GLOBAL COMPETITION

sagar sadhwani mba ib

Global Competition

Agenda
Major trends

Global competition

Strategies for success

Emerging economies
Aneel Karnani

Global Competition

Global Competitive Environment

Rapid pace of change Pervasive shift towards markets

Broad and fast diffusion of capabilities

Emerging markets New global competitors

Excess capacity and slow growth

Regionalization of trade

New rules of global competition

Aneel Karnani

Global Competition

Causes of Past Growth

Pro-business, pro-market policies Prudent monetary and fiscal policies

Secure property rights

Openness to trade and foreign technology Physical capital growth. High savings rate. Investment in education
Aneel Karnani

Global Competition

Potential Problems in Emerging Economies

Political instability and succession Too much government intervention Unequal income distribution Infrastructure bottlenecks Overheated economies (inflation, current a/c deficits)

Shortage of skilled labor

Legal environment (corruption, intellectual property) Inefficient financial systems

Overcapacity
Aneel Karnani

Global Competition

Emerging Markets
Emerging markets are larger than what the per capita income numbers would lead you to believe. Purchasing power vs. exchange rates Unequal income distribution Regional inequalities Parallel economy

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Global Competition

Strong Local Competitors

Lenovo (China, personal computers) Haier (China, appliances)

Asian Paints (India, paints)

Nirma (India, detergents) Pollo Compere (Central America, fast food)

Jollibee (Philippines, fast food)

Giodarno (Hong Kong, garments) Acer (Taiwan, personal computers)

Cemex (Mexico, cement)

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Spectrum of Industries
Country centered Global

Separate markets

Linked markets Continuum

Portfolio of subsidiaries

Integrated system across countries

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Advantages of global firms

Scale related Manufacturing Learning curve Sourcing R&D Marketing, distribution

Arbitrage Comparative advantage Scanning and learning from environment Institutional incentives Exchange rate volatility Cross-subsidization

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Expatriates in US Firms
56% of companies planned to increase the number of overseas assignments. For 97% of companies, the cost of overseas posting equals at least twice the expatriates salary; for 68%, the cost was three to five times the salary. Only 38% of the companies guaranteed expatriates a position upon their return. At 60% of the companies, fewer than a quarter of the expatriates knew their new assignments four months before their repatriation. 87% of companies said that most expatriates were not promoted when they returned. 77% of expatriates returned to jobs with less responsibility than the overseas position. About half of expatriates quit within three years of their return.
Source: Survey of 152 companies, Conference Board Aneel Karnani

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Global Competition

Advantages of Localization
Close to customer Adapt to local supply conditions Governmental preferences

Organizational speed
Lower overhead
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Continuum
Global
Consumer Electronics Auto

Multi-domestic
Packaged foods

Industry
Honda GM Fiat

Firm
Research Manufacturing Marketing Service

Function
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Global Competition

The Challenge
Winning locally

Converting global capability into local advantage

Enriching global capability from local knowhow

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Effective Global Manager

Develop and use global strategic skills Manage change and transition

Manage cultural diversity

Design and function in flexible organizational structures

Ability to work with others and in teams

Ability to communicate Learn and transfer knowledge in an organization
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Global Competition

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Organizational Initiatives
Use of cross-border task forces (91%) Globally integrated MIS (81%) Global electronic networking capabilities (79%) International business units (77%) Centers of excellence (74%) Shift power from country subsidiaries to global divisions (60%)
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HR Initiatives
Worldwide management development program

International experience a condition for promotion to top management

Multi-national management group

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MNCs in Emerging Countries

Objective: Sell to local market

Sell to regional market

Export platform for the world market

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Global Competition

MNCs: Strategic Challenges

Local competitors getting stronger

Nature and role of alliances

Expand the market; target the lower and middle segments Invest in distribution and marketing Heterogeneous regions Develop local managerial and technical talent

Global strategy (vs. flag planter)

Local adaptation
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Global Competition

Mode of Entry

Trade

Contractual

Investment

Indirect Agent/distributor

Licensing Joint venture Franchising Technical agreements Service contracts Management contracts Construction/turnkey contracts Contract manufacture

Sole venture

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Global Competition

Expand the Market

Most MNCs target this tip only.

Grow the market. Grow with the customer.

Real Opportunity

Not a market

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Key Success Factors

Distribution Fragmented Poor physical infrastructure Geographically fragmented Too many tiers

Service infrastructure: poor

Marketing; invest in relationships and brand equity

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Typical Local Enterprise

Individual/family owned and managed. Firm objective may not be solely financial. Centralized decision making structure. Authority determined by relationship with founder Entrepreneurial, risk-taking leadership, focused on opportunistic deal-making Political/government connections, social networks and personal relations are sources of opportunity and resources Conglomerate with multiple diverse business units/enterprises Cross-subsidization, and sharing of risk, capital, technology, and information
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Global Competition

Typical Local Enterprise

Competitive Strengths Speed, fast moving, nimble Flexible, adaptive Entrepreneurial, risk taking, opportunistic Relationship building, trust Competitive Weaknesses Dependence on patriarch, single individual Vulnerable to changing family dynamics Lack of competence in technology, marketing, etc. Lack of synergy in disparate businesses Management and capital constraints
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Past Success
Entrepreneurial management Rapid economic growth Constantly rising property prices Large pools of cheap labor Political connections Personal connections Inefficient markets (specially capital markets)

Monopolies, or virtual monopolies Family controlled conglomerates Vertically integrated Paternalistic management style
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Global Competition

Changing Environment
Economic liberalization: deregulation, privatization, globalization Increasing competition; winners and losers More efficient markets Growing consumer class Increasing customer sophistication Changing value chain New rules of the game Limits to past success Guanxi Competitive advantage
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Future Challenges
Develop competitive advantage Establish regional (or even global) presence

Move to higher value added activities

Move into services and consumer goods Expand the market

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Strategic Imperatives
Family managed Hierarchical organization Family owned Professionally managed Empowered organization Publicly owned

Conglomerate
Local country Vertically integrated Alliances for technology Alliances for brand image Export abroad OEM supplier

Focused company
Regional (even global) Outsourcing Own technology Marketing oriented Market abroad Higher value added activities

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Global Competition

Growth Strategies
Organizational excellence Critical mass Technology Marketing sophistication Capital Strategic alliances

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