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Molex Incorporation’s Global Strategy and Performance Case Study

Multinational Strategy

Molex Incorporation utilises a global strategy that emphasises on standardised products and processes across its operations and markets. The global strategy is one of the international strategies firms use to guide their growth efforts across markets/countries. The other strategic options included in the international strategic framework are the multi-domestic and transnational efforts. The strategic options included in the international strategy model involve a trade-off between global efficiency and local responsiveness.

Molex’s global strategy centres on cost reduction, superior customer service, and mass production of standardised products meant for global consumption. The essence of having a global strategy is to achieve standardisation and consolidation of business processes across markets (Kotler & Keller 2009). Molex’s strategy aims at maximising profitability through low costs derived from mass production, strategic locations, and core HRM competencies. Molex’s production sites are located in economies with favourable cost conditions and proximity to its biggest customers.

In Molex, no attempt has been made to achieve local customisation of products or processes, except for its HRM function. Firms employ a multi-domestic strategy to maximise local responsiveness through customised products that match local/national tastes and preferences (Ketchen & Short 2012). While product customisation allows a firm to enhance the value of its products locally, it reduces the capacity to achieve significant cost reductions related to economies of scale (Ketchen & Short 2012). In Molex, the strategic focus is on global consolidation of skills, communication processes, and labour to produce low-cost, standardised goods for global consumption. This approach is different from the multinational strategy, where a dominant firm sells high-priced products that cater to universal needs.

The global standardisation strategy makes sense for Molex because the firm supplies electronic components that tend to be highly standardised and homogeneous. A global strategy is characterised by the convergence of customer tastes and purchasing power across economies. For Molex, being an international brand with operations in more than 20 countries, mass demand, global brand awareness, cost reductions obtained from standardisation, and declining trade costs due to globalisation constitute the key growth drivers. Using the Balanced Scorecard, Molex’s strategy favours the financial perspective (Landry, Chan & Jalbert 2013). The global standardisation strategy allows the firm to meet its cost-reduction targets and grow its sales.

Performance Indicators

Firms use key performance indicators to measure their productivity or strategic goal attainment. Molex’s revenue grew steadily to $3.62 billion in 2013. Selected financial data show that Molex experienced a steady performance between 2010 and 2013, as shown in Table 1 below.

Table 1: Financial Performance of Molex (2010-2013).

Operations 2013 2012 2011 2010
Net revenue $3620447 $3189189 $3587334 $3007207
Gross profit 1063114 1068463 1088137 892623
Income from operations 352,134 399,472 430,199 137,802
Income before income taxes 348,475 400,267 429,939 131,489
Net Income/Loss 243,623 281,377 298,808 76,930
Net income percentage of Revenue 6.70% 8.10% 8.30% 2.60%
Financial Position
Current Assets $ 2,043,884 $ 2,079,238 $ 2,055,345 $ 1,775,821
Current Liabilities 659,034 891,996 887,186 917,835
Working Capital 1,384,850 1,187,242 1,168,159 857,986
Current Ratio 3.1 2.3 2.3 1.9
Property and Equipment $ 1,114,092 $ 1,150,549 $ 1,168,448 $ 1,055,144
Total Assets 3,586,854 3,611,503 3,597,852 3,236,57
Long-term debt 310,000 150,032 222,794 183,434
Stockholder’s equity 2,523,163 2,436,125 2,363,127 1,979,99

Source (Molex Inc., 2013)

Working Capital

Working capital is calculated by subtracting current liabilities from current assets (Kotler & Keller 2009). It reflects the operating liquidity of a firm. A working capital deficit arises when the current liabilities of a firm exceed its current assets (Kotler & Keller 2009). In general, Molex had a positive working capital between 2010 and 2013 that allowed it to meet its operating expenses. Further, its working capital grew steadily from $857,986 to $1,384,850 within the four years.

Current Ratio

The current ratio is a measure of a firm’s capacity to pay its debt obligations. It is given by current assets/current liabilities. This financial indicator paints a picture of a firm’s ability to repay its “debts and accounts payable” with its assets, i.e., inventory, accounts receivable, etc. (Kotler & Keller 2009, p. 67). A ratio of less than one implies that the firm may not be able to pay up its liabilities. In contrast, a high current ratio (>3) indicates inefficient management of the working capital. Between 2010 and 2012, Molex’s current ratio indicates good financial health, while the 2013 ratio (3.1) suggests a reduced utilisation of the current assets.

