Integrative Case 3.4

The Antitrust Case on the AT&T-T Mobile Merger

Mike W. Peng

In 2011, the second-largest US mobile wireless carrier AT&T (with a 25% market share) proposed to merger with the fourth-largest carrier T-Mobile, which had a 15% market share and was a wholly owned subsidiary of Deutsch Telekom. Antitrust authorities blocked this merger. Why?

The Merger

In March 2011, Dallas-based AT&T announced that it had reached an agreement with Deutsch Telekom. (DT) to purchase DTs holy into US subsidiary, T-Mobile USA, four $39 billion. The tub for concentrations in mobile wireless telecommunication services in the US the counter for more than 90% of the market share. Of the big four, the second range AT&T had about 25% market share, and the fourth-ranked T-Mobile had 15%. The largest player was Verizon with 31%, and the third was Sprint Nextel at 20%. Although some small carriers competed in certain regions, no carriers other than the big four competed nationally. After the proposed merger, the combined AT&T and T-Mobile would become the nation’s largest wireless carrier, commanding more than 40% of market share, with 132 million customers and 72 billion in revenues. The scale and scope of the merger would require regulatory approval. AT&T indicated its willingness to sell off certain assets if necessary, and plan to complete merger in one year.

AT&T argued that the merger would allow AT&T to expand 4G LTE broadband to another 55 million Americans, reaching a total of 97% of the population and especially benefit in rural areas currently without broadband coverage. Because T-Mobile was losing money and suffering from its poor economies of scale, and it (and its parent company DT) had been unable to upgrade its networks and invest in 4G broadband. While AT&T was booming and adding customers, T-Mobile was losing customers- it was the only major carrier that did not offer the iPhone. But T-Mobile possessed some hard-to-substitute resources: spectrum. Spectrum represented finite resources auctioned by the federal communications commission (FCC). Exhausting its own spectrum, AT&T could benefit from tapping into T-Mobile’s underutilize spectrum. Accelerating 4G wireless deployment would not only generate new jobs due to AT&T’s own investment, but would also stimulate broader job creation and civil engagement due to better access to more affordable and more widespread wireless broadband services.

A variety of labor, environmental, and business groups supported the merger. These groups pointed to AT&T’s record and commitments to labor and environmental standards, and appreciated the investment and the jobs the merger would bring. Also, civil rights groups applauded the additional boost and civil engagement that could be facilitated by more widespread broadband. Governors of 26 states wrote letters to support the merger.

However, other diverse groups were opposed to this merger. Not surprisingly, Verizon and Sprint did not like the deal, because it would make them weaker. Sprint would become a distant third, so clearly it would not appreciate the outcome.  Verizon would lose its top position, but it would still be a strong player in a new duopoly. Internet companies did not like the merger either, because the merger would leave them with fewer service providers to negotiate with for getting their content and applications to customers. The computer and communication industry Association- which included eBay, Google, Microsoft, and Yahoo as its members- was opposed to the merger. Consumer groups argued that the merger would raise prices and stifle innovation by consolidating so much of the wireless industry in one firm.

On the core issue of whether increasing AT&T’s market power would hurt consumers, AT&T pointed out that the average inflation-adjusted price for wireless services in the United States fell by 50% from 1999 to 2009, according to the government accountability office. AT&T also argued that in many markets AT&T would still be competing with four or more rivals, so taking T-Mobile (which was losing customers anyway) out of the mix would not dent competition. If AT&T could not acquire T-Mobile (which had sizable infrastructure, such as cellular towers and significant spectrum), then AT&T might be forced to build its own infrastructure, which would be an unnecessarily costly undertaking and social waste, especially in crowded urban areas such as San Francisco. But even if AT&T went head-to-head with infrastructure building, it would still suffer from a shortage of spectrum, while T-Mobile, at the same time, could not fully utilize its spectrum- clearly a waste of finite resources.

The Antitrust Case

In August 2011, the US department of justice filed a lawsuit alleging that this merger would reduce competition and violate antitrust law. DOJ alleges that the “anticompetitive harm” of this merger would include:

(a) actual and potential competition between AT&T and T-Mobile would be of limited; (b) competition in general likely will be lessened substantially; (c) prices are likely to be higher than they otherwise would; (d) the quality and quantity of services are likely to be less than they otherwise would due to reduce incentives to invest in capacity and technology improvements; and (e) innovation and product variety likely will be reduced.

