The End of Corporate Imperialism

Will Glocalization help ?

Overview

Imperialism : A policy of extending control or authority over foreign entities

through territorial conquest

Corporate Imperialism : Tendency of Western corporates to supply emerging

countries with standard products and adopting similar strategies as in their own countries.

This presentation is about how Emerging markets need to be treated differently

Emerging Markets How MNCs see them ?

Countries with emerging economies and huge populations like India, China, Indonesia & Brazil are seen as emerging markets.

During the first wave in 1980, MNCs entered in these markets, and : Operated with a imperialistic mind-set. Assumed the emerging markets as new market for their old products. Decisions related to innovations in product and process were taken at headquarters.

Where did they lose ?

Foreseeing the chance to squeeze profits out of their sunset technologies. Not seeing the emerging markets as source for Technical and Managerial talent. Targeting small segments of affluent buyers those resembling the prototypical Western consumers. Jumping in the market without assessing the market pyramid.

Way forward..Key requisites..

Understand the Emerging middle class market in these countries and what business model would serve them better. Understand the distribution networks and their evolution. To foster the opportunity with proper mix of Leadership. Understand that Strategy should be consistent or adaptive for unique SBUs. Understand what role does local partners play ?

The changed world

Understand the Emerging middle-class

Starved of choice for over 40 years. Ready to spend for better quality of life. Experimenting and changing brands. Far more different from the Western countries middle class. Tier 2, The untapped customer base, with a decent purchasing power.

Purchasing power (in US $) Greater than $ 20,000

Tier 1

Populations (in millions)

China 2 India 7 Brazil 9

$10,000 to $20,000
Tier 2

60

63

15

$ 5,000 to $10,000

330

125

27

Tier 3
less than $5,000 800 700 105

The Market Pyramid in EMs.

Ideal Business Model

Rethinking the price/performance equation : Philips Video CD combo player is embraced in China whereas there is no western market for this product. Rethinking Brand Management : Coke took two years to successfully establish their brand in contrast to Pepsi which adopted a campaign oriented toward Indian Market and took the advantage. Rethinking the cost of Market building : Motorola accommodated Chinese preference for using pagers and tapped the market well. Rethinking product design : Western maker of frozen desserts redesigned one of its product to suit Indian retailers refrigerator. Rethinking packaging : In India customers like to be served in small sachets which could allow them to experiment frequently and buy only what is needed at the moment.

Rethinking capital efficiency : Unilever keeps a supply of signed cheques from its dealers and when it ships an order it simply writes the amount for the order, which is not uncommon in India. SCM is an important tool for changing the capital efficiency of multinationals operations.

Distribution Networks.

Detailed understanding of the unique distribution system of every market is very critical to success. In China, distribution is regulated by local and provincial governments, aided by Chinese joint ventures. In India, national distribution systems is maintained by the help of small scale industries and banks. MNCs with patience and ingenuity can more easily build distribution system to suit their needs which would inevitably confer competitive advantage.

Glocalization
Perfect blend of local sensitivity and global knowledge is immensely required.

Expatriates transfer technology and corporate culture, and holds a strong voice at corporate headquarters.

Moreover, expatriates those stayed in these countries need to be retained by the companies.
The competencies of the expats should also be adopted before they move out to another assignments. Host country leaders are more committed to native markets and offer appreciation of local nuances.

Cultural and language barriers demands local leaders over expatriates.

Need to understand and deal with the local political system too needs local leaders.

Consistent or Unique strategy ?

Deep study of the market, its political system, existing business units strategy will help decide onto it. Unique strategy for a unique markets like China where government interference is massive, is absolutely needed. In contrast strategy for India can be developed on business by business basis where market is large and complex, and state level governments are different from one another.

What role does local partners play ?

MNCs used Joint ventures to navigate through bureaucratic process and learn about the new market, and was assumed to foster mutual benefits.

Local partner sees the MNC as a source for technology and investment. The Multinational sees the local as means for participating in the domestic market.

Issues pertaining :

Local partners often suggest archaic business practices. Local partners are concerned about the short term returns/profits. There is often a clash on who controls what.

It is advisable to use local partners as medium to understand the market and the reliance on them should be limited.

Idea in brief

Emerging markets should be seen as an opportunity to change the shape of the MNCs not just as markets for their old products. Centralized corporate power should be replaced by much more dispersed base of power and influence. MNCs will have to develop new mindset and adopt new business models to achieve global competitiveness. Glocalization is the best practice for MNCs in all aspects like, Distribution Network, Leadership, Company Culture, Culture, Product Design, Innovation, etc. As the corporate imperialism comes to an end, more investment would be directed to the emerging markets.