is perfect for a small company like
Elm. In addition, there was a strong desire by the founders
of Elm to make a positive contribution to their home
prefecture’s (Kagoshima) farming sector.
continued >
PART 1 GLOBALISATION
52
The first opportunity came in 1990, when they were
tasked with mechanising the weighing and wrapping of
kumquats, a popular local fruit. The wrapping was done by
hand or semi-automatically. The new product weighs and
wraps kumquats automatically in around eight seconds.
The mechanism devised by Elm was unique and could
be adapted to pack a variety of fruits and vegetables.
Many inquiries from potential customers followed. The
company soon signed a sales agreement in Japan with
a subsidiary of Japan Tobacco Inc. Unsolicited offers for
technical collaboration came from overseas, making the
management aware of potential international markets.
The foray into the global market came via a new
product, ‘Yose-Tarou’. One of the president’s hobbies
is growing orchids. To ensure success in growing the
flowers he developed an automated window system for
his glasshouse. It worked on the basis of detecting the
wind direction and the speed of the wind by sounds. His
other pastime was golf, and he had an idea to make a
machine for practising approach shots. The methodology
behind the system is for the golfer to hit his or her golf ball
to a target. The machine uses the sound the ball makes
when it hits the target to calculate the height, distance and
trajectory to portray a realistic animation of the shot on a
TV screen. The system was first marketed in Japan in 1993.
It was followed by a presentation at the US PGA exhibition
as ‘Perfect Green’ with three models: putting, approaching
and putting/approaching machines. In 1994 they started
exporting to Korea via a Korean sales partner.
Regrettably, their first foray into the international
market was not successful, but once again it raised
the potential for targeting overseas markets. ‘We
understood limitations of the Japanese market …
The Kagoshima market represent only 1 per cent
of Japan’s market and big cities like Tokyo are far
away. Starting business with Korea made us realise
that overseas markets are not too far … There isn’t
a big difference in flying time to Korea and Tokyo’
(Takakazu Miyahara, President, Elm Inc.).
In 1999 an acquaintance of the president
brought in an idea of ‘doctor of CDs’. The company
formed a project team headed by the president
of the company. This laid the foundation for the
optical disc repair machine.
There are numerous rental shops for CDs and
DVDs around the world, especially in countries
where the options to download music and video
are limited. A major problem which these shops
face is scratches on the disc surface, resulting in discreading
errors.
The machine took two years to develop, because the
company did not have the technology or knowhow for
polishing CDs and DVDs automatically. Their first machine,
‘EcoMaster,’ was able to repair five discs simultaneously
in two minutes, while the competitive products took 30
minutes by hand.
Elm decided to market the product in 2001 via a sales
agreement with Plenty Co. Ltd, the largest company
in the disc-repair sales business. Elm also outsourced
production to Fujita Works, a Kagoshima-based company.
The product was introduced to the global market at the
Consumer Electronics Show 2002 in Las Vegas. They
received many sales offers during and after the event.
Another outcome was the establishment of Elm-Digitalia
with a Spanish partner in 2003 to service the European
market, and an OEM agreement with Research Technology
International (RTI) in the United States. RTI services the US
and Australian markets.
The computerised optical disc repair industry has
changed Elm’s business model. Previously Elm operated
as a hardware manufacturer, but repairs require supplies
of consumables and quick response times. To minimise
downtime, the machines are connected in real time via the
internet with their service facilities. When a failure occurs,
service staff are automatically notified, facilitating speedy
repairs and delivery of consumables just-in-time, enabling
5,000 discs
a day
Almost monoplised by the company
Competitive, especially in the USA
50 discs
a day
EcoPro
Manual machine
EcoSmart
Manual machine
EcoSenior
Semi-automatic
machine
EcoMaster
High-speed
Fully automatic machine
EcoSuper
Super-high-speed
Fully automatic machine
20 discs
a day
10 discs
a day
High end
Low end
Market structure and position of Elm
GLOBALISATION CHAPTER 1
53
CLOSING CASE DISCUSSION QUESTIONS
a. Successful SMEs such as Elm Inc. tend to target niche markets. Discuss the advantages of having a niche strategy.
b. Explain the benefits to the firm and the region when a regionally based company such as Elm internationalises.
c. What have been the key success factors for Elm? Do you think other SMEs can emulate their success?
d. While SMEs can target global markets, it is difficult to remain successful in those markets. How can a firm such as Elm continue to
succeed internationally? Discuss.