Shareholder Equity

A company’s shareholder equity is equivalent to its total assets less its total liabilities. If the shareholder equity is positive, the firm’s assets can cover its liabilities, and if it is a negative value, the firm cannot meet its debt obligations when due (Kotler & Keller 2009). Molex’s shareholder equity value was positive between 2010 and 2013. The increase in shareholder equity value implies that the firm was in good financial health.

Financial Performance of Competitors

Molex competes with firms in all its product categories and markets. The main competitors include TE connectivity, JAE, Delphi Automotive, JST, Hirose Electronics, and Amphenol Corporation, among others (Bishop, 2016). Molex was ranked among the top three well-performing connector firms based on total global sales in 2013. Its total sales rose by 1% from 2012 to $3,617.4m in 2013, while the top-performing connector supplier (TE connectivity) gained 3.4% over the same period (Bishop, 2016). The world rankings of the performance (in millions) of the top competitors relative to Molex are shown in table 2 below.

Table 2: Connector Suppliers/Firms.

2013 global ranking Firm 2013 2013 % Gain in market share
1 TE connectivity $8,432.0 $8,719.0 3.4%
2 Amphenol $4,015.3 $4,289.9 6.8%
3 Molex Inc. $3,580.3 $3,617.3 1.0%
4 Delphi Connections $2,588.5 $2,953.0 14.1%
5 Fox Conn (Hon Hai) $2,682.5 $2,704.0 0.8%

The table demonstrates that the top competitors of Molex had significant share gains compared to Molex in this period. Therefore, competition is stiff in this industry. For example, Delphi Connections’ market share increased by 14.1%, implying that the firm had significant growth in its performance in the 2012-2013 period (Simon 2014). Based on the BCG Growth-Share Matrix, Molex could be classified as a ‘dog’ in this industry because of its low market share and growth rate. Such businesses have “low market share and low growth rate” and moderate cash flows, making them good candidates for divestiture (Bartlett & Ghoshal 2014, p. 56). This might explain why Molex was later acquired by the Koch industries.

The growth in market share can be attributed to increased acquisitions, worldwide manufacturing footprints, and broader product offerings (Bishop 2016). The strategic growth option in the Ansoff matrix that can account for the market share gains by Molex’s competitors is diversification through acquisition resulting in conglomerates. For example, TE connectivity acquired Deutsch and ADC in 2012 to broaden its capital base and global presence.

Financial Performance of the Sector

The electronic connector industry has experienced steady growth over the years. The annual global industry growth in 2016 reached 5.1%, up from 2.7% in 2013 (Bishop 2014). The sector has been growing at a CAR of 5.3% over the last two decades (Bishop 2014). Presently, the top 10 suppliers come from four regions, namely, North America, Europe, Japan, and Asia. Each of these firm’s individual annual sales in 2015 was over a billion dollars. For example, Amphenol’s sales in N. America and China were $1.67 billion and 1.615 billion, respectively, in 2015 (Luncitel Report 2016). This demonstrates that demand in the connector industry is high. Further, based on Porter’s Diamond, the four regions/countries have distinct competitive advantages related to labour, market access, and raw materials (Doole, Lowe & Kenyon 2016). Hence, the big connector suppliers, including Molex, have operations in one or more of these regions.

The sales are driven by the high demand for speed connectors in the automotive, mobile devices, and telecommunications industries. For example, sales to the automotive and mobile device manufacturers accounted for 19% and 21% of Molex’s revenue, respectively, in 2013, (Molex Inc. 2013). In addition, the high consumer demand for devices with greater storage and bandwidth capabilities has fuelled demand in this sector. The proliferation of infotainment devices that use connectors is another key growth driver.

