INT 220 Homework and Discussion new

INT 220 Module Six Assignment
Conference Call Invitation Template

Subject:	[Add a subject for the conference call.]
Meeting Organizer:	[Add your name here as the meeting organizer.] Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper
Invite Required Attendees:	[Add a list of the required attendees.]
Invite Optional Attendees:	[Add a list of the optional attendees.]

Meeting Invitation Date and Time with Time Zone:	[Add the date and time of the meeting, also noting the specific time zone.]
Does Meeting Repeat?	[Note whether the meeting repeats.]
Location:	[Add a location for this meeting (could be virtual).]
Body:	[Add a message for your attendees, explaining the purpose of the meeting and what you hope to accomplish.]

Meeting Agenda

1. Welcome and introductions

2. [Add your first topic.]

3. [Add your second topic.]

4. [Add your third topic.]

5. [Add your fourth topic.]

6. [Add your fifth topic.]

7. [Add your sixth topic.]

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Module Six Assignment: Global Supply Chain Case
Study Guidelines and Rubric

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Overview

In Module Six, you have explored logis�cal and cultural considera�ons for managing diverse teams. In this assignment, you will apply what you have learned by analyzing a case study to draw conclusions about corporate

social responsibility in an interna�onal context.

Prompt

Read the case study Apple and Its Suppliers: Corporate Social Responsibility, taking careful note of examples and explana�ons of Apple’s views on corporate social responsibility, countries involved in the supply chain, and

whom the public held responsible for the ethical viola�ons.

Specifically, you must address the following rubric criteria:

• Key Points: Briefly summarize key points that the case raises, such as who was involved; key problems and concerns iden�fied; and ques�ons about corporate social responsibility, public opinion, and/or

interna�onal

business.

• Corporate Social Responsibility: Explain how corporate social responsibility, specifically related to employee treatment, is important to a business.

• Public Opinion: Explain how the media and public opinion influenced the situa�on and what lessons a business prac��oner can learn from Apple’s experience with how the media and the public can impact

business.

• Interna�onal Business: The case states that although the concerns regarding poor employee treatment were related to events at manufacturing facili�es such as Foxconn and Pegatron, the concerns regarding

corporate social responsibility fell to Apple. Explain what this can teach business professionals about interna�onal business and supply chain management.

• Labor Prac�ces: Compare the advantages and disadvantages of commonly used labor prac�ces in interna�onal business.

• The Road Ahead: The end of the case raises a few ques�ons regarding how Apple should proceed. On the basis of what you have learned in this module and throughout the course, explain how you think Apple

should have proceeded following the incident outlined in the case and why. Make sure to use evidence from course and/or external resources to support your response.

Guidelines for Submission

Submit this assignment as a 400‐ to 750‐word Microso� Word document. Sources should be cited according to APA style.

Module Six Assignment Global Supply Chain Case Study Rubric

Criteria Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value

Key Points Exceeds proficiency in an

excep�onally clear, insigh�ul,

sophis�cated, or crea�ve manner

Briefly summarizes key points

the case raises, such as who was

involved; key problems and

concerns iden�fied; and

ques�ons about corporate social

responsibility, public opinion,

and/or interna�onal

business

Shows progress toward

proficiency, but with errors or

omissions; areas for

improvement may include

increasing the number and

expanding on details of the key

points in the case

Does not a�empt criterion 15

Corporate Social Responsibility Exceeds proficiency in an

excep�onally clear, insigh�ul,

sophis�cated, or crea�ve manner

Explains how corporate social

responsibility, specifically related

to employee treatment, is

important to a business

Shows progress toward

proficiency, but with errors or

omissions; areas for

improvement may include

focusing the discussion of

corporate social responsibility on

employee treatment

Does not a�empt criterion 15

Public Opinion Exceeds proficiency in an

excep�onally clear, insigh�ul,

sophis�cated, or crea�ve manner

Explains how the media and

public opinion influenced the

situa�on and what lessons a

business prac��oner can learn

from Apple’s experience with

how the media and public can

impact business

Shows progress toward

proficiency, but with errors or

omissions; areas for

improvement may include

expanding the discussion on

public opinion and how other

companies can learn from

Apple’s experience

Does not a�empt criterion 15

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Apple’s experience

Interna�onal Business Exceeds proficiency in an

excep�onally clear, insigh�ul,

sophis�cated, or crea�ve manner

Explains what the case study can

teach business professionals

about interna�onal business and

supply

chain management

Shows progress toward

proficiency, but with errors or

omissions; areas for

improvement may include

drawing conclusions about

interna�onal business and supply

chain management

Does not a�empt criterion 15

Labor Prac�ces Exceeds proficiency in an

excep�onally clear, insigh�ul,

sophis�cated, or crea�ve manner

Compares the advantages and

disadvantages of commonly used

labor prac�ces in interna�onal

business

Shows progress toward

proficiency, but with errors or

omissions; areas for

improvement may include

comparing addi�onal advantages

and disadvantages

Does not a�empt criterion 15

The Road Ahead Exceeds proficiency in an

excep�onally clear, insigh�ul,

sophis�cated, or crea�ve manner

Explains how Apple should have

proceeded following the incident

outlined in the case and why,

using suppor�ng evidence from

course and/or external resources

to support

the response

Shows progress toward

proficiency, but with errors or

omissions; areas for

improvement may include adding

suppor�ng evidence to support

the response

Does not a�empt criterion 15

Ar�cula�on of Response Exceeds proficiency in an

excep�onally clear, insigh�ul,

sophis�cated, or crea�ve manner

Clearly conveys meaning with

correct grammar, sentence

structure, and spelling,

demonstra�ng an understanding

of audience and purpose

Shows progress toward

proficiency, but with errors in

grammar, sentence structure,

and spelling, nega�vely

impac�ng readability

Submission has cri�cal errors in

grammar, sentence structure,

and spelling, preven�ng

understanding of ideas

Cita�ons and A�ribu�ons

Uses cita�ons for ideas requiring

a�ribu�on, with few or no minor

errors

Uses cita�ons for ideas requiring

a�ribu�on, with consistent

minor errors

Uses cita�ons for ideas requiring

a�ribu�on, with major errors

Does not use cita�ons for ideas

requiring a�ribu�on

Total: 100%

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Module Six Assignment: International Team
Expectations Assignment Guidelines and Rubric

INT‐220‐J7483 Global Dimensions in Business 23EW3 MA

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Overview

Managing an interna�onal team will present unexpected challenges. You are in different �me zones; you have different schedules; you come from different cultures; and your own communica�on style may be different

from that of members of your team. Success of a geographically distributed team can be fostered by se�ng expecta�ons that are informed by best prac�ces and the cultures of your team members.

Scenario

Your company is expanding into a new market and has formed a new team that it would like you to manage. Your manager has sent you this note:

Thank you for taking on this challenge. You have a great team, but they come from very diverse backgrounds. It’ll be up to you to make sure it is a cohesive team that communicates well and collaborates

effec�vely. As you know, at our firm, we feel the management of our teams and human resource management are a strategic advantage for us. I would like you to write an email explaining to me what

managerial approaches you will use and how you think your team will func�on together. Please also include your conference call invita�on for your team’s introduc�on. I would like to review what you are

going to send to your team.

Prompt

For this assignment, you will write an email and introductory conference call invita�on as requested by your manager.

