dsl finallll!!

Case Analysis on

DSL de Mexico S.A. de C.V. (A)

A visual presentation by Group H

Presented by

Izazul Haque 093 0957 030

Jyoti Jiban Khisha 091 0849 030

Sanjida Erfan 092 0259 030

Hussain M Elius083 371 530

Background

What’s the case all about...

The case, DSL de Mexico S.A. de C.V. (A), portraits the ethical dilemmas managers often face in international business.

In this case we have observed, the history of DSL in Mexico, reviews industry conditions and background on the devaluation of the Mexican peso. The case focuses on Lane Cook, the 28 year old General Manager of DSL de Mexico, as he intends how to respond to a questionable request by a potential customer.

Background

The Beginning Story of DSLIn 1978, Distribution Services Limited, commonly known as DSL, was founded by Philip Clarke, Sr. and Cobb Grantham. Both of them served together in the Korean War.

Experience of Philip and Cobb: Sea-Land Corp., a major U.S.-based shipping company

Discovered Opportunity: the Pacific shipping market

Target Market: DSL which was based in Hong Kong, focused on consolidated orders for U.S.-based retail companies which were interested in accessing Asian markets.

Background

Growth of DSL I. DSL was one of the few

consolidators working the Hong Kong-Southern California route n the late 1970s and early 1980s.

II. Sales grew by an average rate between 15% and 20% over its first ten years.

III. Gross margins hovered in the 15% range, a rate which was considered very healthy in the industry.

IV. Over time, DSL opened offices in Taiwan, Korea, China, Singapore, and many other Asian origins.

Background

DSL and Retailers• The standard custom for U.S. retail companies was

to negotiate prices that were FOB at the supplier’s dock.

• For large retailers like Sears, Wal-Mart, and J.C. Penney, substantial volume discounts could be secured on massive volumes of goods being shipped.

• Retailers could also control shipping schedules and manage priority freight more effectively.

• Finally, FOB contracts enabled U.S. retailers to perform full quality inspections prior to shipping.

Background

Consolidators relied on two types of retail customers:

Small Customersincluding trading companies, that perfer smaller volumes

and rarely ordered large volumes

Larger Retailers for precise sales projections and sophisticated inventory tracking systems, ordered

mixed sized lots.

Background

Relationship between Wal-Mart and DSL Due to close relationship with Wal-Mart, DSL got highly benefited. Since the mid-1960s, Both Cobb Grantham and Philip Clarke, Sr. had known Sam Walton when he was just establishing his first Wal-Mart, and Clarke and Walton’s had strong friendship. Because of this relationship DSL grew as Wal-Mart grew.

Background

Wal-Mart’s growth and intense competition among freight carriersBy the end of 1995, DSL had grown to a $200 million company. Of this amount, about $80 million was derived from Wal-Mart; another $50 million came from Target Stores. The balance was derived from such retailers as Edison Brothers, JC Penney, Fingerhut, Shopko, Hills Department Stores, the American Retail Group, as well as various U.S.-based trading houses.

BackgroundDSL Expansion to Mexico • In 1988, DSL’s regional director in

San Francisco made contact with a large Bay-area trading company that had considerable business with a major Mexican retailer.

• In 1990, DSL formed a joint venture with a Mexico City-based shipping agent to assist in managing the new business.

• In August 1992, the Prime Minister of Canada and Presidents of Mexico and the U.S. announced the North American Free Trade Agreement (NAFTA) which would come into effect on January 1, 1994.

• Later, DSL broke off the relationship with its partner and establish a wholly-owned affiliate in Mexico that would pursue more aggressive growth objectives.

Background

DSL de Mexico S.A. de C.V. • In October 1993, Wal-Mart opened its first store in

Mexico as a 50-50 joint venture with Cifra.• Within the month, DSL started to serve Wal-Mart’s

consolidated freight from Asia and domestic consolidation of Mexican suppliers for delivery to its new Mexico Supercenters.

• In November 1993, DSL subcontracted the use of a small warehouse in Mexico City.

