22
Emerging countries competitors
Haier Group
Tata
Petronas
Cemex SABMiller
HuaweiRanbaxy Laboratories Ltd
Lenovo
3 3
Globalization and local firms: the traditional views
Local firms are weak Local firms are competingwith global firms
• Strong positioning of local enterprise
• Local firms dominate
• MNCs tend to dominate
• Local firms can take advantage of blind spots
High
Low
Pressure toglobalize
Local knowledge Competitive advantage of local firms
Global markets
Multidomestic markets
Global competences and capabilities (costs, resources)
4 4
The strategic logic of emerging countries competitors• Use their knowledge of local environment• Use their ‘national’ preference• Use their low labor costs• Sometime use their natural resources
On the domestic front On the international front
• Dominate bottom of the pyramid• Gain volume • Progressively push their capabilities
upward• Eventually compete head-on with
multinational players
• Export low cost products• Buy ( copy?) technology
Globalization and local firms: recent views
5
Korea
China
1970’s 1980’s 1990’s and beyond1960’s
1980’s 1990’s 2000’s 2005 and beyond
Japan•
Low cost manufacturing based on low labor costs and financing
•
Large part of activities based on original equipment manufacturing minimizing marketing costs• Technology is acquired thru licensing or joint Ventures-
Time
Labor costs still moderate
• Brand creation and development• Investment in research and develoment• International expansion
1970’s’s and beyond
• Proprietary Technology• Own brand• International marketing
••
• -
Time
Sour
ces
of c
ompe
titiv
e ad
vant
age
Labor
• Brand creation and development• Investment in research and develoment•
Invest in advanced production technology
• Proprietary Technology• Own brand• International marketing
1960’s1960’s
Development of national champions
Globalization and local firms: recent views cont.
66
Time
• Start international expansion mainly by acquisitions
• Invest in modern manufacturing technology
• Start to build their own brand• Start their own R&D
• Protected domestic markets• Low cost manufacturing based on
low labour costs• In some cases access to natural resources • Technology is acquired through licensing
or joint ventures• Large part of activities based on original equipment manufacturing
• Compete head-on with traditional global firms
Step 1Domestic player
and exporter
Step 2Internationalization
Step 3Global player
Development of national champions
Globalization and local firms: the recent views cont.
7
Performancesand products/ServicesFunctionalities
Time
High-end marketsDominated by multinationals
Canon in Japan in the 60’sHonda motorcycles in the 60’sGalanz in China in the 90’s microwavesTCL in China inTVSamsung in Korea with microelectronics in the 80’sReliance in India in the 90’s in pharmaceuticals
High
Low
Low-end marketsdominated by domestic firms
Disruptive
development paths
National champions: building the business
8
Domestic players both large and small
Multinational firms from USA, Europe, Japan, Korea and Australasia, plus emerging
Indian and Chinese mutinational firms)
Technology and marketing
Contextual andpolitical know-how
Low resourcecosts
Competitive approaches
Scope
Global
Local
Emerging competitive battlefield
9
Technologyand
marketing advantages
High
Low
EMERGINGBATTLEFIELDLow costMass distributionDifferentiated
HighLow Local knowledge and preferential advantages
DIFFERENTIATEDPOSITIONING APPLIED
TO HIGH-END SEGMENTSPrice premiumLow volumeHigh costsGood technolgyStrong brands
Most Western competitors
COST LEADERSHIPPOSITIONING APPLIEDTO HIGH VOLUMELOW END SEGMENTS
Low priceMass distribution
Large Chinese competitorsE.g. Kanko, Haier
Emerging competitive battlefield: China
10
“Dragons at your door”
See Ming Zeng and Peter Williamson, Dragons at Your Door: How Chinese Cost Innovation is Disrupting Global Competition.Harvard Business School: 2007
Chinese companies disrupt global competition through cost innovation. i.e. they use cost advantages in radically new ways to offer customers around the world dramatically more for less
• Start in China and overcome fragmentation• Export looking for loose bricks in competitors’ defenses
(unexplored markets or products)• Move up market: technology at low cost (licensing, copying)
and variety at low cost
11
Earth-moving equipment: wheel loaders
Global market: 720,000 unitsChina market: 120,000 unitsProduction capacity in China: 200,000 units
Prices:CAT, Volvo: 120,000$Komatzu: 60,000 $Chinese co.’s 30,000 $
Chinese co. exported:2,000 units in 20043,500 units in 2005
12
• By mid 1990’s Whirlpool had big ambition for Asia
• China was considered to be a key market
• Very fragmented industry with 650 appliances manufacturers operating in China
• Customer focus on local brands
• Some emerging Chinese leaders: KELON, Haier
The Whirlpool story in China
13
Whirlpool entered in 1994:• JV in Beijing for refrigerators (Snowflake)• JV in Shanghai for washers (Whirlpool Narcissus)• JV in Shendu for microwaves (MCV)• JV in Shenzhen for air conditioners (Whirlpool Raybo)
Plus bigger Chinese HQ in Hong Kong and a Design Centre in Singapore
• Whirlpool exited the market for refrigerators and air conditioners in 1997 • Still produces compressors in Beijing, microwaves in Shendu and
washers in Shanghai
The Whirlpool story in China cont.
14
Kelon
Haier
China’s appliancesmarket share in 2002
Other
Xinfei
Meiling
The market is dominated by local players
The Whirlpool Story in China cont.