Team Member Loca�ons

Your team consists of the following four members from various loca�ons across the globe:

1. Kaspar was born in and is based in the country you choose for your course project.

2. Kelly was born in and is based in the United States.

3. Syed was born in and is based in the United Arab Emirates.

4. Nina was born in and is based in Chile.

Specifically, you must address the following rubric criteria:

• Write an email to your manager explaining how you plan to manage your team. It should include the following informa�on:

◦ Cultural considera�ons for each team member (For the purposes of this assignment, you can assume that each team member represents the average cultural dimensions of an average ci�zen of the country,

and you are encouraged to use the Hofstede Insights: Compare Countries website.)

◦ Common issues among diverse or global teams and poten�al conflicts that could occur in your team

◦ Mul�ple management approaches you plan to use and why

◦ A policy for selec�ng which holidays team members can take off that takes into account cultural considera�ons

◦ A determina�on of whether your team will collabora�vely create a team expecta�ons and communica�on plan or whether you as the manager will do it on your own, explaining your decision

• Create a conference call invita�on, including the �me of the mee�ng and agenda, using this Conference Call Invita�on Template.

Guidelines for Submission

Submit your email as a 200‐ to 350‐word Microso� Word document. Submit your conference call invita�on by comple�ng the Conference Call Invita�on Template. Sources should be cited according to APA style.

Module Six Assignment Interna�onal Team Expecta�ons Rubric

Criteria Exemplary (100%) Proficient (85%) Needs Improvement (55%) Not Evident (0%) Value

Email: Cultural Considera�ons

Exceeds proficiency in an
excep�onally clear, insigh�ul,
sophis�cated, or crea�ve manner

Iden�fies cultural considera�ons
for each team member

Shows progress toward
proficiency, but with errors or
omissions; areas for
improvement may include adding
more cultural considera�ons for
each team member

Does not a�empt criterion 15

Email: Common Issues among
Global Teams

Exceeds proficiency in an
excep�onally clear, insigh�ul,
sophis�cated, or crea�ve manner

Iden�fies common issues among
diverse or global teams and
poten�al conflicts that could
occur in your team

Shows progress toward
proficiency, but with errors or
omissions; areas for
improvement may include lis�ng
poten�al conflicts that could
occur in diverse or global teams

Does not a�empt criterion 15

Email: Management Approaches Exceeds proficiency in an Explains mul�ple management Shows progress toward Does not a�empt criterion 15

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Email: Management Approaches Exceeds proficiency in an
excep�onally clear, insigh�ul,
sophis�cated, or crea�ve manner

Explains mul�ple management
approaches you plan to use

Shows progress toward
proficiency, but with errors or
omissions; areas for
improvement may include adding
explana�ons of management
approaches that deal with
poten�al team plans

Does not a�empt criterion

Email: Holiday Policy Exceeds proficiency in an
excep�onally clear, insigh�ul,
sophis�cated, or crea�ve manner

States a policy for selec�ng
which holidays team members
can take off that takes into
account cultural considera�ons

Shows progress toward
proficiency, but with errors or
omissions; areas for
improvement may include taking
into account cultural
considera�ons when sta�ng
holiday policy

Does not a�empt criterion 15

Email: Team Expecta�ons Plan Exceeds proficiency in an
excep�onally clear, insigh�ul,
sophis�cated, or crea�ve manner

Explains the decision whether
you or your team will create a
team expecta�ons and
communica�on plan and jus�fies
the answer

Shows progress toward
proficiency, but with errors or
omissions; areas for
improvement may include
jus�fying your selec�on of who
will create the team expecta�ons
and communica�on plan

Does not a�empt criterion 15

Conference Call Invita�on Exceeds proficiency in an
excep�onally clear, insigh�ul,
sophis�cated, or crea�ve manner

Creates a conference call
invita�on, including �me of the
mee�ng and the agenda

Shows progress toward
proficiency, but with errors or
omissions; areas for
improvement may include
selec�ng a �me zone that is
more appropriate and including
agenda items

Does not a�empt criterion 15

Ar�cula�on of Response Exceeds proficiency in an
excep�onally clear, insigh�ul,
sophis�cated, or crea�ve manner

Clearly conveys meaning with
correct grammar, sentence
structure, and spelling,
demonstra�ng an understanding
of audience and purpose

Shows progress toward
proficiency, but with errors in
grammar, sentence structure,
and spelling, nega�vely
impac�ng readability

Submission has cri�cal errors in
grammar, sentence structure,
and spelling, preven�ng
understanding of ideas

Cita�ons and A�ribu�ons Uses cita�ons for ideas requiring
a�ribu�on, with few or no minor
errors

Uses cita�ons for ideas requiring
a�ribu�on, with consistent
minor errors

Uses cita�ons for ideas requiring
a�ribu�on, with major errors

Does not use cita�ons for ideas
requiring a�ribu�on

Total: 100%

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W16147

APPLE AND ITS SUPPLIERS: CORPORATE SOCIAL RESPONSIBILITY

Sun Hye Lee, Michael J. Mol, and Kamel Mellahi wrote this case solely to provide material for class discussion. The authors do not
intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.

This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the
permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights
organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western
University, London, Ontario, Canada, N6G 0N1; (t) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com.

Will it ever be good enough? That was the key question facing Apple Inc., (Apple) the California-based
multinational technology company that was known for its innovative hardware, software, and online
services. Apple had been accused of having allowed labour rights violations in China at Foxconn, a major
supplier of its products in 2009, but the company had worked hard to overcome these issues to avoid any
negative ramifications for its corporate image. Yet on December 18, 2014, new evidence was presented in
a British Broadcasting Corporation (BBC) documentary that showed that labour rights violations continued
to occur in China, this time at Pegatron, another large Apple supplier that specialized in the assembly of
Apple’s iPhones 1 This documentary questioned Apple’s repeated statement in its 2014 supplier
responsibility progress report that “Each of those workers has the right to safe and ethical working
conditions.”2

Jeff Williams had been promoted to the role of senior vice president for Operations only 15 days earlier,
when he was put in charge of what Apple called “end-to-end supply chain management . . . dedicated to
ensuring that Apple products meet the highest standards of quality.”3 Given the huge progress that Apple
had achieved, was the company simply being singled out unfairly because of its size, visibility, and earlier
problems? Indeed, Apple now had an excellent reputation in terms of corporate social responsibility (CSR)
and, in 2014, had been ranked fifth on Forbes’ “best CSR reputations” list.4 As Apple’s stock market value
moved ever closer to US$1 trillion,5 did outside observers hold Apple, the most valuable company ever, to
a higher level of corporate social responsibility? Alternatively, had the company still not fully come to
terms with the nature and magnitude of its CSR challenges?

It had indeed proven to be difficult to maintain control over Apple’s vast operations, particularly when most
activities were undertaken through outsourcing to independent suppliers that were mostly situated in
offshore locations, such as China, far from Apple’s base in California. Perhaps the most important question
of all was what Williams and Apple could do to tackle the allegations. Would it suffice to adopt a defensive
strategy, by simply denying that the problem was structural in nature and pointing to Apple’s many and
costly efforts? Or should Apple’s management instead engage with the issue and instigate further CSR
changes in its sourcing strategy? If so, what changes should be implemented? In short, how should Apple
and Williams respond?