In particular, given T-Mobile’s positioning as a self-styled “ disruptive pricing” provider, “AT&T’s acquisition of T-Mobile,” alleged DOJ, “would eliminate the important price, quality, product variety, and innovation competition that an independent T-Mobile brings to the marketplace.” In addition, DOJ argued:

The substantial increase in concentration that would result from this merger, and the reduction in the number of nationwide providers from 4 to 3, likely will lead to lessened competition due to an enhanced risk of anticompetitive coordination. Certain aspects of mobile wireless communications services markets, including transparent pricing, little buyer-side market power, and high barriers to entry and expansion, make them particularly conductive to coordination.

In conclusion, DOJ argued that the proposed merger would violate section 7 of the Clayton act and that it should be stopped. In the lawsuit, DOJ also sued T-Mobile and DT as co-defendants. On behalf of the US government, DOJ was the sole plaintiff in its first complaint filed on August 31, 2011. In its first amended complaint filed on September 16, DOJ was joined by the states of New York, Washington, California, Illinois, Massachusetts, Ohio, and Pennsylvania as co-plaintiffs. And it’s second amended complaint filed on September 30, Puerto Rico joined as a co-plaintiff. The case was officially the United States et al. v. AT&T Inc. et al.

AT&T was not a stranger to antitrust lawsuits. Today’s AT&T is the direct result of the first United States vs AT&T antitrust lawsuit. Because of its monopoly and long-distance (land-line) telephone, the original AT&T (“Ma Bell”) was forced by DOJ to break up into Sevan regional bell operating companies (known as “Baby Bells”) in 1983. Between 1983 and 2005, today’s AT&T was one of these Baby Bells named Southwestern Bell Corporation between 1983 and 1995, and shortened to SBC between 1995 and 2005. Due to its successful market performance, SBC emerged as a leading offspring of the original AT&T (Verizon was another leading off-spring). In 2005, SBC spent $16 billion to purchase its former parent company, AT&T corporation- a Baby Bell acquiring Ma Bell. Quitting in the SBC name, the merged entity named itself AT&T Inc. and took on the iconic AT&T branding (including it’s logo and its stock ticker “T”, which simply sounds for “telephone”). Before the filing of the second United States versus AT&T case, the economist asked: “Could the bid for T-Mobile be a sign that monopoly Ma is trying to return from her grave?”

The Outcome

In November 2011, the FCC issued its opinion and joined DOJ in opposing the merger. In December 2011 (before the antitrust case went on trial), AT&T gave up the merger and DOJ dismissed the case. A triumphant DOJ announced:

Consumers won today… Had AT&T acquire T-Mobile, consumers in the wireless market place would have faced higher prices and reduce innovation. We sued to protect consumers who rely on competition in this important industry. With the parties’ abandonment, we achieved that result.

A frustrated AT&T noted in its press release:

[Dallas, Texas, December 19, 2011] AT&T Inc. (NYSE: T) said today bad after a thorough review of options it has agreed with Deutsch Telekom AG to end its bid to acquire T-Mobile USA, which began in March of this year.

The actions by the federal communications commission and the Department of Justice to block this transaction did not change the realities of the US wireless industry. It is one of the most fiercely competitive industries in the world, with a mounting need for more spectrum that has not diminished and must be addressed immediately. The AT&T and T-Mobile USA combination would have offered an interim solution to the spectrum shortage. In the absence of such steps, customers will be harmed and needed investment will be stifled.

“AT&T will continue to be aggressive in leading the mobile Internet revolution,” said Randall Stephenson, AT&T chairman and CEO. “Over the past four years we have invested more in our networks than any other US company. As a result, today we deliver best-in-class mobile broadband speeds- connecting smartphones, tablets, and emerging devices at a record pace- and we are well underway with our nationwide 4G LTE deployment.

“To meet the needs of our customers, we will continue to invest,” Stephenson said. “However, adding capacity to meet these needs will require policymakers to do two things. First, in the near term, they should allow the free markets to work so that additional spectrum is available to meet the immediate needs of the US wireless industry, including expeditiously approving our acquisition of unused Qualcomm spectrum currently pending before the FCC. Second, policymakers should enact legislation to meet our nation’s longer-term spectrum needs.

“ The mobile Internet is a dynamic industry that can be a critical driver in restoring American economic growth and job creation, but only if companies are allowed to react quickly to consumer needs and market forces’, Stephenson said.

The fine prints in the deal included DOJ’s blessing of AT&T and T-Mobile’s collaboration in roaming. The more significant (or, if you will, the more bizarre) outcome was that as per AT&T’s original deal with DT, in the event of merger failure, AT&T would pay T-Mobile $3 billion as a break-up fee and give T-Mobile $1 billion worth of AT&T-held wireless spectrum. In short, the US government reduced the competitiveness of a US firm by forcing a US firm to subsidize the wholly owned subsidiary of a foreign firm.

