Ryan Kelly, Gabriella Pecoraro, Marissa Ranalli, Theresa Tran, Jenn Vasconcelos

Transcription

1 Ryan Kelly, Gabriella Pecoraro, Marissa Ranalli, Theresa Tran, Jenn Vasconcelos

2 Overview Strategy Issues Policy and Process Metric Report

3 1948: Founded by Rudolph Dassler Locations in U.S., China, Europe Headquarters: Herzogenaurach, Germany Sporting Goods Industry Footwear, Apparel, and Accessories Football, running, motorsports, golf, and sailing Collaborations with designer labels Alexander McQueen, Sergio Rossi

4 Jochen Zeitz: Chairman and CEO Premium sports lifestyle company Goal: Most desirable and sustainable sports lifestyle company PUMAVision Puma.Creative Puma.Safe Puma.Peace

5 Economy Increasing Competition Expansion Challenge

6 1. Restructuring 2. Transforming the Organization 3. Brand/Marketing Rejuvenation 4. Product Desirability 5. Growth 6. Develop Non PUMA Brands

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8 BRAND STRATEGY CORPORATE STRATEGY Objective: the Most Desirable and Sustainable Sportlifestyle Company Blend of Sports and lifestyle influences Selectively expanding existing product, regional expansion, and collaboration with non Puma brands Refined 10 Brand Manual Incorporate Four key elements Fair Honest Positive Creative Spirit of DJ collection Operation Joy

9 Theory: Global Strategy Key Statements: Sportlifestyle Concept of Joy Sustainability Goal: The Most Desirable Sportslifestyle Company in the World

10 Political 10% 15% 20% 10% 10% 20% Economic Leadership and Interpersonal Skills Diversity 15% Functional Responsibilities Teams Fashion/Athletic Knowledge

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12 Title How many people? Responsibilities South America Vice President (Sao Paulo Division) 1 Oversee the South America division; Focus on ROI activities & employeecustomer relationships Regional Marketing Officer 1 Advises the marketing & advertising schemes in South America Regional Supply Chain Officer Regional Human Resource Officer 1 Coordinates the supply chain of the product from the manufacturers to suppliers in South America; Find sustainable solutions 1 Fosters customer satisfaction & provides numerous HR services (hiring & training) Regional Sales Officer 1 Maintains the revenue flow of Puma s South America division; Cultivates lasting relationships with suppliers

13 Title How many people? Responsibilities Regional Finance Officer 1 Oversees the South America division s budget; Analyzes financial statements & complies with the IASB Regional Legal Officer 1 Maintains ethical, legal behavior in regards to Brazil s & Puma s standards Regional Informational Technology Officer 1 Oversees the use and development of technology to enhance Puma s operations Regional Customer Relations Officer 1 Establishes close, trusting relationships between Puma and its South American suppliers and consumers

14 Title How many people? Responsibilities Regional Product Development Officer 1 Oversees the Research & Development team; Generates new ideas and designs to satisfy the demands of the South American consumers Managers 18 (2 per Subcategory) The liaisons between the Officers and the Associates; Delegate daily, operational activities to achieve overall goal for specific subcategory; i.e. Sales Manager focuses on how to make each Associate successful to reach overall sales quota Associates 54 (6 per Subcategory) Functional, operational activities that compose the foundation for Puma s success; Contribute to Puma s mission through day today tasks

15 Title of Position Vice President of South America Division $750,650 Average Annual Salary Officers of South America Division $550,880 Managers of South America Division $275,400 Associates of South America Division $95,000 75,000 (depending on experience & age)

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17 Labor Laws Financial Laws Political Laws

18 Geography and Demographics Economics Financial Political Workforce Labor Market Competition

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20 Legal Requirements Conflict of Interests Political Support Charitable Work

21 Discrimination Equal Opportunity Violence Privacy Stakeholders

22 Conflict of Interests Plan Do Check Act Model Human Resources Communicate guidelines Evaluate guidelines Communicate with employees Ensure safe work environment

23 Government compliance Factory emissions Waste reduction

24 S.A.F.E. Hygiene Plan Do Act Check cycle

25 Strong Management Team Dedicated officials Monitoring of new suppliers Monitoring of new factories Internal Audits

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27 Set Goals, understand what you want to accomplish and measure that success 1 st set of Goals: Good Product Quality and Cost Efficiency 2 nd set of Goals: Develop Positive Human Relations 3 rd set of Goals: Monetary Achievement

28 General Units: Six Sigma Production Process(3.4 defects per million units) Custom Units: (Cost per Project = (Labor Time x Hourly labor rate) / # of Projects Processed)

29 Team Oriented approach Employee satisfaction as productivity indicator, lower turnover=happier employees Example: Amara Creekside Resort, able to create a 13 18% turnover rate, less than half the national average for its industry Three Phase Model of Organizational Socialization (Feldmen)

30 Anticipatory Socialization Encounter Change and Acquisition *If this approach is successful, it would help productivity, and lower costs associated with employee turnover (lost productivity, hiring practices)

31 Profits, Gaining Market Shares Accounting Principles Differences ( German GAAP v IFRS) Currency Rates and Differences (Euro v Real)

32 Brazilian economy is set to grow 7.6% this year and then expand 4.5% next year (Nasdaq)

33 Statements of: Financial Position, Income, Cash Flows, Changes in Equity and Notes) History Germany: Law Based Accounting System developed macro uniformly Brazil: Tax Based (Driven by Inflation) Accounting System also developed macro uniformly

34 Specific Differences between German GAAP and IFRS IFRS permits revaluation of some assets to Fair Market Value (FMV) while German GAAP supports reporting of assets almost exclusively at Historical Cost Presentation of Balance Sheet (Liquidity) Changes in Accounting Policy (German GAAP: Prospectively, IFRS: Retrospectively) *Just a small fraction of differences*

35 Euro (German Mark until 2002) v Brazilian Real As of 12/1/10(XE.com), 1 Euro could buy approximately 2.23 Reals and it would take 2.23 Brazilian Reals to buy 1 Euro Brazil has had historically had high interest rates and unpredictable fluctuations in inflation Judges in Brazilian courts have tended to favor debtors rather than creditors in loan default court cases. (Blossier) 2 Conclusions: Courts may be responsible for high interest rates, and Puma needs to be weary of who the company extends credit to in Brazil

36 Company Overview Challenges Company and Brand Strategy Compensation International Management Issues Legal, Political, Other Considerations Ethical Codes (conduct guidelines) Metric Report Accounting and Currency

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38 PUMA: Brazil Headquarters International Management Plan Gabriella Pecoraro, Jenn Vasconcelos, Theresa Tran, Ryan Kelly, & Marissa Ranalli International Management Professor Boyd December 2,

39 Executive Summary This plan centers on the concept of opening a corporate center in Sao Paolo, Brazil to help promote the expansion of PUMA. In the first section of this management model, a brief overview of the company is provided, including an organizational chart beginning with the CEO, and filtering down to the international management divisions. In the next section, the international management strategy will be discussed. The corporate strategy involves creating the most desirable and sustainable sportlifestyle company. The brand strategy includes using the refined 10 brand model which incorporates four key elements; fair, honest, positive, creative. To achieve these company goals, necessary skills and knowledge are required, including an understanding of the political and economic environment, diversity, leadership skills, functional responsibilities, competent teams, and knowledge of the athletic/fashion industry. To develop a management team, which will be able to encompass and facilitate the various needs of company expansion, certain salaries will be expected and are covered more in detail in this section. There are also many considerations to reflect on as PUMA begins the transition into Brazil. Important factors that must be looked at include the geography and demographics, economics, financials, political environment, workforce, labor market and competition. Next we will review topic of management policies and practices. PUMA has very specific ethical codes that all employees are expected to follow and all managers are expected to implement and enforce. They enforce a Plan-Do-Check-Act model in various levels of management to ensure compliance in all branches of PUMA. Finally, we will take a look at the management metrics report. To do this, we plan to utilize a scorecard based approach, which is based upon measuring goals, the development of positive human resources relations, and lastly monetary achievement. In this section, we also review the problems surrounding currency and accounting in the transition. 1. Company Overview: Rudolph Dassler founded the company in 1948 under the name of PUMA Schuhfabrik Rudolf Dassler. From the very beginning the company has had great successes. They were the leader in many of the sports shoe technologies and had great relationships with athletes. For instance, in 1952 Dassler collaborated with experts to create the world s first football boot with screw-in studs and PUMA was the first sports shoe manufacturer to use the technologically advanced vulcanization production techniques that bonded the sole and the shaft of the boot together. 1 Throughout the years since the company was first founded, their success was partly due to their relationship with great athletes that wore their brand. Through sporting PUMA s products during major games such as the Olympics and the World Cup, PUMA was able to reap the benefits associated with the athlete s successes. PUMA is one of the world s leading sport-lifestyle companies. The company competes in the sporting goods industry against other companies such as Nike and Adidas for their target markets and products. They design and develop different technologies in footwear, apparel, and accessories. They sell products for sports such as football, running, motorsports, golf, and sailing. Their products not only function for the sports for which they are meant for but are also focused on fashion. Product collaborations are common for PUMA and most recently they have collaborated with designer labels such as Alexander McQueen, Mihara Yasuhiro, and Sergio Rossi. The Alexander McQueen PUMA, Mihara Collection, and the Sergio Rossi lines and collections combine the designer s unique fashions with PUMA s ability to fuse technical performance and sport fashion. 1 PUMA. (2010). History. Retrieved November 19, 2010, from PUMA: 2

