The strategy of international business The Avon Products Case Avon Products, Inc. is an international manufacturer and distribution of beauty, household, and personal care company that sells products through representatives in over 140 countries across the world. As Andrea Jung became CEO of the group in 1999, profits has grown constantly at a 10% rate until 2005. Subsequently, some weaknesses in the business strategy emerged as the company started losing profits, in particular those coming from international markets (which amounted for 70% of Avon total revenues).
In order to react to this significant slowdown, Jung implemented a new business strategy which consisted of four fundamental operations: 1) Hiring of seasoned Mangers from global consumers top firms 2) 30% of Middle managers were fired 3) 25% of Avon products were discontinued As a result of this new policy, Avon started making again considerable profits and even managed to react positively to the crisis (Revenues rose to $ 3. 15 bn in 2009, with $ 269 m of Net Profits). Strategy and the Firm The fundamental goal of the executives of a firm is to maximize the value of the firm for its shareholders.
In order to achieve this goal, managers should focus their attention on increasing the profitability of the firm and the level at which the firm? s profits grow. Three main factors, if correctly implemented, can substantially increase the firm? s value: the Strategy, the Operations and the Organization of the company. 1) Strategy: Actions that managers take to attain the firm? s goals. In this context, particularly important is the strategic positioning of the firm (Low Cost, luxury, Value for Money). 2) Operations: The various value creation activities a firm undertakes.
Operations can be divided into Primary activities (R&D, Production, Marketing and Sales, Customer service), and Support activities (Information systems, Logistics, Human Resources). 3) Organizational Architecture: The totality of a firm? s internal organization. The Organizational Architecture includes: the Organizational Structure (The three part structure of an organization, it includes the formal division into subunits, the location of decision-making responsibilities, and the establishment of integrating mechanisms to coordinate the activities of the subunits), Incentives and Controls, Processes (the manner in which decisions re made and work is performed within an organization), Culture and the Firm? s People. In sum, for a firm to attein superior performance and earn an high return on invested capital, it is necessary that the three main factors above mentioned are correctly implemented, in a way that they can support each other. Moreover, the strategy of the firm should be coherent with the conditions of the market in which it is operating.