Muhammad Setiawan Kusmulyono [email_address] I INTERNAT ONAL BUS NESS
International Aspirations of an Emerging Market Firm
A G E N D A Company Profile Case Background Theoretical Concept Analysis Case Question Discussion Theoretical Concept Analysis Q & A Session
T U R K E Y P R O F I L E www.lexicorient.com Republic of Turkey
T U R K E Y P R O F I L E Republic of Turkey G D P 2007 www.indexmundi.com hazelnut , fig , apricot , cherry , quince and pomegranate textiles and clothing tourism and banking TURKEY’S BEST PERFORMANCE COMPANY Electronics Arcelik, Vestel (Europe Top 3) Construction Enka, Tekfen, Ucgen Insaat (Top International Constructor) Automotive Fiat (Tofas), Renault (Oyak), Hyundai (Ossan) (Top 6 in Europe) TURKISH NEW LIRA AGRICULTURE 8.9 % INDUSTRY 30.8 % SERVICES 59.3 %
C A S E B A C K G R O U N D ADVANCED ECONOMIES DEVELOPING ECONOMIES EMERGING MARKETS Post-industrial countries characterized by high per-capita income, highly competitive industries, and well-developed commercial infrastructure. US Western Europe Japan Canada Australia New Zealand Low-income countries that have not yet industrialized. They have low buying power, limited appeal to foreign firms, and limited participation in international business. Africa Former developing countries that develop their economies more dynamics. EM is transforming into market-driven by liberalizing trade and investment. More participation in international business and regional economic integration. Asia and Latin America International Business; Strategy, Management & New Realities. p. 265 CONCEPTS
C A S E B A C K G R O U N D www.imf.org TURKEY;s GDP is EMERGING MARKETS
C O M P A N Y P R O F I L E Origins Establishment Ownership Business Line Product Market Area Subsidiaries 1955 KOC Group [ Family Business Conglomerate ] Appliance Manufacturer [ White Goods Business ] > 100 products AC, Dishwasher, Washing Machines, Cooking Appliances, and Refrigerator Brands Beko, Altus, and Arcelik Turkey, Europe (UK, Italy, Czech, Spain, Germany, Romania, Hungary) Blomberg, Grundig, Elektra Bregenz, Tirolia, Leisure, Flavel, and Arctic
C O M P A N Y S U B S I D I A R I E S B R A N D S
C O M P A N Y S U B S I D I A R I E S P R O D U C T S
Archelik Launched Aggressive International Expansion
C A S E B A C K G R O U N D Competition Operations Consumer's
I N D U S T R I A L P R O F I L E Competition In ADVANCE ECONOMIES , household appliance industry is mature and saturated In EMERGING MARKETS , household appliance industry is difficult to charge premium prices and increase profit margin Why?
a. Innovation is costly
Frequent change production methods
- Regular re-training factory workers
b. Low spending power of buyer
I N D U S T R I A L P R O F I L E Competition B S H Electrolux G E Haier Merloni National Whirlpool The COMPETITOR : TODAY, Merger & Acquisition is the strategy to be Worldwide It caused: only 5 companies control >70% market in Europe (from 400 companies) ARCELIK : Acquired more than 7 companies in EUROPE Dishwasher Refrigerators and Vacuum Cleaners China (Low Price) High Technology Involvement Home Laundry National
I N D U S T R I A L P R O F I L E Standardization the material, parts, and components Operations TECHNIQUES 1 Automated manufacturing process 2 Arcelik is categorized as HIGH TECHNICAL COMPLEXITY firms. It is operated in fully automated machine and programmed in advance. Joan Woodward; Organizational Design and Dynamics; p. 241 Build manufacturing plant outside original state 3 Arcelik : Build plant in Russia and Western Europe. Whirlpool : Build plant in China CONCEPTS
I N D U S T R I A L P R O F I L E Home appliances are commodities Consumer's PROFILE Product life-span is 10 – 15 years the lifecycle is slow Value lower prices create lower profit margin In advance economies country, market are saturated Different market, different country, different culture Appliance manufacture & world market share reporter
I N D U S T R I A L P R O F I L E Consumer's PROFILE Different market, different country, different culture in INDIA : Low Price in CHINA + LATIN AMERICA : Ample Features but Low Spending Power in EUROPE : Strict Environmental Rules EFFECT to the BUSINESS Difficult to suit the local market Difficult to charge average price in every country “ Hard Factors” tooling, factory layout, procurement, and design do not provide long-term competitive edge R I S K
I N D U S T R I A L P R O F I L E Consumer's PROFILE CONCEPTS