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Page 2 9B16M040

THE SMARTPHONE INDUSTRY

In 2014, more than 1.2 billion smartphone devices were sold worldwide, for combined revenues of more
than $380 billion.6 The competition among the major players — Samsung, Huawei, HTC, Nokia, and Apple
— had started to take a toll on the industry’s profitability, which led industry experts to suggest that the
smartphone industry was reaching its maturity stage, with year-on-year growth set to gradually decline.
Apple was the largest player in the industry, accounting for more than 90 per cent of profits in the fourth
quarter of 2014 and the first quarter of 2015.7 Samsung dominated the low end of the smartphone market,
while Apple dominated the more lucrative high end. The low-cost players, Lenovo and Xiaomi, which were
introduced to the smartphone market in 20128 and in 20119 respectively, broadened the reach of the
smartphone market to lower-income countries and intensified competition among the key players in the
market.10 The smartphone market had reached a saturation point in western markets, but was still expanding
in emerging and low-income countries, providing new emerging-market multinationals such as Xiaomi
with a potential competitive edge over traditional players such as Samsung, Apple, and LG.11

Besides its superior aesthetic design and cutting-edge features, Apple’s products were differentiated from
those of its competitors by its use of a proprietary operating system (iOS) and its connection to Apple’s
successful iTunes website that offered multimedia content for the iPhone and other Apple products. Because
of its differentiated position, Apple’s iPhone commanded a premium price, which drove up Apple’s
profitability and market value.12

APPLE, THE IPHONE, AND CUSTOMER LOYALTY

Apple was not only the world’s most valuable company but also a hallmark of how information technology
could change lives. The company was founded in 1976 and started to encroach into the personal computer
market from the late 1980s and early 1990s onward. After the company nearly experienced a total collapse, it
convinced co-founder Steve Jobs to return in 1997 to revive the company. Jobs and his team succeeded with
great verve, launching such innovative products as the iPod and the iPad.13

However, Apple’s greatest success (as of the writing of this case) came from its debut in the smartphone
market.14 Ever since the introduction of the first-generation iPhone in 2007, Apple was recognized as the
market leader of the smartphone industry with its cutting-edge technology and design, enabling it to charge
a premium price and obtain a very high profit margin. In 2013, Apple’s sales revenue reached $170 billion
and its net income was more than $37 billion. In 2014, Apple’s revenue rose to nearly $183 billion, with
net income reaching $39.51 billion. Apple experienced exponential growth since 2008 (see Exhibit 1), and
the iPhone was the biggest contributor to its success (see Exhibit 2)

Apple customers were extremely loyal to Apple products, often also buying its computers and tablets
alongside the iPhone. For example, a survey conducted by Simonlycontracts.co.uk found that nearly 60 per
cent of 3,000 iPhone owners declared that they had “blind loyalty” to their iPhones, and 78 per cent said
they couldn’t “imagine having a different type of phone.”15

The Foxconn Affair

Foxconn, headquartered in Taiwan, was one of Apple’s biggest and oldest suppliers. In 2014, Apple
contributed more than 40 per cent of Foxconn’s revenue. It was the biggest privately owned company in
Taiwan with $131.8 billion sales revenue in 2013, and operations that stretched around the globe. Despite

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Page 3 9B16M040

its large size, Foxconn, as an original design manufacturer (ODM) had long been an unfamiliar name in the
public eye, chiefly because it did not produce its own branded goods.

In 2009, however, the Foxconn name suddenly came to prominence when a factory worker reportedly
committed suicide after losing a prototype of the iPhone 4. It was later alleged that the employee’s treatment
during questioning came close to being torture. One year later, another 18 Foxconn workers attempted to kill
themselves, and 14 died at the manufacturing company’s facilities.16 Various explanations were offered for
these deaths. Poor labour practices and working conditions were considered to be the main motivations for
the employee attempting to commit suicide. Ever since the 2010 incidents, the company had been under
increased scrutiny and pressure to improve its working conditions from various stakeholders, including non-
governmental organizations (NGOs), the media, and customers such as Apple.

The Pegatron Crisis

After the Foxconn scandal, Apple and its suppliers were under more scrutiny than ever before. Apple made
various promises to improve its practices. One of Apple’s responses was to move some of its business away
from Foxconn to Pegatron, a Taiwanese electronics manufacturing company that mainly assembled the
iPhone 4, 4s, 5, and 5c, along with Apple’s iPad. The company’s factories were located in Taiwan, mainland
China, the Czech Republic, and Mexico, while its customer service centres operated in the United States
and Japan. Since it started producing Apple products in 2011, Pegatron showed remarkable increases in
revenue that mirrored those of Apple itself, from TW$599.9 billion in 201117 to TW$881.2 billion in 201218
to TW$949.8 billion in 2013.19

In 2013, China Labor Watch (CLW), a U.S.-based NGO, whose mission was to increase the transparency
of factory labour conditions in China, published Apple’s Unkept Promises, a report based on an undercover
investigation into working conditions at Pegatron factories. The situation was even more serious than at
Foxconn. According to the report, three Pegatron factories in China had violated 86 Chinese regulations,
including 36 legal and 50 ethical violations, ranging from use of a juvenile workforce, to violations of
women’s rights, excessive working hours, and environmental pollution. 20 In response to the public
disclosure of the report, Apple again promised its full dedication to addressing those issues.21 Jason Cheng,
Pegatron’s chief executive officer (CEO), also stated, “We will investigate the allegations fully and take
immediate actions to correct any violations to Chinese labour laws and our own code of conduct.”22

Nonetheless, on December 19, 2014, the global news media again accused Apple and Pegatron, alleging
that Apple had “broken its promises.” The previous day, the influential BBC Panorama program had
broadcast a documentary based on an undercover investigation of the actual practices and working
conditions at a Shanghai factory owned by Pegatron. The factory specialized in producing Apple products,
including the iPhone. A variety of poor practices were exposed. For example, workers had to hand in their
identification cards before entering the factory, were given no basic health and safety training, and had to
work excessive hours — up to 16 hours a day, which would sometimes continue for 18 consecutive days.
According to the documentary, workers’ requests for a day off were routinely ignored. Another scene in
the documentary showed workers who could not help but fall asleep in the middle of a busy production
line. The quality of life outside the factory was also criticized. Dormitories were overcrowded, and
consisted of nothing but 12 tiny beds placed end to end.23

Apple did not comment on camera for the BBC documentary, but the next day, Jeff Williams clearly
expressed what he and Apple CEO, Tim Cook, felt about the documentary. Their “deeply offended”
feelings were delivered to the 5,000 U.K. Apple employees in the form of a letter, which became public
when it was published by the Daily Telegraph.24 In the letter, Williams said, “We know of no other company

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Page 4 9B16M040

doing as much as Apple does to ensure fair and safe working conditions, to discover and investigate
problems, to fix and follow through when issues arise, and to provide transparency into the operations of
our suppliers.”

CSR CHALLENGES

In its 2014 progress report, Apple confidently remarked, “At Apple, we believe in making complex things
simple.”25 This statement was an apt description of its products’ appeal to consumers and in the area of
product design. Apple retained firm control to ensure it could deliver on this promise, but when it came to
supply chain management, an approach of simplification could have its limitations. Given the global nature
of Apple’s supply chain, the various products it produced, and the technological complexity of these
products, Apple needed to work with a wide array of suppliers. To fulfill its “promise,” Apple needed to be
aware of and appropriately manage all these relationships. Doing so raised various challenges.