In the name of preserving (domestic) competition, the US government preserved a (foreign) competitor. “The problem is,” noted one expert at Slate, “ T-Mobile doesn’t want to be a competitor anymore. It’s parent company DT wants out of the US market.” As the weakest among the big four, T-Mobile only added 89,000 new customers between 2009 and 2011, while the industry took in 33 million new customers. By essentially giving up since March 2011, T-Mobile lost 467,000 lucrative contract customers during the merger process. By focusing on its terms of exit, T-Mobile turned its attention away from network upgrades and improvements. DOJ and FCC cannot force T-Mobile to be in business, just like no one can force customers to sign up for plans they do not want. By breathing a new lease on life into T-Mobile, that was exactly what DOJ and FCC did: forcing T-Mobile to be in business against its (and it’s parents company’s) own wishes. The same expert at Slate continued:

Sure, companies like T-Mobile and Sprint can offer cheaper plans, but the success of Verizon and AT&T shows price is not our primary concern when it comes to wireless service. We want shiny smartphones and big, powerful, reliable networks… Rather than stay for competition, the merger would have intensified the war between the two giants, AT&T and Verizon. And for those people for whom price is paramount, there would remain not only Sprint, but a slew of smaller, regional providers like Leap and MetroPCS.

In 150 words or more complete the following (use outside sources/ information if possible):

Defend AT&T’s position as its CEO.

In a study of media usage versus education level (American Demographics, Vol. 17, No. 6), an index was used to measure media usage, where a measurement of 100 represents the U.S. average. Values above 100 represent above-average media usage.

(a) List the factors and the number of levels of each factor. (Select all that apply.)

media usage, with two levels

education level, with three levels

media type, with five levels

education level, with four levels

school, with four levels

media type, with four levels

(b) Assume there is no interaction between the factors. Use two-way ANOVA and the following Minitab printout to determine if there is a difference in population mean index based on education. Use α = 0.1.

(c) Determine if there is a difference in population mean index based on media. Use α = 0.1.

Note: This problem is for the 2018 tax year. Logan B. Taylor is a widower whose wife, Sara, died on June 6, 2016. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2018, he had the following receipts: Salary $ 80,000 Interest income— Money market account at Omni Bank $300 Savings account at Boone State Bank 1,100 City of Springfield general purpose bonds 3,000 4,400 Inheritance from Daniel 60,000 Life insurance proceeds 200,000 Amount from sale of St. Louis lot 80,000 Proceeds from estate sale 9,000 Federal income tax refund (for 2017 tax overpayment) 700 Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2018. Logan also was the designated beneficiary of an insurance policy on Daniel's life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2013, for $85,000 and held as an investment. Because the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2018, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the $9,000 he received and has declined or stayed the same in value since Sara and Daniel died. Logan's expenditures for 2018 include the following: Medical expenses (including $10,500 for dental) $11,500 Taxes— State of Missouri income tax (includes withholdings during 2018) $4,200 Property taxes on personal residence 4,500 8,700 Interest on home mortgage (Boone State Bank) 5,600 Contribution to church (paid pledges for 2018 and 2019) 4,800 Logan and his dependents are covered by his employer's health insurance policy for all of 2018. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen's implants. Helen is Logan's widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 5, 2018, upon the advice of his pastor, he prepaid his pledge for 2019. Logan's household, all of whom he supports, includes the following: Social Security Number Birth Date Logan Taylor (age 48) 123-45-6787 08/30/1970 Helen Taylor (age 70) 123-45-6780 01/13/1948 Asher Taylor (age 23) 123-45-6783 07/18/1995 Mia Taylor (age 22) 123-45-6784 02/16/1996 Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part-time dental assistant. Mia, a daughter, does not work and is engaged to be married. Federal income tax of $4,500 was withheld from his wages. Required: Compute Logan's income tax for 2018. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts of Social Security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund. Make realistic assumptions about any missing data. Enter all amounts as positive numbers except any losses. Use the minus sign to indicate a loss. If an amount box does not require an entry or the answer is zero, enter "0". It may be necessary to complete the other tax schedules before completing Form 1040. Use the included tax rate schedules to compute the tax. When computing the tax liability, do not round your immediate calculations. If required round your final answers to the nearest dollar.

In a study of media usage versus education level (American Demographics, Vol. 17, No. 6), an index was used to measure media usage, where a measurement of 100 represents the U.S. average. Values above 100 represent above-average media usage.

