GFT 123 Virgin-new MNC.pdf - Richmond School District No. 38

Virgin – the new breed of MNC?Geo FactsheetFig 2 MNCs: Modes of operationsMODES OF OPERATIONStrategic alliancesafter mergersDirect investmentabroadDynamic networks,entrepreneur ledInternationalsubcontractingInfluences:• market size• political factors• relative exchangerates• governmentincentivesNew buildMarket orientatedinvestment:• manufacturing• property• producer andconsumer servicesAcquisition andmergerBased on naturalresourcesSupply orientatedinvestmentProduction costbasedInfluences:• labour costs& availability• avoidingquotas, tariffs• investmentincentivesHost countrymarketRegionalmarketAssembly offinished productComponentmanufacturersLargely forexportLargely forexportLargely for export -limited host country marketReduced demand and increased competition creates unfavourableeconomic conditions. In order to survive and prosper, MNCs had tochange. Three main strategies exist, rationalisation, reorganisation anddiversification. Rationalisation refers to slimming down of theworkforce and their replacement by machines. By contrast,reorganisation includes improvements in production, administration andmarketing, such as an increase in subcontracting of production andadministration. Different parts of products are made at different assemblyplants and then shipped to other plants for intermediate or final assembly– i.e. regionalisation. Increasingly MNCs diversified and developednew products, notably financial services. This broader base makes themless vulnerable to economic collapse. The name conglomerate is usuallygiven to these very diverse MNCs. Sometimes the diversity is too greatand retrenchment back to the main business is necessary.MNCs are now:• greatly slimmed down, employing more people indirectly throughsubcontracting• integrating production, administration and marketing on a global scale• increasingly financially orientated – reflecting the globalisation ofservicesInternal changes may result from the entrepreneurial designs of the ownerand board of directors, who see opportunities for new investment ininnovative technology or the opportunity to acquire other companies atcompetitive prices.Virgin – a case study of economic diversificationWhy Virgin?Virgin was a name that proclaimed their commercial innocence butalso had a certain shock value, in keeping with the establishmentmood of the times, when Virgin was established (1970).Virgin is not a classic TNC but is more characteristic of the new generation.Globally it employs fewer than 20,000 people, with some indirectlyemployed via subcontracting. It is a company which is largely serviceorientated with very little manufacturing and does have strong interests infinance and e-commerce. All the diverse operations can be linked to theVirgin brand name. Research, in 1995, on the Virgin brand name showed thatthe brand was recognised by 96% of UK consumers and that RichardBranson was correctly identified by 95% as the company’s founder. Its imagewas perceived by the public as fun, innovatory, successful and trustworthy.This has clearly influenced the way that the company has developed.The actual groupings in the extremely diverse company reflect thepersonal interests and business philosophy of its owner – RichardBranson – essentially to look to the future to solve difficulties throughnew opportunities, expansion and growth. The groups reflect his interestin transport, travel, music, leisure and computing.For instance, Virgin moved into leisure (night clubs and airlines) in theearly 1980s following the collapse of the music business worldwide as aresult of recession and high inflation.Many of the business ventures are both high risk and very capital intensive (aparticular issue with the airline and train group). In 1990 Virgin Music wassold to raise money for airline expansion. Many ventures, for example inhotels, are joint ventures with companies and partners (especially in Japan).Whilst Fig. 3 emphasises the diversity of Virgin operations it is possibleto see a rationale with links between media and publishing, leisure andtransport, and financial services and e-commerce.Many of the latest ventures rely on franchising the marketing power ofthe Virgin name, for example in Vodka, Cola, Cosmetics and Wine, oftenusing e-commerce as a means of marketing.Virgin makes an excellent case study of a British based conglomerate thatoperates transnationally. On page 3, Table 1 shows a timeline of thedevelopment of the company and Fig. 3 shows the current range of thecompany’s operations and groups.2The general strategy is for Richard Branson and a team of advisors toresearch and develop new business, then to hand it over to an outstandingfinancial controller and managing director, who are expected to make thecompany succeed. So Virgin consists of numerous small companies,scattered quite widely around the world, operated quasi-independently.This is, again, different from the integrated style of traditional MNCs.