40 Today, Chairman of the Board and Chief Executive Officer Jochen Zeitz heads PUMA. Jochen Zeitz joined PUMA in 1990 and was appointed Chairman and CEO of PUMA in At the age of 30, Zeitz became the youngest Chairman in the history of Germany to head a public company. He is also known to be the longest serving CEO of a public company in Germany. From the moment that Zeitz became Chairman and CEO he has focused his attention on taking PUMA from being a low price brand to becoming a premium sport-lifestyle company. Through collaborations with key designers he is able to accomplish his goal of being a fashion forward sports-lifestyle company. Zeitz has also focused his attention on implementing environmental programs and creating environmental goals as well as cost reduction programs to help the company succeed in difficult financial times. Other key members of PUMA s management include Melody Harris-Jensbach, Klaus Bauer, Stefano Caroti, Antonio Bertone, and Reiner Seiz. 3 Melody Harris-Jensbach was appointed Deputy CEO in January 2008 and is now responsible for the area Product. From 2003 to 2008 she was also responsible for the successful implementation of the market needs of all woman s segments in key international markets. Klaus Bauer is the Chief Operating Officer and has been on the Board of Management since August His responsibilities extend to finance, controlling, legal, operations, logistics, IT, and human resources. Stefano Caroti joined the Board of Management in August 2008 and is the Chief Commercial Officer. He is responsible for the wholesale and retail functions. Antonio Bertone has been the Chief Marketing Officer since 2008 and oversees the global brand and marketing initiatives for PUMA. Lastly, Reiner Seiz has held the Chief Supply Chain Officer position since 2008 and he is responsible for leading the PUMA World Cat sourcing operations. As can be seen, most Board of Management positions are held by members joining more recently and by and large in Jochen Zeitz has also been influential in a number of other corporate responsibility programs that are now implemented throughout the company. In April 2010, he launched PUMA s next step towards long-term sustainability. Through the implementation of this program, PUMA hopes to reduce carbon, energy, water, and waste by twenty-five percent by the year They have also taken it upon themselves to contribute in other ways to the world through supporting creativity, sustainability, and peace. PUMAVision is a concept that they have developed that guides their work. This concept includes three programs, which are PUMA.creative, PUMA.safe, and PUMA.peace. 4 PUMA.creative brings together artists and organizations for a mutual creative exchange and offers them an international platform to do so. Creativity is extremely important to the brand and is one of their key success factors. Therefore, creativity has been made one of the main focuses of the program so that it is able to be encouraged throughout the world. PUMA.safe shows the company s commitment to environmental protection and action. As mentioned before, PUMA has created the goal of reducing carbon, energy, water, and waste by twenty-five percent by the year In addition to this goal, they have also been working towards improving working conditions throughout the world. Lastly, PUMA.peace supports the global day of Ceasefire on September 21 every year through its initiative One Day One Goal, which aims at getting people to play football with the idea that the power of sports will unite people in peace. 5 PUMA has many locations around the world but its headquarters are centered in Herzogenaurach, Germany. This is a recent move for the company and the new headquarters was opened in December of The headquarters contains an administration center, a Brand Center, and the world s largest PUMA 2 PUMA. (2010). Board. Retrieved November 19, 2010, from PUMA: 3 PUMA. (2010). Board. 4 PUMA. (2010). PUMAVision. 5 PUMA. (2010). PUMAVision. 3

41 Store. 6 The location embodies all that PUMA stands for as a company not only in terms of innovation but also in terms of their environmental goals. The facility has incorporated numerous innovative energy and electricity saving concepts so as to limit their negative environmental impact. The PUMAVision Headquarters is the first carbon neutrally operated headquarters in the sport-lifestyle and sporting goods industry. 7 PUMA also has locations in three other major countries, which hold large portions of their markets. These locations include Boston, London, and Hong Kong. PUMA has the long-term mission of becoming the most desirable and sustainable sport-lifestyle company. 8 This can be seen through their focus on sustainability and innovation in their products. They have worked to position themselves by selectively expanding the existing product categories, expanding regionally, and by expanding with non-puma brands. In previous years, the company had implemented measures pro-actively so as to ensure high profitability in the future. They have implemented a restructuring and re-engineering program so as to be able to grow in an economy that typically does not allow for much room to grow. One of the biggest programs was that of a cost reduction program which was implemented in Through these programs and despite the harsh economic conditions that presented themselves, in 2009 the company had a 51.3% gross profit margin, which meant that they continued to maintain their position at the top of the sporting goods industry. Revenues for 2009 stood at 2,460.7 million Euros, which is down a bit from the 2008 revenues of 2,524.2 million Euros. Employment also fell for the year 2009 to 9,646 from the 2008 number of 10,069 as the cost of employment rose from million Euros to million Euros. 9 This was an increase of 4.5%. Although this is not a large drop in employment, it is not what PUMA would like to see as they aim for growth. However to survive in economic condition such as the current ones, the company must adapt to the conditions in order to succeed and profit within the markets. Looking ahead to the next twenty-four months PUMA has a number of factors to take into account when estimating the growth for the future. Firstly, the economy in many of the major markets such as the United States and Europe are still not back to pre-recession levels although their economies are recovering. The crisis has forced PUMA to shift from an expansion mode to a protection mode. They have had to protect what investments they have already made while focusing on protecting their profitability. What this means in terms of sales is that the company should expect to see a moderate increase in sales and earnings within the next twenty-four months as the economies continue to recover and consumers begin to spend more of their disposable income. Overall, restrained consumer behavior is to be expected during the economic recovery process. Secondly, there is increasing competition in the market. Because of the current economic conditions, PUMA has had to adjust to the shifting of the market to lower price points. 10 High levels of unemployment and low consumer confidence in the world are creating an issue for many companies including PUMA. There is a decline in consumer spending and this poses a problem to the focus that PUMA has previously had on being the leader in the sports-lifestyle segment. New competitors are acting upon the opportunity to enter the market while the sporting goods industry is vulnerable. This leads to increased competition for PUMA as they now have both existing and new companies to compete with in the sporting goods industry. 6 PUMA. (2009). Annual Report Retrieved November 19, 2010, from PUMA: 7 PUMA. (2009). Annual Report PUMA. (2010). Strategy. Retrieved November 19, 2010, from PUMA: 9 PUMA. (2009). Annual Report Zeitz, J. (2010). PUMA 2015: Back on the Attack. Retrieved November 19, 2010, from PUMA: 4

42 Thirdly, there are expansion challenges. There has been a shift towards lower priced items at higher volumes. This makes exclusivity as a whole more challenging for PUMA. Also, as PUMA increases, they enter into new product categories. This is challenging for the company because they are focused on the growth of the company as a whole while in the current times costs of expansion are increasing. Creating new products and introducing those products into new markets are important and yet also costly for companies to accomplish. Financial resources are not at a high although PUMA does remain at the top of the sporting goods industry. Since its establishment in 1948, PUMA has sought to be the leader in innovation. With the appointing of Jochen Zeitz as Chairman of the Board and CEO the company has prided itself on its goal of becoming the world s most desirable and sustainable sport-lifestyle company. For the past couple of years PUMA has had a defensive strategy to remain the dominant player in the sporting goods industry. Now they are shift back towards an offensive strategy as the year 2015 approaches. There are six strategic priorities that are being worked on to complete their mission and goals by the year The first goal is restructuring so as to set the foundation for sustainable growth including a cost-reduction program and a retail organizational restructuring. The second goal is transformation of the organization so as to stay ahead of the game, which means evaluating the PUMA business model and reducing the time-to-market for products. Thirdly, brand and marketing approaches will be rejuvenated to draw in consumers. Fourthly, product desirability will be focused on by redefining PUMA s product portfolio. The fifth goal is to grow the core business and invest in key growth drivers such as emerging markets, e-com, and strategic accounts. Lastly, PUMA will work to develop their existing non-puma brands such as Tretorn and Cobra Golf. 11 Through focusing on these six strategic priorities, PUMA will strive to meet the 2009 revenues and to continue its efforts in both company and financial growth, as well as PUMAVision. 2. Organization Chart: (see Appendix). 3. International Management Strategy: Every multinational company must develop an international management plan before venturing overseas in hopes of establishing a successful division. Without proper planning, a company may experience the inability to accurately predict the direction of foreign markets, utilize resources in a poor manner, underestimate the resources and manpower necessary to competing abroad, and failing to anticipate operational problems in a foreign milieu. 12 However, companies that take the time and dedication to sufficiently plan international operations will find success in such endeavors. PUMA is no exception. Growing from an inexpensive shoe company to the leading, multinational sports and life shoe and apparel empire, PUMA has definitely made a name for itself throughout the world. PUMA s mission is simple: to become the most desirable and sustainable sportlifestyle company. 13 Primarily, PUMA s Corporate Strategy promises to be one of the few multinational, multicategorical brands to be strengthened as opportunities offered in the sportlifestyle market are systematically exploited in all categories and countries. 14 PUMA is active in all categories and business divisions, which suit a unique brand and interesting positioning. PUMA has continued to stay true to 11 Zeitz, J. (2010). PUMA 2015: Back on the Attack. 12 McFarlin & Sweeney. International Management: Strategic Opportunities and Cultural Challenges. Houghton Mifflin Company; New York. Page PUMA Official Website. November 25, Ibid. 5

