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PGPM SEM IV CLASS OF 2014 Business Strategy II

COMPETING FOR THE FUTURE

Strategic Case Analysis- Core Competence at NEC ,JAPAN And GTE,USA

Prof S V Bidwai

Core Competence
at

and

NEC (Nippon Electric Company)


Formerly known as Nippon Electric Company Established: Tokyo, Japan (17th July,1899) Headquarters: Tokyo, Japan Key people: Hajime Sasaki (Chairman of the Board), Kaoru Yano (President) Industry: Electronics Employees: 154786 (consolidated as of March 31, 2007) Slogan: Empowered by Innovation

Former NEC logo (1899-1992)

NEC (Nippon Electric Company)


Major operations: IT/ Network solutions/ Mobile/ Personal solutions business, Electron devices business

Capital: 337.8 billion yen (as of March 31, 2007)

Net Sales: 4652.6 billion yen (fiscal year ended March 31, 2007)
Consolidated Subsidiaries: 342 (as of March 31, 2007)

Present Logo

NECs Headquarters

NEC Super Tower, headquarters of NEC Corporation, in Minato-ku, Tokyo,

Change Agents of NEC

Vision of NEC

Corporate Philosophy NEC strives through C&C to help advance societies worldwide toward deepened mutual understanding and the fulfillment of human potential

NECs Commitment
Attaining customer satisfaction Developing new technologies Conducting fair corporate activities Disclosing information Preserving the global environment Maintaining good relations with the community Conducting thoughtful corporate citizenship activities Protecting human rights Valuing employees Protecting intellectual property and personal information

NECs Group Structure

Organization Chart of NEC


Board of Directors Corporate Auditors
Domestic Sales Business Unit Govt, Community, Financial Solutions business unit

President Corporate Auditing Bureau


Enterprise solution business unit Social Infrastructure Solutions business unit Carrier Network Business Unit IT Platform Business Unit Systems Integration Business Unit Mobile Terminals Business Unit Personal Solutions Business Unit

International Business Promotion Unit


Software Business Promotion Unit Marketing Unit Intellectual Asset R&D Unit Innovation Unit

Corporate Staff

NECs R&D Center- Organization

NECs R&D- Domestic Network

NECs R&D- Global Network

Historical Milestones
Discovery of single walled carbon nano-tubes by Sumio Iijima

Creation of the Earth Simulator, the fastest supercomputer in the world at the tim World's first demonstration of the one-qubit rotation gate in solid state devices Invention of the widely used MUX-scan design-for-test methodology

The John M. Cowley Medal 2006 (The International Federation of Societies for Microscopy)- 03/09/2006

National commendation for Invention of a Synchronized Clock Generator for Optical Disc- 19/06/2006

The 2005 The Young Scientists' Prize, The Commendation for Science and Technology by the Minister of Education, Culture, Sports, Science and Technology 20/04/2005 19th Advanced Technology Award Fujisanke Business.i Prize- 04/07/2005

Strategic Intent of NEC

Principal Business Segments of NEC

Principal Business Segments of NEC

Principal Business Segments of NEC

Products/Brands of NEC

NEC-Early Development
The partnership was established on August 31, 1898 by Kunihiko Iwadare and Takeshiro Maeda using facilities from Miyoshi Electrical Manufacturing Company Joint venture with US based Western Electric Company who had interest in Japanese phone market headed by Walter Tenney Carleton Revised treaty on 17th July, 1899 resulted in the birth of NEC Operations started with the production, sales and maintenance of telephones and switches Manufacturing plant was established at Mita Shikokumachi in 1901 Adoption of new technology (common battery switchboard) by the Ministry of Communications in 1903 Exported telephone sets to China in 1904

NEC-Early Development
Changes in Plant Management Policy In 1905, Iwadare visited Western Electric plant to see their management and production control Discontinued the Oyakata system of sub-contracting Inefficiency was removed from production process New accounting and cost controls were put in place Time clocks were installed Expansion of Japanese Telephone Market Number of telephone subscribers rose from 35000 to 95000 Entered the Chinese market in 1908 Established its first foreign sales office in Seoul (Korea) in January, 1908 Between 1907-1912, sales rose from 1.6 million yen to 2 million yen

NEC-Early Development
Setback by Ministry of Communications Delayed the third expansion plan of the phone service in March, 1913 Sales fell 60% between 1912 and 1915 During the interim, Iwadare imported appliances including electric fans, kitchen appliances, washing machines and vacuum cleaners to prop up company sales In 1916, the government resumed the delayed plan adding 75000 subscribers and 326000 km of new toll lines and successfully completed the installation of its own telephone lines in Hankow and Wuchang in China In 1919, NEC started its first association with Sumitomo Corporation The Great Kanto earthquake in 1923

NEC-Early Development
Stable growth

NEC was chosen to modify automatic telephone exchange equipment from European and US manufacturers
NEC started radio communications business and established a radio research unit in 1924 NEC started developing electron tubes in 1925 By 1930, it was manufacturing the first 500 W radio transmitter Developed photo-telegraphic equipment in 1928 It provided the Japans Ministry of Communications with the A-type switching system in 1929 In 1939, it made history by laying one of the worlds longest telephone cable lines; 3000 km from Tokyo, through Korea and into China

