Chapter 6:

Business Marketing Strategies for Global Markets

PowerPoint by: Ray A. DeCormier, Ph.D. Central Connecticut State University

Chapter Topics

How to capture sources of global advantages in rapidly developing economies (RDE) such as China and India Spectrum of Market entry options Strategic significance of different forms of global market participation Distinctive types of international strategies Essential components of global strategy

Global Competition Is Here

Huge international firms, which are relatively unknown here, are challenging US companies in almost every global setting. B2B marketing is world wide and the very existence of many companies will be decided by its ability to: 1. Act decisively 2. Compete aggressively 3. Seize market opportunities

This Chapter Shines Light On:

1.

2. 3. 4.

Rapidly Developing Economies (RDEs) and their source of global advantage International entry options Comparison of multidomestic & global strategies Critical requirements for a successful global strategy
4

RDEs are emerging as serious competitors in world markets. Their advantages are labor costs and, in some cases, abundant raw materials. 80% of the worlds population is located in RDEs [i.e., China, India, Mexico, South America (Brazil), Eastern Europe and Russia]. Hundreds of millions of people are now considered middle class and form a significant market. There are 25 world-class emerging multinationals. By 2025, there will be at least a 100.

Global Advantage
In order to compete in a world economy, companies need to become global. The strategy is to meet the needs of both low growth and high growth markets. We need new competitive models to handle the current shifts from west to east and the rise of the challenge of RDEs New philosophy of manyness vs. the old approach of oneness.

Figure 6.1 The BCG Global Advantage Diamond Growth advantage

Market access

Integration advantage

Network coordination

Local adaptation

Manyness advantage

Resource access

Resource leverage advantage

Source: BCG analysis.

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Integrated Strategies Include:

Market access: driving sales growth by reaching new markets and targeting new market segments; Resource access: leveraging valuable resources (for example, talent, assets, raw materials, and knowledge) in RDEs to achieve competitive advantage; Local adaptation: developing and adapting products and services to satisfy the unique needs of RDE customers; Network coordination: integrating operations to capitalize on the strength of the companys global network.

What Products Should Go? What Should Stay?

The decision to relocate manufacturing, R&D, and other services is a strategic decision involving:
1.
2. 3.

Economic issues abroad and at home Competitive concerns Environmental issues

What Products Should Go to RDEs? Activities that could be outsourced include: Products with:
1) 2) 3) 4) High labor content/costs High growth potential by keeping the price low Large market potential in the RDEs Standardized manufacturing processes

What Services Should Go to RDEs?

Services that: 1. Are rule-based 2. Have high labor costs 3. Have well-defined processes Example: Call centers, accounting, programming

What Should Stay?

Products, services or jobs that: 1. Protect intellectual property (IP) 2. Demand extreme logistical requirements 3. Possess high technology content 4. Possess high performance attributes 5. Customers consider sensitive to their business Example: Military products or processes Table 6.1 summarizes this issue.

Table 6.1 Determining Which Products to Outsource and Which to Keep In-House: Selected Criteria Maintain Home-Based
Manufacturing Labor Contract Growth of Demand in Home Market Size of RDE Market Low Low Low

Relocate to RDEs

High High High

Degree of Standardization
Intellectual Property Content Logistical Requirements

Low
High High

High
Low Low

Source: Adapted from Arindam Bhattacharya et al., Capturing Global Advantage: How Leading Industrial Companies Are Transforming Their Industries by Sourcing and Selling in China, India, and Other Low-Cost Countries, The Boston Consulting Group, Inc., April 2004, accessed at http://www.bcg.com, pp. 26-30.

Local Adaptation

Shift power to where the growth is. Build new offerings from the ground up. Build LGTs from the ground up, just like forming a new company. Customize objectives, targets, and metrics for the RDE environment. Provide senior executive support to the LGT, including a direct reporting link to senior management

Network Coordination

Share best practices Standardize processes Resource advantages developed in different markets can be shared and diffused to other operating units around the world Take innovations developed in RDEs back to developed markets

Spectrum of Involvement in International Marketing

First step for developing an effective international marketing strategy is to understand alternative ways that firms can participate in international markets. Next, entry mode selected should consider firms level of experience overseas and its evolutionary stage in its international involvement.

