global vs. local

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2. Competitive strategies: Global vs. local

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Global competitive strategiesThe G5

Platform strategy

4. Network Strategy

5. Intermediary strategy

6. Entrepreneur strategy

7. Investment strategy

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Global competitive strategies
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

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Global competitive strategies
Competitive advantage must be relative to both global and local competitors:
Unilever in US: Breyers,
Ben and Jerrys, Good Humor, Klondike, Popsicle
Nestl in US: Dreyers
The great ice cream battle

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UNILEVER in India Kwality Wall
Hindustan Lever faces successful local competitor
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 versus
80 milliliter Hindustan Lever Kwality Wall vanilla ice cream
ADVERTISING COSTS: Amul: 1% of sales versus
Hindustan Lever: 10-15% of sales on advertising

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

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Global platform strategy
The global challenge

Global market size: standardization

12. Local differentiation: customization

Strategy: Determine best combination of global and local activities for competitive advantage

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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

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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

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Reduces development and production costs
Used in automobiles, mobile phones, computers, aircraft
Example: Cost per product (development and mfg):$80
Cost of basic platform development: $100
Cost of each variation (development and production):$50
Use platform when serving four or more customer country markets:Compare costs of serving four markets:
Distinct products:4 x $80 = $320
Platform and 4 variations $100 + 4 x $50 = $300 ***

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Global platform strategyProduct variety versus economies of scale
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)

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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

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Global platform strategyLocal 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

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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, Nestl, Sony
Increasing brand variations: BMW 3-series (1990s):
More than 1 million varieties can be ordered
Local distribution and marketing
Example: McDonalds, Coca-Cola: Global brand, some local product tailoring, reliance on local distribution
Local technology, production, customer service
Acer computer company

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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

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Buyers
Sellers
The international business contributes value by creatingan 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)
12 links
7 links

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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)

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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

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Global network strategy: The global store
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

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Network effects: Number of members can affect the value ofmost 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 RivkinThe Age of Access

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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)

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Global network strategyPartner networks: Global reachBritish 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

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Global network strategyPartner networks: Technology standards
Mobile phone operating system:Owners

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Mobile phone operating system:Licensees

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Software licensing company
Open- standard operating system
First open Symbian OS phone (in 2001):
Nokia 9210 Communicator
About 85% market share
Standard-setting network

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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

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Global intermediary strategy
Matchmaker
Brings buyers and sellers together across international borders
Market maker
Creates and operates markets that cross international borders
Agent
Provide representation in other countries

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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,

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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

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

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

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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

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

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Global intermediary strategyBeating bypass competition
TradeCountry H
Transaction cost T
Transaction strategy offers innovative transactions
Your costs of trade T must be less than competitor costs of trade T*
Example:
Li & Fung
ServeCountry A
SourceCountry B
Bypass competition
Transaction cost T*

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Market maker

Cemex

41. Mittal

42. Cargill

43. BP Amoco

44. eBay

The global market maker aggregates demand across countries and aggregates supply across countries

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Market maker
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

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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

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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

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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

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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!

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Global entrepreneur strategy
Micro credit
In 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 Bank
In 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.

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Investment strategy next time
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

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global vs. local

Technology

country global

global brand

unit global product

local products customization

best combination of

local competitors

local activities

local differentiation