43 their image of a sportlifestyle brand (a name they infused to describe PUMA s unique nature) that they take pleasure in skillfully combining sports and lifestyle influences and strive to contribute to better the world. 15 In other words, PUMA s position is supported by selectively expanding the existing product categories, by regional expansion, and by forming relations with non-puma brands, increasing brand recognition and loyalty while making a difference. PUMA has also expanded its brand strategy. As mentioned before, PUMA wants to be the most desired and the most sustainable company; thus, CEO Jochen Zeitz created PUMAVision. In 2009, PUMA refined its brand manual, calling it the 10 manual, the first brand manual to incorporate the four elements of PUMA s global PUMAVision. Under PUMAVision, the key to an environmental and socially aware company falls within these four characteristics: fair, honest, positive, and creative. Addressed to the company, employees, customers, and stakeholders, PUMA s 4Keys (Fair, Honest, Positive, and Creative) will guide all decisions, actions, and policies with concerns for ethical and social consideration. 16 PUMAVision creates a cohesive strategy for not only how to operate a successful and ethical in the home country of Germany, but on an international level. Every region of the world has a different set of laws, religions, languages, foods, and cultural differences, which can create tension and anxiety for international companies. However, PUMAVision is a way for PUMA to remain true to its mission and objections, while satisfying its quest for social justice. At PUMA, the first key is fair. This element represents balance, seeing both sides to a situation and resisting pressure from a radical, closed minded point-of-view. In addition, PUMA promises to treat each individual with respect and dignity, having no tolerance for discrimination against people based on gender, race, ethnicity, religion, political persuasion, sexual preference, or lifestyle. Honest is the second key, meaning sincerity. No company is perfect and PUMA understands and fully admits this fact. Therefore, Honest is PUMA s mission to do what they say and say what they do. It is crucial for a company of this caliber to have an open-door policy, which allows knowledge and facts to be transparent both within the company and throughout the media. When PUMA promises social justice, it must comply. On the other hand, if a plan is implemented poorly and may, consequently harm the environment, PUMA needs to be honest in its reporting. The third Key to PUMA s PUMAVision is positive, or being constructive. Rather than focusing on the negative connotation of criticism, constructive advice and effective motivation is the focal point to success. Supporting one another through success and failure promotes a happier, healthier culture inside and outside the workplace. More often than not, the phrase we can is heard more than we can t. 17 Lastly, creative is PUMA s fourth Key to PUMAVision. Creative means imaginative, inventing new product lines and innovating better ways to improve social and environmental reform. PUMA is not a company that gives up or allows obstacles to stand in its way. Instead, PUMA uses its employee s creativity to overcome problems facing the day-today operations as well as issues facing the company as a whole. From the CEO Jochen Zeitz to the janitorial staff, PUMAVision is a way of business, but more importantly, a way of life for those who work within the PUMA family. PUMAVision is PUMA s promise towards working for a better world. 18 In conjunction, the PUMAVision mission encompasses three categories: PUMA.Safe, PUMA.Peace, and PUMA.Creative. PUMA.Safe is PUMA s mission towards sustainable and ethical responsibility. PUMA s Safe initiatives start with its research in the fields of environmental issues and safe, humane workplaces, combined with new ideologies and processes that will drive PUMA towards a cleaner, greener, safer, and more sustainable systems and practices. 19 Many of PUMA s innovative solutions begin with the very beginning of the supply chain, such as its most popular CottonMadeInAfrica campaign. This campaign fosters a personal relationship with African farmers to provide economic stability while receiving high quality cotton. Furthermore, the CottonMadeInAfrica 15 Ibid. 16 Ibid Ibid. 18 Ibid. 19 Ibid. 6

44 campaign has seen great results outside the farm as well, such as the development of fully biodegradable packaging and carry bags that replace existing plastics. In addition, transparent and constructive dialogues with stakeholders, supplier partners, and non-governmental organizations (NGOs) such as the Fair Labor Association have ensured that our PUMA Code of Ethics and Code of Conduct are observed and audited in workplaces worldwide. 20 Moreover, the PUMA.Safe program continues to work toward reducing our carbon footprint, developing new sustainable products, and raising work and production standards worldwide. PUMA.Peace is PUMA s continual support of the United Nations Global Cease-Fire Day and the non-profit organization that inspired it, Peace One Day. 21 PUMA supported the Peace One Day documentary (which was filmed partly in Afghanistan with peace activist Jude Law and shown in major global cities such as Cannes, London and New York). In 2008, PUMA launched One Day One Goal, a global football movement that celebrated Peace Day with goodwill football games played around the world. In many scenarios, communities in previous conflict were paired up to play these football matches, creating a forum for peace and commonality. In its primary year, the One Day One Goal campaign held over 180 peace games. Three years later, PUMA.Peace has partnered with the One Day One Goal aim to see matches played in all 192 UN member states. PUMA will continue its support to develop understanding and promote peace within all regions of the world. Lastly, PUMA.Creative is PUMA s initiative to bring together individual artists and organizations, and provide them with a platform for creative exchange and international exposure. The first PUMA.Creative project was the support of the exhibition 30 Americans at the Rubell Family Collection in Miami, Florida, during Art Basel Miami Beach PUMA also sponsored an event in London at the Central Saint Martins graduate fashion show and subsequent auction benefiting the PUMA Central Saint Martins Bursary Award. Moreover, PUMA established, and has continued, to develop the Creative Africa Network (CAN), an online social networking website and cultural directory that enhances, celebrates and honors existing African and Africa-related cultural networks within and beyond the continent. 22 As part of PUMA s commitment to a more creative world, PUMA will continue to support artists, art projects, and exhibitions globally. Not only does PUMA have an extensive corporate strategy towards sustainability, but it also has initiatives toward becoming the most desirable brand of athletic and lifestyle shoes and apparel. To obtain this goal, PUMA has reinvented its brand strategy. Bringing back the spirit of the DJ, PUMA s new brand promises an exciting collaboration between sport and lifestyle designs. PUMA s goal is to find the perfect blend of athletic comfort and sensibility with the chic fashion sense of one s lifestyle. PUMA has launched the campaign of PUMA.Social, The Champion of Late Night Games. 23 PUMA is no longer an athletic shoe and apparel company, catering to football quarterbacks and track stars, but has begun to expand into the realm of fashion, youth, and social activities. PUMA promises its shoes and apparel are applicable both on the soccer field and at the bar. Though this seems like an impossible task, PUMA has bridged the gap between the athletic world and the rest of life quite seamlessly. Contributing to its success is PUMA s goal of creating Joy. Unlike other companies that may campaign its shoes as the blood, sweat, and tears of the game, PUMA wants to recognize athletics and life in general as moments of joy. 24 What differentiates PUMA from other companies is its mission to find the joy in the game and in life and thus, transfer these emotions into a tangible item. Finding the joy in these situations is how PUMA hopes to cultivate joy within its brand. In the new brand manual 10, the concept of Joy 20 Ibid. 21 Ibid Ibid Ibid. page_button 24 Ibid. 7

45 is redefined and evaluated, pointing PUMA in the right direction towards a fun-infused company with exciting, refreshing product lines and campaigns. Now that the PUMA strategy is mapped out, let s take a further look into the make-up of its strategy. Due to the nature and magnitude of PUMA, the company utilizes a global strategy, or an approach where business goals and directions are set on a worldwide basis. 25 PUMA s collections of shoes and apparel are the same no matter where one purchases it. In addition, PUMA s values and corporate governance does not waiver depending on the country. Taking these facts into consideration, PUMA fits the model for a global strategy because country-specific tastes and differences are not accounted for. Such global strategy companies offer similar products and services everywhere, with relatively few changes. In other words, PUMA does not have a different line of soccer shoes in Italy and another line of shoes in America. Instead, PUMA offers the best, most comfortable, and performance enhancing shoe possible to all customers across the globe. The global strategy also suggests that the company s headquarters serves as a key integrating and controlling role, maintaining central control over operations worldwide. 26 With its main headquarters in Herzogenaurach, Germany, PUMA does not need to have a multitude of value chains and other offices delegating the work and goals of the organization because individual specialization is not relevant to PUMA s company. In short, the global strategy does not tailor to the different divisions of a company a model that fits PUMA permeating international plan. At the basis of this plan are the culmination of sports and lifestyle and the concept of joy. Primarily, PUMA s entire corporate strategy is based on the mission to become the most desirable and sustainable sportlifestyle company. 27 Here, the concept (and word) of sportlifestyle is conceived. PUMA utilizes this idea to find its niche strategy: a specific part of the marketplace that is only covered by PUMA s brand. As discussed before, PUMA does not only sell athletic apparel like Nike, but has found its niche in the market for both a sport-like comfortable shoe that still has the same fashionable look as a Nine West pair of boots, for example. PUMA wants to satisfy its customers desire for both athletic and social purposes. As exemplified in the publicity campaigns, PUMA is a brand for serious athletes and playful college students alike. This is a powerful, and well-received, niche strategy. Another key statement about PUMA s international management plan is the concept of joy. Using the differentiating strategy, the concept of joy is an innovative component to PUMA s mission in satisfying its customers. Unlike some of PUMA s competitors, such as Nike and Adidas, who mainly focus on comfort and performance, PUMA takes these factors into consideration with the addition of finding a fun, exciting way to put the happiness back into the game. It is very savvy of PUMA to employ the differentiating strategy because it truly separates itself from its competitors. When adding emotions to something as basic as shoes or clothing, the difference can be monumental. Basically, if the customers find joy in the product, PUMA will have reached success. Ultimately, these two concepts of sportlifestyle and joy affect the global strategy significantly. PUMA is trying to portray a unique brand that all customers, whether in Seattle or Saudi Arabia, can enjoy. The concept of a transitional shoe from a grueling tennis match to playing videogames on a Friday night is understood and admired in all parts of the world. On that same accord, the concept of joy is a universal idea, one that will be greatly appreciated by PUMA customers globally. Furthermore, there are certain qualities an international manager of PUMA needs in order to be successful. Primarily, they need political knowledge (10%). When operating globally, one needs to be current in the news, politics, society, and laws of the region in which they are managing. If careful consideration is not given, managers or a company may run into significant issues that can cause great disrupt to the company. In other words, our PUMA Vice President of the South America division must be knowledgeable with the policies and government of South America, specifically Brazil, since the entire South America division depends on his or her understanding of what is right and wrong in that region. Managers must also be knowledgeable about the economy (10%) and factors influencing it. In Brazil, the 25 McFarlin & Sweeney. Page Ibid. 27 PUMA Official Website. 8