NEC-Post World War II


Destruction during World War II: In 1938, the Mita and Tamagawa plants were placed under military control

On December 22, 1941 the enemy property control law was passed
The Munitions Company Law was passed in October, 1943 Fire bombings affected both the plants reducing its capacity by 40%
Domestic Growth:

It began transistor research and development in 1950 It started exporting radio broadcast equipment to Korea in 1951

Computer research and development began in 1954


Very strong demand from NTT (Nippon Telegraph and Telephone) It began integrated circuit research and development in 1960

NEC-In an expansionary mood


International Operations: In the late 1950s, NEC exported large-scale communications equipment for public telephone networks to the Middle and Near East

It established its first marketing subsidiary for communications equipment in North America in 1963
Operations in Latin America began in the 1960s with the sale of microwave communications systems

Entered the European market by shipping satellite communications earth stations and microwave communication systems
Began operations in Africa in the 1970s to promote economic development

It introduced its first digital switching system in 1977 for overseas market
In 1977, Japans National Space Development Agency launched the NECs geostationary meteorological satellite, named Himawari

NEC- C&C Era


International Operations:
The concept of Computers and Communications (C&C) was adopted NEC America Inc opened a plant in Dallas (Texas) to manufacture PABX and telephone systems in 1978

Acquired Electronic Arrays Inc to start semiconductor chip production in US


In 1980, created the first digital signal processor, the NEC PD7710 NEC Semiconductors (UK) Ltd was established in 1981

In 1983, NEC stock was listed on the Basel, Geneva, Switzerland exchanges
NEC Information systems Inc started manufacturing computers and related products in US in 1984 In 1986, it delivered its SX-2 supercomputer to the Houstan Advanced Research Center In 1987, NEC Technologies (UK) Ltd was established to manufacture VCRs, printers and color TVs for Europe

GTE (General Telephone and Electronics Corporation)


Founded: 1918

Headquarters: Irving, Texas, USA


Industry: Communications services
GTE corporate logo, 1971-2000

Products: Internet access, local wireline and wireless telecommunications services


Website: www.verizon.com (Verizon took over GTE in 2000)

Products/Brands of GTE (Now, Verizon)

GTE- Early Development


Was conceived as a corporate entity when John.F. OConnell, Sigurd L. Odegard and John A. Pratt purchased the small Richland Telephone Company Name was changed to Commenwealth Telephone Company two years hence Later, the corporation purchased Long Beach, a California based telephone company and a holding company called Associated Telephone Utilities (ATU) Stock market crash of 1929 and Great Depression affected the corporation Subsequently, the corporation was reorganized to General Telephone Corporation Its initial line of business was provision of local telephone services In 1955, General Telephone acquired Theodore Gary and Company Acquisition of Peninsular Telephone of Florida added another 300000 customers

GTE- Merger and Expansion


In 1959, it got merged with Sylvania Electric Products and the name of the parent company was changed to General Telephone and Electronics Corporation It resulted into diverse range of businesses including halogen automobile headlights, cutting tools, telecommunications equipment, cameras, television sets, atomic reactor fuel elements, anti-missile defense systems and space frame systems for buildings During 1970s, GTE expanded by acquiring phone companies in British Columbia, Quebec, Hawaii and several Western and Mid-western US states 1970s also saw GTE consolidating and reorganizing its management; corporate headquarters was relocated to Stamford, Connecticut from New York City In 1981, the company sold its electronic holdings to North American Philips GTE Mobilnet was formed to construct and operate cellular systems in 1981

In 1983, it bought infant long-distance carrier US Sprint


By the end of 1980s, it had annual revenues exceeding $17 billion employing more than 159000 people operating throughout the US and 40 other countries

NEC, GTE and the Core Competence of the corporation


Consider the last 10 years of GTE and NEC. In the early 1980s, GTE was well positioned to become a major player in the evolving information technology industry. NEC, in contrast, was much smaller. It had a comparable technological base and computer business, but it had no experience as an operating telecommunications company In 1980, GTEs sales were $9.98 billion. NEC, in contrast, was much smaller at $3.8 billion in sales Yet look at the positions of GTE and NEC in 1988. GTEs 1988 sales were $16.46 billion and NECs sales were considerably higher at $21.89 billion Why did these two companies, starting with comparable business portfolios, perform so differently? Largely because NEC conceived of itself in terms of Core Competencies and GTE did not. -Gary Hamel and C.K Prahlad

What is Core Competency


Core competencies are the collective learning in the organization,

especially how to co-ordinate diverse production skills and integrate multiple streams of technologies
- C.K Prahlad and Gary Hamel

3 Tests to identify a Core Competency It must have the potential to form the basis for entry into new product markets The competence must make a significant contribution to customer perceived value It should be difficult for competitors to imitate

Core Competency of NEC


NEC developed a strategic intent to exploit the convergence of computing and communications (C&C) NECs top management set up a C&C committee to oversee the development of core products and core competencies Entered into strategic alliances to build competencies at low cost Clarity of strategic intent and strategic architecture Believed that competitiveness depends on the ability to build core competencies faster than competitors and at a low cost Ability to exploit technological capabilities Concept of core competency acts as collective learning in the organization Core competency involves communication, involvement and a deep
commitment to working across organizational boundaries NEC had integrated view of its business units To develop core competency, there is no need to spend more on R&D

C&C Architecture

What does Core Competency achieve..?


