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Competitive strategies: Global vs. local

3Global competitive strategiesThe G5 Platform strategy Network Strategy Intermediary strategy Entrepreneur strategy Investment strategy

Platform strategy

Network Strategy

Intermediary strategy

Entrepreneur strategy

Investment strategy

4Global competitive strategiesHome, supplier, partner, and customer countries of competitors – differences as sources of competitive advantage Differences in global value connectionDifferences in products, brand, technologyDifferences in impacts of political, legal and regulatory climate – trade agreements, home country policiesDesign global competitive strategies for competitive advantage

5Global competitive strategiesCompetitive advantage must be relative to both global and local competitors:Unilever in US: Breyers, Ben and Jerry’s, Good Humor, Klondike, PopsicleNestlé in US: DreyersThe great ice cream battle

6UNILEVER in India – Kwality WallHindustan Lever faces successful local competitorGujarat Cooperative Milk Marketing Federation (GCMMF): India's largest food products marketing organization. Two million farmers in the cooperativeSlogan: “A taste of India”PRICE: 10 rupees (20 cents): 100 milliliter Amul ice cream versus 80 milliliter Hindustan Lever Kwality Wall vanilla ice creamADVERTISING COSTS: Amul: 1% of sales versus Hindustan Lever: 10-15% of sales on advertising

7Umbrella brands:Nestlé products in the super-market.Some products carry both global brand and local brand.

8Global platform strategyThe global challenge Global market size: standardization Local differentiation: customizationStrategy: Determine best combination of global and local activities for competitive advantage

Global market size: standardization

Local differentiation: customization

9Forces calling for global products (standardization):Convergence in customer preferences and income across target countries with economic development and tradeCompetition from successful global productsInternational brand awarenessCost benefits from standardizationFalling costs of trade with greater globalizationGlobal platform strategy

10Forces calling for local products (customization):Differences in customer preferences and income across target countriesBuild local brand recognitionCompetition from successful domestic productsRegulatory requirements (quality, safety, technical specifications, domestic content) -- EU product standardsHigh costs of trade create separate marketsGlobal platform strategy

11Global platform strategyReduces development and production costsUsed 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 ***

12Global platform strategyProduct variety versus economies of scaleBusiness sells 10 units each in Country A and in Country FUnit costs – economies of scale Two local products at 10 units each $ 30/unit Global product at 20 units $ 20/unitPrice 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 $ 100Improve tradeoff with platforms and flexible factories to realize economies of scope (mass customization)

13Global platform strategyInternational business managers make decisions about what should be global versus local:ProductsTechnology and inputs Manufacturing BrandsMarketingDistributionExample: Wal-Mart must compete with both international players such as Carrefour and local retailers

14Global 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 worldAdvertising 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 marketsCorona coordinates internationally through its subsidiaries

15Global platform strategyMost products are local and not branded. For example: in food sector Nestle estimates that only 1 % of all goods in food markets are brandedIncreasing number of international brands, Corona, Nestlé, SonyIncreasing brand variations: BMW 3-series (1990s): More than 1 million varieties can be orderedLocal distribution and marketing Example: McDonald’s, Coca-Cola: Global brand, some local product tailoring, reliance on local distributionLocal technology, production, customer service Acer computer company

16Global network strategyCreate network of customers, suppliers, partnersUse network to achieve global size and reachUse network to provide local customizationNetwork relationships generate competitive advantage

17Global network strategyBuyersSellersThe international business contributes value by creating an international network: Recall Li & FungNetworks can consist of informal business relationships or more formal contractual relationshipsNetworks facilitate coordination of sourcing and servingNetwork replaces n ∙ m links withm + n links (hub and spoke network)12 links7 links

18Global network strategyPhysical networks:Communications: Wired and mobile telephone systemsInternet Transportation: Railroads, Airlines, Shipping, Intermodal systemsEnergy: Oil and natural gas pipelines, Electric power transmission and distribution Logistics: Postal systems, Wholesale and retail distributionBusiness networks: Manufacturing, services, distribution, technology, social networks (trust and information sharing)

19Global network strategy: The global factoryHong Kong manufacturers own or contract with more than 40,000 factories in South China employing four million workersTo take advantage of specialized sources in different countries - best qualityTo take advantage of cost variations across countries - least cost sourcesTo take advantage of location - minimize transport-costs, transaction costs, and tariffs

20Global network strategy: The global storeExamples: Dairy Farm, Shell, ZaraGrowth: access to additional customersDevelop global brandsCoordination economies from centralized regional warehouses and production facilitiesProvide access to sourcing network – Enhances value of supplier contacts by expansion of distributionLower transaction costs for suppliers who deal with fewer distributorsLower risk from pooling demand fluctuations

21Global network strategyNetwork effects: Number of members can affect the value of most of existing linksArchitecture: 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 activitiesNetworks 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 RivkinThe Age of Access

22Global network strategyPartner networksAchieve global scaleMembers focus on their regionReduce competition by avoiding duplication of facilities and operationsAvoid government restrictions on ownership and market dominanceTechnology standard settingComplements in productionComplements in demand (game players and games)

