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adaptation from the United States edition, entitled Strategic Management: A Competitive Advantage Approach, Concepts, 15th Edition, ISBN 978-0-133-44489-6 by Fred R David and Forest R David, published by Pearson Education © 2015 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a license permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS All trademarks used herein are the property of their respective owners The use of any trademark in this text does not vest in the author or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners ISBN 10: 1-292-01680-9 ISBN 13: 978-1-292-01680-1 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library 10 9 8 7 6 5 4 3 2 1 Typeset in 10/12 Times LT Std by Integra Printed and bound by Courier Kendallville in The United States of America A01_DAVI6801_15_GE_FM.indd 09/09/14 7:14 PM Strategic Management Fifteenth edition Concepts A Competitive Advantage Approach GLOBAL edition Fred R David Francis Marion University Florence, South Carolina Forest R David Strategic Planning Consultant Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montréal Toronto Delhi Mexico City São Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo A01_DAVI6801_15_GE_FM.indd 09/09/14 7:14 PM A01_DAVI6801_15_GE_FM.indd 09/09/14 7:14 PM Brief Contents Preface 15 Acknowledgments 25 About the Authors 27 Chapter Strategic Management Essentials 37 The Cohesion Case: adidas Group – 2013 58 Chapter Outside-USA Strategic Planning 75 Chapter Ethics/Social Responsibility/Sustainability 109 Chapter Types of Strategies 131 Chapter Vision and Mission Analysis 169 Chapter The Internal Audit 187 Chapter The External Audit 225 Chapter Strategy Generation and Selection 255 Chapter Strategy Implementation 295 Chapter 10 Strategy Execution 331 Chapter 11 Strategy Monitoring 371 Appendix Guidelines for Case Analysis 393 Glossary 405 Name Index 417 Subject Index 421 A01_DAVI6801_15_GE_FM.indd 5 09/09/14 7:14 PM A01_DAVI6801_15_GE_FM.indd 09/09/14 7:14 PM Contents Preface 15 Acknowledgments 25 About the Authors 27 Chapter 1 Strategic Management Essentials 37 Singapore Airlines: Excellent Strategic Management Showcased 38 What Is Strategic Management? 39 Defining Strategic Management 39 ■ Stages of Strategic Management 39 ■ Integrating Intuition and Analysis 40 ■ Adapting to Change 41 Key Terms in Strategic Management 42 Competitive Advantage 42 ■ Strategists 43 ■ Vision and Mission Statements 44 ■ External Opportunities and Threats 44 ■ Internal Strengths and Weaknesses 44 ■ Long-Term Objectives 45 ■ Strategies 45 Annual Objectives 45 ■ Policies 46 The Strategic-Management Model 47 Benefits of Strategic Management 48 Financial Benefits 49 ■ Nonfinancial Benefits 50 Why Some Firms Do No Strategic Planning 50 Pitfalls in Strategic Planning 50 Guidelines for Effective Strategic Management 51 Comparing Business and Military Strategy 52 Special Note to Students 53 The Cohesion Case: adidas Group—2013 58 Assurance Of Learning Exercises 69 Assurance of Learning Exercise 1A: Assess Singapore Airline’s Most Recent Quarterly Performance Data 69 Assurance of Learning Exercise 1B: Gathering Strategy Information on adidas AG 70 Assurance of Learning Exercise 1C: Getting Familiar with the Free Excel Student Template 70 Assurance of Learning Exercise 1D: Evaluating An Oral Student Presentation 71 Assurance of Learning Exercise 1E: Strategic Planning at Nestlé 71 Assurance of Learning Exercise 1F: Interviewing Local Strategists 72 Chapter 2 Outside-USA Strategic Planning 75 Honda: Excellent Strategic Management Showcased 76 Multinational Organizations 79 Advantages and Disadvantages of International Operations 80 The Global Challenge 81 Globalization 82 Corporate Tax Rates Globally 82 A01_DAVI6801_15_GE_FM.indd United States versus Foreign Business Cultures 84 Communication Differences Across Countries 87 Business Culture Across Countries 87 Mexico—Business Culture 88 ■ Japan—Business Culture 89 ■ Brazil—Business Culture 90 ■ Germany—Business Culture 90 ■ Egypt—Business Culture 91 ■ China— Business Culture 92 ■ India—Business Culture 92 ■ Nigeria—Business Culture 93 Business Climate Across Countries/Continents 94 Union Membership Across Europe 94 ■ African Countries 95 ■ China 97 ■ Philippines 99 ■ Taiwan 99 ■ India 99 ■ Germany 100 ■ Mexico 101 Special Note to Students 102 Assurance Of Learning Exercises 104 Assurance of Learning Exercise 2A: The adidas Group wants to enter Africa Help them. 104 Assurance of Learning Exercise 2B: Assessing Differences in Culture Across Countries 105 Assurance of Learning Exercise 2C: Honda Motor Company wants to enter the Vietnamese market Help them. 105 Assurance of Learning Exercise 2D: Does My University Recruit in Foreign Countries? 106 Chapter 3 Ethics/Social Responsibility/ Sustainability 109 Business Ethics 110 Nestlé: Excellent Strategic Management Showcased 110 Code of Business Ethics 112 ■ An Ethics Culture 113 ■ Whistle-Blowing 113 ■ Bribes 114 ■ Workplace Romance 115 Social Responsibility 117 Social Policy 118 ■ Social Policies on Retirement 118 Environmental Sustainability 119 What Is a Sustainability Report? 120 ■ Lack of Standards Changing 120 ■ Managing Environmental Affairs in the Firm 121 ■ ISO 14000/14001 Certification 122 ■ Wildlife 122 ■ Solar Power 123 Special Note to Students 124 Assurance Of Learning Exercises 126 Assurance of Learning Exercise 3A: Sustainability and Nestlé 126 Assurance of Learning Exercise 3B: How Does My Municipality Compare To Others on Being Pollution-Safe? 127 Assurance of Learning Exercise 3C: Compare adidas AG versus Nike on Social Responsibility 127 Assurance of Learning Exercise 3D: How Do You Rate adidas AG ’s Sustainability Efforts? 127 Assurance of Learning Exercise 3E: How Do You Rate Nestlé’s Sustainability Efforts? 127 Assurance of Learning Exercise 3F: The Ethics of Spying on Competitors 128 7 09/09/14 7:14 PM 8 Contents Chapter 4 Types of Strategies 131 Long-Term Objectives 132 The Nature of Long-Term Objectives 132 Petronas: Excellent Strategic Management Showcased 132 Financial versus Strategic Objectives 133 ■ Not Managing by Objectives 134 Types of Strategies 134 Levels of Strategies 136 Integration Strategies 137 Forward Integration 137 ■ Backward Integration 139 ■ Horizontal Integration 140 Intensive Strategies 141 Market Penetration 141 ■ Market Development 142 ■ Product Development 142 Diversification Strategies 143 Related Diversification 144 ■ Unrelated Diversification 145 Defensive Strategies 146 Retrenchment 146 ■ Divestiture 147 ■ Liquidation 148 Michael Porter’s Five Generic Strategies 149 Cost Leadership Strategies (Type and Type 2) 149 ■ Differentiation Strategies (Type 3) 151 ■ Focus Strategies (Type and Type 5) 152 ■ Strategies for Competing in Turbulent, High-Velocity Markets 153 Means for Achieving Strategies 153 Cooperation Among Competitors 153 ■ Joint Venture and Partnering 154 ■ Merger/Acquisition 155 ■ Private-Equity Acquisitions 157 ■ First Mover Advantages 157 ■ Outsourcing and Reshoring 158 Strategic Management in Nonprofit and Governmental Organizations 159 Educational Institutions 159 ■ Medical Organizations 160 ■ Governmental Agencies and Departments 160 Strategic Management in Small Firms 161 Special Note to Students 161 Assurance Of Learning Exercises 164 Assurance of Learning Exercise 4A: Market Development: Petronas 164 Assurance of Learning Exercise 4B: Alternative Strategies for Petronas 164 Assurance of Learning Exercise 4C: Private-Equity Acquisitions 164 Assurance of Learning Exercise 4D: The strategies of adidas AG: 2013-2015 165 Assurance of Learning Exercise 4E: Lessons in Doing Business Globally 165 Assurance of Learning Exercise 4F: Petronas 2013-2015 165 Assurance of Learning Exercise 4G: What Strategies Are Most Risky? 