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Competitive strategies:

Global vs. local

Professor Daniel F. Spulber

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Global competitive strategies

The G5

Platform strategy

Network Strategy Intermediary strategy

Entrepreneur strategy

Investment strategy

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Home, supplier, partner, and customer countries ofcompetitors differences as sources of competitiveadvantage

Differences in global value connection

Differences in products, brand, technology

Differences in impacts of political, legal and regulatory

climate trade agreements, home country policiesDesign global competitive strategies for competitive

advantage

Global competitive strategies

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Global competitive strategiesCompetitive advantage must be relative to bothglobal and local competitors:

Unilever in US: Breyers,Ben and Jerrys, Good

Humor, Klondike, Popsicle

Nestl in US: Dreyers

The great ice cream battle

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Gujarat Cooperative Milk Marketing Federation (GCMMF):India's largest food products marketing organization.

Two million farmers in the cooperative

Slogan: A taste of India

PRICE: 10 rupees (20 cents): 100 milliliter Amul ice cream versus

80 milliliter Hindustan Lever Kwality Wall vanilla ice cream

ADVERTISINGCOSTS: Amul: 1% of sales versus

Hindustan Lever: 10-15% of sales on advertising

UNILEVER in India Kwality Wall

Hindustan Leverfaces successful local competitor

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Umbrella

brands:

Nestl

products in

the super-market.

Some

products

carry both

globalbrand and

local

brand.

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Global platform strategy

The global challenge

Global market size: standardization

Local differentiation: customization

Strategy: Determine best combination of global and local

activities for competitive advantage

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Forces calling for global products (standardization):

Convergence in customer preferences and income

across target countries with economic development

and trade

Competition from successful global products

International brand awareness

Cost benefits from standardization Falling costs of trade with greater globalization


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Forces calling for local products (customization):

Differences in customer preferences and incomeacross target countries

Build local brand recognition

Competition from successful domestic products

Regulatory requirements (quality, safety, technical

specifications, domestic content) -- EU productstandards

High costs of trade create separate markets


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Reduces development and production costs

Used in automobiles, mobile phones, computers, aircraft

Example:Cost per product (development and mfg): $80

Cost of basic platform development: $100

Cost of each variation (development and production): $50

Use platform when serving four or more customer country

markets: Compare costs of servingfour markets:Distinct products: 4 x $80 = $320

Platform and 4 variations $100 + 4 x $50 = $300 ***

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Business sells 10 units each in Country A and in Country F

Unit costs economies of scale

Two local products at 10 units each $ 30/unit

Global product at 20 units $ 20/unit

Price company can charge per unit:

Global product: $80/unit in each country

Two local products: $95/unit in each country

Global versus regional product:

Tailoring brings $ 5 more earnings per unit

Profit greater by $ 100

Improve tradeoff with platforms and flexible factories to

realize economies of scope (mass customization)


Product variety versus economies of scale

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International business managers make decisions about

what should be global versus local:

Products

Technology and inputs

Manufacturing

Brands

Marketing

DistributionExample: Wal-Mart must compete with both international

players such as Carrefour and local retailers

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Local brand positioning of a

global brand and global product

Corona sells the same beer, produced in 8plants in Mexico, all over the world

Advertising adapts to target countries: beginsas a working class beer in Mexico, becomes ahigh quality import in most other countries.

Marketing adapts to local markets

Corona coordinates internationally throughits subsidiaries

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Most products are local and not branded. For example: in foodsector Nestle estimates that only 1 % of all goods in foodmarkets are branded

Increasing number of international brands, Corona, Nestl,

Sony Increasing brand variations: BMW 3-series (1990s):

More than 1 million varieties can be ordered

Local distribution and marketing

Example:McDonalds, Coca-Cola:Global brand, some localproduct tailoring, reliance on local distribution

Local technology, production, customer service

Acer computer company

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Global network strategy

Create network of customers, suppliers, partners

Use network to achieve global size and reach

Use network to provide local customization

Network relationships generate competitive

advantage

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The international business contributesvalue by creating an international

network: Recall Li & Fung

Networks can consist of informalbusiness relationships or more formal

contractual relationships

Networks facilitate coordination of

sourcing and serving

Network replaces n m links with

m + n links (hub and spoke network)