46 economy has been on a steady rise, which is important to know and therefore figure out why it is growing in order to capitalize on this fact. PUMA managers must be able to work on teams (10%) because many of the ideas brought forth are those developed by teams. It is almost impossible to reach the success that PUMA has obtained without the use of one another s talents, opinions, and creativity in order to formulate a new idea that will take the market by storm. Each manager must also be well skilled in his or her particular functional responsibility (15%). PUMA s global strategy is only successful when each aspect of the puzzle comes together in a strong manner. Therefore, a marketing manager must know all there is to know about the marketing concepts and how to best implement them for PUMA s brand whereas a finance manager must understand the South American ways of accounting and adhere to these practices perfectly. In an international company, diversity knowledge is also necessary (15%). In order to be a successful company, differences must be embraced and utilized to better the company s mission. For PUMA, a manager must have a firm grasp on fashion and sport needs (20%). Although it may not be apparent for every manager, but without fashion and athletic understanding, the purpose of PUMA is lost and the mission to be the most desirable company will quickly fade. Lastly, managers must be well trained and learned in leadership and interpersonal skills. Especially in a multinational company, there is no room for lacking communication or leadership skills. Thus, PUMA managers must be able to command attention, delegate work, inspire and motivate employees, and point employees toward success. (See the Appendix for the Pie Chart). 4. International Management Department Plan Every member of every company is significant to the overall success, no matter what the position. In the international management department plan (see the Appendix for the organizational chart) there are many employees who must work to collaborate to the overall success of PUMA. Highest on the hierarchy is the Vice President of the South America Division. He or she oversees the South America Division to ensure it is meeting its goals, such as a sales quota and fulfilling its PUMAVision. The VP must also be conscious of Return-on-Investment, monitoring the revenues coming in and the costs going out. Ultimately, a VP wants to report increased sales and great success in his or her division, so he or she must have a firm grip on all that is going on beneath him or her. Below him or her are nine officers who will report directly back to the VP to establish common understanding and purpose. The first is the Regional Marketing Officer. His or her duty is to implement and advise on marketing and advertising schemes in South America, portraying the concept of PUMA to the people of Brazil and the rest of South America. Next, there is the Regional Supply Chain Officer. His or her duties include coordinating the supply chain from the start to finish while obtaining these resources in an ethical, sustainable manor as explained in PUMAVision. The Regional Human Resource Officer fosters customer satisfaction as well as employee satisfaction and other employee services such as training and development, mentoring programs, and social events. The Regional Sales Officer maintains the revenue flow of PUMA s South America division, cultivating a lasting, trusting relationship between the company and its suppliers and customers. Since sales is what mainly brings the revenue into the business, it is crucial that this manager understands the South American culture as well as his or her subordinates and their strengths and weaknesses to best go about his or her job. The Regional Finance Officer oversees the South American budget and analyzes the financial statements so that they comply with the International Accounting Standards Board (IASB). The Regional Legal Officer maintains ethical and legal behavior within the South America division in regards to the South American laws and PUMA s expectations. The Regional Information Technology Officer oversees the use and development of technology to enhance PUMA s operations. The Regional Customer Relations Officer establishes close, reliable ties between PUMA and its South American customers and suppliers. The Regional Product Development Officer keeps the products up-to-date and in demand by overseeing the Research and Development team, cultivating new ideas and designs to satisfy the thirst of PUMA s customers. Below each of these officers is a team of two managers who will be delegated the work of that particular division, creating a liaison between the Officers and the Associates. These Managers coordinate the daily operations of the business, which specifically tie into 9

47 the goals of his or her particular Officer. For example, the Sales Manager focuses on how to make each Associate reach his or her quota in order to reach the overall sales goal for PUMA. Below each duet of managers are teams of six associates who will perform the functional, operational detailed activities that compose the foundation of PUMA. Without their help, PUMA would not be able to meet its goals and fulfill its mission. In the Germany headquarters, the CEO and Chairperson, Jochen Zeitz is in charge of the entire operation. His responsibility is then delegated to his supporting staff of functional officers, who then delegate to the managers, who delegate to their subordinates and so on. As explained, each individual has a specific task to fulfill in order to collectively achieve greatness and success for PUMA. However, these employees do not work for free and thus, they are compensated with salaries and benefits. As the Vice President of South America, his or her average annual salary would be around $750,650. The Officers below the Vice President will have a salary of about $550,880. The Managers will typically make an average of $275,400 a year and associates will make between $75,000 and $95,000 annually. This amount depends on age and work experience. As for benefits, each employee will have 10 sick days, and a variance between 2 to 5 weeks of paid vacation. For health insurance, PUMA will provide about 75% coverage. PUMA also has great stock options, 401K plans, and a comprehensive pension package. Overall, a company of such magnitude has the capabilities to provide great salaries and benefits to its hard-working employees. 5. International Management Issues: As the Constitution of the Federative Republic of Brazil states in the Preamble, we, the representatives of the Brazilian People, convened in the National Constituent Assembly to institute a Democratic State, for the purpose of ensuring the exercise of social and individual rights, liberty, security, well-being, development, equality and justice as supreme values of a fraternal, pluralist and unprejudiced society, founded on social harmony and committed, in the internal and international orders, to the peaceful settlement of disputes, promulgate, under the protection of God, this CONSTITUTION OF THE FEDERATIVE REPUBLIC OF BRAZIL (Brazil Constitution). Labor Laws The rights and duties of employers and employees in Brazil are set out in what is called Consolidation of Brazilian Labor Laws, CLT. This is the main statute regulating labor rights in Brazil, issued in Labor rights are also regulated by collective bargaining s and collective agreements. However, certain classes of employees, such as civil servants and employees of autonomous government entities are excluded from the scope of the Consolidated Labor Laws, as they are subject to special regulations. It is found that very broad laws and collective bargaining at the industry and sectored level establish valid horizontal rules for every company in every sector. These rules reduce companies flexibility and sometimes impose costs some companies can bear but many other companies find severely restrictive (Brazil s Dilemma). It is important to highlight that for Labor Law in Brazil the reality of service rendering prevails instead of the written terms. Therefore, even if there is an individual adjustment through a Service Rendering Agreement, there is a risk of such agreement is considered an Employment Contract if the mentioned subordination is proved. The regular procedure to hire an individual to render services in Brazil is through the establishment of an employment relationship under the CLT s rules and regulations. An employee is every individual that renders services not eventually, under the employer subordination and that receives a salary. Generally, employees are hired for an undetermined period of time. However, there can be, as an exception, temporary and autonomous service rendering provided that the main difference between them is that in the employment relationship the employee is legally subordinated. This subordination consists in the way the employer sets out the employee s activities as well as the goals. In the other hand, the service rendering without a contract requires independence and 10

48 autonomy and the service renderer is responsible for his work. Brazilian labor law does not require the execution of a formal written employment agreement between employer and employee to prove the labor relationship between two parties. Therefore, oral employment is fully valid and enforceable, subjecting the employee and the employer to the rules and regulation of the CLT. As a general rule, an employee is regularly hired by means of the inscription in their personal Labor Card and of the registration in the books of the company for purpose of payment of the social taxes and contributions. Law 5107/66 instituted the Unemployment Guarantee Fund, FGTS, which is a welfare mechanism devised as an alternative to the tenure system then in effect. Nowadays it has become compulsory. Under the FGTS system, every month the employer deposits the equivalent of 8 percent plus 0.5 percent as a social contribution of each employee s compensation for the previous month in a blocked bank account in the name of the employee. An employee unfairly dismissed under the FGTS system is entitled to withdraw the FGTS deposit, together with interest, monetary correction and a further 40 percent figured on the total plus the 10 percent of the especial contribution. Collective bargaining can provide for an additional indemnity (Viegas). The Federal Constitution insures freedom of association to professions and trade unions. The principal function of a union is to represent the general interests of its members as a group or individually. Unions may also enter into collective bargaining or agreements, and promote conciliation in Bargaining. Collective bargaining or agreements are usually carried out through negotiation, as a means of regulating specific labor relationships. After these instruments are signed by the representative unions for the professional and economic categories, the employer must comply with its clauses since they are enforceable thereon. These instruments are binding on the company and on all the members of the union s professional category. This applies even if the members are not unionized. There are other rights granted to Brazilian employees such as minimum wage to overtime compensation that are main and most important rights granted to the employees by the Brazilian Federal Constitution and by the CLT. Any individual rendering any kind of service, under Brazilian law, is entitled to compensation, which may include in addition to the monetary value in Brazilian currency, food, housing, clothing and any other benefits the company provides habitually to employees by express or tacit agreement, and may be paid monthly, fortnightly, weekly or even per piece or task, depending on the conditions established for the hiring. The wage paid to an employee may never be less than the minimum wage or than the lowest wage level established in the collective bargaining for each professional category. In the case of employment in activities considered by law to be hazardous, the employer will pay an additional monthly allowance for the hazardous conditions. In the case of dangerous activities, such as those involving contact with explosives or flammable materials, the employer shall pay an additional payment in compensation for the risks involved at the rate of thirty percent of the employee s salary (Brazil Labor). The employees have a right to an additional salary bonus every year, which will be paid by the employer in December of each year, corresponding to the highest compensation paid to the employee during the year. When taking a vacation, the employee may request a proportional advance on such bonus. All employees have a right to, at least, one-day s remunerated rest period, which should preferably fall on a Sunday. Payment of the weekly-remunerated rest period will already be included in the monthly salary. Every employee, who has not been absent from work more than five unjustified times during the period of one year s service with the same company, is entitled to 30 calendar days vacation and the salary in relation to the vacation period must be paid at the latest two days before the start of the vacation period. For employees working in private firms, the maximum workday are eight hours; the maximum work week, 44 hours. Work performed beyond these time limits is considered overtime. Up to two hours overtime a day may be rendered upon written agreement between employer and employee, or a collective bargaining. The minimum compensation for overtime is 50 percent higher than the normal hourly rate. Overtime payments do not apply to employees in positions, of trust, such as management. Night work is 11