166 Assurance of Learning Exercise 4H: Exploring Bankruptcy 166 Assurance of Learning Exercise 4I: Examining Strategy Articles 166 Assurance of Learning Exercise 4J: Classifying Some Strategies 166 Chapter 5 Vision and Mission Analysis 169 Samsung: Excellent Strategic Management ShowcaseD 170 What Do We Want to Become? 171 What Is Our Business? 171 Vision versus Mission 173 ■ Vision Statement Analysis 173 ■ The Process of Developing Vision and Mission Statements 173 A01_DAVI6801_15_GE_FM.indd Importance (Benefits) of Vision and Mission Statements 174 A Resolution of Divergent Views 174 Characteristics of a Mission Statement 176 A Declaration of Attitude 176 ■ A Customer Orientation 177 ■ Mission Statement Components 177 Writing and Evaluating Mission Statements 179 Special Note to Students 180 Assurance Of Learning Exercises 182 Assurance of Learning Exercise 5A: Examining Potential Changes Needed in a Firm’s Vision/Mission 182 Assurance of Learning Exercise 5B: Studying an Alternative View of Mission Statement Content 183 Assurance of Learning Exercise 5C: Evaluating Mission Statements 183 Assurance of Learning Exercise 5D: Evaluating the Mission Statement of Under Armour—a Competitor of adidas AG 184 Assurance of Learning Exercise 5E: Selecting the Best Vision and Mission Statements in a Given Industry 184 Assurance of Learning Exercise 5F: Writing an Excellent Vision and Mission Statement for Novartis AG 185 Chapter 6 The Internal Audit 187 The Nature of an Internal Audit 188 Volkswagen: Excellent Strategic Management Showcased 188 Key Internal Forces 189 ■ The Process of Performing an Internal Audit 190 The Resource-Based View 191 Integrating Strategy and Culture 192 Management 194 Planning 194 ■ Organizing 196 ■ Motivating 197 ■ Staffing 197 ■ Controlling 198 ■ Management Audit Checklist of Questions 198 Marketing 198 Customer Analysis 199 ■ Selling Products and Services 199 ■ Product and Service Planning 200 ■ Pricing 200 ■ Distribution 201 ■ Marketing Research 201 ■ Cost/ Benefit Analysis 202 ■ Marketing Audit Checklist of Questions 202 Finance and Accounting 202 Finance and Accounting Functions 202 ■ Basic Types of Financial Ratios 204 Breakeven Analysis 207 Finance and Accounting Audit Checklist 209 Production and Operations 209 Production and Operations Audit Checklist 211 Research and Development 211 Internal and External Research and Development 212 ■ Research and Development Audit 213 Management Information Systems 213 Management Information Systems Audit 213 Value Chain Analysis 213 Benchmarking 214 The Internal Factor Evaluation Matrix 216 Special Note to Students 218 Assurance Of Learning Exercises 221 Assurance of Learning Exercise 6A: Develop a Corporate IFE Matrix for Volkswagen Group 221 Assurance of Learning Exercise 6B: Should VW Deploy More Resources or Less Outside of the USA? 222 09/09/14 7:14 PM M37_DAVI6894_15_GE_CS25.indd 647 Peter Hortensius, Senior Vice-president, Product Group Chen Xudong, Senior Vice-president President, Lenovo China LIU Jun, Senior Vice-president, Mobile Internet Digital Home QIAO Jian, Senior Vice-president, Human Resources Management Note: EMEA = Europe/Middle East/Africa; APLA = Asia/Pacific/Latin America Source: Based on company information provided at the corporate website Milko Van Duijl, Senior Vice-president, Asia Pacific and Latin America Exhibit 1 Lenovo’s Organizational Chart Gianfranco LANCI, Senior Vice-president, President EMEA Gerry Smith, Senior Vice-president, Global Supply Chain Yang Yuanqing, CEO WANG Xiaoyan, Senior Vice-president and Chief Information Officer Wong Wai Ming, Senior Vice-president and Chief Financial Officer HE Zhiqiang, Senior Vice-president and Chief Technology Officer David Roman Senior Vice-president and Chief Marketing Officer Yolanda Conyers, Chief Diversity Officer freebookslides.blogspot.com 647 23/07/14 6:45 PM freebookslides.blogspot.com 648 Strategic Management Cases new geographic based structure became effective in April 2012 with the creation of new reporting business units as follows: (1) China, (2) Asia-Pacific/Latin America (APLA), (3) EuropeMiddle East-Africa (EMEA), and (4) North America The new geographical structure, according to Lenovo, enables the firm to stay as close to its customers as possible Strategy Lenovo is still primarily a PC company, but demand for PCs is falling; however, demand for smartphones is rapidly growing, so Lenovo is shifting gears In smartphones, Lenovo is competing with Chinese rivals, such as Huawei Technologies Co Ltd and ZTE Corp., that are already among the top-five smartphone companies globally Although the second-biggest smartphone vendor in China, Lenovo has begun selling smartphones in Russia, Indonesia, the Philippines, and Vietnam, but the company faces stiff competition globally from Samsung Electronics Co Ltd and Apple Inc Lenovo’s manufacturing operations are a departure from the usual industry practice of outsourcing to contract manufacturers Lenovo instead focuses on vertical integration to avoid excessive reliance on suppliers and to keep down costs Speaking on this topic, Yuanqing said, “Selling PCs is like selling fresh fruit The speed of innovation is very fast, so you must know how to keep up with the pace, control inventory, to match supply with demand and handle very fast turnover.” Lenovo benefited from its vertical integration after flooding affected hard-drive manufacturers in Thailand in 2011 because the company could continue manufacturing operations by shifting production toward products for which hard drives were still available Lenovo began to accentuate vertical integration after a meeting in 2009 in which Yuanqing, and the head of Lenovo’s supply chain, analyzed the costs versus the benefits of in-house manufacturing and decided to make at least 50 percent of Lenovo’s manufacturing in-house Lenovo Chief Technology Officer George He said that vertical integration has an important role in product development He stated, “If you look at the industry trends, most innovations for PCs, smartphones, tablets and smart TVs are related to innovation of key components—display, battery and storage Differentiation of key parts is so important So we started investing more … and working very closely with key parts suppliers.” Lenovo has partially moved production of its ThinkPad line of computers to Japan ThinkPads are produced by NEC in Yamagata Prefecture Akaemi Watanabe, president of Lenovo Japan, said, “As a Japanese, I am glad to see the return to domestic