BuyersSellers

12 links

7 links


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Physical networks:

Communications: Wired and mobile telephone systems

Internet

Transportation: Railroads, Airlines, Shipping,

Intermodal systems

Energy: Oil and natural gas pipelines, Electric power

transmission and distribution

Logistics: Postal systems, Wholesale and retail

distribution

Business networks:

Manufacturing, services, distribution, technology,

social networks (trust and information sharing)

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Global network strategy:

The global factory

Hong Kong manufacturers own or

contract with more than 40,000

factories in South China employing

four million workers To take advantage of specialized

sources in different countries - best

quality

To take advantage of cost variations

across countries - least cost sources

To take advantage of location -

minimize transport-costs, transaction

costs, and tariffs

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Examples:DairyFarm, Shell, Zara

Growth: access to additional customers

Develop global brands

Coordination economies from

centralized regional warehouses andproduction facilities

Provide access to sourcing network Enhances value of supplier contacts by

expansion of distribution Lower transaction costs for suppliers

who deal with fewer distributors

Lower risk from pooling demand

fluctuations

Global network strategy:

The global store

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Network effects: Number of members can affect the valueof most of existing links

Architecture: Structure of the network affects costs and

performance (hub-and-spoke versus point-to-point)

Companies should capture the value created by theirnetwork organizing activities

Networks are mechanisms for delivering all kinds of

services, such as entertainment and information, rather

than physical products.Access is becoming a potent conceptual tool for rethinking

our world view as well as our economic view, making it the

single most powerful metaphor of the coming age. Jeremy

Rivkin The Age of Access

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Partner networks Achieve global scale

Members focus on their region

Reduce competition by avoiding duplication offacilities and operations

Avoid government restrictions on ownershipand market dominance

Technology standard setting Complements in production

Complements in demand (game players and games)

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Partner networks: Global reach

British Airways / American Airlines Provide 60% of all transatlantic services

"Alliance that Revolves Around You"

ONEWORLD members: Iberia, Cathay Pacific, Quantas,

Finnair, Aer Lingus, Lan Airlines (Chile) The airlines cooperate on scheduling and ticketing, frequent

flyer programs, airport clubs, baggage handling, customerservice

Competitive response to the STAR ALLIANCE fromUnited, Lufthansa, SAS, Air Canada and Thai Airways

(210,000 Employees, flights to 578 cities in 106 countries)

600 destinations in 135 countries around the world,operating over 8000 flights daily, 230 million passengers/year

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Partner networks: Technology standards

Mobile p

hone

operating syste

m: Owners

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Mobile p

hone

operating syste

m: Licensees

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Software licensing company

Open- standard operating system First open Symbian OS phone (in 2001):

Nokia 9210Communicator

About 85% market share Standard-setting network

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Franchise networksAdvantages

Rapid international growth

Local ownership

Local management

Lower capital outlays

Disadvantages

Search cost of finding franchise

owners overseas

Costs of monitoring performanceacross borders

Transaction costs of forming franchise

contracts in other country remains

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Matchmaker

Brings buyers and sellers together across international

borders

Marketmaker

Creates and operates markets that cross international

borders

Agent

Provide representation in other countries

Global intermediary strategy

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Matchmaker

Bridge international differences in goods and services,

business practices, law and regulations, currencies,

languages, time zones

Provide value-added activities

Representative agents in sales, distribution, purchasing,

financing, contracting, and supply chain managers

Match offers to buyer and seller needs: product features,

location, time.

