Attitudes and drivers of globalizationTransportation and communication costs Tariffs 120 100 Average 80 freight costs 60 Air transportation 40 Cost 3 min. 20 call 0 1930 1940 1950 1960 1970 1980 1990 1913 1950 1990 20121870 1914 1945 2013 Deregulation Liberalization of FDI
Outward flows of foreign direct investment ($ bn.) 1970 1980 1990 2000 2010 UNCTAD (2012)
Electrolux in the White Goods Industry Electrolux’ strategy in the white goods industry1. Expand through foreign acquisitions2. Retain leading local brands3. Centralize production to few locations: Close local production, transform acquired companies to sales subsidiaries4. Centralize production of components5. Coordinate global purchasing for increased bargaining power
The ideal long-term structure Product AProduct C Product B Components
Electrolux in the White Goods Industry Product strategy 1. Locally supplied 2. Globally supplied according to local standard 3. Group standard1. Locally manufactured products according to market demands2. Acquired brands, centrally manufactured according to local demand3. Strategic products, centrally manufactured with global standard
Cycleurope in the Bicycle IndustryCycleurope in the bicycle industry “I invited all product managers to a group meeting concerning saddle designs. We all gathered in one room, and there were 650 different models presented!” Tony Grimaldi
Mars in the Chocolate Industry Mars brand strategy“We have over the last 10 years invested a lot inmaking our brands truly global. We changed thingslike Marathon in the UK to Snickers. We changedRaider to Twix and we did that not just on aEuropean basis, we did that on a worldwide basis.”
Cables What are the options?“The cable industry became more internationalbecause some leaders decided to gointernational. They drove the industry behindthem.”Alcatel manager
Ispat in the Steel IndustryIspat – key components of strategyExploits emerging DRI and mini-mills technology.Targets underperforming, state-owned plants thatare up for sale, primarily in developing economies.Uses dedicated, international task-force to re-structure new plants.Builds on the founder’s dedication, attention todetail, and involvement.
Ispat in the Steel Industry How to turn around a steel plantSWAT team Liquidity fix Debug Product mix Integrate PruneRemove Reestablish Bring in Shift to Form Close or sellmost existing credit with Mittal production of regional off noncoremanagers suppliers to technicians higher-value groups to subsidiaries,and replace assure a to improve goods such boost from cateringwith Mittal steady flow of operations as cold- purchasing to hotels.executives raw materials. such as rolled steel power and Graduallyto get the End barter rolling mills and prevent cut backcompany arrangements and blast galvanized plants from staff,running on a that beget furnaces. sheets. Try competing possiblycommercial corruption Rework to sell to end with each throughbasis and destroy maintenance users rather other for the buyoutquickly. cash flow. schedules to than same programs. reduce middlemen. customers. downtime. Business Week, December 20, 2004
Ispat in the Steel Industry Organization and profitability (2002)LNM Holdings Ispat InternationalIspat Nova Hut Ispat Unimetal (France)Ispat Sidex Ispat GermanyIscor Ispat International (Britain)Ispat Karmet Ispat Sidbec (Canada)Ispat Annaba (Algeria) Caribbean Ispat (Trinidad)PT Ispat Indo (Indonesia) Ispat Inland (U.S.) Ispat MexicanaRevenue: $ 3.8 billionNet profit: $ 564 million Revenue: $ 4.9 billion Net profit: $ 49 million
HaierThe Haier Group - key components of strategy 1984 Technology alliance with Liebherr Company of Germany. 1991- Domestic acquisitions and diversification into new product areas: freezers, washers, microwaves, heaters, air- conditioners, TV sets, mobile phones. 1996 Joint venture established in Indonesia. 2000- Joint ventures in Philippines, Dubai, Iran, Algeria, Jordan, Pakistan, and Bangladesh. 2006 World largest market brand share for refrigerators, 4th largest among global white goods manufacturers.
Haier Innovation at HaierChina Washing machine model that serves the purpose of washing both clothes and vegetables. Small-sized washing machines for humid regions.Indonesia Flexible-voltage appliances.United States Refrigerator model with fold-out table aimed for students. Wine cellars.
New entrant characteristics Assimilation of technology that is increasingly up for sale in international markets. Entry via geographical regions and/or industry segments not emphasized by established multinational corporations. Flexible and entrepreneurial decision making by one dominant owner, owner family, or CEO. Supported by national governments. Gradual movement into more value-added activities andsegments. Ultimately, buy out parts of established multinationals, if not entire operations.
They have a plan“It almost disgusts me to see how some of ourcompetitors in China work on strategic plans thatextend 20 years into the future, while everyonehere’s looking at the quarterly reports.” Carl-Henric Svanberg, CEO Ericsson
TV sets China’s market for TV sets Premium Good-enough Low-endLeading vendors: Leading vendors: Leading vendors:Panasonic, Philips, Hisense, Skyworth, Konka Sony TCL Share of market: Share of market: Share of market: 13% 62% 25%From Gadiesh et al. (2007)
The writing is on the wall√ Established managerial mindsets are geared towards competition in the developedmarket economies but√ Growth is in traditionally neglected and unfamiliar markets√ Existing products are too sophisticated forthe main market segments√ ‘ Wrong’ institutional framework
Three choices Rapid change of Vigorous protectionmindset and strategies of premium segments Concerted efforts to promote new business formation
It happens now, not some time in the future!Market shares that are missed or lost today are goingto be very hard and costly to regain in the future.