production and the goal is to realize full-scale production as this will improve our image and make the products more acceptable to Japanese customers.” Lenovo recently started manufacturing computers in Whitsett, North Carolina For Lenovo’s third quarter of 2012 that ending December 2012, the company reported a quarterly profit of $200.0 million, up 30 percent from a year previously That amount exceeded its previous record of $163 million, on strong sales of smartphones and tablet computers For the third quarter, Lenovo’s revenue grew 12 percent from a year previously to $9.4 billion, but the bulk of that still came from its PC business Lenovo shipped 9.4 million smartphones in the third quarter, all but about 400,000 of them however in China CEO Yang says “the smartphone business outside China is ‘still in the first stage’ and Lenovo needs to invest to gain market share before focusing on profitability.” The company’s third-quarter revenues in the bigger but slowergrowing PC market rose percent to $7.9 billion Lenovo’s global market share in PCs increased to 15.9 percent in the third quarter, trailing HP’s 17.0 percent, but well ahead of both Dell and Acer Lenovo’s 15.9 percent was the average of their 11.1 percent market share in EMEA, percent in North America, and 36.7 percent in China Lenovo has rapidly gained market share in the PC sector and in early 2013 trails HP only by a slim margin in PC shipments However, as PC demand growth slows, Lenovo has been diversifying into the mobile device sector to tap robust demand for smartphones and tablets, particularly at home in China, the world’s biggest market for mobile phones and PCs About a one-tenth of Lenovo’s third-quarter revenues in 2012 came from its mobile Internet and digital home (MIDH) business—mainly consisting of its smartphone sales in China, which jumped 77 percent to $998 million, although that was only 11 percent of total revenue The company’s third-quarter shipments of media tablets rose 77 percent to 800,000 units MIDH now contributes 11 percent of Lenovo’s overall revenue At the end of the third quarter in 2012, Lenovo is number-three worldwide in Smart Connected Devices (PC’s, tablets, and smartphones) M37_DAVI6894_15_GE_CS25.indd 648 23/07/14 6:45 PM freebookslides.blogspot.com Case 25 • Lenovo Group Limited, 2013 649 Lenovo basically has what it calls a two prong strategy: (1) Protect its commercial global PC business and its China business and (2) attack three high-growth opportunities in emerging markets with smartphones, tablets, and smart TVs For quarter ending January 31, 2013, Lenovo’s “attack” businesses delivered 50 percent of the company’s revenues, a significant increase from four years ago when the company first launched the strategy and attack revenues were 32 percent Lenovo’s MIDH revenues include its smartphone, tablet, and smart TV businesses and accounted for a record 11 percent of total Lenovo revenue in the third quarter, up 77 percent year-over-year And for the first time ever, Lenovo’s smartphone business in China became profitable in third quarter Ethics In fiscal 2012, Lenovo CEO Yang received a $3 million bonus as a reward for record profits, which he in-turn redistributed to about 10,000 Lenovo’s employees According to Lenovo spokesman, Jeffrey Shafer, Yang felt that it would be the right thing to “redirect [the money] to the employees as a real tangible gesture for what they done.” Shafer also said that Yang, who owns about eight percent of Lenovo’s stock, “felt that he was rewarded well simply as the owner of the company.” The bonuses were mostly distributed among staff working in positions such as production and reception who received an average of 2,000 yuan or about U.S $314 This was almost equivalent to a month’s pay for the typical Lenovo worker in China According to Lenovo’s annual report, Yang earned $14 million, including $5.2 million in bonuses, during the fiscal year that ended in March 2012 Finance Lenovo’s recent income statements and balance sheets are provided in Exhibits and 3, respectively Note in Exhibit the 14.6 percent increase in revenues for fiscal 2012/2013, as well as the 33 percent increase in net income Exhibit 2 Lenovo’s Income Statements (U.S $ 000,000 omitted) Revenue Cost of sates Gross profit Other income, net Selling and distribution expenses Administrative expenses Research and development expenses Other operating income - net Operating profit Finance income Finance costs Share of losses of associated companies Profit before taxation Taxation Profit for the period Profit attributable to: Equity holders of the company Non-controlling interests Dividend Earnings per share (U.S cents) Basic Diluted FY2012/13 FY2011/12 33,873 (29,800) 4,073 20 (1,888) (847) (623) 65 800 44 (42) (1) 801 (170) 631 29,574 (26,128) 3,446 (1,691) (730) (453) 11 584 43 (44) (1) 582 (107) 475 635 (4) 248 473 183 6.16 6.07 4.67 4.57 Source: Based on company documents M37_DAVI6894_15_GE_CS25.indd 649 23/07/14 6:45 PM freebookslides.blogspot.com 650 Strategic Management Cases Exhibit 3 Lenovo Balance Sheet (in millions of U.S dollars) Non-current assets Property, plant and equipment Intangible assets Others Current assets Bank deposits and cash Trade, notes and other receivables Inventories Others Current liabilities Short-term bank loans Trade, notes and other payables Others Net current assets Non-current liabilities Total equity As of Mar 31, 2013 As of Mar 31, 2012 4,492 480 3,326 686 12,390 3,573 6,694 1,965 158 12,091 176 10,576 1,339 299 2,111 2,680 4,040 392 3,092 556 11,820 4,172 6,297 1,218 133 11,809 63 11,251 495 11 1,603 2,448 Source: Based on company documents Segments Lenovo does an excellent job of reporting segment financial information both by geographic region and by product Exhibit reveals geographic segment information for Lenovo’s 2012/2013 fiscal year that ended March 31, 2013 Note the high revenue growth in Europe/ Middle East/Africa (EMEA) and the high profit margin in China At March 31, 2013, Lenovo’s worldwide personal computer (PC) market share grew from 13.0 percent to 15.3 percent, trailing only HP’s 15.7 percent, and above Dell’s 13.2 percent Competitors A financial comparison of various Lenovo competitors is provided in Exhibit Note that Apple crushes all competitors, including Lenovo, on profit margin and earnings per share (EPS) Note that HP is struggling and that Lenovo does not have that many shares outstanding versus most rival firms Apple is the second-largest publicly traded corporation in the world by market capitalization with its $424 billion figure Lenovo is also concerned about China’s ZTE Corp., which plans to become one of the world’s top-three smartphone brands ZTE was struggling financially as 2012 ended, but the company has aggressive plans and a good product Apple, Inc Headquartered in Cupertino, California, Apple’s best-known products are the Mac line of computers, the iPod, iPhone, iPad, iTunes, iLife, and iWork Apple software includes the OS X and iOS operating systems and the Safari web browser Apple is the world’s second-largest information technology company by revenue after Samsung Electronics