Upload
scarlett-calder
View
221
Download
2
Tags:
Embed Size (px)
Citation preview
Competitive strategies: Global vs. local
© Professor Daniel F. Spulber
2
Global competitive strategiesThe G5
Platform strategy Network Strategy Intermediary strategy Entrepreneur strategy Investment strategy
3
• Home, supplier, partner, and customer countries of competitors – differences as sources of competitive advantage
• Differences in global value connection• Differences in products, brand, technology• Differences in impacts of political, legal
and regulatory climate – trade agreements, home country policies
Design global competitive strategies for competitive advantage
Global competitive strategies
4
Global competitive strategiesCompetitive advantage must be relative to
both global and local competitors:
Unilever in US: Breyers, Ben and Jerry’s, Good Humor, Klondike, Popsicle
Nestlé in US: Dreyers
The great ice cream battle
5
• 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
versus80 milliliter Hindustan Lever Kwality Wall vanilla ice cream
• ADVERTISING COSTS: Amul: 1% of sales versusHindustan Lever: 10-15% of sales on advertising
UNILEVER in India – Kwality WallHindustan Lever faces successful local competitor
6
Umbrella brands:Nestlé products in the super-market.Some products carry both global brand and local brand.
7
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
8
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
Global platform strategy
9
Forces calling for local products (customization):• Differences in customer preferences and income
across target countries• Build local brand recognition• Competition from successful domestic products• Regulatory requirements (quality, safety, technical
specifications, domestic content) -- EU product standards
• High costs of trade create separate markets
Global platform strategy
10
Global platform strategy
Reduces development and production costs Used in automobiles, mobile phones, computers,
aircraftExample: Cost per product (development and mfg):
$80Cost of basic platform development: $100Cost of each variation (development and production):
$50Use platform when serving four or more customer
country markets: Compare costs of serving four markets:
Distinct products: 4 x $80 = $320Platform and 4 variations $100 + 4 x $50 = $300 ***
11
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)
Global platform strategyProduct variety versus economies of scale
12
Global platform strategy
International business managers make decisions about what should be global versus local:
• Products
• Technology and inputs
• Manufacturing
• Brands
• Marketing
• Distribution
Example: Wal-Mart must compete with both international players such as Carrefour and local retailers
13
Global platform strategy Local brand positioning of a
global brand and global product
• Corona sells the same beer, produced in 8 plants in Mexico, all over the world
• Advertising adapts to target countries: begins as a working class beer in Mexico, becomes a high quality import in most other countries.
• Marketing adapts to local markets• Corona coordinates internationally
through its subsidiaries
14
Global platform strategy
• Most products are local and not branded. For example: in food sector Nestle estimates that only 1 % of all goods in food markets are branded
• Increasing number of international brands, Corona, Nestlé, Sony
• Increasing brand variations: BMW 3-series (1990s): More than 1 million varieties can be ordered
• Local distribution and marketingExample: McDonald’s, Coca-Cola: Global brand, some local product tailoring, reliance on local distribution
• Local technology, production, customer serviceAcer computer company
15
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
16
The international business contributes value by creating an international network: Recall Li & Fung
Networks can consist of informal business 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
Global network strategy
17
Global network strategy
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)
18
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
19
• Examples: Dairy Farm, Shell, Zara• Growth: access to additional
customers• Develop global brands• Coordination economies from
centralized regional warehouses and production 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
20
Global network strategy
• Network effects: Number of members can affect the value of 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 their network 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
21
Global network strategyPartner networks
• Achieve global scale• Members focus on their region• Reduce competition by avoiding duplication of
facilities and operations• Avoid government restrictions on ownership
and market dominance• Technology standard setting• Complements in production• Complements in demand (game players and games)
22
Global network strategyPartner 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, customer service
• Competitive response to the STAR ALLIANCE from United, 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
23
Global network strategyPartner networks: Technology standards
Mobile phone operating system: Owners
24
Global network strategyPartner networks: Technology standards
Mobile phone operating system: Licensees
25
Global network strategyPartner networks: Technology standards
• Software licensing company
• Open- standard operating system
• First open Symbian OS phone (in 2001):
Nokia 9210 Communicator
• About 85% market share
• Standard-setting network
26
Global network strategyFranchise networks
Advantages
• Rapid international growth
• Local ownership
• Local management
• Lower capital outlays
Disadvantages
• Search cost of finding franchise owners overseas
• Costs of monitoring performance across borders
• Transaction costs of forming franchise contracts in other country remains
27
MatchmakerBrings buyers and sellers together across international borders
Market makerCreates and operates markets that cross international borders
AgentProvide representation in other countries
Global intermediary strategy
28
Global intermediary strategyMatchmaker
• 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,
29
Global intermediary strategyMatchmaker
• Language: Seller speaks Chinese, buyer speaks Spanish, intermediary speaks both
• Currency: Seller wants pesos, buyer has dollars, intermediary changes dollars to pesos
• Distance: Seller is in Thailand, buyer is in Brazil, intermediary arranges transportation
• Trust: Buyer and seller both trust the intermediary without having dealt directly with each other
• Time: Seller is in Japan, buyer is in Mexico, intermediary operates in both time zones
• Knowledge: Seller in Germany knows production technology, buyer in US knows preferences of US customers, intermediary combines knowledge of supply and demand across borders
• Culture: Seller and buyer are in different countries, intermediary adapts products, services, contract terms and negotiation to diverse social customs
30
Mitsui
“Our first core competence is facilitating international trade with innovative services tailored to client needs”
31
Mitsui
“Our second core competence is working with our global clientele to create new trade flows and new business”
32
Mitsui
“Distributor of goods and services;
Transfer agent for technology;
Financier, Investor; Project organizer; Market developer; Resource developer; Well-informed
consultant and business partner.”
Mitsui
33
Mitsui is in top 15 of Fortune Global 500
http://www.mitsui.co.jp/tkabz/english/corp/index.htm
34
Global intermediary strategyBeating bypass competition
TradeCountry H
Transaction cost T
ServeCountry A
SourceCountry B
Bypass competitionTransaction cost T*
Transaction strategy offers innovative transactions Your costs of trade T must be less than competitor costs of trade T*
Example:Li & Fung
35
Global intermediary strategyMarket maker
• Cemex
• Mittal
• Cargill
• BP Amoco
• eBay
The global market maker aggregates demand across countries and aggregates supply across countries
36
Ingram Micro: the leading international wholesaler 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 1,700 manufacturers
• Serves 175,000 resellers in more than 100 countries
• Serves through operations and affiliates in 35 countries
• Establishes prices, coordinates sales and purchases, clears the market, allocates products
Global intermediary strategyMarket maker
37
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, and production
• Applies IT to international coordination
• Earns returns from international risk pooling
38
Global intermediary strategyAgents
• Export Marketing 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
39
Global intermediary strategyMore agents
• Piggyback arrangements: e.g. Sony distributes in Japan for Whirlpool; GE Trading Co. distributes for other US manufacturers in Africa and Latin America
• General Trading Companies: In Japan, there are Sogo Shosha (large scale) and Senmon Shosha (smaller scale) trading companies. 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
40
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!
41
Global entrepreneur strategyMicro creditIn 1974, Yunus, a Bangladeshi economist
from Chittagong University, led his students on a field trip 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 raw bamboo for each stool made. After repaying the middleman, 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 serving 2.1 million borrowers in 37,000 villages.
www.grameen.com
Muhammad Yunus of Bangladesh and the Grameen Bank jointly awarded the 2006 Nobel Peace Prize.
42
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