(a) List the factors and the number of levels of each factor. (Select all that apply.)

school, with four levels

education level, with three levels

education level, with four levels

media usage, with two levels

media type, with five levels

media type, with four levels

(b) Assume there is no interaction between the factors. Use two-way ANOVA and the following Minitab printout to determine if there is a difference in population mean index based on education. Use ? = 0.05.

(c) Determine if there is a difference in population mean index based on media. Use ? = 0.05.

The currency turmoil in Asia in 1997 was unexpected, but Avon Products was prepared to deal with it. An examination of what Avon did before the crisis and how it responded afterward illustrates many of the principles of managing operating exposures. It also provides insights into the role of financial officers as key members of strategic management teams.

Avon has a long history of international operations. As a general rule, Avon tries to hedge its currencies risk by buying almost all its raw materials and making nearly all its products in the markets in which they are sold. For example, Avon Asia-Pacific has factories that make cosmetics in its largest markets – China, Indonesia, the Philippines, and Japan – and contracts out production in six other Asian countries. It further hedged its currency risk by financing its local operations with local currency loans. Altogether, the 10 Asian countries in which Avon operated accounted for USD751 million of its USD4.8 billion in revenue in 1996.

When the crisis began in Thailand in July 1997, Avon’s executives did not anticipate that Thailand’s problems would spread but as a precaution decided to further reduce currency risk by having the Asian units remit earnings weekly instead of monthly. By late August 1997, however, the currency markets got nervous after the remarks of former Malaysian Prime Minister Tun Mahathir Mohamad, who complained that Asia’s economic crisis was provoked by an international cabal of Jewish financiers intent on derailing the region’s growth. The head of Avon’s Asia-Pacific region, Jose Ferriera, Jr., also considered possibility that other Asian countries would have to allow their currencies to depreciate to maintain their export competitiveness. In response, Avon decided to sell about USD50 million worth of five Asian currencies forward against the dollar for periods of up to 15 months.

Having done what it could financially, Avon turned to its operating strategy. Anticipating tough times ahead, Avon Asia-Pacific decided to redirect its marketing budget to hire more salespeople in Asia to bring in more customers rather than offering incentives to the existing sales force to get its current, cash-strapped customers to spend more money. Ferriera also urged his country managers to step up their purchase of local materials whenever possible and not allow local vendors to pass on all their cost increases. At the same time, Avon began planning to compete more aggressively against disadvantaged competitors who have to import their products and raw materials. Finally, Avon began to analyze the incremental profits it could realize by using its Asian factories to supply more of the non-cosmetic products sold in the United States. Avon Asia-Pacific was helped by a team of Latin America executives who traveled to Asia to share their experiences of how they had managed to cope in similar circumstances of currency turmoil in their countries. For example, during the Mexican crisis of 1994 and 1995, prices were raised slowly on price-sensitive brands aimed at low- and middle-income customers. Avon Mexico raise prices on premium brands much faster, since those brands were less price sensitive and competed with imports whose prices had doubled with the peso devaluation.

In all of these deliberations and decisions, Avon Treasurer Dennis Ling was a full and active participant. For example, he helped the head of Avon’s jewelry business renegotiate the terms of its contract with a Korean company that supplies jewelry for sale in the United States. The result was a substantial price discount based on the won’s steep decline against the dollar. According to Ling, “Part of my job is to help our managers of operations understand and take advantage of the impact of currencies on their business.”

Required:

Suggest other solutions to hedging the economic exposure in the long run for Avon Asia?

The currency turmoil in Asia in 1997 was unexpected, but Avon Products was prepared to deal with it. An examination of what Avon did before the crisis and how it responded afterward illustrates many of the principles of managing operating exposures. It also provides insights into the role of financial officers as key members of strategic management teams.

Avon has a long history of international operations. As a general rule, Avon tries to hedge its currencies risk by buying almost all its raw materials and making nearly all its products in the markets in which they are sold. For example, Avon Asia-Pacific has factories that make cosmetics in its largest markets – China, Indonesia, the Philippines, and Japan – and contracts out production in six other Asian countries. It further hedged its currency risk by financing its local operations with local currency loans. Altogether, the 10 Asian countries in which Avon operated accounted for USD751 million of its USD4.8 billion in revenue in 1996.

When the crisis began in Thailand in July 1997, Avon’s executives did not anticipate that Thailand’s problems would spread but as a precaution decided to further reduce currency risk by having the Asian units remit earnings weekly instead of monthly. By late August 1997, however, the currency markets got nervous after the remarks of former Malaysian Prime Minister Tun Mahathir Mohamad, who complained that Asia’s economic crisis was provoked by an international cabal of Jewish financiers intent on derailing the region’s growth. The head of Avon’s Asia-Pacific region, Jose Ferriera, Jr., also considered possibility that other Asian countries would have to allow their currencies to depreciate to maintain their export competitiveness. In response, Avon decided to sell about USD50 million worth of five Asian currencies forward against the dollar for periods of up to 15 months.