Apple is also the world’s thirdlargest mobile phone make after Samsung and Nokia As of November 2012, Apple has 394 retail stores in 14 countries and an online Apple Store and iTunes Store For its fiscal year that ended in September 2012, Apple posted revenue of $22.5 billion in China, Taiwan, and Hong Kong, nearly double the amount from the prior year However, partly as a result of Lenovo, Apple’s market share dropped to 4.2 percent of the China smartphone market in the quarter ended September 2012, from 5.8 percent the prior year Another problem for Apple in China is that the China’s largest mobile carrier, China Mobile Ltd., does not sell the iPhone, although that company had 87.9 million subscribers to high-cost, third-generation mobile services at year end 2012 M37_DAVI6894_15_GE_CS25.indd 650 23/07/14 6:45 PM freebookslides.blogspot.com Case 25 • Lenovo Group Limited, 2013 651 Exhibit 4 Lenovo’s Sales and Profit by Region (in U.S dollars) Including MIDH and non-PC revenue & results China China - PC APLA EMEA North America Revenue US$ Million Segment Operating Profit/ (Loss) US$ Million Segment Operating Profit Margin FY13 Y/Y FY13 FY12^ FY13 FY12^ 14,539 11,751 6,860 7,535 4,939 17% 6% 8% 20% 9% 678 733 24 147 168 569 638 0 83 161 4.7% 6.2% 0.3% 2.0% 3.4% 4.6% 5.8% 0.0% 1.3% 3.5% Note: EMEA = Europe/Middle East/Africa; APLA = Asia/Pacific/Latin America Exhibit 5 A Financial Comparison of Lenovo with Rival Firms (in U.S dollars) Sales ($) Income ($) Profit Margin Market Capitalization ($) Shares Outstanding EPS ($) Lenovo Apple Dell HP Toshiba Fujitsu 34 B 631 M 1.86% 11.07 B 518 M 1.10 165 B 42 B 25.35% 424 B 939 B 44.10 58 B 2.7B 4.44% 24 B 1.75 B 1.47 120 B –12.6 B –10.5% 32.5 B 1.95 B –6.45 63 B 1.3 B 2.27% 18.5 B 4.25 B 0.30 49 B 279 M 0.55% 8.5 B 414 M 0.64 Note: EPS, earnings per share Source: Developed in February 2013 from a variety of sources An increasing number of companies are interested in purchasing Mac computers for all or part of their global operations Apple focuses its business toward consumers and does not aggressively develop products and services for global enterprise customers Organizations that have multiple-country operations oftentimes have to make separate arrangements in each region, with local partners making global deployments more complex Apple has outstanding product design and innovation as well as financial stability, but the company lacks consistent global service and support In September 2012, Apple unveiled the iPhone5, featuring an enlarged screen, more powerful processors, and running iOS6 The phone also includes a new mapping application (replacing Google Maps) that has attracted some criticism Dell, Inc Headquartered in Round Rock, Texas, Dell is the third-largest PC vendor in the world after HP and Lenovo Dell employs more than 103,300 people worldwide and is a strong corporate PC supplier with good global coverage and capabilities Dell is positioning itself beyond its PC roots however and as such is becoming less competitive on PC pricing To diversify away from PCs—although that product, like Lenovo, is still Dell’s best seller—Dell in 2012 acquired Wyse Technology and Quest Software and Gale Technologies and Credant Technologies These acquired firms produce and market other high-technology products and services, but not PCs, smartphones, or tablets Fujitsu Headquartered in Tokyo, Japan, Fujitsu is the world’s third-largest IT services provider measured by revenues after IBM and HP Fujitsu executes on a global basis and provides a good option for corporate purchasing for many organizations Although its U.S operations are still weak, Fujitsu has added desktops and bolstered its North American capabilities Fujitsu is also a strong supplier of pen tablet PCs, an important segment with Windows Fujitsu has a good desktop service portfolio across Europe and is strong in the Middle East, Africa, and Japan In May 2011, Fujitsu entered the mobile phone market again and released various Windows Phone devices Fujitsu offers a public cloud service delivered from data centers in Japan, Australia, Singapore, the United States, the United Kingdom, and Germany based on its Global Cloud Platform strategy The platform delivers Infrastructure-as-a-Service (laaS) virtual information and communication technology (ICT) infrastructure, such as servers and storage functionality M37_DAVI6894_15_GE_CS25.indd 651 23/07/14 6:45 PM freebookslides.blogspot.com 652 Strategic Management Cases Hewlett-Packard Headquartered in Palo Alto, California, HP has a strong global PC presence and portfolio of services and products and is a viable supplier for global enterprise customers, regardless of business size In May 2012, HP announced plans to lay off approximately 27,000 employees, after posting a profit decline of 31 percent in the second quarter of 2012 The profit decline is largely as a result of the growing popularity of smartphones, tablets, and other mobile devices that have slowed the sale of PCs HP recently merged its printing and PC businesses under one executive, Todd Bradley In November 2012, HP recorded a write down of around $8.8 billion related to its $11.3 billion acquisition of the U.K.-based software maker Autonomy Corp HP accused Autonomy of deliberately inflating the value of the company before its takeover, but Autonomy flatly rejected the charge The FBI is investigating but HP’s stock has fallen to a decades’ low Toshiba Corporation Headquartered in Tokyo, Japan, Toshiba provides a wide range of notebook computers targeted at businesses, but its global focus has shifted increasingly toward the consumer and small- business markets Toshiba remains strong in Canada and Australia in commercial sales, but a lack of desktop offerings makes Toshiba inappropriate if a sole PC vendor is desired for a company Toshiba’s focus has shifted toward the nonenterprise notebook market Toshiba is no longer a major concern for Lenovo because the two firms’ product lines overlap less and less every day Acer Headquartered in Taiwan, Acer plans to build up its smartphone business, raising sales from 500,000 units in 2012 to 1.5 million in 2013, and million in 2014 Acer is targeting specific operators individually instead of trying to offer models across entire markets Acer has suffered two consecutive (2011 and 2012) annual losses, still struggling from its bad acquisitions of Gateway, Packard Bell, and eMachines Of late however, Acer has posted strong sales of notebooks using Google’s Chrome platform Nokia Corporation Nokia is a communications and IT corporation headquartered in Keilaniemi, Espoo, Finland Its principal products are mobile phones and portable IT devices Nokia was the world’s largest vendor of mobile phones from 1998 to 2012 but over the past five years, the company has suffered declining market share as a result of the growing use of smartphones from other vendors, principally the Apple iPhone and devices running on Google’s Android operating system As a result, its share price has fallen from a high of U.S $40 in 2007 to under U.S $3 in 2012 Since February 2011, Nokia has had a strategic partnership with Microsoft whereby