Virgin – the new breed of MNC?Geo FactsheetTable 1. The Virgin timeline.1968 • First issue of Student magazine published.1970 - 71 • Virgin mail-order operation started• First Virgin shop opened in Oxford Street1973 • First Virgin recording studio opened at The Manor near Oxford• Tubular Bells, by Mike Oldfield, released.1977 • The Sex Pistols signed by Virgin1978 - 80 • First Virgin nightclub (The Venue)1981 - 82 • Phil Collins, Boy George and Culture Club signed to Virgin1983 - 84 • Virgin Vision formed: film and video distribution, TV broadcasting• Virgin Games launched;• Virgin Atlantic Airways and Virgin Cargo launched;• First luxury hotel launched (in Mallorca);• The Music Channel, a 24 hour satellite-delivered musicstation, launched by Virgin Vision.1985 - 86 • Virgin Holidays formed• £25 million raised via convertible stock• Virgin Group floated on London Stock Exchange1987 • Virgin Records America launched• Japanese subsidiary established• Rushes Video, London, acquired• 525 Virgin Communications - LA-based post-productionfacility, launched• Virgin Balloon company launched1988 • Olympic Recording Studios opened in London• Virgin Classics established to specialise in high-qualityclassical music repertoire• First Virgin Megastores opened in Australia, Glasgow and Paris• Smaller UK retail outlets sold to W.H.Smith for £23 million• Virgin Broadcasting formed to further develop Virgin’sinterests in radio and TV1989 • 10% of Virgin Travel sold to Seibu Saison, Japan• 25% of Virgin Music sold to Fujisankei, Japan1990 • Virgin Music Group launched second US record companybased in New York• Megastores opened in Marseilles, Bordeaux and Belfast• West One Television, a UK post-production company, createdby Virgin Communications• Joint venture signed with Marui retail group to operateMegastores in Japan1991 • Virgin Book Publishing formed in joint venture withW.H.Smith and Allison and Busby1992 • Virgin Music Group sold to Thorn EMI Plc• Virgin Games SA established in Paris• UKs first national radio rock station launched in jointventure with TV-AM Plc1994 • Virgin Games renamed Virgin Interactive Entertainment (VIE)• Virgin City Jet service launched in January between Dublinand London City Airport• Joint venture formed by Virgin Hotels with ShirayamaShokusan to develop London’s City Hall• Virgin Trading formed to market FMCG under the Virginbrand name, with first venture in partnership with W.Grant &Sons to market Virgin Vodka• Virgin Radio awarded FM license in London• Virgin Cola Company formed1995 • Virgin Direct Financial Services launched• Virgin Cola launched1996 • Virgin Bride, Europe’s largest bridal-wear shop, opened• Virgin Net formed to enter the Internet market• Virgin Rail awarded franchise to operate rail passengerservice covering 130 stations in England, Scotland and Wales• Virgin Rail awarded Intercity West Coast franchise• Three hotels in Wales acquired by Virgin Hotels• 50% share in London Broncos rugby team acquired by Branson• First banking product Virgin One Account launched byVirgin Direct Financial Services in joint venture with RoyalBank of Scotland• Virgin Radio sold for £85 millionFig. 3 The Virgin Group of companies: major operations• Virgin Travel, especially Virgin Atlantic, is the companyclosest to Branson’s heart. With twenty aircraft and routes fromLondon to about a dozen major cities outside Europe, VirginAtlantic remains a niche player in an industry dominated byglobal carriers and state airlines. Since its founding, the airlinehas relied on service, value-for-money, and innovation, dished upwith panache and flair, to differentiate itself in the market. Not allthese ideas originated at Virgin, but Branson will happily copygood practice if he sees an advantage. Judging by the numerousawards and citations the airline has won, his approach seems towork.• Virgin Holidays’ main destination is Florida, where Virgin is theDisney Hotels’ biggest customer.• Virgin Entertainment owns Virgin Cinemas, a cinema chainformed from the purchase of MGM cinemas. Virgin sold theninety small sites it acquired, retaining the remainder forconversion to multiplexes.• Virgin Retail’s core activity is the chain of fifty-plusMegastores in the UK, in partnership with W.H.Smith.• Virgin Express Holdings Plc is a scheduled airline companyserving the main European cities. offering single-class airfaressubstantially below the norm.• Virgin Direct and Virgin Direct Personal Finance were founded tobring Virgin into the personal financial services market.• Virgin Direct was initially a joint venture with Norwich UnionAssurance, a large insurance group that supplied the technologyand back-office support while Virgin supplied the marketing.Norwich Union withdrew shortly after the launch in favour ofAustralian Mutual Provident.• Virgin Direct Personal Finance links Virgin Direct with RoyalBank of Scotland to offer the One account; a combined, highlyflexible mortgage and bank account with a single rate for all lendingpurposes: car loan, house purchase, overdraft, credit card etc.