49 work performed between 10 p.m. and 5 a.m., and must be compensated at least 20 percent more than the daily working hour. Under Brazilian social security law, every employee must necessarily be covered by social security insurance. Social security in Brazil is made up of monthly contributions by employees, employers and the Government. These payments entitle the employee to receive social security benefits. Decree of January 23, 1984 governs all social security benefits in Brazil. It sets out the various types of retirement pensions: disability, retirement, special and for length of service. The employer is obliged to take out work accident insurance for its employees from the Brazilian Social Security Institute, INSS. The cost of this insurance is fixed by the Ministry of Labor and Social Security. Directors and partners of firms who are not employees, self employed workers, and domestic servants are not covered by work accident insurance legislation. Financial Laws and Regulations The Securities Commission, CVM, where all other entity in Brazil are submitted to the Constitution and the Laws issued by the National Congress, there are other rules with the same legal power, such as provisional acts. According to Brazil s Constitution referring to article 62, are enacted directly by the President of the Republic and go immediately into force, but which also have to be ratified by the Congress 30 days after the enactment. The President may, however, reenact provisional acts as many times as needed. The main Laws that guide the securities market, and therefore, the CVM, are Law 6.385/76 which is the Securities Law, which disciplines the securities market and creates the CVM and Law 6.404/76 known as the Corporation Law, which states The capital of a corporation or joint stock company shall be divided into shares, and the liability of the partners or shareholders shall be limited to the issue price of the shares subscribed to or acquired (Regulations of Interest to Foreign Investors). Due to the agility, complexity, and constant evolution of the Financial System, it would be impossible for all related regulation to pass through the parliamentary process. Therefore, Law 4595/64 created and gave normative powers to the National Monetary Council, CMN, and the highest regulatory entity within the National Financial System. The rules issued by the CMN, namely Resolutions can be compiled with by all the members of the System, including the Central Bank and the CVM itself. The CVM, on its turn, has the power to issue complementary rules to the Laws and CMN Resolutions. The more relevant rules issued by the CVM are named Instructions and Deliberations. This discloses a non-legally binding free translation of the Laws and Regulation that are most important for foreign investors. As the global financial crisis continues to unfold, it was clear that developing countries may have to replace some market financing with lending from the multilaterals, and prepare for the recession in the U.S., which will inevitably occur as a result of the credit squeeze of the past months, and its impact on global markets. Such a high level of confidence from President Lula about Brazil s economy reflects some underlying economic fundamentals that cannot be ignored. Financial intermediation, though low for developed country standards, is conducted primarily by domestic institutions. To the extent that Brazilian banks also have very low foreign liabilities, the economy is somewhat protected from a major credit contraction in international financial markets. Nearly half of Brazil s exports are commodities, which have benefited from historically high prices during the last four years. The world is still debating whether this is a permanent shift in commodity prices or whether prices will go back to their long run levels. Demand from China, substitution of fossil fuels, and limited technological progress in agricultural production seem to be part of the explanation for higher prices, while also adding the effects of high liquidity in advanced countries. Although no one really knows what is going to happen with commodity prices in the future with high food prices, research and development in agriculture, it is all likely to surge Prices of other commodities continue to fall, this means that Brazil s exports may indeed take a hit in the near future. Of course, 12

50 with sharper declines in prices and lower demand abroad for its exports, the deficit could increase. Although this does not pose a major risk, it simply suggests that Brazil is not in the group of countries with large foreign exchange surpluses. Under this new scenario including Brazilian flagship corporations, action may need to be taken into aggressive investment plans. Looking at these fundamentals of the Brazilian economy, there are good reasons therefore to believe that Brazil s economy is resilient to the global financial crisis. But that does not mean that Brazil is immune. As in China, the key to Brazil s future depends heavily on the domestic market. With a growing middle class, and large infrastructure projects under way, private consumption and domestic investment are likely to become the major sources of growth in the years ahead. In fact, the government is launching a reindustrialization strategy, with high investment in steel, petrochemicals, and defense equipment, including construction of its first atomic submarine. This time around the development strategy in Brazil is carried out by the private sector, with limited support from the government, and much better governance structures than in the past. If these fundamentals can remain strong, Brazil may yet dodge the current global economic bullet. Political Laws and Common Laws The practice of political corruption in Brazil has a long history since the colonial period, along two dimensions, the manipulation of political decisions to favor private economic gains and the second being the illegal appropriation and detour of public funds by politicians and their designates. The first dimension involves private economic gains for the decision makers themselves, or for other parties or institutions. Usually the decision makers involved receive some material benefit in return. The second dimension is more complex and involves a large variety of schemes and strategies, such as the sweetheart loans from public financial institutions, the no show public employees, over invoiced public contracts with rigged bidding procedures, destination of public funds to philanthropic foundations linked to the decision makers, allocation of funds to local governments for public works and services never executed, requiring a percentage kickback from government contractors to insure disbursements for services and public works already executed, etc. In some cases, such detours of public funds to local pork barrel projects by members of Congress do not return directly to the latter's pockets, but garner political capital for use in the next reelection campaign in favor of these politicians' political survival (Ames). Traditionally, prior to the military takeover in 1964, these two dimensions of political corruption existed, but on a scale stage consistent with the scarce public resources available during that of Brazil's economic development. Although one of the rationales for the military intervention in 1964 was to end political corruption, and despite numerous military inquests to this end, the levels of political corruption increased significantly during their twenty first years in power, in direct proportion to an increased role of the State in economic development, and increases in GDP and federal budgets. The current political party system began to emerge in the 1940s under President Getulio Dornelss Vargas who established the Social Democratic Party and the Brazilian Labor Party to buffer his weakening administration (Ames). A number of other parties were organized and entered elections through the 1950s and early 60s, but few of them gained much influence. In 1965 the military government, which had taken power the previous year, abolished all political parties and replaced them with a single government party, the National Renewal Alliance and a lone opposition party, the Brazilian Democratic Movement. The government abolished these two organizations in 1979 and allowed more parties to participate, but still under restrictive regulations. After civilian government was restored in 1985, Brazil again legalized all political parties, and a highly fragmented multiparty system emerged, anchored by the Liberal Front Party, 13

51 the Brazilian Social Democratic Party, the Party of the Brazilian Democratic Movement, and the Workers Party. The Brazilian Constitution, created in 1988, supports a democratic government with universal suffrage by direct and secret ballot. Voting is compulsory for literate persons between 18 and 69 years of age and is optional for persons who are illiterate, over 70 years of age, or 16 and 17 years of age. There are three branches of government: the executive, legislative, and judicial. The president exercises executive power, and is elected by direct ballot to a four year term. Legislative power is exercised by the bicameral National Congress comprised of the Federal Senate, or upper house, whose 81 members are elected by a system of proportional representation for 4 years and by the Chamber of Deputies, or lower house, whose 513 members are elected for 8 years by direct ballot, and whose districts are proportional to the size of the population (Government and Politics). Each state has a directly elected governor and an elected legislature. The municipalities are governed by directly elected mayors and an elected legislature. Judicial power is exercised by the Supreme Federal Tribunal, whose judges are appointed for life and who are elected by their own tribunal members. Brazil's judicial system plays an important role in the Brazilian economy. It is responsible for compliance to laws regarding the economy, which are determined by the constitution. Any government decision affecting the rights of the individual is contested and supported by an independent judicial system. Therefore, radical changes in legislature regarding the economy are almost impossible if the judicial system disapproves. Brazil went through decades of military dictatorship. The military overthrew the left wing regime of President Goulart in 1964 and ruled Brazil until The Brazilian military exerted complete control over the economy, politics, and popular media. All mass communication, art, and popular opinion were censored by military intelligence. Many leftist politicians were arrested and exiled to other countries during these dark years. However, in 1985, popular pressures and a recession led to peaceful democratic elections and indirect elections for the presidency. The legislative election of 1985 resulted in the formation of the democratic regimes of the 1980s and 1990s, and the military lost its power and influence in the economy. Since then there have been military, navy, and aviation ministries in the Brazilian government, but their influence has not been felt in the most important economic and political decisions. Brazil's government plays a large role in the economy, controlling many sectors of the economy that are considered strategic, including power generation, oil extraction, mining of natural resources, water supply, and telecommunications. Fernando Henrique Cardoso began to adopt policies to end these monopolies. The policies include privatization of state run companies, and deregulation of the energy and mining sectors. Nearly 61 percent of government revenue comes from tax payments. Personal income tax rates are progressive, with a maximum rate of 25 percent. The income tax rate on corporations and other legal entities are also progressive, with a maximum of 30 percent. Profits are taxed at up to 50.5 percent and capital gains at 25 percent. A value added tax that ranges from ten percent to fifteen percent is payable on sales and transfers of goods in accordance with the nature of the production. Apart from personal income taxes, government taxes are applied on corporation income, turnover, sales, financial operations, minerals, fuels, electric power, real estate, municipal service, and urban real estate. Tax evasion is rampant in Brazil, but this crime came under attack during The Central Bank of Brazil and the Ministry of Income compared their records in order to determine which Brazilians had not filed income taxes. Considerations With the above information researched, it can be said that several considerations need to be taken into regards when making a decision or having to evaluate facts especially when expanding a company s headquarters such as PUMA into Sal Palo, Brazil. This is a company that is headquartered in Germany and keep be quite different from Brazil. The two nation-states of Brazil and Germany have a very 14