23Global network strategyPartner networks: Global reachBritish Airways / American AirlinesProvide 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 serviceCompetitive 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

24Global network strategyPartner networks: Technology standardsMobile phone operating system: Owners

25Global network strategyPartner networks: Technology standardsMobile phone operating system: Licensees

26Global network strategyPartner networks: Technology standardsSoftware licensing companyOpen- standard operating system First open Symbian OS phone (in 2001): Nokia 9210 CommunicatorAbout 85% market shareStandard-setting network

27Global network strategyFranchise networksAdvantagesRapid international growthLocal ownershipLocal managementLower capital outlaysDisadvantagesSearch cost of finding franchise owners overseasCosts of monitoring performance across bordersTransaction costs of forming franchise contracts in other country remains

28Global intermediary strategyMatchmakerBrings buyers and sellers together across international bordersMarket makerCreates and operates markets that cross international bordersAgent Provide representation in other countries

29Global intermediary strategyMatchmakerBridge international differences in goods and services, business practices, law and regulations, currencies, languages, time zonesProvide value-added activitiesRepresentative agents in sales, distribution, purchasing, financing, contracting, and supply chain managersMatch offers to buyer and seller needs: product features, location, time.Avoids costs of search for buyers and sellersReduces buyer and seller risks from dealing with few trading partners,

30Global intermediary strategyMatchmakerLanguage: Seller speaks Chinese, buyer speaks Spanish, intermediary speaks bothCurrency: Seller wants pesos, buyer has dollars, intermediary changes dollars to pesosDistance: Seller is in Thailand, buyer is in Brazil, intermediary arranges transportationTrust: Buyer and seller both trust the intermediary without having dealt directly with each otherTime: Seller is in Japan, buyer is in Mexico, intermediary operates in both time zonesKnowledge: Seller in Germany knows production technology, buyer in US knows preferences of US customers, intermediary combines knowledge of supply and demand across bordersCulture: Seller and buyer are in different countries, intermediary adapts products, services, contract terms and negotiation to diverse social customs

31Mitsui“Our first core competence is facilitating international trade with innovative services tailored to client needs”

32Mitsui“Our second core competence is working with our global clientele to create new trade flows and new business”

33Mitsui“Distributor of goods and services; Transfer agent for technology; Financier, Investor; Project organizer; Market developer; Resource developer; Well-informed consultant and business partner.”Mitsui

34Mitsui is in top 15 of Fortune Global 500http://www.mitsui.co.jp/tkabz/english/corp/index.htm

35Global intermediary strategyBeating bypass competitionTradeCountry HTransaction cost TTransaction strategy offers innovative transactions Your costs of trade T must be less than competitor costs of trade T*Example:Li & FungServeCountry ASourceCountry BBypass competitionTransaction cost T*

36Global intermediary strategyMarket maker Cemex Mittal Cargill BP Amoco eBayThe global market maker aggregates demand across countries and aggregates supply across countries

Cemex

Mittal

Cargill

BP Amoco

eBay

37Global intermediary strategyMarket makerIngram Micro: the leading international wholesaler of technology products and servicesWholesales 280,000 computer hardware and software products – think of number of prices!Sources in US and many other countries from 1,700 manufacturersServes 175,000 resellers in more than 100 countriesServes through operations and affiliates in 35 countriesEstablishes prices, coordinates sales and purchases, clears the market, allocates products

38Global intermediary strategyMarket makerCreates and operates international marketsChooses prices, conveys informationAdjusts sourcing and serving to clear markets – avoids efficiency losses from market imbalancesProvides immediacy: ready to buy and sellAllocates goods and services across countriesGathers and aggregates information about customers and suppliers on an international level, inventories, orders, and productionApplies IT to international coordinationEarns returns from international risk pooling

39Global intermediary strategyAgentsExport Marketing Company (EMC) represents sellers, can be broker or dealer, bears risks, arranges resale, transportation, creditExport Trading Company (ETC) represents buyers, handles imports, usually takes title to goods Act as international agent: provide expertise in negotiation, market knowledgeProvide trust to buyers and sellersAllows principal to delegate authority for distant transactionsProvides market expertise, often to smaller firms

40Global intermediary strategyMore agentsPiggyback arrangements: e.g. Sony distributes in Japan for Whirlpool; GE Trading Co. distributes for other US manufacturers in Africa and Latin AmericaGeneral 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 KongGovernment Procurement Agencies, e.g. China Central Trade OfficesDistributor/Importer (jobbers, dealers, wholesalers)Direct sales (representatives that work on commission)Overseas retailers, wholesalers

41Global entrepreneur strategyBring buyers and sellers together in new combinationsProvide new products to new customer countriesArrange new production and procurement in supplier countriesIntroduce innovative transaction methods across borders – Citigroup financial services, Google, eBayApply innovative technologies and business methodsCreate new business firms in other countriesNew inter-country connections!

42Global 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.comMuhammad Yunus of Bangladesh and the Grameen Bank jointly awarded the 2006 Nobel Peace Prize.

43Investment strategy next timeSummary and take-away pointsCoordination of competitive actions across borders key to gaining global competitive advantage Achieve standardization and customizationAdvantage over global and local competitorsMany more strategies possible…

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