Avoids costs of search for buyers and sellers

Reduces buyer and seller risks from dealing with few

trading partners,

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Matchmaker

Language: Seller speaksChinese, buyer speaks Spanish,intermediary speaks both

Currency: Seller wants pesos,

buyer has dollars, intermediarychanges dollars to pesos

Distance: Seller is in Thailand,buyer is in Brazil, intermediaryarranges transportation

Trust: Buyer and seller bothtrust the intermediary withouthaving dealt directly with eachother

Time: Seller is in Japan, buyer is inMexico, intermediary operates inboth time zones

Knowledge: Seller in Germany

knows production technology,buyer in US knows preferences ofUS customers, intermediarycombines knowledge of supply anddemand across borders

Culture: Seller and buyer are indifferent countries, intermediaryadapts products, services, contractterms and negotiation to diversesocial customs

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Mitsui

Our first corecompetence isfacilitating

international tradewith innovativeservices tailored toclient needs

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Mitsui

Our second corecompetence is

working with our

global clientele tocreate new tradeflows and newbusiness

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Mitsui is in top 15 of Fortune Global 500

http://www.mitsui.co.jp/tkabz/english/corp/index.htm

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Global intermediary strategyBeating bypass competition

Trade

Country H

Transaction cost T

Serve

Country ASource

Country BBypass competition

Transaction cost T*

Transaction strategy

offers innovative

transactions

You

r co

stsof tra

deT

must be less than

competitor costs of

trade T*

Example:

Li & Fung

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Market maker

Cemex

Mittal

Cargill

BP Amoco

eBay

The global market

maker aggregates

demand across

countries and

aggregates supply

across countries

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IngramMicro: the leading internationalwholesaler of technology products and services

Wholesales 280,000 computer hardware and software products

think of number of prices!

Sources in US and many other countries from 1,700manufacturers

Serves 175,000 resellers in more than 100 countries

Serves through operations and affiliates in 35 countries

Establishes prices, coordinates sales and purchases, clears themarket, allocates products


Market maker

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Global intermediary strategyMarket maker

Creates and operates international markets

Chooses prices, conveys information

Adjusts sourcing and serving to clear markets avoids

efficiency losses from market imbalances Provides immediacy: ready to buy and sell

Allocates goods and services across countries

Gathers and aggregates information about customers and

suppliers on an international level, inventories, orders, andproduction

Applies IT to international coordination

Earns returns from international risk pooling

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Global intermediary strategyAgents

ExportMarketing Company (EMC) represents sellers,

can be broker or dealer, bears risks, arranges resale,

transportation, credit

Export Trading Company (ETC) represents buyers,handles imports, usually takes title to goods

Act as international agent: provide expertise in negotiation,

market knowledge

Provide trust to buyers and sellers

Allows principal to delegate authority for distant

transactions

Provides market expertise, often to smaller firms

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Global intermediary strategyMore agents

Piggyback arrangements: e.g. Sony distributes in Japan forWhirlpool; GE TradingCo. distributes for other USmanufacturers in Africa and Latin America

General TradingCompanies: In Japan, there are Sogo Shosha

(large scale) and Senmon Shosha (smaller scale) tradingcompanies. Similar companies exist in Europe, South Korea,

Taiwan, Singapore and Hong Kong

Government Procurement Agencies, e.g. China Central Trade

Offices

Distributor/Importer (jobbers, dealers, wholesalers)

Direct sales (representatives that work on commission)

Overseas retailers, wholesalers

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Global entrepreneur

strategy

Bring buyers and sellers together in new combinations

Provide new products to new customer countries

Arrange new production and procurement in supplier

countries

Introduce innovative transaction methods across borders

Citigroup financial services, Google, eBay

Apply innovative technologies and business methods

Create new business firms in other countries

New inter-country connections!

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Global entrepreneur strategy

Micro creditIn 1974, Yunus, a Bangladeshi economist from

ChittagongUniversity, led his students on a fieldtrip to a poor village. They interviewed a woman

who made bamboo stools, and learnt that she had

to borrow the equivalent of 15p to buy rawbamboo for each stool made. After repaying themiddleman, sometimes at rates as high as 10% a

week, she was left with a penny profit margin.

1983: Yunus founds Grameen BankIn Bangladesh today, Grameen Bank has 1,084

branches, with 12,500 staff serving2.1 millionborrowers in 37,000 villages.

www.grameen.com

Muhammad

Yunus of

Bangladesh

and the

Grameen Bank

jointly awarded

the 2006 NobelPeace Prize.

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Summary and take-away points

Coordination of competitive actions across

borders key to gaining global competitive

advantage

Achieve standardization and customization

Advantage over global and local competitors

Many more strategies possible

Investment strategy next time

Documents

4761_15. Global vs. Local