Nokia smartphones will incorporate Microsoft’s Windows Phone operating system (replacing Symbian) Nokia unveiled its first Windows Phone handsets, the Lumia 710 and 800 in October 2011 but sales subsequently dropped and Nokia made six consecutive loss-making quarters from second quarter 2011 to third quarter 2012 The fourth quarter of 2012 saw Nokia return to profit after strong sales of its new Windows Phone handsets, particularly the high-end Lumia 920 In October 2012, Nokia said its high-end Lumia 820 and 920 phones, which will run on Windows Phone software, will soon be available across Europe and in Russia In December 2012, Nokia introduced two new smartphones, the Lumia 620 and 920T In January 2013, Nokia reported 6.6 million smartphone sales for the fourth quarter in 2012, consisting of 2.2 million Symbian and 4.4 million sales of Lumia devices (Windows Phone and 8) In North America, only 700,000 mobile phones have been sold including smartphones Samsung Electronics Based in Seoul, South Korea, Samsung makes the popular Galaxy smartphone Samsung also makes DVD players, digital TVs, and digital still cameras; computers, color monitors, LCD panels, and printers; semiconductors such as DRAMs, static RAMs, flash memory, and display drivers; and communications devices ranging from wireless handsets and smartphones to networking gear; microwave ovens, refrigerators, air conditioners, and washing machines Galaxy runs on Google’s android mobile-operating software M37_DAVI6894_15_GE_CS25.indd 652 23/07/14 6:45 PM freebookslides.blogspot.com Case 25 • Lenovo Group Limited, 2013 653 The Future Lenovo’s diverse product brands overlap more and more, which is becoming confusing to many customers The company’s current aggressive pricing may not be profitable in future years The differentiation provided by Lenovo’s ThinkVantage software tools is eroding Alternative offerings from Microsoft and third parties are improving, and are often free, reducing the value of Lenovo’s unique tools Even for a strong firm such as Lenovo, rivals await at every turn to seize market share and customer loyalty The global smartphone market increased by 39 percent in 2012 in terms of units shipped, according to International Data Corporation In the summer of 2013, Lenovo introduced another new product, a table PC that weighs 17 pounds and runs off Windows and is called the Lenovo Idea Centre Horizon Table PC The new product does everything and features a 27-inch high-definition display panel Hundreds of fun games and educational apps come preloaded on the new product Lenovo is engaged in discussions to acquire the maker of the BlackBerry smartphone, but a larger concern for the company perhaps is Xiaomi Develop a clear strategic plan for Lenovo that will enable the company to continue its historical success M37_DAVI6894_15_GE_CS25.indd 653 23/07/14 6:45 PM freebookslides.blogspot.com 654 Strategic Management Cases Netgear, Inc., 2013 www.netgear.com, NTGR Headquartered in San Jose, California, Netgear develops and markets Ethernet switches, wireless controllers, storage devices, routers, media services, and other products associated with connecting users with the Internet All Netgear products are produced through third-party manufacturers and marketed through thousands of retailers worldwide Netgear prides itself on developing and marketing high performance devices that are dependable and easy to operate in homes But this “desired competitive advantage” is difficult to maintain because consumers widely believe such products are a commodity (like gasoline) For businesses, Netgear provides networking, storage, and security devices that are cheaper and easier to use than comparable products offered by rival firms Netgear products are sold in more than 28,000 retail locations around the world and through about 42,000 resellers Netgear has operations in 25 nations and has 850 employees, of which 352 are in sales, marketing and technical support, 251 in research and development (R&D), 128 in finance, and 119 in operations Netgear’s revenues for 2012 were $1.27 billion, up 7.6 percent from 2011 The company reported revenue for Q2 of 2013 of $357.7 million, up from $320.7 million the prior year when the company’s new acquisition, AirCard, was not in the numbers Q2 2013 net income was $14.0 million, down from $21.5 million the prior year During Q2, Netgear grew its Retail Business Unit (RBU), led by its 802.11ac upgrade cycle, as well as the rollout of the Smart Home for developed markets The integration of the AirCard business into the company’s Service Provider Business Unit (SPBU) went well On a year-over-year basis, Netgear’s RBU revenue was up percent The company’s strong Q2 2013 year-on-year growth for RBU in North America and Asia was offset by weakness in the European region The company’s SPBU revenue was up 58 percent sequentially, and up 20 percent over the prior year quarter The company’s Commercial Business Unit (CBU) revenue was up 25 percent sequentially, and up 10 percent over the prior year quarter Copyright by Fred David Books LLC (Written by Forest R David) History Netgear was incorporated in 1996 as a subsidiary of Bay Networks and was purchased by Nortel in 1998 The company became fully independent from Nortel in 2002 and remains independent today Back in 1996, the Internet was in its infancy, especially high speed and wireless devices As an industry pioneer, Netgear has kept tight inventory controls and used off-the-shelf hardware and software products from existing companies Founder, chairman, and CEO Patrick Lo was quoted in 2004 as saying: “We the system integration and let the contracted firms the grunt work of designing circuit boards.” Netgear went public in 2003 Since then, the company has grown into a $1.2 billion in sales firm In 2011, Netgear combined its North, Central, and South U.S salesforces to form a new Americas territory as a means to increase operational efficiencies Today, the company operates in three distinct geographic territories: (1) Americas, (2) Europe, and (3) Middle East and Asia Pacific To get a flavor of what Netgear develops and markets, in late 2012, the company introduced its CG4500TM Voice/Data Gateway that received the CableLabs® DOCSIS® 3.0 certification This unit has the capability for 24 × 4-channel bonding and is the firm’s most advanced DOCSIS 3.0 Voice/Data Gateway integrating in one device The new product allows concurrent 802.11n dual-band wireless networking that provides up to 900 Mbps (450 + 450 Mbps) aggregate speed and with simultaneous dual-band technology helps mitigate interference ensuring sustained throughput and reliable connections With integrated MoCA, the CG4500TM Gateway enables seamless data and video distribution over the in-home coax network M38_DAVI6894_15_GE_CS26.indd 654 17/07/14 1:44 PM freebookslides.blogspot.com Case 26 • Netgear, Inc., 2013 655 Internal Issues Vision and Mission Netgear’s mission statement is: “To be the innovative leader in connecting the world to the Internet,” recently changed from, “To be the preferred customer-driven provider of innovative networking solutions for small businesses