I N D U S T R I A L P R O F I L E Grand Strategy most companies Emphasize in Dynamic “S O F T” Factors innovation in INFORMATION TECHNOLOGY Merger and Acquisition Find Global Opportunities target the ASIA-PACIFIC & LATIN market Comparative Advantage find LOW-COST LABOR and TAX-FRIENDLY Benefited from Regional Economic Integration Erin 1 CLIP 2
A R C E L I K International Aspirations To Become a Global Player SUCCESS FACTORS Produce product in lower-income countries 1 Modernize the operations and Double the capacity 2 Establish Distribution Centers throughout Europe 3 Cooperated with IT Companies to build World IT System 4 THREATS Arcelik’s brands are largely unknown outside Europe 1
A R C E L I K’s success factors Produce product in lower-income countries 1
Manufacturing plant in Turkey and Eastern Europe (Russia)
Arcelik’s produce appliances less expensively than other
Modernize the operations and Double the capacity 2
Additional investment to build factory in Russia and adapt new production system technology
Established sales subsidiaries in Czech, Hungary, and Italy
International Aspirations To Become a Global Player
A R C E L I K’s success factors Establish Distribution Centers throughout Europe 3 1.700 unparalleled distribution network (Beko) and 1.700 non-exclusively agents 530 authorized service shops Cooperated with IT Companies to build World IT System 4 CISCO builds Virtual Networked Organization Online Establish after-sales service network International Aspirations To Become a Global Player COMPETITIVE ADVANTAGE CONCEPTS
A R C E L I K’s success factors COMPARATIVE ADVANTAGE Concept that helps answer the question of all nations can gain and sustain national economic superiority COMPETITIVE ADVANTAGE Concept that helps explain how individual firms can gain and sustain distinctive competence vis-à-vis competitors CONCEPTS
A R C E L I K THREATS Arcelik’s brands are largely unknown outside Europe 1 Brand becomes barrier to entry and threats for short-term success International Aspirations To Become a Global Player The Strategy Merger and Acquisition Global Distribution Network - Tailor the meet customer needs in respective country
A R C E L I K the F U T U R E To Sustain Becoming a Global Player To sustain continuous growth To become a leading global household company G O A L S Strategy Improve operational efficiency Increase investment in high-growth markets Focus in emerging market [Eastern Europe, Asia, and LA] Lowering operating manufacturing cost Leveraging low-cost manufacturing platforms and IT Produce product that appeal to foreign markets
CASE QUESTION Arcelik has been very active in Western Europe, Do you expect Arcelik’s prospect to be better in EM & DE than Advanced Economies ? 1 - In what ways, are EM and DE attractive to Arcelik? - How can firm reap benefits from such market in order to maximize performance? -
CASE QUESTION (number 1) Do you expect Arcelik’s prospect to be better in EM & DE than Advanced Economies ? - Prospect Arcelik in emerging market and developing market than advanced market DIMENSION Advanced Market Emerging Market Developing Market Population (% of the word) 14 62 24 Approximate average per capita income (US dollars; PPP basis) 33.750 13.250 6.450 Trade volume High Low High Education level High Moderate Low Trade barriers Minimal Rapidly liberalizing Moderate to high Industry Highly developed Rapidly improving Poor Inward FDI High Moderate to high Low Economic or political system Capitalist Rapidly transitioning to capitalism Authoritarian, socialist, or communist Country risk Low Variable Moderate to high
CASE QUESTION (number 1) - In what ways, are EM and DE attractive to Arcelik? Emerging and developing market are attractive than advance market
Urbanization is increasing low-cost labor (ideal bases for locating manufacture)
Industry rapidly increasing
CASE QUESTION (number 1) - How can firm reap benefits from such market in order to maximize performance? Reap benefits from such markets Advance Market Emerging and Developing Market Population
Income per capita high can gain a high profit margin
Income per capita rapidly increase should be adjusting price and cost little gain profit margin
Open up to be growth as the way as technology improvement
CASE QUESTION Arcelik is keen on entering EM and DE, What type of risk that they challenge in EM? 2 - What management do to identify the most promising market? - How should firm adapt the product? -
CASE QUESTION (number 2) - What type of risk that they challenge in EM?