Having done what it could financially, Avon turned to its operating strategy. Anticipating tough times ahead, Avon Asia-Pacific decided to redirect its marketing budget to hire more salespeople in Asia to bring in more customers rather than offering incentives to the existing sales force to get its current, cash-strapped customers to spend more money. Ferriera also urged his country managers to step up their purchase of local materials whenever possible and not allow local vendors to pass on all their cost increases. At the same time, Avon began planning to compete more aggressively against disadvantaged competitors who have to import their products and raw materials. Finally, Avon began to analyze the incremental profits it could realize by using its Asian factories to supply more of the non-cosmetic products sold in the United States. Avon Asia-Pacific was helped by a team of Latin America executives who traveled to Asia to share their experiences of how they had managed to cope in similar circumstances of currency turmoil in their countries. For example, during the Mexican crisis of 1994 and 1995, prices were raised slowly on price-sensitive brands aimed at low- and middle-income customers. Avon Mexico raise prices on premium brands much faster, since those brands were less price sensitive and competed with imports whose prices had doubled with the peso devaluation.

In all of these deliberations and decisions, Avon Treasurer Dennis Ling was a full and active participant. For example, he helped the head of Avon’s jewelry business renegotiate the terms of its contract with a Korean company that supplies jewelry for sale in the United States. The result was a substantial price discount based on the won’s steep decline against the dollar. According to Ling, “Part of my job is to help our managers of operations understand and take advantage of the impact of currencies on their business.”

Required:
                                          

Conclude the benefits earn by Avon from its diversification internationally and diversification of its product.                       

Enron Corporation was an American energy, commodities, and Services Company based in Houston, Texas. It was founded in 1985, Kenneth Lay was the founder of the company, first founded in Omaha Nebraska and then it moved to Houston Texas .Before its bankruptcy on December 2, 2001, Enron employed approximately 20,000 staff and was one of the world's major electricity, natural gas, communications and pulp and paper companies, with claimed revenues of nearly $101 billion during 2000.

Enron’s line of business:

Enron was originally involved in transmitting and distributing electricity and natural gas throughout the United States. The company developed, built and operated power plants and pipeline. Enron owned large network of natural gas pipeline, which stretched ocean to ocean and border to border. Enron traded in more than 30 different products, including the following: Petrochemicals, Plastics, Power, Pulp and paper, Steel, Weather Risk Management, Oil and LNG transportation, Broadband, Principal Investments, Risk management for commodities, Shipping / freight, Water and wastewater. It was also an extensive futures trader, including sugar, coffee, grains, hogs, and other meat futures.

Review of Enron’s Rise and fall:

Throughout the late 1990s, Enron was considered one of the most innovative companies in the world. The company continued to build power plants and operate gas lines, but it became better known for its unique trading businesses. Besides buying and selling gas and electricity. it created whole new markets for such oddball "commodities" as broadcast time for advertisers, weather futures, and Internet bandwidth. Before it bankrupted in late 2001, its annual revenues rose from about $9 billion in 1995 to over $100 billion in 2000.

At the end of 2001 it was revealed that its reported financial condition was sustained substantially by institutionalized, systematic, and creatively planned accounting fraud. The Enron scandal was the biggest bankruptcy in United States history which cost 4,000 employees their jobs. On December 2, 2001 Enron filed for bankruptcy. It was an event that will always be remembered as one of the most disastrous events in the financial world.

The reasons for collapse of Enron company:

There are some reasons that lead to the collapse of Enron:

•Cheating and manipulation by the board of directors to achieve their personal interests at the expense of the interest of the company.

•That the board of director has delegated the task of reviewing the company’s transactions to a sub-committee within the company. The committee has only conducted a quick review of these transactions. The board of directors has concealed very important information whose knowledge may have led to some appropriate action.

•The company’s management inflated the company’s profit to about $ 1 billion by raising the profit by 586 million and hiding debit of $ 2.6 billion in the year before the company’s collapse.

•The loss of the members of the audit committee is independent and neutral because of the enormous they charge from the administration and may reach up to $380000 per year per member.