and homes.” There is a statement on the company’s website that may be their vision: “Our goal is to be the leading provider of innovative networking products to the consumer, business, and service provider markets.” Location Netgear’s primary administrative, sales, marketing, and R&D facilities consist of 142,700 square feet in an office complex in San Jose, California, under a lease that expires in 2018 Netgear’s international headquarters comprise 10,000 square feet of office space in Cork, Ireland, under a lease that expires in 2026 Netgear’s international salespersons are based out of local sales offices or home offices in Austria, Australia, Brazil, Canada, China, Czech Republic, Denmark, France, Germany, Hong Kong, India, Italy, Japan, Korea, Mexico, New Zealand, Poland, Russia, Singapore, Spain, Sweden, Switzerland, the Netherlands, the United Arab Emirates, and the United Kingdom Netgear has operations personnel in Hong Kong, and R&D facilities in Atlanta, Chicago, Beijing, Guangzhou, Nanjing, and Shanghai, China, and in Taipei, Taiwan Organizational Structure Netgear is managed in three specific business units: (1) retail, (2) commercial, and (3) service provider The retail business unit consists of home networking, storage, and digital media products to connect users with the Internet and their content and devices The commercial business unit consists of relatively low-cost business networking, storage, and security solutions The service provider business unit consists of made-to-order and retail proven, whole-home networking solutions sold to service providers for sale to their customers Netgear recently combined their North American, Central American, and South American sales forces to form the Americas territory Thus, the firm is today organized into the following three geographic territories: (1) Americas, (2) Europe, Middle-East, and Africa (EMEA) and (3) Asia, Pacific (APAC) Exhibit provides a diagram of Netgear’s existing organizational structure Note there is no Chief Operations Officer Some analysts contend that the company is too dependent on Lo, with no other person being groomed as an eventual successor Exhibit 1 Organizational Chart Patrick Lo, Chairman, CEO, and Acting General Manager of Commercial Business Unit Christine Gorjanc, Chief Financial Officer Mark Merrill, Chief Technology Officer Michael Clegg, General Manager and Senior Vice-president, Service Provider Business Unit David Soares, General Manager and Senior Vice-president, Retail Business Unit Michael Falcon, Senior Vice-president of Operations and Support Charles Olson, Senior Vice-president of Engineering Andrew Kim, Vice-president of Legal and Corporate Development and Company Secretary Michael Werdann, Vice-president of Worldwide Sales, Retail Business Unit Source: Based on company documents M38_DAVI6894_15_GE_CS26.indd 655 17/07/14 1:44 PM freebookslides.blogspot.com 656 Strategic Management Cases Products Netgear products that target businesses are designed with metal cases and are capable of faster speeds, up to 10 gigabits per second, and higher port counts to allow more users Products targeting homes are designed with more pleasing aesthetics and are often offered at much lower prices than the more robust higher security business models Netgear plans to develop a home network that will enable all devices to be connected to the Internet at all times Netgear’s products can be grouped into three categories: (1) commercial business networking, (2) broadband access, and (3) network connectivity Commercial business networking products include (a) Ethernet switches and wireless controllers such as routers used in WiFi applications, (b) Internet security appliances that enable Internet access with capabilities such as anti-virus and firewalls, and (c) network-attached storage, which provides file sharing with multiple PCs over a businesses own local area network Netgear’s broadband access enables customers to move digital content over high-speed networks rather than traditional low-speed telephone lines Products in this segment include: (a) routers, which allow the home or office networks to connect wireless to the Internet via a broadband modem, (b) gateways, which are routers integrated into a modem, (c) Internet Protocol (IP) telephony products, which enable voice communications over a network, and (d) media servers, which store multimedia content for use on PCs laptops, smartphones, and other devices Netgear’s connectivity products enable resource sharing and include wireless access points, wireless network interface cards, Ethernet network interface cards, media adapters, and power line adapters R&D High technology firms spend anywhere from to 15 percent of revenue on R&D In 2012, Netgear spent $61 million, up 25.5 percent, on R&D to develop new and improved products and respond to changing technology in a timely manner The $61 million was 4.8 percent of Netgear’s revenues, up from 4.1 percent the prior year Netgear works closely with their technology suppliers to develop products using a methodology such as Original Design Manufacturer (ODM) or In-House Development Under ODM, Netgear defines the product and specifications and coordinates with suppliers who develop the product On development of a prototype, debugging and testing begins, and the product is ultimately released for production after passing final measures The In-House Development model is similar to ODM, except entire development is coordinated by Netgear engineers Manufacturing Like Apple, Inc., Netgear outsources all of their manufacturing to third parties, such as Cameo Communications, Delta Networks, Hon Hai Precision (more commonly known as Foxconn Corporation), and several others Almost all Netgear products are manufactured on mainland China or in Vietnam Products are sometimes tested in a pilot basis in Taiwan Netgear component parts such as connector jacks, plastic casings, and physical layer transceivers are all purchased from a few sources, making reliance on a few suppliers a threat If any third-party manufacturers experience any delay, disruption, or quality control problems in their operations, Netgear could lose market share and the Netgear brand could suffer Netgear outsources warehousing and distribution logistics to five third-party providers, located in California, Hong Kong, Netherlands, and Australia Netgear does not have longterm contracts with any of their third-party manufacturers, some of whom produce products for competitors Marketing Netgear’s global sales channel includes thousands of value added resellers (VARs), direct market resellers (DMRs), such as CDW, and 37,000 traditional retailers worldwide, such as Best Buy, Walmart, Fry’s Electronics, and Staples in North America; PC World in the United Kingdom; and MediaMarket in Germany, as well as online retailers such as Amazon M38_DAVI6894_15_GE_CS26.indd 656 17/07/14 1:44 PM freebookslides.blogspot.com Case 26 • Netgear, Inc., 2013 657 com, Dell.com, and NewEgg.com Netgear also sells its products through broadband service providers such as BSkyB, Virgin Media UK, YouSee Denmark, Telecom Denmark, Time-Warner