Corruption, Collusion, Nepotism
Week Legal Framework
Week Intellectual Property Protection
No laws enforcement
Bureaucracy, Red Tape, and Lack or Transparency
Burdensome Administrative rules
Excessive requirements for license
Partner Availability and Qualifications
characterized by inadequate legal & political framework
Dominance of Family Conglomerates
Control the majority of economic activit (half the revenue in korea)
government protection and support
superior market knowledge
Less Reliable (business env.)
CASE QUESTION (number 2) - What management do to identify the most promising market?
Partnering with Family Conglomerates
Reduce the risk, time, and capital requirement
good relationship with government and other key local player
target market opportunities more rapidly and effective
overcome infrastructure-related hurdles
leverage FC’s resources and local contact
Marketing to Governments in Emerging Market
government buy enormous quantities of product
usually emerging country have economic development plan (need to build or improve national infrastructure)
Skillfully Challenge Emerging Market Competitors
CASE QUESTION (number 2) - Per-Capita Income as an Indicator of Market Potential Middle Class as an Indicator of Market Potential Use of a Comprehensive Index to measure market potential GDP are indicator of purchasing power of customer Size and growth rate of middle class serve a signal of dynamic market economy
What management do to identify the most promising market?
CASE QUESTION (number 2) - How should firm adapt the product? Merge and acquisition with other company in emerging market Collaboration technology, knowledge (product and market), share distribution channels, etc. Produce potential product base on customer wants Purchasing power in emerging market is relative low
CASE QUESTION Arcelik may be better poised to cater economic development of EM and DE, In what ways Arcelik skillfully fulfill its CSR ? 3 - Suggest specific approaches of CSR - CATERING TO ECONOMIC DEVELOPMENT NEEDS OF EMERGING MARKETS AND DEVELOPING ECONOMIES
Leading firms display good corporate social responsibility by engaging in activities that facilitate economic development in emerging market and developing economies.
There are 2 (two) trends as form of CSR :
Fostering Economic Development with Profitable Project
Microfinance to Facilitate Entrepreneurship
CASE QUESTION (number 3) - In what ways Arcelik skillfully fulfill its CSR? FOSTERING ECONOMIC DEVELOPMENT WITH PROFITABLE PROJECTS
Firms serve low income countries with inexpensive, specifically-designed products and services and community involvement.
IN OTHER WAYS…
Firms create jobs and contribute to development.
Investments generates tax to improve living standard.
Transferring technology and know how
Develop community-oriented social programs.
CASE QUESTION (number 3) - In what ways Arcelik skillfully fulfill its CSR? Microfinance to Facilitate Entrepreneurship
Microfinance, emerging of financial institutions that serve emerging market entrepreneurs with small scale loans.
By providing small loans, can help pull them out of poverty.
Various organization now offer other forms of small scale financial services, including insurance and mortgage lending.
CASE QUESTION (number 3) - Suggest specific approaches of CSR ARCELIK’S CORPORATE SOCIAL RESPONSIBILITY IN EMERGING MARKET
FOSTERING ECONOMIC DEVELOPMENT W/ PROFITABLE PROJECTS
Firm creates product that meet local demand with lower price compared to its quality.
Firm enter the market and establish manufacturing/assembly plant.
Firm establish distribution centers throughout country.
Firm boasts a strong after-sales service network with large number of authorized service shop.
MICROFINANCE TO FACILITATE ENTREPRENEURSHIP
Firm offer financial services that provide installment purchase for its customer.
REFERENCES REFERENCES Cavusgil, et.al. International Business Gardner, et.al. Organization Design and Dynamics www.lexicorient.com www.imf.org www.indexmundi.com www.arcelik.com www.turkivz.com