0%10%20%30%40%
50%60%70%80%
90%100%
15
HUAWEI TECHNOLOGIES• Telecommunication networks, products and solutions• Started in 1988: digital fixed switch• In 1997: launched GSM equipment• Established joint R&D labs with Texas Instruments, Motorola, IBM, Intel,
Agere Systems, Sun Microsystems, Altera, Qualcomm, Infineon & Microsoft
• As of 2005, Huawei Technologies has a total of 10 joint research labs• In 2000, Huawei established R&D centers in Silicon Valley and Dallas• Cisco Systems alleged that Huawei Technologies had infringed some of
their technology patents (litigation was resolved)• 4 billion USD revenues in 2004
An example of a Chinese champion
1616
Pharmaceuticals
• Created in 1961• India's largest pharmaceutical company• Ranked amongst the top ten generic companies
worldwide• Manufacturing operations in 8 countries• Subsidiaries presence in 49 countries • Products available in over 125 countries• Went public in 1973• Company global sales of 1330 million USD in 2006
Examples of Indian Champions• India's oldest business conglomerate• Spread over seven business sectors: engineering;
chemicals; materials; energy; consumer products; IT; communication
• 98 companies operating in six continents• Sales of 28.8 billion USD in 2007• Employs some 289,500 people
Conglomerate
TATA
RANBAXY LABORATIES LTD
17
Multinational corporations from China and India
China India
Aluminium Corporation of China – metals
BYD – Consumer electronics
China Netcom – Telecom services
Sinopec – Fuels
Erdos – Textiles
Haier – Home appliances
Nanjing Automobile Corp. – Automotive
Shoushang - Steel
Tsingtao Brewery – Food and beverages
Wanxiang - Engineering
Bajajauto – Automotive
Cipla – Pharmaceuticals
Hindalco - Metals
Infosys – IT services
Mahindra – Automotive
Reliance – Chemicals
Tata Steel – Steel
Tata Tea – Food and beverages
Videocon – Consumer electronics
Wipro - Pharmaceuticals
18
0
2000
4000
6000
8000
10000
12000
14000
16000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
India China
Cross-borders acquisitions from China and India
Million US $
19
In most emerging countries the industrial, financial and trading sectors are controlled by three groups of players:
• Government-owned enterprises• Multinationals• Domestic “business groups”
The domestic business groups exhibit the following typical characteristics:
• They are highly diversified• They are personally controlled • They are most often controlled by families or ethnic groups
Business groups in emerging countries
20
Business groups control large sectors of economies:
• Overseas Chinese in South East Asia
• Korean Chaebol
• Indian family groups
• Rejuvenated state-owned enterprises in China
• Latin American “grupos”
Business groups in emerging countries cont.
21
Overseas Chinese in South East Asia: traditional role
CREDIT
DISTRIBUTE
URBANAREAS
DISTRIBUTE
BUY
CREDIT
IMPORTRURALAREAS
FOREIGNCOUNTRIES
P/OC/K/K 5
22
Evolution of overseas Chinese groups in Southeast AsiaBanking andfinancial services
Real estate
Progressive verticalintegration inupstream activities
Investment inindustrial activities(assembling, downstream)either direct, through joint venturesor licensing
Start upin
“trading”
Diversifiedactivities
Diversifiedactivities
Diversifiedactivities
Diversifiedactivities
24
Charoen Pokphand200 companies8 billion USD before crisis
Animal Feed
Poultry Milk
Pig FarmingFeedmill machinery
Planatation Animal health
SausageMeat
Farm
Aqua FeedShrimp
Chemical
Seeds
Plant Protectiony
Logistics Trading
TrucksMotorcycles
Drill
HealthyDrinks
Supermarkets Frozen FoodsDistrib.
Real Estate Condominium
Golf
PVCLuggages
Toys SpongeLeather
Telephone
CableTV
FiberOptics
SwitchingEquip
Petroleum
25
Why so strong? Why so diversified?
• Scarce resources
• Market imperfection
• Lack of reliable information
• Inefficient judicial systems
• Over-regulated economies
• Monopolies
• Opportunities
• Simplified “business systems”
26
Do business groups add value?Modern Western managerialand financial theories aboutthe value of a group
Emerging countriesSource of value added
Discipline: Implementation of rigorous management practices
Synergies: Resource pooling and transfer; asset sharing; competencies transfer
Leverage: Access to scarce resources; political clout; image
Innovation: ability to develop new businesses
Yes - in developing markets, personalised control reinforces discipline
Some resource transfer, vertical integration, otherwise little
Yes definitely
Yes - as long as market imperfections stay
Not per se but pride to belong to a reputable corporation
27
How groups in developing countries handle such diversity
• In each of the businesses - limited competition (monopolies, oligopolies)
• Innovation (products, processes) is purchased (licensing, joint ventures)
• Marketing is essentially a matter of sales and distribution - brands are sourced externally, as are products
• The key managerial task is to run logistics and production efficiently
Innovation LogisticsProduction
Marketing
Obtained through licensing and joint ventures
Key operationaltask
Concentrate on sales and distribution in oligopolistic markets. Brands and products sourced externally.
28
What has changed?• Markets pressures: globalization, deregulation
• Increased competition both domestic and international
• More complexity in management because of the need to develop its own R&D and marketing capabilities
• Increasing financial stakes due to the move towards capital intensive activities
• Overcapacities
• Higher dependencies on foreign capital
29
What are the consequences?
Since mid-1998, a large number of Asian entrepreneurial conglomerates have announced a series of moves under the generic heading ‘restructuring’.
• COST CUTTING: wage cuts; bonus freezes; headcount reduction
• DEBTS RESTRUCTURING: the 200% D/E ratio imposed in Korea
• PORTFOLIO REDEFINITION: definition of core business; concentration of similar activities in the same group; inter-group mergers
• DIVESTMENT OF NON-CORE ACTIVITIES: spin off; selling off
• REORGANIZATION: flatter structures; decentralization of decision-making