Entering the Global Marketplace

Sell domestically-produced products to buyers in other countries

Management Contracting Strategic Alliance Joint Venture

Includes management and manufacture contracting from making to assembling

A business relationship between two or more firms to cooperate through mutual need
Domestic firm buys/joins a foreign company to create new entity

Multidomestic
Global Strategy

Companies work together to find a balance between local adaptation & global optimization
A business relationship established to cooperate out of mutual need and to share risk

Risk Levels
Risk
Global Strategy

Multidomestic Strategic Alliances

Contracting

Joint Ventures

Export

Return

Entry Modes: Exporting

a. b. c.

d.

Least commitment Lowest risk Workable when firm lacks resources to make a significant commitment to the market Reasons for non-committal include:
a.

b.
c.

Political Economic Unfamiliar with markets requirements or culture

Management Contracts

When equity participation is not feasible, many partners turn to management contracts to participate in the venture. A management contract is an agreement for one company to perform a specific function under a contract basis. Specific functions may include:

Organizational skills Specific expertise Management services

Turnkey operations: Arrangement permits client to own, operate and control an operating system for a % of gross sales.

Contract Manufacturing

Involves the sourcing of products from, say, China. The purchaser (marketer) may market the product under their own brand, post their own label and market/distribute it there and/or in other countries. Key requirement is quality management. Contract manufacturing is most appropriate when:

Local market is too small to justify investment Export entry is blocked Quality licensee is unavailable

Strategic Alliances
Strategic alliance A relationship between partners involving commitment of capital, management and technical resources. The objective is to enhance both parties competitive positions, such as cutting or sharing costs, and/or get into new markets. Example: GM & Toyota

Partners have different organizational structures. This can create problems for marketing and product design decision-making. This may lead to problems in coordination and trust. Partners that combine their best skill sets in one country may be poorly equipped to support partners in other countries. This can lead to global implementation problems. Quick technological change often guarantees that most attractive partner today may not be most attractive partner tomorrow.

Joint Ventures

Involves the joint ownership of a company to produce/market into a host country.

Joint ownership is the development of a new company where both parties have a stake (equal or majority). Contributions do vary widely from R&D, know how, financial, sales, or to whatever.

Joint Venture Advantages

1. Spreads the risk 2. Opens up new markets to both 3. 4. 5. 6.

organizations Provides a better relationship to each others local community Less vulnerable to political risks Alien companies are quickly and easily oriented to each others culture Any other advantages?

Joint Venture Disadvantages

Many joint ventures are disbanded because they fall short of expectations.

Unable to mutually disclose intellectual property Unable to agree on how profits should be divided Differing management styles Different perception of the strategies The relationship could even morph into competitors

Global Strategy
A global strategy seeks to achieve a competitive

advantage by integrating its operations across countries.

It might start with a standard core product and

adapt it as necessary to targeted countries on the basis of contribution to globalized benefits.

Examples: Automobiles, commercial aircraft,

consumer electronics, machinery, etc.

Upstream Activities

Upstream activities include primary activities that do not necessarily need to be tied closely to the buying market such as manufacturing.

Where is manufacturing really needed? Where are services really needed? Where is marketing really needed?

Downstream Activities

Downstream activities involve primary activities where the need is as close to the buying market as required. Example: Many products need to be sold through salespeople who need to be in the market.

Where is manufacturing really needed? Where are services really needed? Where is marketing really needed?

MULTIDOMESTIC VS. GLOBAL

Multidomestic competition occurs when: Downstream activities are important to competitive advantage so firms can pursue separate strategies in each country. Competition in each country is independent of competition in other countries. Global competition occurs when: Upstream and support activities are vital to competition where a competitive position in one country effects the competitive position in another country.