52 different standing economically, socially and internationally. Germany s robust economy, affluent society, and effective government have put the country as a leader in the international scene. Quite the contrary however, is Brazil who is still yet to emerge as a true democracy and is faced with a plethora of social and economic problems. Geography and Demographics As Europe's largest economy and most populous nation, Germany remains a key member of the continents economic, political, and defense organizations. European power struggles immersed Germany in two devastating World Wars in the first half of the 20th century and left the country occupied by the victorious Allied powers of the US, UK, France, and the Soviet Union in With the advent of the Cold War, two German states were formed in 1949: the western Federal Republic of Germany and the eastern German Democratic Republic. The democratic FRG embedded itself in key Western economic and security organizations, the EC, which became the EU, and NATO, while the Communist GDR was on the front line of the Soviet-led Warsaw Pact. The decline of the USSR and the end of the Cold War allowed for German unification in Since then, Germany has expended considerable funds to bring Eastern productivity and wages up to Western standards. In January 1999, Germany and 10 other EU countries introduced a common European exchange currency, the euro. Brazil is the fifth largest country in the world, in terms of population as well as land area. It is the economic leader of South America, with the ninth largest economy in the world, and a large iron and aluminum ore reserve. From the Amazon basin in the north and west to the Brazilian Highlands in the southeast, Brazil's topography is quite diverse. The Amazon River system carries more water to the ocean than any other river system in the world. It is navigable for its entire 2000-mile trip within Brazil. The basin is home to the most rapidly depleting rain forest in the world, losing about 52,000 square miles annually. The basin, occupying more than sixty percent of the entire country, receives more than eighty inches of rain a year in some areas. Almost all of Brazil is humid as well as either has a tropical or subtropical climate. Brazil's rainy season occurs during the summer months. Eastern Brazil suffers from regular drought. There is little seismic or volcanic activity due to Brazil's position near the center of the South American Plate. The Brazilian Highlands and plateaus generally average less than 4000 feet, but the highest point in Brazil is Pico de Neblina at 9888 feet. Extensive uplands lie in the southeast and drop off quickly at the Atlantic Coast. Much of the coast is composed of the Great Escarpment which looks like a wall from the ocean. This is only a physical advantage when moving cargo. Brazil encompasses so much of South America that it shares borders with all South American nations except Ecuador and Chile. Brazil is divided into 26 states and a Federal District. The state of Amazonas has the largest area and the most populous is Sao Paulo. The capital city of Brazil is Brasilia, a master planned city built in the late 1950s where nothing existed before in the Mato Grasso plateaus. Now, millions of people reside in the Federal District. Two of the world's fifteen largest cities are in Brazil: Sao Paulo and Rio de Janeiro, and are only about 250 miles apart. Sao Paulo is growing at an incredible rate. The population has doubled since 1977 when it was an 11 million people metropolis. Both cities have a huge ever-expanding ring of shanty towns and squatter settlements on their periphery. The state of Sao Paulo is responsible for about half of Brazil's Gross Domestic Product as well as about twothirds of its manufacturing. While only about five percent of the land is cultivated, Brazil leads the world in coffee production about a third of the global total. Brazil also produces a quarter of the world citrus, has more than one-tenth of the cattle supply, and produces one-fifth of the iron ore. Most of Brazil's sugar cane production is used to create gasohol, which powers a portion of Brazilian automobiles. The key industry of the country is automobile production. It will be very interesting to watch the future of the South American giant. Even though PUMA produces high-end athletic shoes, lifestyle footwear and other 15

53 sport wear, the public of Brazil will have to take advantage of their production and benefit from such a product coming to their country. Economic Germany is the largest economy in the European Union. It benefits from a large pool of talented work force that has enabled Germany to dominate the vehicles, machinery, chemicals and household equipment vertical across the globe. It is this strong productive work force that enabled Germany to face recession with a resilient face and the Germany economy could manage to have a GDP of 2.2 trillion dollars in 2009 (Brazilian Economy). In the world, the German economy ranks fourth in terms of nominal GDP and fifth in terms of purchasing power. Germany is the world s second largest trader both in terms of imports and exports. Germany is also the hub of global scientific and technological developments. Like already stated, Brazil is the largest in South America and the country boasts well-developed agriculture, mining, manufacturing, and service sectors. Since 2003, Brazil has improved its macroeconomic stability, built foreign reserves, reduced debt, kept inflation rates under control and committed to fiscal responsibilities. After witnessing unprecedented economic growth in 2007and 2008, the global financial crisis finally hit Brazil. Brazil s currency and stock market saw huge fluctuations as foreign investments dwindled, demand for commodity exports dried up and external credit increased ( However, Brazil was one of the first emerging markets to stage a recovery, with GDP growth returning to positive levels. Financial Germany is one of the top destinations for American expats. The cost of living in Germany is similar to America s. There are many cities with a high cost of living, such as Berlin, Bohn, and Cologne and other places located in former East Germany where cost of living is far less. Prospective visitors should bear in mind that wages in Germany are usually very high and therefore balance out the high cost of living. Although Germany s cost of living is high, visitors will definitely get their money s worth. Anyone looking for living conditions that are on par with America s should visit Germany. It is easy for tourists to become long term expats in Germany. In addition, many businesses have offices in Germany due to its excellent economy and thriving manufacturing, engineering, and banking sectors. While Brazil s cost and standard of living are the highest in South America, the cost of living is low compared to most of North America and Europe. Prices in Brazil have increased in recent years, primarily fueled by gains in the local currency against the US dollar. As of the most recent expatriate cost of living survey conducted by UBS, average prices in São Paulo are the highest in South America, but 21 percent lower than New York, the highest in North America. Average prices in Rio de Janeiro are 22 percent lower than New York, according to the survey. Political The government of Germany has made gigantic leaps and bounds over the last 50 years. Some of the problems that many Americans had with the German government in the early and middle part of the 20th century are now non-existent. The stereotypical German is considered to be uptight, cold, and without a sense of humor, but this may no longer be true. Germany s youth has definitely taken on a culture of their own and anyone who lives in Germany for a couple of months will notice that many 16

54 Germans are extremely warm and compassionate. The government of Germany has socialist tendencies, but it allows businesses to grow and operate within its borders, in the European Union and throughout the world. The government of Germany is considered a parliamentary federalist republic and has a president and chancellor. Life in Germany is extremely safe, efficient, and stable. American expats who want to live in Germany will find it fairly easy to do so as the government has a good relationship with the U.S. government. Brazil is governed under the 1988 constitution as amended. The president, who is elected by popular vote for a four-year term is both head of state and head of government. There is a bicameral legislature consisting of an upper Federal Senate and a lower Chamber of Deputies. The 81 senators are elected for eight years and the 513 deputies are elected for four years. The president may unilaterally intervene in state affairs. Administratively, the country is divided into 26 states and one federal district. Each state has its own governor and legislature. The main political parties are the Brazilian Democratic Movement party, the Liberal Front party, the Democratic Labor party, the Brazilian Social Democracy party, and the Workers party. Workforce Germany has over 400 universities and universities of applied sciences. Through a combination of on- and off-the-job training in Germany s so-called dual education system, hiring and training costs are reduced and recruitment risks minimized. Vocational colleges closely cooperate with approximately 500,000 companies in Germany, ensuring that education always meets specific industry needs. Brazil over a period of large-scale trade liberalization documents two salient workforce changeovers. Within the traded-goods sector, there is a marked occupation downgrading and a simultaneous education upgrading by which employers expanding low-skill intensive occupations with increasingly educated jobholders. Between sectors, there is a labor demand shift towards the least and the most skilled, which can be traced back to relatively weaker declines of traded goods industries that intensely use low-skilled labor and to relatively stronger expansions of nontrade output industries that intensely use high-skilled labor. Labor Market In the late nineties, Germany was often seen as a laggard with respect to labor market and welfare state reforms with institutional inertia being reflected in notoriously sluggish employment growth and rising unemployment. Recent years, however, saw a complex sequence of reforms with regard to labor market related institutions such as labor market regulation, social benefits, active and activating labor market policies and attempts to reduce the burden of payroll taxes and series of changes in collective bargaining. The extent labor market related reforms in Germany have in fact contributed to overcoming structural weaknesses of a Continental European welfare state without work and creating an institutional setup more conducive to strong employment growth and lower unemployment. From the description in detail above in the labor laws, it can be said that Brazil is one of the countries that is continuing to outpace the rest of the world. Although continue to outpace the rest of the world. Meanwhile, employer-hiring confidence in European countries is mixed with positive job prospects reported in Germany for the quarter ahead. And although hiring plans in the U.S. are stronger compared to one year ago, the cautiously optimistic hiring pace indicates economic concerns continue to weigh on the minds of American employers, especially when countries like Brazil indicating the strongest 17