Background

Big challenge for DSL de Mexico: The Devaluation I. Mexico moved to devaluing the Peso just after the

contract of DSL. Between December 20, 1994 and II. February 1, 1995, the peso’s value fell close to 40

percent against the U.S. dollar. The devaluation substantially lowered DSL’s warehouse cost in $U.S. dollar terms.

III. But imports went into a tailspin, drying up DSL’s Asian consolidation business. Purely domestic business also suffered.

Background

Need for Revenues In order to gain revenue, Cook believed that the key to growth lay within developing local business, including warehouse accounts and the company faced steep competition.

Theme

The DSL case documents the history of DSL in Mexico, reviews industry conditions and provides background on the devaluation of the Mexican peso. As the service period of DSL increased, they lacked the uniqueness. As DSL was handling huger inventory warehouse, they faced problem to manage it as Wal-Mart became independent. Falling the value of a currency brings competitive disadvantage and vice versa. Despite initial successes, the collapse of the Mexican economy hit DSL’s business hard. Faced with falling revenues and substantial overhead costs, DSL was in a trouble with the economic imbalance.

Main Issue

What strategies should be taken by the management to mitigate issues related to questionable negotiations, ethical stance and business sustainability of DSL in Mexico?

SWOT Analysis

HRPP Model

Strength Good relations with different individuals provides

strong plot to gain success in the business Relatedness to the statement: Because of friendship with

Sam Walton DSL became Wal-Mart’s principal consolidator out of Southeast Asia. DSL grew as Wal-Mart grew.

Relatedness with HRPP Model : Product/Service Demand and Organizational Growth under Forecasting Demand- Consideration

Technological Advancement made DSL to serve more to customers than its competitors

Relatedness to the statement: By following Wal-Mart’s lead, DSL became entrenched in Wal-Mart technology and learned many key advantages in just-in-time and inventory management earlier than many competitors

Relatedness with HRPP Model: Technology and Product/ Service Demand under Forecasting Demand- Consideration.

Strength

The DSL U.S. office provides strong backup during the time of crisis

Relatedness to the statement: Due to the uncertain economic downpour; with so much unused capacity and costs cut to the bone, Cook was under enormous pressure to raise revenues. DSL’s U.S. offices helped considerably here. DSL had 20 offices in the U.S. and many of these had large accounts that did business in Mexico. The collapse of the peso brought about a significant increase in U.S. imports from Mexico.

Relatedness with HRPP Model: Product and service demand and Management philosophy consideration

Weakness

Dependency on few customer puts DSL in a disadvantageous position.

Relatedness to the statement: DSL was dependent on consumers like Wal-Mart; J.C Penny Sears

etc. DSL acted as Wal-Mart’s sole consolidator within Mexico, a role that included working with Wal-Mart’s Mexican vendors by consolidating their small orders and sending full truck loads to the Mexican stores

Relatedness with HRPP Model: Product/Service Demand and Organizational Growth under Forecasting Demand- Consideration

Weakness

Lack of uniqueness in the business makes DSL more vulnerable in the competitive market.

Relatedness to the statement: DSL lacked the uniqueness which could differentiate them. Though they tried to differentiate through service provided; it could not make a major difference But there are essentially no barriers to entry in the consolidation business.

Relatedness with HRPP Model: Management Philosophy and require Trend Analysis from HRPP model

Weakness

Too much fixed cost is an obstruction of profit in the business of DSL.

Relatedness to the statement: DSL continued to act as a consolidator for Asian goods purchased by companies but lost its domestic consolidation business. However, Wal-Mart’s domestic consolidation account was a huge percentage of the business in Mexico, As a result they cut off the jobs of the employees which make them to lose the qualified workers.

Relatedness with HRPP Model: Inventory management techniques for the organization

Opportunity

Presence of very few Competitors in Consolidating business provides DSL to capture more market share.

Relatedness to the statement: Presence of potential trans-Pacific market for ocean freight consolidation and the consolidation business had not been developed across the Pacific, which gives DSL an opportunity to have a market and expand their business in different areas in the time of globalization.