According to Pankaj Ghemawat, companies need to be careful in which strategy (global vs. multidomestic) they employ because internationalism is only at 10%. Differences in many cultures do matter. Many countries are protectionists and will only trade in one direction. Many countries dont value intellectual property rights. Some countries are reasserting national sovereignty. Thus, the decision to follow a purely GLOBAL strategy must be carefully scrutinized.

Two Dimensions of Competition: Coordination & Configuration

Configuration is concerned about where each activity is performed. They range from centralized to decentralized. Centralized can produce economies of scale and a reduced learning curve. However, centralized may not be close enough to the market and the cost of getting products there may be greater than the savings.

Two Dimensions of Competition: Coordination & Configuration

Coordination refers to activities that are performed in different locations worldwide but are coupled with each other.
Example: A plant in one country makes bumpers, a plant in another country makes doors, and a third plant near the market assembles the car.

Integration of Coordination & Configuration

Integrating coordination and configuration to the value of activities results in various international strategies:
I. II. III. IV.

High Foreign Investment extensive coordination Country-centered strategy low coordination Purest Global Strategy high value-based activities Export based decentralize marketing; low value-based activities

Types of International Strategies

Which International Strategy?

The nature of international competition is the determinant as to which strategy to employ. Employ a global strategy when a position in one country affects a position in another country. Employ a multidomestic strategy when a position in one market does not affect a position in other markets (markets are independent of each other). It is important to view each market in terms of: Culture Administration/Political climate Geography Economy

Framework for Global Strategy

Build on foundation of unique competitive position Emphasize consistent positioning strategy across international markets

Global Strategy

Establish clear home base for each distinct business

Leverage product-line home bases at different locations

Source: Adapted from Michael E. Porter, Competing Across Locations: Enhancing Competitive Advantage through a Global Strategy, in Michael E. Porter (ed.), On Competition (Boston: Harvard Business School Press, 1998), pp. 309-350.
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Disperse activities to extend home base advantages Coordinate and integrate dispersed activities
Copyright 2007 by South-Western, a division of Thomson Learning, Inc. All rights reserved.

Global Strategy: Build upon a Unique Competitive Position

1.

Globalize in those businesses and product lines where the firm has a unique competitive advantage.
Advantage must be on cost and/or differentiation where value supports a premium price.

2.

Global Strategy: Emphasize a Consistent Positioning Strategy

1.

2.

3.

4.

Maintain a consistent product and service offering from one country to another. Strategy requires patience and long-term dedication. It is not necessary to try and expand product assortment to capture a limited market. Its better to maintain a consistent position.

Global Strategy: Establish a Clear Home Base for Each Business

1.

2.

Corporate location is not as important as having a clear home base. Home base is where:
1.
2.

3.

4.

Strategy is set Core product & process technology is created Critical mass of production resides Research & service is conducted

Home Base (continued)

Home base should be located where there is favorable access to:

1. 2.

Required resources Supporting industries

Home base should serve as the integrating point for activities. Home base should have clear worldwide responsibility for the business unit.

Global Strategy: Leverage Product-Line Home Bases at Different Locations

As a firms product line broadens and diversifies, different countries may act as a home base for some of them. These home bases should offer best locational advantages:

To suppliers For serving customers worldwide.

Extending Competitive Advantages

Having a strong home base to house core activities is important. However, other activities can be dispersed to extend the firms competitive advantage. Three areas are

Disperse Activities to Extend Homebase Advantage

1. Capture competitive advantages in procurement by purchasing at most costeffective locations. 2. Securing or improving market access by locating selected activities at their proper location to take advantage of costs, politics, and/or local preferences. 3. Selectively tapping competitive advantages at other locations for skills, materials or technologies.

Global Competitors Achieve Unified Action By:

Establishing a clear global strategy Developing consistent information and accounting systems on a worldwide basis Encouraging personal relationships that facilitate transfer learning among managers Carefully designing incentive systems to ensure that rewards accrue for truly valuedriven actions