Some of these challenges related to the various formal and informal national institutional regimes that
applied to various offshore locations. Apple and its suppliers operated in very different cultural, legal,
political, social, and economic environments. For example, its two key suppliers, Foxconn and Pegatron,
conducted their manufacturing operations mostly in mainland China. The top 200 suppliers on Apple’s
supplier list were scattered around the world, ranging from Korea, Japan, and Taiwan, through to Ireland
and the Czech Republic.26 As much as Apple may have wanted to make complex things simple, it could not
single-handedly change these diverse national environments to suit its own purposes. Apple and its
suppliers faced completely different stakeholders with different expectations. Apple needed to deal with
high expectations from consumers, employees, investors, NGOs, and governments in the United States and
other developed countries, while most of the suppliers were located in emerging countries that had much
lower expectations and different social values and norms. Forbes, for instance, commented on the
Panorama documentary:

While these issues are faced by every manufacturer, only Apple was specifically named in the
programme. More than any other company, Apple has been the leading target for campaigners on
working conditions, but it seems unfair to single out one manufacturer for the alleged sins of an
industry.27

No solitary manufacturer can walk into the supply chain and demand working conditions far in
advance of the prevalent conditions of the country. Change will be gradual, and measured over
years, if not decades.28

A second set of challenges related to maintaining close buyer-supplier relationships. Apple was notorious
for its price policy, squeezing suppliers to produce products at lower and lower costs.29 An executive from
one of Apple’s iPad producers stated that “the only way you make money working for Apple is figuring
out how to do things more efficiently or cheaper . . . and then they’ll come back the next year, and force a
10 per cent price cut.”30 Companies such as Foxconn dealt with conflicting demands: meeting higher
working standards, which included paying higher wages, reducing working hours, investing in safety
programs, and providing training, while also accepting lower and lower prices from Apple.

Foxconn appeared to have made an effort to improve working conditions and meet the required labour
standards. This effort was recognized by the Fair Labour Organization, which announced improvements in
labour practices in Foxconn factories. Ironically, however, Foxconn started losing orders from Apple around
the same time that it had improved its labour practices, perhaps due to the increased per unit costs.31 Apple
began to give more and more volume to rival supplier Pegatron. Apple argued that Tim Cook, himself a supply

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Page 5 9B16M040

chain management expert, realized the need for supply chain diversity to reduce the dependence on a single
supplier and to spread risks.32 Furthermore, some had hinted that the close relationship between Apple and
Foxconn was partly built on the personal relationship between Steve Jobs and the president of Foxconn; when
Jobs passed away, so did some of the inter-organizational relationship.33

However, the reason for the switch from Foxconn to Pegatron might have been less straightforward. It was
suggested that Pegatron was willing to accept thinner margins than Foxconn,34 which in turn allowed Apple
to produce a cheaper version of the iPhone 5 series, the iPhone 5c, while not undermining its profitability.
According to the Wall Street Journal, Pegatron accepted a margin of 0.8 per cent, while Foxconn had been
seeking 1.7 per cent.35 Interestingly Apple’s own gross margin was 38.6 per cent as of 2014 and 37.6 per
cent in 2013.36 Some observers argued that with such small margins it was little wonder that suppliers
breached costly regulations in the area of labour rights.37

A third set of challenges arose from differences in the companies’ objectives, particularly their objectives
in terms of CSR. However, because of Apple’s huge size, stock market value, visibility, and (partly self-
created) image, it faced more scrutiny than perhaps any company in the world. Writing in alphr, Barry
Collins argued:

Apple doesn’t outright deny any of those allegations. Yet, it does pose the question: why pick on
us? . . . It’s not the only tech company using cheap labour in Asian factories: in fact, show me one
that isn’t. Panorama could equally have substituted Apple for Microsoft, Samsung, Sony, or even
a British firm such as Tesco, which has its Hudl38 tablets made in the same factories as Apple does.
Picking on Apple because it’s the only company that’s made a public commitment to improving
worker welfare seems a little perverse.39

Simon Rockman of The Register commented, “while Apple may well be right . . . the difference lies in the
gap between what the richest company in the world has said it would do, and what it has achieved in
reaching the standards it set for itself.”40 According to Brad Reed:

The point of all this isn’t to say that Apple is an “evil” company or that anyone should feel guilty
buying an iPhone or a Mac. I’m also not calling on Apple to pull manufacturing operations out of
China since I know how important these jobs are to people who work at them.

However, there’s nothing wrong with insisting that our favourite companies — whether we’re
talking Apple, Samsung or Google — do better on issues of worker treatment, especially when
they’ve repeatedly vowed to do so. Apple makes insane profit margins on its iPhones and it can
certainly afford to commit more resources for ensuring that the people who manufacture them
aren’t forced to work 18 days in a row.41

Reed’s comments in fact seemed to resonate with the company itself because even Williams mentioned in
his letter that Apple “can still do better.”42

Finally, it was important to acknowledge that individuals differed in their assessment of how much attention
should be paid to these labour rights issues and what constituted an acceptable level of working conditions.
According to a New York Times article, Richard Locke, a professor at Brown University, “had studied working
conditions for many companies, and Apple has gone beyond standard practices.”43 But at the same time, Li
Qiang, the executive director of CLW, said, “Apple is always finding excuses for its unrealized commitments.
We are focused on what Apple does, not what it says.” 44 Such differences in perception were almost

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Page 6 9B16M040

impossible to avoid in cases like this, but they did pose a fourth set of challenges faced by Apple: Did it want
to satisfy its harshest critics, or was it enough to please a mainstream Apple consumer?

APPLE AND OFFSHORE OUTSOURCING

“Designed by Apple in California” and “Assembled in China,” read a statement imprinted on the back of
Apple’s iPhones and iPads and on the bottom of its Mac products, neatly capturing Apple’s strategy of
offshore outsourcing. As of 2004, with the closure of its very last U.S. manufacturing line, Apple was
outsourcing all of its production and assembly lines to global suppliers, mainly in China.45 Prior to that,
Apple was rather proud of its products being produced in America. But like other western companies, Apple
found it difficult to resist the lure of offshore outsourcing.

It was estimated that around 90 per cent of the iPhone’s parts were manufactured overseas. German and
Taiwanese contractors provided advanced semiconductors, while Korean suppliers provided memory and
display panels. Those components, coupled with chipsets supplied from Europe and elsewhere, were
ultimately assembled in China.46 Apple’s sophisticated supply chain offered the needed flexibility to meet
fluctuating demand. Just before the debut of the first iPhone in 2007, Steve Jobs realized that the screen
material needed be changed from plastic to glass so it would not get scratched. He was quoted as saying, “I
want a glass screen. . . . I want it perfect in six weeks.”47

While no American company could produce the glass screens in a month, a Chinese company was able to
make them. To meet Apple’s last-minute changes and orders, thousands more workers were needed
overnight, leading to work shifts being increased at short notice.48 As put by Jennifer Rigoni, Apple’s
former worldwide supply demand manager, “They [the suppliers] could hire 3,000 people overnight. . . .
What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”49

It also helped that wages in the Chinese factories were very low. According to CLW’s 2013 report, the base
wage of Pegatron factory workers in Shanghai was the equivalent of approximately $1.50 per hour.50 The
same report disclosed that most workers wanted to leave the factory after having experienced such harsh
working conditions. In one of the Pegatron factories, AVY in Suzhou, more than a quarter of the new
workers left within a two-week period.51

Offshoring, however, was not looked upon favourably in the United States because it was considered to
amount to a loss of job opportunities. In February 2011, when the president of the United States, Barrack
Obama, asked Jobs, “Why can’t that work come home?” Jobs answered conclusively, “Those jobs aren’t
coming back.”52 An anonymous executive of Apple gave a sullen response saying, “We shouldn’t be
criticized for using Chinese workers. . . . The United States has stopped producing people with the skills
we need.”53 The company overtly announced that moving work overseas was an inevitable choice and the
continuing relocation of jobs was driven not only by lower costs.54

Despite the public controversy about Apple’s choices and the loss of domestic job opportunities in the
United States, the relocation seemed to make perfect sense. Offshore suppliers in China, India, and
elsewhere had a proven ability to produce what was needed, whereas the United States did not have enough
capable and skilled workers.55 To some extent, it was simply a numbers game. But Apple also argued that
it could produce more jobs in the United States through offshoring because American workers could then
focus on higher value-added activities such as research and design.56

Offshore outsourcing might have significantly reduced Apple’s operating costs. At the same time, however,
it also decreased Apple’s level of control and monitoring over manufacturing processes and practices.