Relatedness with HRPP Model: Organizational Growth under Forecasting Demand- Consideration.

Opportunity

Emergence and Expansion of large retailers grants more opportunity to expand the business

Relatedness to the statement: DSL’s main accounts were Gigante, Comercial Mexicana, and the newly arrived Wal-Mart. For each of these accounts, DSL acted as the sole consolidator of shipments from Asia to Mexico.

Relatedness with HRPP Model: Organizational Growth under Forecasting Demand- Consideration

Opportunity Different trade agreements worldwide give DSL plot

to expand its business. Relatedness to the statement: The passage of NAFTA

clearly caught DSL’s attention as it promised a dramatic increase in trade between the U.S. and Mexico.

Relatedness with HRPP Model: Product/Service Demand and Organizational Growth under Forecasting Demand- Consideration

Threat No barrier of entry in consolidating business makes

this field attractive, eventually leading to entry of new competitors in the market

Relatedness to the statement: As the service period of DSL increased, they lacked the uniqueness. But there are essentially no barriers to entry in the consolidation business. Logistics companies don’t require a lot of capital investment.

Relatedness with HRPP Model: Management Philosophy and require Trend Analysis from HRPP model.

Economic instability of the host country might cost the business.

Relatedness to the statement: The peso’s value fell close to 40 percent against the U.S. dollar, and caused what most Mexican experts call the worst economic crisis in Mexico’s history.

Relatedness with HRPP Model: Government Policies under Forecasting Supply- Consideration

Threat Self dependency by the large retailers in the

consolidation business shrink the market size . Relatedness to the statement: Wal-Mart turned to its

wholly-owned affiliate, McLane. Based in Temple, Texas, McLane, a national distribution and food processing company, was purchased by Wal-Mart.

Relatedness with HRPP Model: Product/ Service demand under managerial estimates techniques

The unwanted demand made by the host might

hinder the business of DSL in near future. Relatedness to the statement: Unwanted demands

many times creates adverse situation. Demand by Hernandez where he wanted something not to be mentioned in the contract.

Relatedness with HRPP Model: Management philosophy

HR Challenges

DSL needs an HR department so that it can manage the proper allocation of the employees worldwide.

To avoid unwanted demands DSL must have professional negotiators as Mexico is not like USA and the political, socioeconomic factors are different in the host country.

DSL has operates outside United States of America or Hong Kong, so managing international employees and knowing their culture can be a challenge as well.

HR Challenges

DSL management had lacking in terms of proper decision making and long chain of command where HR needs to make people train and design organogram to communicate more effectively

The market of Consolidation industry is very competitive, and the competition is getting higher day by day, so the industry market itself can become a huge challenge in the near future where retention of efficient employees might be difficult.

HR Challenges

Alternatives

Alternative No.1: “Do Nothing”

Positive Aspects

•DSL de Mexico can avoid possible business risks like instability, ineffective management decision, financial losses, etc.•DSL will not have to face any threat from its competitors.•By not investing in Mexico, DSL can search for other potential market to expand in the future.

Negative Aspects

•Business value and brand image of DSL may be reduced by losing local market in Mexico•DSL may fail to attract and retain good employees•DSL may fail to increase or retain its marketplace presence and strength•DSL will fail to generate revenues in Mexico

Alternative No.2: DSL may introduce a customized service

line for the Mexican market

Positive Aspects

•DSL will be able to generate revenues in Mexico•This will help to attract new Mexican clients •DSL can penetrate new market using its new service strategies that is it can diversify its business in Mexico.