The analysis of Molex’s performance shows that the firm’s global standardisation strategy has been largely successful. In 2013, the firm earned revenue of $3.62 billion from its segments. Thus, the global strategy is relevant to the prevailing industry trends. Globalisation has created synergistic opportunities for manufacturers and designers of electronic connectors to collaborate. Based on the international strategic framework, global integration pressures have pushed Molex to consolidate their activities and processes to achieve mass production and lower costs at the expense of national/local responsiveness. According to Hill (2012), global integration is driven by the desire to achieve efficiency through standardised practices. Because of the homogeneity in consumer tastes, Molex can afford to produce standardised connectors that can be sold worldwide.

Thus, connector suppliers can produce standardised goods that can be sold in many markets due to the seamless nature of the industry and market integration. For example, Molex can design its connectors in Japan, produce them in its Chinese plant, and sell them in Europe. Further, the demand for integrated devices with broad-based functionality also augurs well with Molex’s global strategy. Therefore, the firm can acquire economies of scale since the variation in local tastes is minimal in the electronic connector sector.

International Human Resource Management Perspective

Staffing Approach

Molex’s HRM function involves a geocentric staffing policy. This approach allows Molex to source and hires the most qualified personnel drawn from different nationalities for key positions (Black & Mendenhall 2010). Pursuing the policy allows Molex to develop globally-minded managers and attract talent from all over the world. The geocentric staffing approach augurs well with Molex’s global strategy because of standardised processes and products.

Appropriateness of the Staffing Approach

Molex’s staffing policy contributes to its global strategic efforts in multiple ways. First, with its standardised HRM policies, the firm can realise quality production and obtain skilled personnel for its plants. Second, Molex can provide standardised products for global consumption by hiring from foreign nationals residing in the United States. The individuals learn the firm’s organisational culture and practices, which they transfer to their home subsidiaries. They also provide input that allows Molex to design products with a universal appeal. The four perspectives of the Ansoff matrix can explain Molex’s corporate strategy choices. From a financial perspective, Molex benefits from a trade-off between adjustment costs related to intra-company labour movements and expatriate skill retention (Cravens & Percy 2012). Since the expatriates understand the region/country-related preferences, their input ultimately benefits the customers in terms of quality and cost (Hill 2009). From an internal perspective, employee skills and core competencies help Molex attain process/production efficiency and lower costs. Further, skilled human capital is the engine for continual innovation and for providing customer value in Molex.

Lessons from Molex’s Staffing Approach

Molex has adapted its staffing policy to reflect its global strategy. This provides four important lessons. First, employee selection should consider the expatriate’s knowledge of the local culture. Molex hires foreign nationals with US MBA and trains them before transferring them to their home nations/regions. It also selects US nationals with cultural competence to work in foreign destinations. Second, hired employees must first work in the US to familiarise themselves with Molex’s organisational culture. They also receive in-house management training in finance and HRM. Third, Molex ensures the equalisation of pay for its staff. It ensures that compensation and benefits reflect the local economic conditions. It also finances the repatriation process and supports the expatriates’ contact with their national cultures. The firm incurs high HR costs in the process. Fourth, Molex facilitates the international movement of staff to promote career development. These unit-level strategic directions culminate in a corporate level strategy that guides market definition by all the subsidiaries. For example, Molex has HR standards that all subsidiaries must use. The subsidiaries, in turn, develop country-specific HRM policies that reflect local conditions.

Molex’s Acquisition by Koch Industries

Motives for the Acquisition

Acquisitions in the global connector industry contribute to significant market share gains. For example, the top ten players gained “6.9 market share points” in the 2010-2013 periods through strategic acquisitions (Luncitel Report 2016, p. 2). Therefore, the primary motivation for acquiring Molex was to achieve Koch’s market share targets in the $48 billion connector market. Additionally, Koch paid $7.2bn for Molex due to its growth potential in this market. Molex’s revenue earnings in 2013 stood at $3.62bn, making the third largest connector supplier worldwide. However, the company’s performance was below the “industry’s 20-year 5.3% compounded annual rate” (Luncitel Report 2016, p. 3). Further, Molex’s sales grew at a mere 4% between 2012 and 2013 to $3.49bn and below 1% between 2011 and 2012 (Molex Inc. 2013). Therefore, the central goal of Koch’s acquisition of Molex was to improve Molex’s performance and consolidate the North American connector industry. The acquisition is a good mode of entry into foreign markets, as it allows new entrants to leverage established supply chains and internal resources to grow.