55 fourth-quarter job prospects. This is very beneficial to the having the headquarters of PUMA expanding to Brazil. Competition PUMA is a company that keeps changing its stripes. It is a corporation that makes sports-specific shoes and apparel sold under the PUMA and Tretorn labels, was formed when German brothers Rudi and Adi Dassler feuded and split their family firm into Adidas and PUMA. While shoes are PUMA's heritage, apparel accounts for a growing portion of sales. It has been expanding its athletic apparel styles to include men's golf, sailing, motorsports, and denim items. PUMA also operates its own retail and factory outlet stores and controls product distribution in many countries. French luxury-goods giant PPR owns a majority stake in PUMA, the world's third-largest sporting goods company behind NIKE and Adidas. Nike, the Greek goddess of victory, helped others succeed in times of war. NIKE, the world's number one maker of athletic footwear and apparel, does more dominating than assisting, to capture a hefty share of the US athletic shoe market. It designs and sells footwear and uniforms for a wide variety of sports. NIKE also sells upscale Cole Haan shoes, as well as athletic apparel and equipment. It operates NIKETOWN shoe and sportswear stores, NIKE factory outlets, NIKE Women shops, and sells its products online. Overall, the company sells its items in some 690 NIKE-owned retail stores worldwide and through about 23,000 retail accounts in the US and via independent distributors and licensees in other countries. The heart of the Adidas product line is athletic shoes, but the company's iconic three-stripe logo appears on apparel and other jock accoutrements. As the number two maker of sporting goods worldwide behind NIKE, Adidas has inked deals with football and basketball athletes, as well as the New York Yankees, and it serves golfers through its Taylor Made Adidas Golf. The company operates some 2,200 retail locations under the Adidas and Reebok banners. Adidas, which boasts the official match ball for the 2010 FIFA World Cup, expanded its business and breadth when it bought Reebok. With this stated, it can be said that this particular industry, the sportswear industry, which includes both athletic footwear and apparel, is very labor intensive. Therefore, most production takes place in low wage countries. The majority of employees within the supply chains of sportswear companies are young and female and they inevitably work under unreasonable terms of employment and poor working conditions. These include short term contracts that include no health or social benefits, long working hours and unpaid overtime, unhealthy and unsafe working conditions, poor wages due to the fact that payment is often tied to unrealistic production targets or piece rate systems, and redundancy policies that offer inadequate severance pay compensation. PUMA Fila, Umbro, Asics, Mizuno, Lotto, Kappa, and New Balance. They have been labeled B brands because, in terms of their market share, they form a second rung of manufacturers in the sportswear industries, just below the market leaders or the so-called A brands: Nike, Reebok and Adidas. Most of PUMA s footwear is produced in Asia, as well as 60 percent of its apparel. China, Thailand, Malaysia, Vietnam, and Cambodia are the main production countries like most products. But in Europe, Romania, Bulgaria and Turkey are the main sources of PUMA products. Some PUMA products even come from places like Portugal and Italy. In the Americas, PUMA uses suppliers located in Paraguay and California. However, according to PUMA s own social and environmental reports, 49.4 percent of its products are sourced in Asia, with Europe accounting for 33.7 percent, and the Middle East for 14.6 percent (Vovo). This is where our actions of this business plan will make an impact in South America. 6. International Management Policies and Processes: 18

56 As an international brand, PUMA has taken on a strong dedication toward global sustainability and development. PUMA has developed a set of ethical codes that the company abides by, and to implement these codes, the company has developed a set of conduct codes that all employees from CEO to intern are expected to follow. These corporate codes all stem from PUMA s PUMA.safe concept, which addresses the issues of human rights, product safety and ecological concern. This is an entire part of PUMA AG devoted to dealing with international accountability and environmental standards. The concept consists of 5 core pillars; transparency, dialogue, evaluation, social accountability and sustainability. PUMA S.A.F.E. s mission statement is to achieve sustainable excellence and to make from every factor where PUMA goods are produced a good place to work in. Our aim is to comply with established rules as detailed within the basic principles of transparency, dialogue, evaluation, social accountability and sustainability. PUMA s Business Code of Ethics puts into writing the company s commitment to ethical behavior. The list includes the following rules: PUMA respects and upholds the laws and legal requirements in all countries where it operates PUMA and its employees must not engage in any activities leading to conflicts of interest or unjustified personal benefits PUMA does not financially support any political parties PUMA encourages and supports its employees participation in charitable work PUMA believes all people have the right to freedom from discrimination. PUMA maintains an equal opportunity hiring policy and expects its employees and partners in their daily work and actions to uphold ethical behavior and respect for human rights. PUMA does not tolerate any forms of violence or abuse and will seek opportunities for conflict resolution PUMA respects the individual right to freedom of religion PUMA respects consumer privacy and will not share personal data with third parties without explicit prior consent PUMA acknowledges its responsibility to protect stakeholders, consumers, and the environment from harm and works toward the concept of sustainable development These ethical codes are the basis for PUMA s conducts codes, which they employ in all international aspects of their business. To implement these codes, PUMA has also developed a series of handbooks outlining how the company conducts their international strategy in regards to social standards, health and safety standards, and environmental standards. PUMA s social international policies are separated into sections including legal compliance, internal compliance, anti-trust limitations, management systems, human resource management system, S.A.F.E. compliance in factories, and zero tolerance issues. The first section details how PUMA employees should act when making decisions regarding the company. PUMA prohibits any personal consideration i.e., social ties, bribes, gifts, from decisions regarding the company. Employees should always act in the best interest of the company. Internal 19

57 policies are used to uphold these rules, including internal audits and monitoring through the management team. A management system is a continual cycle of policies, processes and practices that enables an organization to control the performance and outcomes of a specific area or function. This means that all management systems within PUMA constantly evaluate and review the organizational system. To do this, PUMA utilizes the Plan-Do-Check-Act Model. Another key factor in upholding the company s policies and practices is the Human Resource Management System. PUMA holds that human resource management is the key to attaining compliance to their company values and ethical codes. There are clear guidelines dealing with all aspects of the work environment, and it is the responsibility of the human resource management team to communicate and review these policies frequently and regularly. The team must ensure that all compensation and benefits meet the local minimum requirements and support the growth of the factory. Factory management is required to work with unions for the benefit of their international employees, and in a case where a union does not exist or does not hold the employees best interests in mind, then the employees must choose their own representatives and factory management must maintain open communications with them. Management is also required to provide the proper training for all factory workers, including health and safety education. PUMA factories that are staffed with over 100 employees are required to have a S.A.F.E officer specifically employed with the task of upholding and implementing the S.A.F.E regulations. This officer ideally speaks the language of the host country, as well as English, so that they are able to act as a liaison between the employees and the corporate S.A.F.E team. PUMA also has a list of zero tolerance issues, which govern the type of suppliers that the company deals with. The list consists of the non-compliance to basic government licensing regulations, confirmed cases of child labor, nonpayment of minimum wage, and lastly confirmed cases of prison or bonded labor. Any indication of these practices will have strong consequences between supplier and PUMA relations. Periodic evaluation of the workplace environment is required as part of PUMA s international policy. Internal audits are used to evaluate issues such as the presence of a competent health team, health and safety management systems, fire safety, electrical installations, chemical management, protective equipment, and accident reporting. The Plan-Do-Check-Act model is employed here as well to maintain an acceptable level of employee safety. During the planning section, health and safety policies are stated and goals and objectives are set. The next step is to implement the procedures and train employees, followed by conducting internal controls to monitor operations. Lastly, there management reviews are performed and corrective measures are instated. The entire cycle repeats constantly. Environmental policy is the third section of PUMA.safe s international policies. Key points of this strategy includes fully integrating environmental policy into corporate strategy, finding a balance between financial and environmental interests, communicating the environmental policy to all levels of PUMA s organization and suppliers, and the constant strive for improvement. Below, is a flow chart, which outlines the environmental sustainability evaluation, used. 7. How Policies and Processes Impact the PUMA Bazil Division: These international policies and processes are an integral part of our plan to expand a corporate office into Brazil. Running an operation out of Brazil requires the location to develop its own system of checks and balances, as has been established by the S.A.F.E team. In order for PUMA Brazil to achieve compliance with PUMA.safe standards, the company must establish a management team with the competency to evaluate all new suppliers to the company. The management team must review all the rules and regulations associated with doing business in Brazil, and then set guidelines based on the rules of the country. 20