Negative Aspects

•DSL might lose its existing image of being superior in the consolidation industry•Introducing new service line will require a significant cost for the company.•DSL might lose its original identity•Lack of knowledge regarding new business create even more problems for DSL de Mexico•Establishing separate service strategies may hamper DSL’s liquidity and worsen current financial situation

Alternative No.3: “DSL can do businesses in Mexico by accommodating client’s

requests and preferences”

Positive Aspects

•DSL will be able to generate a good amount of revenue in Mexico•DSL will be able to strengthen its company presence in the Mexican market of consolidated freight industry•DSL will be able to do business deals which will eventually increase the sustainability of the company in Mexico in the long-run•DSL can develop local business and hence it can ensure growth in Mexico

Negative Aspects

•DSL will be losing the profit margin which it could earn if it directly selected the transportation companies.•DSL might lose its control on the business deals

Alternative No.4: “DSL can exit the Mexican market”

Positive Aspects

•DSL will be able to save the company from further losses •The amount of financial and other resources it has to put into the growth in the Mexican market can be utilized to develop another potential international venture•DSL’s overall profitability might increase

Negative Aspects

•The previous investments of DSL de Mexico will go in vain•This might result in employee dissatisfaction

Alternative 5: Charging clients in U.S. dollars and not in Peso

Positive Aspects

•This will safeguard DSL’s business from the ongoing instability•DSL’s overall profitability might increase

Negative Aspects

•Will the Mexicans agree?•This might decrease the competitiveness of DSL

Recommendation

Alternative No. 3: “DSL can do

business in Mexico by

accommodating clients’

requests and preferences.”

Complying with the local market will

help DSL to develop local business

DSL can strengthen its presence only if it brings

in busines

ses

Compliance with the local clients will help

the company to generate revenues

Developing local

business is cost-

effective.

Reasons for Not Recommending Other

Alternatives

Alternative 1 cannot be the best alternative as it will lead DSL towards an end in Mexico.

Introducing a new service strategy will not be a feasible idea because it will hamper the overall image of the company and hence Alternative 2 is not a viable one.

The market situation of Mexico is still not that bad and it has an opportunity of growth and that is why Alternative 4 is not the best one for DSL.

Implementation

ImplementationImplementation

General

Core Functional

Operational

Marketing

Financial

HR

DSL needs to bring some major changes in the company policy to sustain in the Mexican market in the long-run. One of the major changes that it should incorporate is by accommodating the needs of its clients, even if they seem unethical. DSL set up its business in Mexico to begin handling not only Wal-Mart’s consolidated freight from Asia, but also its domestic consolidation of Mexican suppliers for delivery to its new Mexico Supercenters. However, as that business is failing, it must now evolve. The key to growth now is within developing local business, including warehouse accounts.

Service is a misunderstood concept in Mexico. They have trucking companies in Mexico that are slow, often late, and prone to lose some of the boxes on the way. This is actually a common occurrence here and this is what many customers are used to, and the customers are extremely price sensitive. If most customers can find a shipper who can move $100,000 of cargo for 300 pesos cheaper (under $40 U.S.), they’ll switch. They don’t view quality service as a tangible value. Part of the reason is that many Mexican companies only look at direct costs—they throw all the rest in administration and overhead. They don’t quantify what good service could actually do for them. So, if we are ever going to be successful, we have to educate and convince our customers that time, accuracy and information can save them money.

General Implementation

Right now our main aim is should be to survive and have a controlled growth in the market. With the loss of Wal-Mart, Cifra and other Wal-Mart’s account, we face tough times and the goals we developed might need to be scrapped. However we can continue trying to gain that market back or Mexico can be our hub in the process of transferring goods from the United States to Asia, as it was planned. Our presence here is required.

As a business goes into another country it is expected of them to change with the market needs. Each country and region has its own set of cultural, political and social rules and every company who goes in the market needs to understand that. It is foolish to expect that if we can operate at a different country at the same level that we do at a host country. The rules in Mexico are similarly different – the market is by no means completely ethical. But as our business changes we must also change our view.

We need the kind of account SuperMart offers. The trucking company Hernendez selected is already paying a competitive rate. We should abide by the norms of business in Mexico. What Hernendez asked for is not unusual.