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Page 7 9B16M040

Although Apple prepared codes of conduct and enforced its suppliers to comply with those standards, in the
absence of day-to-day monitoring, compliance was difficult to ensure. Of course, this problem was faced not
only by Apple; Samsung and other smartphone producers often sourced from these same factories. But doing
so represented a fundamental trade-off that any such firm would need to deal with.

SHOULD APPLE CARE?

The CSR failures did not seem to affect Apple’s business performance. In 2015, it topped the Forbes list of “The
World’s Most Valuable Brands,”57 and ranked 12th in the “Global 2000” list,58 and 55th among America’s Best
Employers.59 Furthermore, it still had unshakable customer loyalty that did not seem to have been negatively
affected by the alleged socially irresponsible actions of its key suppliers. This situation invited the question: How
much should Apple really care about socially irresponsible actions of its suppliers?

THE ROAD AHEAD

Given the circumstances, Apple and Williams still had several options available. But what option would
give Apple the best outcomes? Should Apple continue as it was and take for granted the occasional bit of
negative publicity? The company had perhaps already done more than its fair share to tackle CSR problems
in its supply chain.60 On the other hand, maybe Apple could, and should, do more to tackle what had turned
out to be a complex issue. Should Apple seek to work more to improve working conditions, such as by
working with NGOs and transnational organizations? Should it engage in even more monitoring? Perhaps
it could even go so far as to bring production in-house, in an attempt to regain control. A more radical
solution would be to bring manufacturing back to the United States, which might become possible in the
future, given increased levels of automation and robotization. But how would such changes affect Apple’s
profit margins — and perhaps even more importantly, would Apple’s many customers in China respond
negatively to such a move?

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Page 8 9B16M040

EXHIBIT 1: APPLE’S NET SALES AND NET INCOME, 2008–2014 (IN US$ MILLIONS)

Source: Apple Inc., “Form 10-K: For the Fiscal Year Ended September 27, 2014,” EDGAR Online, accessed December 17, 2015.

EXHIBIT 2: APPLE’S NET SALES BY PRODUCT, 2011–2014 (IN US$ MILLIONS)

Source: Apple Inc., “Form 10-K: For the Fiscal Year Ended September 27, 2014,” EDGAR Online, accessed December 17, 2015.

2008 2009 2010

2011 2012 2013 2014

Net sales 37,491 42,905 65,225 108,249 156,508 170,910 182,795

Net income 6,119 8,235 14,013 25,992 41,733 37,037 39,510

–

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000
Net sales Net income

‐

20,000

40,000

60,000

80,000

100,000

120,000

iPhone iPad Mac iPod iTunes,
Software and

services

Accessories

Net Sales

2011 2012 2013 2014

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Page 9 9B16M040

ENDNOTES

1 BBC News, “Apple Accused of Failing to Protect Workers,” YouTube video, 3:03, December 18, 2014, accessed December
17, 2015, www.youtube.com/watch?v=kSvT02q4h40.
2 Supplier Responsibility 2014 Progress Report, Apple Inc., January 2014, 4, accessed December 17, 2015,
www.apple.com/supplier-responsibility/pdf/Apple_SR_2014_Progress_Report .
3 Supplier Responsibility 2015 Progress Report, Apple Inc., January 2015, 5, accessed December 17, 2015,
www.apple.com/supplier-responsibility/pdf/Apple_Progress_Report_2015 .
4 Kathryn Dill, “The Companies with the Best CSR Reputations,” Forbes, December 8, 2014, accessed January 10, 2016,
www.forbes.com/sites/kathryndill/2014/12/08/the-companies-with-the-best-csr-reputations/.
5 All figures are in US$ unless otherwise specified; Graham Ruddick, “Apple Could be Worth $1 Trillion, Says Wall Street,”
Telegraph, March 23, 2015, accessed October 16, 2015, www.telegraph.co.uk/technology/apple/11490367/Apple-could-be-
worth-1-trillion-says-Wall-Street.html.
6 Adeyemi Adepetum, “Smartphone Industry Earns $380b Revenue 2014,” The Guardian, June 3, 2015, accessed October
16, 2015, www.ngrguardiannews.com/2015/06/smartphone-industry-earns-380b-revenue-in-2014/.
7 Rob Price, “Apple Is Taking 92% of Profits in the Entire Smartphone Industry,” Business Insider UK, July 13, 2015, accessed
October 16, 2015, http://uk.businessinsider.com/apple-92-percent-profits-entire-smartphone-industry-q1-samsung-2015-7.
8 Simon Sharwood, “Lenovo Tops China’s Smartphone Market in Just Six Months,” The Register, October 30, 2012, accessed
February 26, 2016, www.theregister.co.uk/2012/10/30/lenovo_chinas_number_one_smartphone_maker/.
9 T. Florin, “This Is Xiaomi’s Impressive Army of Smartphones,” phoneArena, January 31, 2015, accessed January 10, 2016,
www.phonearena.com/news/This-is-Xiaomis-impressive-army-of-smartphones_id65427.
10 David Gilbert, “Chinese Brands, Huawei, Lenovo, Xiaomi and More Dominate Global Smartphone Industry,” International
Business Times, February 9, 2015, accessed January 7, 2016, www.ibtimes.com/chinese-brands-huawei-lenovo-xiaomi-
more-dominate-global-smartphone-industry-2078834.
11 Eva Dou, “Xiaomi, China’s New Phone Giant, Takes Aim at World,” The Wall Street Journal, June 7, 2015, accessed January
7, 2016, www.wsj.com/articles/xiaomi-chinas-new-phone-giant-takes-aim-at-world-1433731461.
12 Lior Ronen, “Xiaomi a Threat to Apple, Samsung Smartphone Dominance,” Amigobulls, November 12, 2014, accessed
February 20, 2016, http://amigobulls.com/articles/xiaomi-a-threat-to-apple-samsung-smartphone-dominance.
13 Owen W. Linzmayer, “30 Pivotal Moments in Apple’s History,” Macworld, March 30, 2006, accessed January 7, 2016,
www.macworld.com/article/1050112/30moments.html.
14 Henry Blodget, “In Case You Had Any Doubts about Where Apple’s Profit Comes From,” Business Insider, August 2, 2012,
accessed 7 January, 2016, www.businessinsider.com/iphone-profit-2012-8?IR=T.
15 Matthew Sparkes, “iPhone Owners Admit Having ‘Blind Loyalty’ to Apple,” The Telegraph, February 12, 2014, accessed
December 17, 2015, www.telegraph.co.uk/technology/apple/10632787/iPhone-owners-admit-having-blind-loyalty-to-Apple.html.
16 Malcolm Moore, “‘Mass Suicide’ Protest at Apple Manufacturer Foxconn Factory,” The Guardian, January 11, 2012,
accessed December 17, 2015, www.telegraph.co.uk/news/worldnews/asia/china/9006988/Mass-suicide-protest-at-Apple-
manufacturer-Foxconn-factory.html.
17 TWD = Taiwanese dollar; US$1 = TW$30.29 on December 30, 2011.
18 TWD = Taiwanese dollar; US$1 = TW$29.03 on December 31, 2012.
19 TWD = Taiwanese dollar; US$1 = TW$29.83 on December 31, 2013.
20 China Labor Watch, Apple’s Unkept Promises: Investigation of Three Pegatron Group Factories Supplying to Apple, July
29, 2013, accessed December 17, 2015, www.chinalaborwatch.org/report/68.
21 Paul Mozur, “Apple’s Response to Latest Supplier Labor Abuse Allegations,” The Wall Street Journal, July 29, 2013,
accessed January 7, 2016, http://blogs.wsj.com/chinarealtime/2013/07/29/apples-response-to-pegatron-worker-allegations/.
22 Associated Press reporter, “Chinese Workers’ Group Accuses Apple of Ignoring Pledges to Protect Staff and Continuing to
Use Sweatshops to Make iPhones,” Daily Mail, July 29, 2013, accessed February 3, 2015, www.dailymail.co.uk/news/article-
2380881/Chinese-workers-group-accuse-Apple-ignoring-pledges-protect-staff-continuing-use-sweatshops-make-
iPhones.html.
23 Richard Bilton, “Apple ‘Failing to Protect Chinese Factory Workers’,” BBC News, December 18, 2014, accessed January 7,
2016, www.bbc.co.uk/news/business-30532463.
24 Rhiannon Williams, “Read: Apple’s Letter to UK Staff over Chinese Factory Conditions,” The Telegraph, December 19, 2014,
accessed December 20, 2014, www.telegraph.co.uk/technology/apple/11303406/Read-Apples-letter-to-UK-staff-over-
Chinese-factory-conditions.html.
25 Supplier Responsibility 2014 Progress Report, op. cit.
26 Apple Inc., “Supplier List 2015,” 2015, accessed January 7, 2016, www.apple.com/supplier-
responsibility/pdf/Apple_Supplier_List_2015 .
27 Ewan Spence, “BBC Attacks Apple over Familiar Allegations in Panorama Investigation Over Working Conditions,” Forbes,
December 18, 2014, accessed December 17, 2015, www.forbes.com/sites/ewanspence/2014/12/18/bbc-attacks-apple-with-
familiar-allegations-in-panorama-investigation-over-working-conditions/.
28 Ewan Spence, “Apple Loop: iOS 8.2 Details, Apple’s Working Conditions Attacked, Ignore Apple Watch,” Forbes, December
18, 2014, accessed December 17, 2015, www.forbes.com/sites/ewanspence/2014/12/19/apple-news-digest-ios-8-2-preview/.
29 Noel Randewich and Reiji Murai, “GT Advanced Bankruptcy Offers Warning to Apple Suppliers,” Reuters, October 8, 2014,
accessed January 7, 2016, www.reuters.com/article/us-apple-gt-advanced-tech-idUSKCN0HX0XV20141008.