With the fall of Enron, the financial auditor ARTHER ANDERSON fell for his role in this process, culminating in the company’s disposal of most of the city document. But Enron’s scandal has prompted the US government to amend a number of market laws, most notably issuing legislation allowing employee to sell their shares three years after they own them, and more importantly, the Sarbanes-Oxley act, which explicitly tightens penalties for such crimes. The CEO and CFO are fully responsible for any manipulation of the financial statement. In September 2008, Enron shareholders won the lawsuit against the company and received $7.2 billion damages, the biggest settlement in the history of fraud involving listed company.

Questions:

a.Explain how the dramatic collapse of Enron has severely shaken the U.S. Capital markets in

2001.                                                                                                                                                

b.Suggest the measures that could be taken to restore the credibility of the accounting profession and investor confidence in the financial reporting process.                

Question 2

Describe the Financial Reporting practices followed in Oman quoting some practical instances. Also highlight the principles that govern the financial practices in Oman and the Organizations that form regulatory frame work in Oman.                                              

The currency turmoil in Asia in 1997 was unexpected, but Avon Products was prepared to deal with it. An examination of what Avon did before the crisis and how it responded afterward illustrates many of the principles of managing operating exposures. It also provides insights into the role of financial officers as key members of strategic management teams.

Avon has a long history of international operations. As a general rule, Avon tries to hedge its currencies risk by buying almost all its raw materials and making nearly all its products in the markets in which they are sold. For example, Avon Asia-Pacific has factories that make cosmetics in its largest markets – China, Indonesia, the Philippines, and Japan – and contracts out production in six other Asian countries. It further hedged its currency risk by financing its local operations with local currency loans. Altogether, the 10 Asian countries in which Avon operated accounted for USD751 million of its USD4.8 billion in revenue in 1996.

When the crisis began in Thailand in July 1997, Avon’s executives did not anticipate that Thailand’s problems would spread but as a precaution decided to further reduce currency risk by having the Asian units remit earnings weekly instead of monthly. By late August 1997, however, the currency markets got nervous after the remarks of former Malaysian Prime Minister Tun Mahathir Mohamad, who complained that Asia’s economic crisis was provoked by an international cabal of Jewish financiers intent on derailing the region’s growth. The head of Avon’s Asia-Pacific region, Jose Ferriera, Jr., also considered possibility that other Asian countries would have to allow their currencies to depreciate to maintain their export competitiveness. In response, Avon decided to sell about USD50 million worth of five Asian currencies forward against the dollar for periods of up to 15 months.

Having done what it could financially, Avon turned to its operating strategy. Anticipating tough times ahead, Avon Asia-Pacific decided to redirect its marketing budget to hire more salespeople in Asia to bring in more customers rather than offering incentives to the existing sales force to get its current, cash-strapped customers to spend more money. Ferriera also urged his country managers to step up their purchase of local materials whenever possible and not allow local vendors to pass on all their cost increases. At the same time, Avon began planning to compete more aggressively against disadvantaged competitors who have to import their products and raw materials. Finally, Avon began to analyze the incremental profits it could realize by using its Asian factories to supply more of the non-cosmetic products sold in the United States. Avon Asia-Pacific was helped by a team of Latin America executives who traveled to Asia to share their experiences of how they had managed to cope in similar circumstances of currency turmoil in their countries. For example, during the Mexican crisis of 1994 and 1995, prices were raised slowly on price-sensitive brands aimed at low- and middle-income customers. Avon Mexico raise prices on premium brands much faster, since those brands were less price sensitive and competed with imports whose prices had doubled with the peso devaluation.

In all of these deliberations and decisions, Avon Treasurer Dennis Ling was a full and active participant. For example, he helped the head of Avon’s jewelry business renegotiate the terms of its contract with a Korean company that supplies jewelry for sale in the United States. The result was a substantial price discount based on the won’s steep decline against the dollar. According to Ling, “Part of my job is to help our managers of operations understand and take advantage of the impact of currencies on their business.”

Required:

Why Avon Asia-Pacific decided to redirect its marketing budget to hire more salespeople in Asia rather than offering incentives to the existing sales force, and urged his country managers to purchase local materials instead of pass to local vendors?