General Implementation

Operational Implementation – R&D

Step 1: Product Idea Brainstorming

Step 2: Evaluate the Ideas

Step 3: Market Evaluation

Step 4: Data Analysis

Step 5: Product Development

Step 6: Prototype and Marketing

Step 7: Market Testing

Step 8: Prepare for Launch

DSL needs to implement the recommended alternative from their marketing perspective as well. The marketing implementation of this recommended solution will be done in several steps. This will increase the market value of the products and the way of being established as a brand will be much smooth. For DSL to sustain in the Mexican market in the long-run as well as a greater future expansion and profitability they need to be establish themselves with better marketing. A proper marketing plan can lead any company to the top of the pyramid. In the marketing implementation we have suggested them to build a strong marketing team that can plan more efficiently and be able to achieve the goal of the organization.

Whatever the product or service, without a good marketing strategy the product or service would not be known. Marketing would require a lot of creative thinking and successful ideas to be able to launch or re-launch any goods or services. As DSL is staying in the market, they will need to advertise their services in such a way that we ensure ourselves into the top position of the market. Without the continuation of a marketing plan the competition may take dominance within the market, therefore it is important that the marketing department is able to come up with new ideas to prevent the company from being left behind within the market

Marketing Implementation

Since we are offering a business to business service, our marketing strategy will be very different from a business to consumers one. However, we must not diminish the need to pre-sell our service. If the customer does not know who or what DSL is, it is very unlikely that they will want to listen to what we have to say in the first place. With targeted advertisements in television, billboards and business magazines we can establish our brand in the minds of the consumer so when we are pitching business to them that they feel more at ease with our brand. Secondly, DSL should carry out market research. In this research, the researchers should find out aspects like how businesses operate in the Mexican market. Once we have a better understanding of the market we can operate over here. This is especially necessary to survive in the short term for the business. DSL is going through a tough time and it needs accounts like Hernandez to survive.


A bigger challenge, however, is to develop the market to understand the value of our service. This will be most necessary for the sustainability of the business. DSL offers a very premium service with the use of advanced technology and sophisticated tracking system, on the other hand competitors have unreliable service where goods often get lost and damaged. But the market remains very price sensitive to even the smallest changes. It is the task of the marketing department to develop the need for reliability to the logistics business to be seen as an externally. If we can make the consumers believe that this need of reliability and tracking system is what they need, then the demand for our service will also be developed. The intangibility of our service is a problem to the culture of Mexico as it means that marketing department will need to actually go ahead and change the culture of Mexicans. This is a problem, but not insurmountable.


We have also been accused of providing a very ambiguous service. It remains the task of the marketing department to clarify what we provide and to whom. Providing warehousing to the local companies is a divergence from what we used to traditionally provide. Lastly, we need to continue trying to get new accounts. With big departmental stores such as Cifra and Wal-Mart now handling their own logistics, we need to find other accounts, perhaps in other industries. That is actually the only way we can increase our revenue substantially. The marketing and sales departments can provide tours and show case studies and develop better presentations which pits the long term gain of the businesses to that of the competitors, even if they are providing a marginally smaller fee with kickbacks.


In this case, the financial implementation is immensely important because finance ensures that there are adequate funds available to acquire the resources needed to help the organization achieve its objectives, ensure costs are controlled, ensure adequate cash flow, establish and control profitability levels. One of the major roles of the finance department is to identify appropriate financial information prior to communicating this information to managers and decision-makers, in order that they may make informed judgments and decisions. Finance also prepares financial documents and final accounts for managers to use and for reporting purposes.

Financial Implementation

To execute the recommended solution, at first DSL needs money. This can be gained from the very understanding DSL host country. DSL has already invested a lot of money in Mexico in buying warehouse and equipment. We can hope to gain more from the headquarters to build up our business. Each and every department will need money to perform their job. Starting from the operation & production to marketing and HR, every department have to execute their parts. Finance is responsible to provide the amount every department needs. Financial managers have to work hard to test the feasibility of the demand and they also need to calculate the cost benefit analysis to ensure the organizations profitability. So the HR should work as a liaison between the finance and the other departments to ensure the proper communication and the bargaining process. HR should help all the departments to reach a conclusion and find a way towards the solution. Another important thing to consider is that DSL needs to control its cash flow because it is going through a tough time. DSL can take the help of financial managers as well as the HR to try and cut unnecessary costs. The main considerations should be to survive and to stay