ENDNOTES
1 www.csl.com.au/businesses accessed on 8 September 2015.
2 For trade statistics, see the databases of the World Trade Organization, www.wto.
org; for foreign exchange statistics, see the Bank of International Settlements,
www.bis.org on 10 September 2015.
3 M. Naim, ‘Globalization’, Foreign Policy, 171 (March/April 2009).
4 T. Friedman, The World Is Flat, New York: Farrar, Straus and Giroux, 2005.
5 Ibid.
6 T. Levitt, ‘The globalization of markets’, Harvard Business Review,
May–June, 1983.
7 Interbrand, ‘Rankings, 2014’, accessed via www.bestglobalbrands.com/2014/
ranking on 11September 2015.
8 A. Inkpen and K. Ramaswamy, ‘End of the multinational: the emerging markets
redraw the picture’, The Journal of Business Strategy, 28(5) (2007); ZPMC, Company
Information, accessed via www.zpmc.com/about.php on 15 January 2013.
9 See F.T. Knickerbocker, Oligopolistic Reaction and Multinational Enterprise, Boston:
Harvard Business School Press, 1973; and R.E. Caves, ‘Japanese investment in the
US: Lessons for the economic analysis of foreign investment’, The World Economy
16 (1993), pp. 279–300.
10 Australian Bureau of Statistics, Characteristics of Australian Exporters, 2013-
14, Cat. No. 5368.0, accessed via www.abs.gov.au/ausstats/abs@.nsf/
PrimaryMainFeatures/5368.0.55.006 on 10September 2015.
11 AusIndustry, ‘Success Stories—Gekko Systems’, Australian Government, accessed via
www.ausindustry.gov.au on 31 March 2007; ‘Gekko Footprint’, Gekko Systems, News
Releases, accessed via www.gekkos.com/pages.php?page=2 on 15 January 2013.
12 US Department of Commerce, A Profile of U.S. Exporting and Importing Companies,
2009–2010, 12 April 2012, accessed via www.census.gov/foreign-trade/PressRelease/edb/2010/edbrel.pdf
on 15 January 2013.
13 B. Benoit and R. Milne, ‘Germany’s best kept secret, how its exporters are beating
the world’, Financial Times, 19 May 2006, p. 11.
the rental shops to maintain their operations. Now they
market both products and services.
Elm has learned the differences between various
national and international markets from its global expansion.
For example, in Japan workers in a CD rental shop will read
manuals and run the machine according to specifications.
If the machine stops, senior employees will try to fix it.
However, in the US the culture of reading manuals and
fixing machines is not the norm. The company has worked
hard to engineer highly reliable products, and products that
are easier to reboot if a fault occurs.
Elm was an early entrant into the optical disc repair market
with the ‘Ecomaster’. According to Takakazu Miyahara, the
president and co-founder of the company, ‘Our product can
repair the optical disc 50 times, while competing products
only 5 times, because it is quite difficult to grind the surface
of a disc accurately like a mirror’. In addition, it introduced
a new cheaper machine, ‘EcoPro’, in 2010 to serve smaller
shops and gain a greater market share.
The company has a wide range of the grinding
machines. Their top-of-the-range ‘EcoSuper’ machine
can automatically repair up to 500 discs in a single batch;
in comparison, most of their competitors’ machines can
repair just one disc manually, per hour. Elm Inc. focuses
on selling its optical disc repair machines to rental video
shops and libraries in 32 countries. This strategy has
enabled the company to capture over 80 per cent of the
global market for disc repair devices.
‘The rental business of CD/DVDs will shrink in the
near future because of the internet. We have to prepare
for businesses other than the optical disc repair,’ says the
president. Elm has already diversified into other areas.
It placed different types of LED lights for different uses
on the market, which includes controlling the budding
of chrysanthemums. Based on this technology Elm has
developed ‘Aqua Fantasy’, an illumination system in the
water using full-colour LED lights. The Hus Ten Bosch
theme park in Kyushu Island introduced this system in its
canal in 2014 and is entertaining customers. The president
is in the process of marketing this system globally. By being
innovative, nimble and adaptable to global market demand
and conditions, Elm has planted the seed for future
business success.
(With special thanks to Takakazu Miyahara, president of Elm
Inc., and Terumasa Miyahara, vice-president, for their insights
about doing business successfully in a globalised world.)