Enables the creation of new products and services Makes a significant contribution to the customer value Helps create sustainable competitive advantage

NEC- Post 1990


In 1990, a new head office building (Super Tower) was constructed Joint venture agreements were established to manufacture and market digital electronic switching systems in China NEC Europe Ltd was established as a holding company for European operations NEC C&C research laboratories (NEC Europe Ltd) was opened in Germany (1994) NEC (China) Ltd was established as a holding company for Chinese operations in 1996 In 1998, NEC opened the worlds most advanced semiconductor R&D facility Marketing effort: Sponsored English football club [Everton (1985-1995)], Harlequin RUFC and RLFC rugby teams from London

Faced some challenges too in the same decade: Japanese economy came to a standstill NEC lost its status as the worlds largest semiconductor maker to Intel and was also behind Samsung and Hyundai electronics in the memory chip business Compact computer corporation (US) stunned the Japanese PC market by waging a price war

NEC- In the new Millennium


In 2002, NEC electronics corporation was separated from NEC as a new semiconductor company NEC Laboratories America Inc was created in November 2002 as a merger of NEC Research Institute and NECs USAs Computer and Communications Research Laboratories NEC built the Earth Simulator Computer, the fastest supercomputer in the world from 2002 to 2004

NEC- Financial Results for 2006-07 (fiscal year ended March 2007)

Profitability

FY-06 Sales/Operating Income by Segment

FY-06 IT/NW Solutions Business

FY-06 Mobile/Personal Solutions Business

FY-06 Electron Devices Business

FY-07 Financial Forecasts

FY-07 Sales/Operating Income by Segment

FY-07 IT/ NW Solutions Business

FY-07 Mobile/ Personal Solutions Business

FY-07 Electron Devices Business

Challenges in FY-2007
Reinforcement of growth strategy Steady execution of NGN business strategy

Growth in global market Further improvement of non-profitable businesses


Solidifying mobile terminal business profitability

Support of NEC electronics turnaround as the largest shareholder


Thorough enhancement of profitability

Further pursuit of production/ development efficiency as NEC group

NEC- Stock Price Information


NEC Corporation (TSE) 19th February, 2008

Last Previous Close Open High Low

438 428 435 441 427

Change

+10

Percent Change
Currency Volume

+2.34%
YEN 8,474,000

NEC-Composition of Shareholders

NEC in INDIA
NEC strengthens its business capability in India through establishment of new company (NEC India Pvt Ltd) for IT/Network business NEC signs India-Sri Lanka contract NEC Solutions (US) joins hands with Niteo Partners Inc in Chennai to integrate offshore software delivery and BPO capabilities into its solutions business in the US NEC enters the Indian PC market in 2005 NEC and Sify form strategic partnership to promote thin client computing in India NEC enters into a joint venture with HCL (India)

GTE- Post 1990


US economy was doing well- saw dramatic expansion of most communications services with data applications and growing demand from the internet space Announced merger with Contel Corporation, a major local telephone and cellular service provider Entered into an agreement to merge with Bell Atlantic (1998) Also, announced an alliance with Vodaphone Airtouch (1999) to form the largest wireless communications company in the US During the decade, it introduced new advanced switching modes, interactive video services, wireless data and personal communication services, international roaming services, internet access services, online services Reached agreements with Lycos (online services), Qwest (fibre optic networks) and Cisco (internetworking capabilities) Announced a joint venture with SOVINTEL to provide instantaneous, high quality telephone service from the Soviet Union to the West and Asia Began operations in Argentina, Belgium, Mexico, China, Japan, Taiwan

Verizon Communications Inc


Founded: 1983 Headquarters: New York, USA Industry: Communications services Products: Broadband internet services, television service, local wireline and wireless telecommunications services

Chairman of the Board and CEO: Ivan Seidenberg


Revenue: $90 billion (2007) Net income: $6.12 billion (2007) Employees: 239000 (2007) Slogan: We never stop working for you, Americas most reliable network, Its the network Website: www.verizon.com

Verizon- Statistics (As of year end 2007)


Verizon Wireless: Retail Customers: 63.7 million

Total Customers:

65.7 million

US markets served: 49 of top 50 Employees: Verizon Wireline: Wireline broadband connections: US Wireline Access Lines : 8.2 million 69000

41.4 million

International presence: 140 + countries Employees: 161000

Verizon- Wireline Presence

Verizon- Wireless Presence

Verizon- Financial Performance (year ended 2007)


Consolidated Revenue and Operating margin

Wireless Customer Growth

Wireless Revenue Growth

Wireline Customer Growth

Wireline Revenue Growth

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