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Page 10 9B16M040

30 Charles Duhigg and David Barboza, “In China, Human Costs Are Built into an iPad,” The New York Times, January 25,
2012, accessed December 17, 2015, www.nytimes.com/2012/01/26/business/ieconomy-apples-ipad-and-the-human-costs-
for-workers-in-china.html.
31 Eva Dou, “Apple Shifts Supply Chain Away From Foxconn to Pegatron,” The Wall Street Journal, May 29, 2013, accessed
March 7, 2016, www.theinquirer.net/inquirer/news/2271769/apple-shifts-production-from-foxconn-to-pegatron
32 Mikey Campbell, “Apple Reportedly Looking to Pegatron in Supply Chain Diversification Away From Foxconn,” Apple Insider,
May 29, 2013, accessed January 7, 2016, http://appleinsider.com/articles/13/05/29/apple-reportedly-looking-to-pegatron-in-
supply-chain-shift-away-from-foxconn.
33 Dou, “Apple Shifts Supply Chain Way from Foxconn to Pegatron,” op. cit.
34 Neil McAllister, “Apple Says ‘Zai Jian’ to Foxconn, Taps Pegatron for New iPhones,” The Register, May 30, 2013, accessed
January 7, 2016, www.theregister.co.uk/2013/05/30/apple_taps_pegatron_for_cheaper_iphones/.
35 Dou, “Apple Shifts Supply Chain Away From Foxconn to Pegatron,” op. cit.
36 Apple Inc., “Form 10-K for the Fiscal Year Ended September 27, 2014,” accessed March 7, 2016,
http://investor.apple.com/secfiling.cfm?filingid=1193125-14-383437.
37 Aditya Chakrabortty, “The Woman Who Nearly Died Making Your iPad,” The Guardian, August 5, 2013, accessed January
7, 2016, www.theguardian.com/commentisfree/2013/aug/05/woman-nearly-died-making-ipad; Sarah Mishkin, “Overtime Work
at Foxconn Still Beyond China’s Legal Limits,” Financial Times, December 12, 2013, accessed January 7, 2016,
www.ft.com/cms/s/0/af799a06-6334-11e3-a87d-00144feabdc0.html#axzz3wZbqcdNt.
38 The Hudl was a tablet computer produced by Pegatron for the British supermarket chain Tesco.
39 Barry Collins, “Bad Apple or the Best of a Bad Bunch? The Sad Reality about Apple’s Broken Promises From BBC
Panorama,” Alphr, December 19, 2014, accessed December 17, 2015, www.alphr.com/smartphones/1000196/bad-apple-or-
the-best-of-a-bad-bunch-the-sad-reality-about-apples-broken.
40 Simon Rockman, “Apple v BBC: Fruity Firm Hits Back over Panorama Drama,” The Register, December 19, 2014, accessed
December 17, 2015, www.theregister.co.uk/2014/12/19/apple_vs_beeb_fruitier_hits_back_on_worker_rights_wrongs_issue/.
41 Brad Reed, “Apple’s Response to the BBC’s Sweatshop Labor Report Is Completely Tone Deaf,” BGR, December 19, 2014,
accessed December 17, 2015, http://bgr.com/2014/12/19/apple-china-factory-conditions-response/.
42 Williams, op. cit.
43 Brian X. Chen, “BBC Documentary Shows Harsh Conditions for Workers in iPhone Factories,” The New York Times,
December 19, 2014, accessed December 17, 2015, http://bits.blogs.nytimes.com/2014/12/19/bbc-documentary-shows-harsh-
conditions-for-workers-in-iphone-factories/.
44 China Labor Watch, “Apple’s Unkept Promises on Working Conditions Continue,” press release, December 19, 2014,
accessed December 17, 2015, www.chinalaborwatch.org/newscast/421.
45 Marcelo Prince and Willa Plank. “A Short History of Apple’s Manufacturing in the U.S,” The Wall Street Journal, December 6,
2012, accessed January 7, 2016, http://blogs.wsj.com/digits/2012/12/06/a-short-history-of-apples-manufacturing-in-the-u-s/.
46 Charles Duhigg and Keith Bradsher, “How the U.S. Lost out on iPhone Work,” The New York Times, January 21, 2012,
accessed February 21, 2016, www.nytimes.com/2012/01/22/business/apple-america-and-a-squeezed-middle-class.html?_r=0.
47 Henry Blodget, “Steve Jobs Freaked out a Month Before First iPhone was Released and Demanded a New Screen,”
Business Insider, January 22, 2012, accessed February 20, 2016, www.businessinsider.com/steve-jobs-new-iphone-screen-
2012-1?IR=T.
48 Ibid.
49 Duhigg and Bradsher, op. cit.
50 China Labor Watch, “Apple’s Unkept Promises: Investigation of Three Pegatron Group Factories Supplying to Apple,” op.
cit.
51 Ibid.
52 Duhigg and Bradsher, op. cit.
53 Ibid.
54 Josh Ong, “Apple’s Overseas Manufacturing Operations Offer Flexibility, Not Just Savings — Report,” Appleinsider, January
22, 2012, accessed October 16, 2015, http://appleinsider.com/articles/12/01/22/apples_overseas_manufacturing_
operations_offer_much_needed_flexibility_not_just_savings.
55 Drake Baer, “Steve Jobs and President Obama Had a Dinner Together in 2011 That May Have Changed the Course of US
History,” Business Insider, January 8, 2015, accessed February 20, 2016, http://uk.businessinsider.com/when-steves-jobs-
and-barack-obama-dined-2015-1?r=US&IR=T.
56 Ryan Avent, “Apple and the American Economy,” The Economist, January 23, 2012, accessed February 20, 2016,
www.economist.com/blogs/freeexchange/2012/01/supply-chains.
57 “The World’s Most Valuable Brands,” Forbes, 2015, accessed January 7, 2016, www.forbes.com/powerful-brands/list/.
58 “The World’s Biggest Public Companies,” Forbes, 2015, accessed January 7, 2016, www.forbes.com/global2000/list/#tab:overall.
59 “America’s Best Employers,” Forbes, 2015, accessed March 7, 2016, www.forbes.com/sites/clareoconnor/2015/03/25/
americas-best-employers-2015/#157418596ceb.
60 Richard Welford, “Media Misreporting and Apple’s CSR,” CSR Asia, accessed February 20, 2016, www.csr-
asia.com/test/home/csr-asia-weekly-news-detail.php?id=11962.