Cable, Comcast, TV Cabo Portugal, Telkom South Africa, J:Com of Japan, and Comhem of Sweden Best Buy and Ingram Micro each account for 10 percent or greater of Netgear revenues Netgear works closely with customers on market development activities, such as co-advertising, in-store promotions and demonstrations, instant rebate programs, event sponsorship, and sales associate training It also participates in major industry trade shows and marketing events Netgear marketing managers work closely with the company’s sales and R&D people to align product development roadmaps to meet customer technology demands Finance Netgear’s net income declined in 2012 to $86.5 million from the year before value of $91.4 million Income Statements Netgear’s recent income statements are provided in Exhibit Note the steady increases in revenues but recent drop in net income Exhibit 2 NETGEAR, INC STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, Net revenue Cost of revenue Gross profit Operating expenses: Research and development Sales and marketing General and administrative Restructuring and other charges Litigation reserves, net Total operating expenses Income from operations Interest income Other income (expense), net Income before income taxes Provision for income taxes Net income Net income per share: Basic Diluted Weighted average shares outstanding used to compute net income per share: Basic Diluted 2012 2011 2010 $1,271,921 888,368 383,553 $1,181,018 811,572 369,446 $902,052 602,805 299,247 61,066 149,766 45,027 1,190 390 257,439 126,114 498 2,670 129,282 42,743 $86,539 48,699 154,562 39,423 2,094 (201) 244,577 124,869 477 (1,136) 124,210 32,842 $91,368 39,972 131,570 36,220 (88) 211 207,885 91,362 426 (564) 91,224 40,315 $50,909 $2.27 $2.23 $2.46 $2.41 $1.44 $1.41 38,057 38,747 37,121 37,932 35,385 36,124 Source: 2012 Form 10K, p 54 M38_DAVI6894_15_GE_CS26.indd 657 17/07/14 1:44 PM freebookslides.blogspot.com 658 Strategic Management Cases Balance Sheets Netgear’s recent balance sheets are provided in Exhibit Note the zero long-term debt Segments Netgear reports operating income by geographic region Before 2011, the company’s operations in Central and South America were categorized under the APAC segment Note in Exhibit that Netgear’s APAC segment was the largest gainer in 2012 versus the prior year, whereas EMEA reported a decline in revenues Exhibit 3 Netgear’s Balance Sheet NETGEAR, INC BALANCE SHEETS (In thousands, except per share data) December 31, 2012 December 31, 2011 ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable, net Inventories Deferred income taxes Prepaid expenses and other current assets Total current assets Property and equipment, net Intangibles, net Goodwill Other non-current assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable Accrued employee compensation Other accrued liabilities Deferred revenue Income taxes payable Total current liabilities Non-current income taxes payable Other non-current liabilities Total liabilities Commitments and contingencies $149,032 227,845 256,014 174,903 22,691 33,724 864,209 19,025 27,621 100,880 22,834 $1,034,569 $208,898 144,797 261,307 163,724 23,088 32,415 834,229 15,884 20,956 85,944 14,357 $971,370 $87,310 18,338 126,255 27,645 1,382 260,930 13,735 5,293 279,958 $117,285 26,896 120,480 40,093 4,207 308,961 18,657 4,995 332,613 — — Stockholders’ equity: Preferred stock: $0.001 par value; 5,000,000 shares authorized; none issued or outstanding Common stock: $0.001 par value; 200,000,000 shares authorized; shared issued and outstanding: 38,341,644 and 37,646,872 at December 31, 2012 and 2011, respectively Additional paid-in capital Cumulative other comprehensive income Retained earnings Total stockholders’ equity Total liabilities and stockholders’ equity 38 38 394,427 360,142 754,611 $1,034,569 364,243 23 274,453 638,757 $971,370 Source: 2012 Form 10K, p 53 M38_DAVI6894_15_GE_CS26.indd 658 17/07/14 1:44 PM freebookslides.blogspot.com Case 26 • Netgear, Inc., 2013 659 Exhibit 4 Revenues by Geographic Segment Year End December (in thousands) 2012 2011 $ Americas EMEA APAC Total $679,419 $457,724 $134,778 $1,271,921 % $ 53.4 $587,056 36% $477,713 10.6 $116,249 100% $1,181,018 2010 Percent Change % $ % 2012 2011 49.7 40.4 9.9 100% $466,542 $340,249 $95,261 $902,052 51.7 37.7 10.6 100% 15.7 (4.2) 15.9 25.8 40.4 22.0 APAC, Asia Pacific; EMEA, Europe, Middle East, Africa Source: 2012 Form 10K, page 41 Competition Netgear operates in an extremely competitive industry, with many products being viewed by consumers as commodities, proper position on store floors being critically important, and competitive pricing being essential Many Netgear products, such as media adapters, Ethernet, and routers, are also made by rivals Cisco Systems, Roku, Western Digital, and Apple in the USA, and by many foreign competitors such as AVM in Europe, Corega in Japan, and TP-Link in China Netgear also develops and markets networking and streaming products, competing against rivals LG, Microsoft, Samsung, and Sony Also competing against Netgear are many cable companies that now provide modems, and those companies may soon provide their own routers as part of their service offerings If Netgear cannot form contracts with various cable providers, then those firms may also become competitors Netgear’s principal competitors in the commercial business market include Allied Telesys, Barracuda, Buffalo, Data Robotics, Dell, D-Link, Fortinet, Hewlett-Packard, Huawei, Cisco Systems, the Linksys division of Cisco Systems, QNAP Systems, Seagate Technology, SonicWALL, Synology, WatchGuard, and Western Digital Netgear’s principal competitors in the home market for networking devices and television connectivity products include Apple, Belkin, D-Link, the Linksys division of Cisco Systems, Roku, and Western Digital Netgear’s principal competitors in the broadband service provider market include Actiontec, ARRIS, Comtrend, D-Link, Hitron, Huawei, Motorola, Pace, Sagem, Scientific Atlanta (a Cisco company), SMC Networks, TechniColor, Ubee, Compal Broadband, ZTE, and ZyXEL Other current and potential competitors that Netgear considers include numerous local vendors such as Devolo, LEA, and AVM in Europe; Corega and Melco in Japan; and TP-Link in China Even consumer electronics vendors are rivals, including LG Electronics, Microsoft, Panasonic, Samsung, Sony, Toshiba, and Vizio, who could integrate networking and streaming capabilities into their line of products, such as televisions, set top boxes, and gaming consoles Exhibit provides a comparative summary of Netgear versus four leading competitors Note that Netgear is a bit larger than D-Link, but much smaller than most rival firms Exhibit 5 Comparative Data for Netgear versus Rival Firms Netgear Number of Employees Net Income ($) Revenue ($) Revenue ($)/Employee EPS Ratio ($) Market Capitalization Headquarters 791 95.3M 1.23B 1,554K 2.49 1.26B California Cisco Systems 71.8K 7.36B 45.6B 635K 1.36 87.64B California D-Link 500 41.5M 1.15B 2,300K 0.06 — Taiwan Alcatel Lucent 76K 1.4B 19.8B 260.5K 0.54 — France Western Digital 103K 1.9B 13.8B 134K 7.61 10.1B California EPS, earnings per share