Problem Write a movie management system using object-oriented design principles. The program will read from the supplied data file into a single array list. The data file (movies.txt) contains information about the movies. Each movie record has the following attributes: - Duration (in minutes) - Title - Year of release Each record in the movies.txt file is formatted as follows: - Duration,Title,Year - e.g.: 91,Gravity,2013 Specifically, you have to create an interactive menu driven application that gives the user the following options: 1. Add a new movie and save. o The user will be prompted to enter the duration in minutes, title of the new movie, and the year the movie was released. Before the movie is added, the inputs provided by the user should be validated:  The duration and year of the movie should not be zero and the title of the movie should not be empty. o When you add a new movie, the program should update the data file by saving the new movie at the end of the movie list. 2. Generate list of movies released in a year. o The user will input a year and the program will display a list of all the movies released in that year along with the duration (in minutes) of all the movies. o The list of movies does not have to be sorted. 3. Generate list of random movies. o The user will input the number of movies and the program will display a list containing the amount of random movies along with the duration (in minutes) of all the movies. o There is no minimum or maximum duration for the movies in the list. o You can use Collections.shuffle in the java.utils package to randomize the movie list. 4. Exit the program. - Save the list of movies back into the data file “movies.txt” using the above format (Duration,Title,Year). Notes: To follow the object-oriented principles, your project should contain ONLY the following classes and methods in their respective package. Package Class Methods sait.mms.application AppDriver main sait.mms.managers MovieManagementSystem displayMenu, addMovie,generateMovieInYear, generateRandomMovie, loadMovie sait.mms.problemdomain Movie Accessor methods, toString You cannot use parallel and/or nested arrays in this assignment (you can use ArrayList). Sample runs: An example of an added and saved a new movie (where input is shown in bold underline): Movie Management system 1 Add New Movie and Save 2 Generate List of Movies Released in a Year 3 Generate List of Random Movies 4 Exit Enter an option: 1 Enter duration: 100 Enter movie title: We are Gold Enter year: 2019 Saving movies... Added movie to the data file. An example of a generated list of movies released in a year (where input is shown in bold underline): Movie Management system 1 Add New Movie and Save 2 Generate List of Movies Released in a Year 3 Generate List of Random Movies 4 Exit Enter an option: 2 Enter in year: 1996 Movie List Duration Year Title 103 1996 DragonHeart 93 1996 Trainspotting 145 1996 Independence Day Total duration: 341 minutes An example of invalid option (where input is shown in bold underline): Movie Management system 1 Add New Movie and Save 2 Generate List of Movies Released in a Year 3 Generate List of Random Movies 4 Exit Enter an option: 5 Invalid option! An example of a generated list of random movies (where input is shown in bold underline): Movie Management system 1 Add New Movie and Save 2 Generate List of Movies Released in a Year 3 Generate List of Random Movies 4 Exit Enter an option: 3 Enter number of movies: 5 Movie List Duration Year Title 129 2016 Now You See Me 2 139 1999 Fight Club 136 2014 Captain America: The Winter Soldier 81 1995 Toy Story 103 2017 Life Total duration: 588 minutes

HAIER’s foray into International Markets :

In the late 1990s, the Haier group (Haier) was the leader in the Chinese consumer appliances market (with a 39.7%, 50% and 37.1% market share in refrigerators, air-conditioners and washing machines respectively in December 1998). But deflation in the Chinese economy slowed sales.

ut deflation in the Chinese economy slowed sales growth from 50% in 1998 to around 30% in 1999. Haier decided to look for new markets. Since the US had a large demand for consumer appliances, Haier entered the US market in 1999. Analysts were doubtful about Haier's acceptability to American consumers, as there was a general perception in the US that Chinese goods were of low quality. Haier, however, was confident that with its product differentiation strategy it would be able to create a positive image for its products among the American public. In the early 2000s, the consumer appliances market in the US started hotting up as Haier entered the market. By 2009, Haier products were sold in 9 of the 10 top retail chains in the US.

With Wal-Mart agreeing to stock Haier products, many analysts believed that Haier would be able to shake up the US consumer appliances market. In 2009, Haier had a 6% market share in the US refrigerator market; it stated that it was aiming for a 15% market share by 2015.

The history of Haier dates back to 1984 when Ruimin Zhang (Zhang), a bureaucrat with the local government was asked to take charge of Qingdao General Refrigerator Factory, a state-owned enterprise that is manufacturing refrigerators for sale in China. When Zhang took over the management, the company was on the brink of bankruptcy, with no funds to pay the salaries of its employees or to invest in new product development. When Zhang took charge of the company, he realized that the company did not look after the quality of its products; nor did it bother about customer satisfaction. In 1985, Zhang started importing technology from a German firm and began manufacturing technically sophisticated refrigerators.

Zhang emphasized the elements of customer satisfaction and quality control in the company. In 1985, when a customer complained about the poor performance of his refrigerator, Zhang conducted a quality check and found that out of 400 refrigerators inspected, 76 were defective.