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S w

W11226

ESTIMATING DEMAND IN EMERGING MARKETS FOR KODAK
EXPRESS

David M. Currie and Ilan Alon wrote this case solely to provide material for class discussion. The authors do not intend to illustrate
either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
identifying information to protect confidentiality

Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written
permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies
or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University
of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.

Anna Johnson gazed at the information she had accumulated on various countries and wondered how she
could use it to estimate the demand for Kodak Express (KE) outlets. She had learned from the Kodak
market research department that demand for KE outlets depended on household income. To support one
Kodak Express outlet, one of the following was needed: one million households with annual incomes
equal to or exceeding the equivalent of US$15,000, two million households earning the equivalent of
between US$10,000 and US$14,999, four million households earning the equivalent of between
US$5,000 and US$9,999 or 10 million households with incomes less than the equivalent of US$5,000
(see Exhibit 1). According to the market research department, these averages seemed to apply throughout
the world, when international dollars (purchasing power parity adjusted) were used as a benchmark.

Unfortunately, the statistics Johnson was able to find did not tell her the household income in U.S. dollar-
equivalents in various countries or how many households in each country fell into a specific income
bracket. She would need to complete a series of intermediate calculations to transform the original
macroeconomic data to information that was useful for estimating the demand for Kodak Express outlets.
Then, on the basis of market demand, Kodak would be able to use this information to decide how to
allocate its investments across the various emerging markets.

The purpose of Johnson’s calculations was to identify the markets with the most potential. The
commitment to open KE outlets in a particular country was a significant investment that needed to have a
promising return. Further, determining the markets with the most potential was in line with Kodak’s
philosophy of “investing where you sell the most.”

Johnson sat in front of her computer, attempting to develop a model that would help her to estimate the
market demand for KE outlets. She picked up a pencil and paper and began to sketch the process she
would follow to use the data at her disposal to determine demand for KE outlets. Once she determined the
process, she would prepare a spreadsheet model, plug in the data for a country and see whether the result
was reasonable.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

Page 2 9B11A02

KODAK’S GLOBAL STRATEGY

The manufacture and distribution of photography items had been the major focus of Eastman Kodak
Corporation since George Eastman commercialized personal cameras using roll film in 1888.1 The next
year, the company became international when it extended distribution of products outside the United
States. In 1900, Kodak introduced the first Brownie camera, the company’s effort to make photography
available to a mass market. By 2002, the company’s products were available in more than 150 countries.
However, the company was faced with increased competition from two fronts: Japan’s Fuji Photo Film
Co. produced and marketed many of the same photography products as Kodak, and Kodak had been slow
to respond to the emergence of digital photography.2

Worldwide revenues for Kodak’s products exceeded US$5.5 billion in 2010, a decrease of
US$800 million compared with 2009 and a decrease of US$1.6 billion compared with 2008. The decline
was partially due to the global economic slowdown, particularly in Europe, Middle East and Africa:
revenues from these regions had decreased by more than US$1 billion in the previous two years.3

To offset the decline in sales volume in Europe, Middle East and Africa, Kodak’s strategy was to expand
sales into emerging markets such as India and China. Because of China’s enormous population and its
citizens’ cultural affinity for taking pictures, China was one of the cornerstones of Kodak’s emerging
market strategy. Even expanding the market to just half of China’s population would add the equivalent
of another United States or Japan to the world photographic market.4

KODAK EXPRESS OUTLETS

Despite Kodak Express outlets being independently owned, they were contractually obliged to buy and
display exclusively Kodak products, and they utilized Kodak’s store specifications and the company’s
brand elements. The outlets provided three benefits to Kodak:

1. A front-line retailing presence
2. Wide distribution of Kodak products, services and brand name
3. A strategic asset for Kodak for market development

The company was making an effort to have a more extensive distribution of its Kodak Express outlets
throughout the world. Through these outlets, Kodak planned to launch “grass-root marketing development
programs.”5

1 Kodak, “Building the Foundation,” http://kodak.com/US/en/corp/kodakHistory/buildingTheFoundation.shtml, accessed
January 26, 2004.
2 Daniel Gross, “Photo Finished: Why Eastman Kodak Deserves to Lose Its Dow Jones Industrial Average Membership,”
Slate, January 6, 2004, http://slate.msn.com/id/2093512/, accessed January 26, 2004.
3 Kodak 2010 Annual Report;
www.envisionreports.com/EK/2011/22103MA11E/38495aae46f94783a4829c3e66124a12/Kodak_AR_10k_Secured_3-28-
11 , accessed June 16, 2011.
4 David Swift, “Remarks of David Swift, Chairman & President, Greater China Region, Eastman Kodak Company,” Goldman
Sachs 21st Century China Conference, September 1999, pp.1-8.
5 Ilan Alon, “Interview: International Franchising with Kodak in China,” Thunderbird International Business Review,
November/December 2001, pp. 737-754.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

Page 3 9B11A026

DATA AVAILABILITY

Johnson focused on four sets of data that were readily available from reliable sources for a variety of
countries: population, purchasing power, income distribution and average household size. The first data
set, population, seemed straightforward. Any analysis of a country’s purchasing habits would begin with
consumers, whether on an individual (per capita) basis or a household basis. Population estimates for
2010 are shown in Exhibit 2. More recent statistics were difficult to locate because most countries
conducted a census only once every 10 years. Between censuses, all population statistics were estimates.

Determining the dollar-equivalent level of income from one country to another was a more challenging
task. Many statistics comparing one country with another merely converted data into U.S. dollars using an
average exchange rate for the year. Although this method was useful for some purposes, it was potentially
misleading when used for consumption patterns because it ignored the cost of living from one country to
another. For example, a family earning RMB65,000 in China earned the equivalent of approximately
US$10,000 using an exchange rate conversion of RMB6.5 RMB per U.S. dollar.6 But RMB65,000 in
China purchased much more than US$10,000 purchased in the United States; thus, the family in China
would be considered much better off by Chinese standards, and their consumption patterns might be
closer to a family in the United States earning US$48,000.

To account for this difference, economists frequently standardized data for differences in purchasing
power, called purchasing power parity (PPP). Johnson was able to find gross domestic product (GDP) per
capita in U.S. dollars using PPP for the countries in which she was interested (see Exhibit 3).