Financial Implementation

In this case, one of the most important parts of the total implementation process is the HR implementation. As the recommendation states to the Improvement of the network coverage as soon as possible; and it is necessary for the organization to execute this part perfectly. In the tough times of DSL, it is HR department which will keep it afloat. Already the company has been right sized to decrease the cost, and now it must ensure it has the right people in the right position and retaining them. Furthermore, they need to be brought up to date on the culture of Mexico so they understand the need to comply with the customers need. This can be done through our training and development program.

Human Resource Implementation

Organizational Development

To ensure its success, a company must establish a hierarchal reporting system. The funnel of responsibility is critical to the efficiency of a smoothly operating business entity in which there is a clearly defined understanding of who is responsible for what. They provide consultation to a company's management team to identify what the company's core business and culture is about, and proceeds to plan and map the company's organizational infrastructure to support those needs. Whirlpool needs to map the company's organizational infrastructure to support those needs. Whirlpool needs to have a better organizational development through the reformulation of the HR department which is recommended.


Employee Recruitment

There are many steps to recruiting and selecting qualified employees. First, a department head must inform the HR manager of an opening in their department. Then the HR manager must obtain the job description to formulate a Job Description Sheet for publication either internally, publicly, or both. Then HR must field the (many) responses to that job announcement to weed out the qualified from the unqualified applicants.

What we would want to look for is highly skilled employees. It is time we focus on the quality of our employees rater than how many of them there are. We can further compound this by redesigning the workers training and development facilities


Employee Compensation & Benefits

Whirlpool should try to keep the employees happy by giving them good compensation and benefits. It will increase the association of the workers with the organization and will make them happy. A happy workforce can work more efficiently and it will also help the organization to overcome the future risks of strike, vandalism, and other unavoidable mishaps.

Employee Relations With the increased rise in unethical practices and misbehaviors taking place in today's workplace such as age, gender, race, and religion discrimination and sexual harassment, there needs to be mandatory compliance with governing rules and regulations to ensure fair treatment of employees. In short, employees need to know they have a place to turn when a supervisor abuses his or her authority in anyway. Whether corporate or union, the HR Department will get involved to act as arbitrator and liaison between legal entities, regulatory agencies such as Human Rights, supervisors (who might be falsely accused), and employees to properly address and resolve the issue at hand. To retain the current employees and to reduce the high turnover rate, employees should be handled properly. The restructure of HR will be helpful for Anheuser-Busch to get the highest level of employee retention.


The reason that DSL is suffering problems now is because it has lost its major accounts. It has – as the saying goes – it has put all its eggs on one basket. By relying on the major accounts it has failed to develop other accounts which is the reason that Wal-Mart and Cifra pulling out as DSL’s customer base has taken a major toll on the company. DSL should try to have a balanced business account.

The market for DSL in Mexico is not very developed as well. DSL offers service and logistics technology that the competitors do not. It is up to the marketing department to make the consumers aware and clarify the services that we offer. With DSL’s help and the advanced warehouse and logistics technology at its disposal it can help a lot of local companies grow. It must understand that the business in Mexico needs to be scaled down and it functions to serve as a hub between the businesses of Asia and the United States while we can get some more accounts.

Total Integration

There is some reliance on the headquarters for understanding the situation here in Mexico and help us with the manpower and the money while DSL attempts to get back on its own two feet. We have already invested a lot of money on expansion of our premises and right now the focus should be on cutting cost and maintaining cash flow. The Human Resource is needed to come up with the right people to help us through the tough times. As we have right sized, we cannot have any inefficiency or unproductivity from our employees. The HR department, with efficient and hardworking people, can help us stay competitive in the tough market. Most important in this case would be to have cultural training and knowledge of how to operate in the market abiding by the laws of the business in Mexico. It is in this case that all the business functions must come together and decide on what is best for the company’s survival and for it’s future.

Total Integration

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dsl finallll!!

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