Source: Based on company information M38_DAVI6894_15_GE_CS26.indd 659 17/07/14 1:44 PM freebookslides.blogspot.com 660 Strategic Management Cases Cisco Systems, Inc Nearly 40 times the size of Netgear, Cisco is headquartered in the same city as Netgear, San Jose, California Like Netgear, Cisco structures its operations in the same three geographic segments, with its European and Middle East headquarters in the Netherlands and the Asia Pacific headquarters in Singapore Also like Netgear, Cisco produces Internet protocol networking and other related devices to support communications and information technology Cisco’s sales by geographic region reported in its fiscal year end June 2012 were 65, 21, and 14 percent respectively for Americas, EMEA, and APAC Also like Netgear, Cisco produces cable modems, video software, encoders, decoders, and many more products Cisco’s Linksys wireless routers compete directly with Netgear routers As of year-end 2012, Cisco had 66,000 employees, annual revenues of $46 billion, and net income of $8 billion Also like Netgear, Cisco relies exclusively on contract manufacturers for all their manufacturing needs Cisco spends about 12 percent of net sales on R&D compared to only percent for Netgear Cisco contains around $17 billion in goodwill on the balance sheet resulting in approximately 40 percent of total stockholders’ equity residing from intangible assets, which is not good, versus Netgear’s 17 percent Western Digital Corporation Headquartered in Irvine, California, Western Digital creates and markets storage devices, home entertainment devices, and networking devices, similar to Netgear Western Digital is known for their 2.5- and 3.5-inch form factor hard drives under the Ultrastart, XE, WD, and SiliconDrive brand names Western Digital also produces a wide range of external hard drives in 500-gb sizes, FireWire, and Ethernet connections Western Digital is structured based on the same geographic regions both Netgear and Cisco One notable exception, Western Digital, with $12.5 billion of revenue in fiscal 2012 that ended June 2012, reported that about 58 percent of their revenues come from Asian markets with 23 and 19 percent coming from the Americas and EMEA, respectively, providing the company a significantly more Asian presence than both Netgear and Cisco The company currently spends percent of revenues on R&D The firm has $2 billion in goodwill and around 37 percent of all current assets are in inventory As of December 2012, Western Digital has a price-to-earnings (P/E) ratio of five, below the S&P 500 P/E ratio of 17.7, and its stock price was up 22.9 percent year-to-date Western Digital has numerous strengths, such as robust revenue growth, reasonable debt levels, solid stock price performance, impressive record of earnings per share growth, and compelling growth in net income Western Digital has no glaring weaknesses Western Digital recently acquired the hard disk drive operations of Hitachi, greatly increasing its capacity and sales volume Like rival Seagate Technology, Western Digital has been targeting some acquisitions upstream to better control input costs Seagate recently acquired the hard disk operations of Samsung D-Link Corporation Headquartered in Taipei, Taiwan, D-Link develops, produces, and markets networking, connectivity, and data communications hardware, offering hubs and switches, adapters, print servers, routers, and transceivers Other D-Link products include broadband modems, virtual private network/firewall devices, data-storage systems, videoconferencing equipment, Web cameras, and business phones D-Link sells to individuals and businesses, but the firm specializes in wi-fi and Ethernet components for the small to medium-sized office market D-Link sells its products through distributors in more than 100 countries, but generates most of its sales in Asia The Future In July 2012, Netgear acquired AVAAK, Inc., a privately-held company that develops wire-free video networking products for a total purchase consideration of $24.0 million in cash This acquisition bolstered the company’s retail business unit product offerings and expanded their presence in the smart home market Some analysts however contend that the fate of Netgear’s industry is inexorably tied to the PC and that PCs are in decline as users switch to tablets, which M38_DAVI6894_15_GE_CS26.indd 660 17/07/14 1:44 PM freebookslides.blogspot.com Case 26 • Netgear, Inc., 2013 661 will not need hard disk drives But there are external storage needs for hard-disk drives that seem to be growing and conventional storage is still cheaper than flash memory Every few months or so, Netgear introduces a new or improved product, including the recently introduced Netgear ProSecure® UTM25S Unified Threat Management Firewall, which provides two modular slots that fit optional interface cards, enabling IT administrators to custom tailor the firewall to their specific connectivity requirements In addition, like other members of the ProSecure UTM family of security appliances, the UTM25S integrates with Netgear ReadyNAS® network-attached storage systems, giving businesses almost unlimited activity log and quarantine capacity for forensic, regulatory and legal requirements Netgear also recently introduced the CentriaTM, a powerful, all-in-one automatic backup/ media server and high-speed wi-fi router Centria is a dual-band high-performance router with the added convenience of automatic data backup for both PCs and Macs The backup capability of the Centria router gives a consumer peace of mind knowing that data is always backed up If a PC or Mac goes down or is lost, a consumer can still access data from Centria using another computer Routers are excellent for data backup because they are always on and are the central point of connection for all computers in the home Centria can also be used as a storage repository for photos, media, and documents that may take up too much space on your computer Centria uses an internal SATA drive or external USB drives to backup and store data There are companies such as Western Digital or Cisco that may be interested in acquiring Netgear Even D-Link desires a greater market share in the USA And Netgear itself has a history of making acquisitions What would be some good acquisition targets for Netgear, to help solidify its competitive position and gain economies of scale To remain attractive in this rapidly changing industry, Netgear needs a clear strategic plan going forward M38_DAVI6894_15_GE_CS26.indd 661 17/07/14 1:44 PM ... United States edition, entitled Strategic Management: A Competitive Advantage Approach, Concepts, 15th Edition, ISBN 978-0-133-44489-6 by Fred R David and Forest R David, published by Pearson Education... Chapter 1 Strategic Management Essentials 37 Singapore Airlines: Excellent Strategic Management Showcased 38 What Is Strategic Management? 39 Defining Strategic Management? ?? 39 ■ Stages of Strategic. .. in addition, introduces new strategic management concepts and techniques being widely used by firms in strategic planning Stages of Strategic Management The strategic- management process consists