Based on the acquisition integration matrix, it is clear that the acquisition was driven by strategic interdependence considerations. Molex and Koch could create value through resource sharing, functional skills transfer, and pooled resources for stronger market power (Colman 2011). The acquisition integration approach used in this case study could be described as preservation. This means that Molex will be Koch’s subsidiary. The management focus will be on nurturing Molex to achieve greater performance levels without disrupting current operations.

How Molex Will Change Under Koch

Molex will perform better under Koch than it did previously. It will be pushed to do better through greater financing opportunities, skills transfer, and market integration. The acquisition will promote consolidation of the connector market, leading to market share gains (Ojo 2013). This market has several small players that occupy niche geographic positions. According to the Luncitel Report (2016), the top ten firms in the connector industry catered for 57.7% of the world’s demand in 2015. Thus, there is room for market consolidation through acquisitions to achieve market share gains. The acquisition will lead to performance improvement and market share gains. On the other hand, the acquisition is unlikely to affect Molex’s HR practices or operations because the focus is on nurturing the company.

Theoretical Concepts

Molex’s global strategy relates well to the concepts of international management and human resource management in an international context. A good example relates to Molex’s HR practices across its stations. Being a global corporation, the firm uses minimum HR standards in all its stations, irrespective of location. Its staffing policy centres on talent and multi-nationalism. The international HRM is based on the concept of global competition resulting from homogeneity in the business environment across markets/countries (Thakur, Burton & Srivastava 2011). In this regard, a global corporation like Molex retains the control of its overseas operations through a centralised office in the US. However, Molex adapts its HRM policies to local legal systems, compensation structure, and cultural values.

The concept of international management that relates to Molex’s HRM practices is the convergence of tastes and preferences (Martínez & Toyne 2010). Globalisation has removed trade barriers leading to homogeneity in consumer demand, lower prices, and improved value. In this regard, Molex, through its subsidiaries in low-cost countries, can mass-produce standardised connectors for the global market. From the OLI framework (Eclectic Paradigm), it is clear that Molex gains ownership advantage through its foreign direct investment (FDI) in overseas markets (Gray 2013). As a result, the firm has strong control over resources and supply chains in foreign markets.

Reference List

Bartlett, C & Ghoshal, S 2014, ‘Managing across borders: The transnational solution’, Sloan Management Review, vol. 29, no. 1, pp. 86-98.

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Black, J & Mendenhall, M 2010, Global assignments: Successfully expatriating and repatriating international managers, Jossey-Bass, San Francisco, CA.

Colman, R 2011, ‘HR management lags behind at world class firms’, CMA Management, vol. 76, no. 1, pp. 30-33.

Cravens, D & Percy, N 2012, Strategic marketing, McGraw Hill, London.

Doole, I, Lowe, R & Kenyon, A 2016, International marketing strategy, Cengage Learning, London, UK.

Gray, H 2013, Extending the eclectic paradigm in international business: Essays in honor of John Dunning, Edward Elgar Publishing, London, UK.

Hill, C 2009, Molex: International business, 7th edn, McGraw-Hill Irwin, Boston, MA.

Hill, C 2012, International business: Competing in the global market place, 9th edn, McGraw-Hill, London, UK.

Ketchen, D & Short, J 2012, Strategic management: Evaluation and execution, DK Publishing, London, UK.

Kotler, P & Keller, L 2009, Marketing management, Pearson Prentice Hall Publishing, Harlow, UK.

Landry, S, Chan, W & Jalbert, T 2013, ‘Balanced scorecard for multinationals’, The Journal of Corporate Accounting & Finance, vol. 1, no. 2, pp. 31-40.

Luncitel Report 2016, Growth Opportunities in the Global Connector Market, Web.

Martínez, Z & Toyne, B 2010, ‘What is international management, and what is its domain?’, Journal of International Management, vol. 6, no. 1, pp. 11-28.

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Simon, H 2014, Hidden champions of the 21st century: Success strategies of unknown world market leaders, Springer, London, UK.

Thakur, M, Burton, G & Srivastava, B 2011, International management: Concepts and cases, Tata Mcgraw Hill Education, New Delhi, India.

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