He had all the defective refrigerators destroyed with a sledge-hammer. According to Zhang, this made the workers realize that quality is of only two types - acceptable and unacceptable. In 1989, the company changed its name to Qindao Refrigerator Co. Ltd., and it was restructured with funds raised from banks and government agencies. In 1991, the company once again changed its name to Qindao Haier Group Co. and in the same year it merged with Qingdao Air-conditioner Plant and Qingdao Freezer General Plant. In 1992, the company set up Qingdao Freezing Equipment Co. In the same year, it merged with another previously state-owned enterprise Qingdao Condenser Factory, which manufactured refrigerator condensers.

In the same year it became the first company in China to get ISO 9001 certification, and the company's name was changed to the Haier Group. In 1993, Haier went in for an IPO of RMB 50 million and got listed on the Shanghai Stock Exchange (SSE).

During the mid-1990s, Haier began to grow through mergers and acquisitions. In 1995, it merged with Red Star Electric Appliance Company (and five of its subsidiaries). This company manufactured washing machines. It also acquired Wuhan Elec-appliance Co., which manufactured freezers and air conditioners. Between 1995 and 1997, Haier acquired seven companies and started exporting its goods to foreign markets.

By 1997, Haier was the number one consumer appliances brand in China and the market leader in all its product segments, which included refrigerators, washing machines, microwave ovens and freezers and its revenues were reported at $1.15 billion (10 billion Yuan)...

Haier's Competitors in the US Market

USA was the world's largest and most competitive market for consumer appliances. The consumer appliances market can be segmented on the basis of products into kitchen appliances and home comfort products. Included in kitchen appliances are products such as dishwashers, disposers, compactors, food preservation appliances, refrigerators, freezers etc.

In the home comfort segment are included products such as room air-conditioners and dehumidifiers. The home appliances market in the US was dominated by American companies, namely GE Appliances (a subsidiary of General Electricals), Whirlpool and Maytag. The only strong foreign player in this market was Sweden's Electrolux. GE Appliances, Whirlpool, Maytag and Electrolux together accounted for around 98% of the 9 million standard refrigerators sales in the US every year. In the 1990s, many Asian players such as LG Electronics and Samsung entered the US market in a big way. The big four companies in the US market concentrated on the high- end market comprising full-size refrigerators and washing machines, since the margins in this segment were high...

Strategies in the US Market

Haier decided to compete with the US brands on the quality plank rather than on price. However, analysts felt that it would be very difficult for the company to win over American consumers who associated Chinese goods with low quality. To strengthen its presence in the US market, Haier adopted a localization strategy.

It opened a design center in the Los Angeles and employed US designers for designing its products for the US market. Haier also opened a marketing center in New York. The company focused on enhancing consumer awareness about the company and its products. Commenting on Haier's strategy, Zhang said, "We want consumers to feel that Haier is the one company that comes closest to satisfying their needs." For instance, none of the consumer appliances companies in the US offered a compact refrigerator to satisfy demand from college students who could not afford normal size refrigerators...

Going High-End

Most analysts felt that Haier would feel the real competition only when it entered the high-end market. In the compact refrigerator segment, Haier did not face much competition from established players in the US, who did not focus on the low margin segment.

However, the major US players were keeping track of Haier's activities. Commenting on the competition from Haier, GE Appliances Chief Executive, Jim Campbell said, "I take it very seriously. They may be producing only 200,000 refrigerators per year now, but that's going to get bigger."

On the negative side, some analysts felt that Haier lacked the brand image to make a dent in the high-end segment. They pointed out that in general US consumers were brand-conscious, and this was especially true in the case of high-end products. The lack of a positive brand image in this consumer segment would probably make it difficult for Haier to succeed in the high-end markets. Analysts felt that Haier had an additional weakness in its distribution and service centers...

Future Prospects

Despite a few reservations, analysts too were, by and large, upbeat about the company because of its strong performance in breaking into the American market in a short time.

Said Nicholas Heymann of Prudential Securities, "Over five years, it could become a force." With quality products and lower prices, it was felt that Haier would be able to garner a sizeable market share in the US. Haier's experience in the geographically vast and diversified Chinese market would serve it well in catering to the US market.

However, a major worry for Haier is how to fund its expansion plans. Increasing competition in the domestic markets is bringing Haier's finances under pressure.

Questions 1:

What in your opinion is the significance of an organization entering into International Markets for business? Is it advantageous or disadvantageous?

Questions 2:

Is it possible for an organization like Haier to sustain its competition in brand conscious and quality conscious markets such as US and other countries?

Questions 3:

What are the countries that you would suggest Haier should concentrate upon? Why?

Questions 4:

What should be the marketing strategies that Haier should employ in Emerging Markets, Maturing Markets and Declining Markets ? Explain the reasons behind it.