• Virgin Rail consists of twenty-year franchises to operate twonetworks: Cross Country, a series of routes that traverse the UK,and West Coast, the main route from London to Glasgow andintermediate stations. The franchises were awarded bycompetitive tendering as part of the long-term denationalisationprogramme of the Conservative government. Virgin inheritedrolling stock, ticketing offices and staff, all previously underBritish Rail ownership and management. The tracks, signallingand stations are owned and operated by Railtrack. British Railwas not seen as a customer-friendly and efficient organisation.Furthermore, years of under-investment had had an impact on theinfrastructure. In the short term, however, Virgin Rail hadsuffered from poor public relations, with horror stories surfacingfrequently about delayed trains, poor food and dirty trains. VirginRail management explains that improvements cannot comeovernight.• Virgin Rail was initially a joint venture between Virgin andventure capitalists. In 1998, Branson made plans to float VirginRail, intending to offer part of the equity to the public to allow theinitial investors to withdraw.• V2 Music is Branson’s return to the industry that got him started.It was founded as a global business with a presence in manycountries.• Virgin Net is an Internet service provider created as a jointventure between Virgin and the UK subsidiary of NTL, a UScomputer technology company. Virgin is responsible for creativecontent and marketing; NTL provides the backup systems andsoftware.3

Virgin – the new breed of MNC?Geo FactsheetTable 2. A summary of the Virgin Group of companies in 1999.Virgin CompanyEmployees Trading location(s)Virgin Travel Group• Virgin Atlantic Airways• Virgin Holidays• Virgin Aviation ServicesVirgin Entertainment Group• Cinemas• US Megastores• Japan Megastores• European MegastoresVirgin Retail Group• Virgin Retail (Our Price,UK Megastores)• Caroline International• Sound & MediaVirgin Trading Group• Virgin Cola, Virgin Vodka• Virgin LadbrokesV Entertainment Group• Virgin Digital Studios(525, Rushes, W1TV)• Virgin Publishing• John Brown Enterprises• Rapido TVGinger Media Group• Virgin RadioVirgin Express Holdings PlcVirgin Hotels Group• Virgin Clubs, La Residencia,Woodhouse Securities, Cribyn• Le Manoir Aux Quatre SaisonsVirgin Direct Ltd• Virgin Direct PersonalServicesVirgin Direct Personal FinanceVictory Corporation Plc• Virgin Vie• Virgin ClothingVirgin Rail Group• West Coast Trains• Cross Country TrainsV2 MusicVirgin NetVanson Developments (property)Virgin BrideNeckar (island resort)HeavenVirgin VouchersThe Lightship GroupVirgin Airships & BalloonsStorm Model Management4,7508004001003004,500626845534042681264800587120450150150573,450200601425334322154722WorldwideUKUSAJapanContinental EuropeUKUKUKUKUKUK, USAWorldwideUKMexicoUKContinental EuropeUK, SpainUKUKUKUKUKUKUKUKUKUKVirgin Islands, WILondon, UKUKUK, USAUKWorldwideVirgin in the futureRichard Branson has led Virgin for over thirty years. If he does retire orwithdraw, it could have a great impact on the company, given that he isso closely associated with it. Typically, entrepreneurs do not pass on theirheritage successfully. Branson argues that he is not the sole source of thecompany’s success, that each major Virgin company could stand alone,led by an experienced management team. Time will see as clearly, sinceSeptember 11 th 2001, airlines are a high-risk business and the terminalfailures of Railtrack continue to thwart a dream for quality Virgin railservices (which currently tarnish the Virgin brand).4Further activities1. Study Table 2: A summary of employment in the Virgin group ofcompaniesa. Use an appropriate graphical/cartographic technique to showthe extent of Virgin’s operations.b. Do you consider it to be a genuine multi-national enterprise?2. Use the www.virgin.com website to update the information on Virgincompanies. Analyse where and why changes may have occurred.Further researchFor further background on MNCs consult:Global shift – transforming the global economy. P. Dicken. PaulChapman Publishing.The magazine Fortune, the Economist and the Financial Times providedetails of the turnover of the world’s largest MNCs.Sample questionWith the use of case studies, examine how MNCs deal with changingconditions.AnswerThis is a very general question but also one that requires specific casestudies (rather than nominal examples). The main points to discussinclude:• increased political intervention• spatial division of labour• rationalisation, regionalisation, specialisation• growth in services rather than traditional heavy industriesCandidates could answer with this reference to a wide range of firms.BMW, for example, is a good example of industrial change in the carmanufacturing industry. Equally the case study here of Virgin could beused to show a variety of points such as:• globalisation• diversification• service-orientation• mergers with other companiesComparison between different companies allows students to evaluate,thus the use of two case studies will help score marks.AcknowledgementsThis study was researched by Garrett Nagle. He wishes to acknowledge the help ofRichard Branson and Will Whitethorn in the preparation of this Geo-factsheet.Sources used:INSEAD, 1999, The house that Branson built: Virgin’s entry into the new MillenniumNagle, G. 2000. Advanced Geography, Oxford.Geo Press. Unit 305B, The Big Peg, 120 Vyse Street, Birmingham B18 6NFGeopress Factsheets may be copied free of charge by teaching staff or students,provided that their school is a registered subscriber.No part of these Factsheets may be reproduced, stored in a retrieval system, ortransmitted, in any other form or by any other means, without the prior permissionof the publisher. ISSN 1351-5136