58 Before being able to expand into Brazil, PUMA must create a set of policies specific to the needs of Brazil. They must find a commonplace between the laws of the country and the policies of the company. To do this, they must train managers accordingly. All management teams have the responsibility of upholding the company s values, as well as acting always in the best interests financially of PUMA. Management training is an important factor in the success of PUMA in Brazil. They must be familiar with the company s business goals and able to develop a business strategy and plan to accomplish these goals. This means having the ability to create a system that fits into PUMA s international brand and corporate culture. The management at PUMA Brazil s main task is the assigning and hiring of a strong human resources team. It will be the responsibility of this team to employ the Plan- Do-Act-Check model within the company, which is the basis of PUMA s international management model. This means that the management team must plan what to do and identify how to know if it works, do what is planned, check the results against expectations, and finally hold the gains and learn from their experience. This is an ongoing cycle to ensure constant compliance with the legal standards outlined by Brazil s government. PUMA Brazil s suppliers must be required to follow PUMA s international policies and processes. This new management sector is required to abide by the guidelines as set forth for their suppliers in the above section. It is the management team s responsibility to assess the legal and political environment within Brazil. They must monitor the actions of subordinates to ensure that the codes of conduct are being followed with regard to upper level management, as well factory workers under PUMA Brazil. Management must monitor new suppliers, as well as new factories to ensure that they comply both ethically and structurally with PUMA by performing periodic internal audits. For these audits, PUMA Brazil will require a S.A.F.E. officer as part of their management. It is this officer s responsibility to monitor employee-employer relations, and maintain work conditions that are up to par with PUMA s international policy standards. 8. Flow Chart: (see Appendix) 9 & 10. International Management Metrics Report & Qualitative Description: As many people often refer to the old saying, you don t reinvent the wheel, I believe that saying can be applied to business metrics, as there are already some very established business metrics that can be applied to almost any business. Although it is helpful to create hybrid measurements of specific goals and success, it can also be quite costly and a bad use of resources. This is why for our company, we have chosen to use a scorecard based approach to measuring our success as a business which includes several general but well established measures, yet also contains some hybrid metrics that apply more specifically to our current business situation. First one must review the goals of the company in order to decide how success will be measured. The first set of goals that will be relevant for our measurements will be related to product quality and cost efficiency. The second set of goals that will be of relevance to our company will be in developing positive human relations. These human relations goals will be aimed at not only our workers in Brazil, but also the Brazilian Government and the people of Brazil. A third set of relevant goals will be in measuring success in terms of monetary achievement. These include sustaining and creating market shares, as well as using relevant accounting strategies related to the German-Brazilian dynamic. If our company can find success in these general metrics areas, then we believe it will increase our likelihood of running a long-term profitable business. In developing good product quality in a cost efficient way we will look to achieve milestones that other similar companies attempt to achieve. One such popular milestone will be the overall commitment to achieving six-sigma product quality for all general retail that will be in stores. Generally renowned in many businesses, six-sigma is the quality control production process that is designed to be

59 percent accurate, creating just 3.4 defects per million units. (Hill, 558) We believe this could be effective in our general clothing lines that are generally popular across cultures. For more customized Brazilian designs, a commitment to quality in a cost efficient manner will be just as important. Processes like this one will be evaluated by creating a value stream map and establishing the cost of the overall per project amount (Cost per Project = (Labor Time x Hourly labor rate) / # of Projects Processed) (Millstein). Measuring per project amounts would allow the company to establish guidelines for cost efficiency in custom designs as well as general manufactured designs. Depending on specific goals, values are assigned to different aspects of organizational behavior and human resources relevant to the circumstances of that company. At PUMA bridging the gap between German and Brazilian cultures is important both from a human resource standpoint, and a corporate standpoint. The important factors that will be PUMA s focus will be measured through established theories, frameworks and models. The scorecard for measuring our human resource effectiveness will consist of evaluating indicators such as employee satisfaction, employee turnover, and management integration. Historically, companies did not see value in evaluating employee satisfaction, however over the last quarter century there has been significant studies that have pointed to employee satisfaction as a key indicator of productivity. At the heart of this change has been the emergence of more team oriented corporate cultures rather than authoritarian corporate structures. (Kinicki)More specifically relating to our PUMA-Brazil headquarters, our company has looked to the Sedona Center in Sedona, Arizona as a model company in lowering employee turnover through its focus on the needs of employees. The Sedona Center, which includes the Amara Creekside Resort, two shopping plazas, and three restaurants, has been able to create a low 13 to 18% employee turnover rate. This rate is less than half the national average for the industry. (Kinicki, 52) This company has attributed this low turnover rate to the Three-Phase Model of Organizational Socialization which includes: Anticipatory Socialization, Encounter, and Change and Acquisition. (Feldman, 52) In having a planned approach to integrating employees from Brazil with German employees and merging cultures, we hope to limit the turnover rate thus reducing the high costs associated with hiring practices. In gaining monetary success, the company will look to crack the booming Brazilian economy by establishing market shares while looking for short term as well as long term profit and sustainability. In 2007, PUMA held roughly 7% of the athletic footwear market in terms of global shares. That places a distant 3 rd behind the market shares that Nike and Adidas own respectively (31% and 16%) (Commerzbank Equity Research). This is a market share that we would like to maintain as in the Brazil as far as the athletic footwear department goes. In the athletic apparel market there is definitely room to take advantage of the diluted market. As of 2007 we (PUMA) only owned 2% of that market (Nike 7%). Consequently the top 5 firms only owned 27% of the total world market. This obviously gives rise to that there are not only opportunities to create economies of scale in athletic apparel in Brazil, but the world in general. (Commerzbank Equity Research) Additionally, as the Brazilian economy is set to grow 7.6% this year and then expand 4.5% next year according to the most recent central bank survey of economists (NASDAQ) Expanding into the fashion and high-end retail may also be a major goal of our company due to the increase in excess capital from consumers in Brazil. In addition to looking at things like market-share and potential for profits, our company must look at the relevant accounting issues at hand. Our company (PUMA) will use the basic financials of the International Financial Reporting Standards (Statements of: Financial Position, Income, Cash Flows, Changes in Equity and Notes), which are already presented in published statements. PUMA is a publicly traded company in Germany. PUMA s common shares are traded at XETRA on the Frankfurt and Munich stock exchanges and over the counter ("OTC") as American Depository Receipts (ADRs). Since 1986, the Company has been publicly traded on the Munich and Frankfurt stock exchanges, while since 1996, has been listed on the MDAX, the midcap index of the German Stock Exchange (Teletrader). In trading on the public exchange, the company will continue to abide by regulations of publicly traded companies such as a requirement for a Corporate Governance Codex. (Daucort) 22

60 In addition to understanding German and Brazilian subtleties in law, it will be of great importance to understand the differences in how the German and Brazilian accounting systems were developed, as well as specific valuation or terminology differences. For example, the German accounting system was developed in a macro-uniform manner and is a law based system. This is similar to Brazil whose policies has been adopted in a macro uniform manner but are generally more tax based and driven by inflation. (Nobles, 38) Each country has its own set of Generally Accepted Accounting Principles; and our financial reporting in Germany will be in German GAAP. In Brazil, we will use International Financial Reporting Standards as opposed to Brazilian GAAP because Brazil has recently taken major steps to converge its accounting principles with those of world standards. As Pedro Malan, former President of the Central Bank of Brazil reiterates, The move to IFRS will be a major plus for Brazilian firms stature in international capital markets and among investors, analysts, auditors, ratings agencies, shareholders and stakeholders in general. This convergence to IFRS is an advantage to PUMA not only in the fact that it is one less conversion of standards in the financial statements, but advantageous in the fact that Brazil is still taking steps to further its economy and legitimize itself as global economic leader. Specific differences in German GAAP and IFRS can be found on many of the Big Four Accounting Firms websites. Several significant differences that PriceWaterhouseCoopers has included on their company website include: IFRS permits revaluation of some assets to Fair-Market-Value (FMV) while German GAAP supports reporting of assets almost exclusively at Historical Cost. The presentation of financial statements is generally the same except for the Statement of Financial Position (Balance Sheet). Like U.S. GAAP, the German GAAP has specific legal presentations of Balance Sheet where IFRS does not impose specific guidelines (assets in order of liquidity). Changes in accounting policies in German GAAP are accounted for prospectively, while IFRS accounts for the changes retrospectively. These listed differences are merely just a small fraction of the full list of differences between German GAAP and IFRS, a more comprehensive list of can be seen at the PriceWaterhouseCoopers company website. In addition to reporting standards, while looking to expand PUMA into Brazil the company needs to understand currency differences. As is the case with many multinational companies penetrating other markets, it is very important to know and understand currency differences. In Germany the home currency is Euro, which was adopted in favor of the German Mark in In Brazil the currency is the Real. As of 12/1/10(XE.com), 1 Euro could buy approximately 2.23 Reals and it would take 2.23 Brazilian Reals to buy 1 Euro. Knowledge of these rates can be very advantageous for our company (PUMA) as there are opportunities to take advantageous of the more favorable currency rates in Brazil. In addition to currency awareness, the company needs to understand that historically Brazil has had unusually high interest rates and significant fluctuations in inflation. In addition judges in courts have tended to favor debtors rather than creditors in loan default court cases. (Blossier) This can give rise to two basic conclusions for PUMA; first being that the historically debtor favored courts are part of the reason for high interest rates, and the second conclusion being that extending loans in Brazil is likely not a good idea. 23

61 Appendix 1. Total PUMA Organizational Chart 2. Skills and Knowledge Pie Chart 24

62 3. International Management Chart (South America Division) Production Collection materials passed to Research & Development 4. Environmental Chart of PUMA Information Given to Manufactuerers/material suppliers to arrange samplilng Initiation of testing and delivery of material samples to the corresponding laboratories Chemical Analysis of the materials based on the standards for garment and footwear delivering the results of the evaluation Results fail the se tquality standards. Redo whole procedure Results comply with the set quality standards 25 Start Production

63 5. International Management Policies and Processes Legal Compliance Management S.A.F.E. Human Resources Brazil legal and political standards Set of guidelines based on host country regulations Guidelines for managers and employees to follow Plan Do Check Act Model Evaluate and improve the past cycle. Policies and guidelines set Act Plan Check Do Internal Audit system to ensure compliance Implement procedures, train employees 26