A related problem was that GDP was not the same as national income, and Johnson needed to know a
household’s income. After some research, she discovered that because the difference usually was not
significant, economists frequently used GDP as a proxy for national income. Therefore, the GDP per
capita for these countries could serve as a substitute for income per capita. That meant that the average
person in India earned the equivalent of US$3,339 annually on a PPP basis in 2010.

Income distribution was another important issue because if more people earned low incomes in a country,
they wouldn’t be able to support as many KE outlets. Johnson needed to determine how many households
corresponded to different income levels for any country. Data on income distribution are shown in
Exhibit 4. For any country, population was divided into equal portions called quintiles (fifths), and each
quintile showed the share of national income accruing to that quintile. For example, in India the bottom
20 per cent of the population accounted for 8.1 per cent of national income, and the top 20 per cent of the
population accounted for 45.3 per cent of national income. Because each quintile represented 20 per cent
of the population, about 243 million people (20 per cent of 1,216 million people) earned only 8.1 per cent
of the country’s total income. At the other extreme, 243.2 million people earned 45.3 per cent of the
country’s total income. If incomes were distributed evenly in a country, each quintile would account for
20 per cent of the national income (see Exhibit 4).

The average size of a household would help to determine the number of households in a country and,
thus, the number of households in each of the quintiles. Data for the average size of household shown as
the number of persons per household are shown in Exhibit 5. Dividing the population of a quintile by the
number of people per household would yield an estimate for the number of households in the country. Of
course, the assumption was that the number of people per household did not change with income. Johnson
realized, however, that average household size depended on both cultural and economic factors. In some
countries, the custom was for an extended family (parents, children and grandparents) to live in the same

6 Exchange rate on April 18, 2011, http://finance.yahoo.com/currency-converter/, accessed June 16, 2011.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

Page 4 9B11A026

household. In most countries, household size varied according to the level of income in the household
because families earning higher incomes tended to have fewer children. Household size also varied
between urban and rural areas: urban households tended to be smaller. For this analysis, Johnson would
need to assume that the average household size applied throughout the country, simply because no
reliable statistics were available on the differences between sizes of households for all the countries she
wished to examine.

CALCULATING POTENTIAL DEMAND

As Johnson thought more about her task, she realized that she faced a two-step problem. First, she would
need to calculate the household income in U.S. dollars for each quintile of the population. Only by doing
this step would she then be able to separate households into each of the income brackets. This difference
was important because each category was able to support a different number of KE outlets, as Johnson
had learned from Kodak’s market research department. The second step would be to calculate the
potential demand for KE outlets once she knew the number of households in each spending category.

To attain this number, Johnson knew that she would need to complete several interim steps. Using her
available data, she could make some initial calculations: she could determine the PPP GDP for the entire
population, the population per quintile and the number of households per quintile. Using the population’s
GDP and each country’s income distribution, she could then calculate the income per quintile.

Dividing the income per quintile by the population per quintile, she knew she would derive the individual
income per quintile, from which she could easily conclude the household income per quintile. Then, using
at the household income per quintile, she would be able to determine how many households fell into each
of the categories in Exhibit 1. Knowing how many households fell in each category, she could then
determine the potential demand for KE outlets in a specific market. Her goal was to build a model that
would enable her to evaluate each of the countries in Exhibit 2. She would test the model using the data
for one country. If it worked, the computer would then do most or all of the subsequent calculations. Once
the model was complete, Johnson would use it both to predict demand for Kodak Express outlets in
selected emerging markets and to make recommendations to Kodak management regarding market entry
and resource allocations in these countries.

Finally, Johnson knew that such a significant investment should take not only today’s demand into
account. To determine the most attractive markets, she would also need to determine whether those
markets would still be attractive in the future. Therefore, she decided to also calculate, in addition to the
2010 calculations, each country’s demand for the year 2016. She was able to gather projected data on
both PPP GDP per capita and populations for 2016 (see Exhibits 6 and 7); however, she was unable to
find reliable forecasts for income distribution and average household sizes. She therefore made the naive
assumption that these last two variables, income distribution and average household size, would not
change significantly.

What is the potential demand for KE outlets in the various emerging markets in 2010? What would be the
demand by 2016? Given the assumptions, which markets will be the top candidates for investment?

We wish to thank Christopher Gassner for the collection of data and the development of new spreadsheets.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

Page 5 9B11A026

Exhibit

NUMBER OF HOUSHOLDS AND INCOME LEVELS NEEDED TO SUPPORT
ONE KODAK EXPRESS OUTLET

Income # of Households
≥$15,000 1 million
$10,000—$14,999 2 million
$5,000—$9,999 4 million
$0—$4,999 10 million

Source: Company estimates/assumptions.

Exhibit 2

POPULATION OF SELECTED COUNTRIES, 2010

Country Population (in millions)

United States 310

Bangladesh 164

Brazil 193

Cambodia 14

China 1,341

India 1,216

Indonesia 234

Laos 6

Malaysia 28

Nigeria 156

Pakistan 167

Russia 140

South Africa 50

Thailand 64

Vietnam 88

Source: International Monetary Fund, 2010.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

Page 6 9B11A026

Exhibit 3

GROSS DOMESTIC PRODUCT PURCHASING POWER PARITY PER CAPITA
FOR SELECTED COUNTRIES, 2010

Country

Gross Domestic
Product Purchasing

Power Parity
per Capita

(in US$)

United States 47,284

Bangladesh 1,572

Brazil 11,239

Cambodia 2,112

China 7,519

India 3,339

Indonesia 4,394

Laos 2,436

Malaysia 14,670

Nigeria 2,422

Pakistan 2,791

Russia 15,837

South Africa 10,498

Thailand 9,187

Vietnam 3,134

Source: International Monetary Fund, 2010.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

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This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

Page 8 9B11A026

Exhibit 5

AVERAGE HOUSELHOLD SIZE FOR SELECTED COUNTRIES, VARIOUS DATES

Country

Average Household
Size

(in persons)
United States 2.6
Bangladesh 6.0
Brazil 3.6
Cambodia 3.2
China 3.4
India 5.3
Indonesia 3.4
Laos 5.2
Malaysia 4.4
Nigeria 4.9
Pakistan 7.2
Russia 2.7
South Africa 3.7
Thailand 3.5
Vietnam 4.4

Source: Euromonitor International, 2010.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

Page 9 9B11A026

Exhibit 6

FORECASTED POPULATION FOR SELECTED COUNTRIES FOR 2016

Country

Population

(in millions)

United States 328

Bangladesh 178

Brazil 199

Cambodia 15

China 1,382

India 1,316

Indonesia 253

Laos 7

Malaysia 31

Nigeria 183

Pakistan 183

Russia 137

South Africa 53

Thailand 66

Vietnam 95

Source: International Monetary Fund, 2011.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

Page 10 9B11A026

Exhibit 7

FORECASTED GROSS DOMESTIC PRODUCT PURCHASING POWER PARITY PER CAPITA
FOR SELECTED COUNTRIES FOR 2016

Country

Gross Domestic
Product Purchasing

Power Parity
per Capita

(in US$)

United States 57,320

Bangladesh 2,340

Brazil 15,193

Cambodia 3,183

China 13,729

India 5,398

Indonesia 6,556

Laos 3,675

Malaysia 19,541

Nigeria 3,242

Pakistan 3,678

Russia 22,717

South Africa 13,607

Thailand 12,681

Vietnam 4,803

Source: International Monetary Fund, 2011.

This document is authorized for use only by Mohammed Alshaghathirah in INT-220-J7483 Global Dimensions in Business 23EW3 at Southern New Hampshire University, 2023.

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