Mihir A. Desai, Doug Schillinger
Finance & Accounting
With electricity generating businesses around the world, AES Corp. is seeking a methodology for calculating the cost of capital for its various businesses and potential projects. In the past, AES used the same cost of capital for all of its capital budgeting, but the company’s international expansion has raised questions about this approach and whether a single cost of capital adequately accounts for the different risks AES faces in its diverse businesses and diverse environments. The company recently suffered heavy losses from currency devaluations in South America and regulatory changes in other countries. The director of the corporate planning group is developing a methodology for taking account of different country and project risks, and the case allows students to use this methodology to calculate the cost of capital for 15 different projects around the world. Students must consider how a global firm can account for differing risks in evaluating its international operations and in investing abroad. To obtain executable spreadsheets (courseware), please contact our customer service department at firstname.lastname@example.org.
Costs, Emerging markets, Financial analysis, Globalization, Operations management, Risk management
Christopher A. Bartlett, Vincent Dessain, Anders Sjoman
Technology & Operations
Traces the history of IKEA’s response to a TV report that its Indian carpet suppliers were using child labor. Describes IKEA’s growth, including the importance of a sourcing strategy based on its close relationships with suppliers in developing countries. Details the development of IKEA’s strong culture and values that include a commitment “to create a better everyday life for many people.” Describes how, in response to regulatory and public pressure, IKEA developed a set of environmental policies that grew to encompass a relationship with Greenpeace and WWF on forest management and conservation. Then, in 1994, Marianne Barner, a newly appointed IKEA product manager, is surprised by a Swedish television documentary on the use of child labor by Indian carpet suppliers, including some that supply IKEA’s rugs. She immediately implements a strict policy that provides for contract cancellation if any IKEA supplier uses child labor. Then Barner is confronted by a German TV producer who advises her that he is about to broadcast an investigative program documenting the use of child labor in one of the company’s major suppliers. How should she react to the crisis? How should the company deal with the ongoing issue of child labor in the supply chain ?
Cross-cultural management, Emerging markets, Ethics, Growth strategy, Human resource management , Operations management, Public relations, Social enterprise, Social responsibility