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PowerPoint by:
Ray A. DeCormier, Ph.D.
Central Connecticut State University
Chapter 6:
Business Marketing
Strategies forGlobal Markets
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Chapter Topics
How to capture sources of global advantagesin rapidly developing economies (RDE) suchas 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
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Global Competition Is Here
Huge international firms, which arerelatively unknown here, are challengingUS companies in almost every globalsetting.
B2B marketing is world wide and the veryexistence of many companies will bedecided by its ability to:
1. Act decisively
2. Compete aggressively
3. Seize market opportunities
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This Chapter Shines Light On:
1. Rapidly Developing Economies
(RDEs) and their source of global
advantage
2. International entry options
3. Comparison of multidomestic & global
strategies
4. Critical requirements for a successful
global strategy
4
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RDEs are emerging as serious competitors in worldmarkets. Their advantages are labor costs and, insome cases, abundant raw materials.
80% of the world’s population is located in RDEs
[i.e., China, India, Mexico, South America (Brazil),Eastern Europe and Russia].
Hundreds of millions of people are now consideredmiddle class and form a significant market.
There are 25 world-class emerging multinationals.By 2025, there will be at least a 100.
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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 eastand the rise of the challenge of RDEs
New philosophy of “manyness” vs. the old approach of “oneness.”
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Growth advantage
Integration
advantage
“Manyness”
advantage
Resource leverageadvantage
Market
access
Resource
access
Network
coordination
Local
adaptation
Figure 6.1 The BCG Global Advantage Diamond
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
company’s global network.
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What Products Should Go? What Should Stay?
The decision to relocate manufacturing, R&D, and
other services is a strategic decision involving:1. Economic issues abroad and at home
2. Competitive concerns
3. Environmental issues
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What Products Should Go to RDEs?
Activities that could be outsourcedinclude:
Products with:1) High labor content/costs
2) High growth potential by keeping the price low
3) Large market potential in the RDEs4) Standardized manufacturing processes
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What Services Should Go to RDEs?
Services that:
1. Are rule-based
2. Have high labor costs3. Have well-defined processes
Example: Call centers, accounting,programming
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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.
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Maintain Home-BasedManufacturing
Relocate to RDEs
Labor Contract Low High
Growth of Demand in Home Market Low High
Size of RDE Market Low High
Degree of Standardization Low High
Intellectual Property Content High Low
Logistical Requirements High 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.
Table 6.1 – Determining Which Products toOutsource and Which to Keep In-House:Selected Criteria
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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
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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
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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 firm’s level
of experience overseas and its evolutionary stage in itsinternational involvement.
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Entering the Global Marketplace
Management
Contracting
Includes management and manufacture
contracting from making to assembling
Joint VentureDomestic firm buys/joins a foreign company
to create new entity
Sell domestically-produced products tobuyers in other countries
Global Strategy
MultidomesticCompanies work together to find a balance
between local adaptation & global optimization
Strategic AllianceA business relationship between two or more
firms to cooperate through mutual need
A business relationship established to cooperate
out of mutual need and to share risk
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Risk Levels
Export
Strategic
Alliances
Joint
Ventures
Contracting
Multi-
domestic
Global
Strategy
Risk
Return
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Entry Modes: Exporting
a. Least commitment
b. Lowest riskc. Workable when firm lacks resources to make a
significant commitment to the market
d. Reasons for non-committal include:
a. Politicalb. Economic
c. Unfamiliar with market’s requirements or culture
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Management Contracts
When equity participation is not feasible, many
partners turn to management contracts toparticipate 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 toown, operate and control an operating system for a
% of gross sales.
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Contract Manufacturing
Involves the sourcing of products from,say, China. The purchaser (marketer) maymarket the product under their own brand,post their own label and market/distributeit there and/or in other countries.
Key requirement is quality management. Contract manufacturing is most
appropriate when:
Local market is too small to justifyinvestment
Export entry is blocked Quality licensee is unavailable
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Strategic Alliances
Strategic alliance – A relationship betweenpartners involving commitment of capital,management and technical resources.
The objective is to enhance both partiescompetitive positions, such as cutting orsharing costs, and/or get into newmarkets.
Example: GM & Toyota
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• Partners have different organizational structures.This can create problems for marketing and productdesign decision-making. This may lead to problemsin coordination and trust.
• Partners that combine their best skill sets in onecountry may be poorly equipped to support partnersin other countries. This can lead to globalimplementation problems.
• Quick technological change often guarantees thatmost attractive partner today may not be mostattractive partner tomorrow.
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Joint Ventures
Involves the joint ownership of a company to
produce/market into a host country.
Joint ownership is the development of a newcompany where both parties have a stake (equal
or majority).
Contributions do vary widely from R&D, knowhow, financial, sales, or to whatever.
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Joint Venture Advantages
1. Spreads the risk
2. Opens up new markets to bothorganizations
3. Provides a better relationship to eachother’s local community
4. Less vulnerable to political risks
5. Alien companies are quickly and easilyoriented to each other’s culture
6. Any other advantages?
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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
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Global Strategy
A global strategy seeks to achieve a competitiveadvantage by integrating its operations acrosscountries.
It might start with a standard core product andadapt it as necessary to targeted countries on thebasis of contribution to globalized benefits.
Examples: Automobiles, commercial aircraft,consumer electronics, machinery, etc.
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Upstream Activities
Upstream activities include primaryactivities 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?
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Downstream Activities
Downstream activities involve primaryactivities where the need is as close to the
buying market as required.
Example: Many products need to be soldthrough salespeople who need to be in the
market.
Where is manufacturing really needed?Where are services really needed?
Where is marketing really needed?
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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 onecountry effects the competitive position in
another country.
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According to Pankaj Ghemawat, companies need tobe careful in which strategy (global vs.multidomestic) they employ becauseinternationalism is only at 10%.
Differences in many cultures do matter.
Many countries are protectionists and will only trade
in one direction.
Many countries don’t value intellectual property
rights.
Some countries are reasserting national sovereignty.
Thus, the decision to follow a purely GLOBAL
strategy must be carefully scrutinized.
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Two Dimensions of Competition:Coordination & Configuration
Configuration is concerned about whereeach activity is performed. They rangefrom 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 greaterthan the savings.
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Two Dimensions of Competition:Coordination & Configuration
Coordination refers to activities thatare performed in different locations
worldwide but are coupled with eachother.
Example: A plant in one country makesbumpers, a plant in another country
makes doors, and a third plant nearthe market assembles the car.
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Integration of Coordination & Configuration
Integrating coordination and configuration to thevalue of activities results in various internationalstrategies:
I. High Foreign Investment – extensivecoordination
II. Country-centered strategy – low coordination
III. Purest Global Strategy – high value-based
activities
IV. Export based – decentralize marketing; lowvalue-based activities
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Types of International Strategies
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Which International Strategy?
The nature of international competition is the determinantas to which strategy to employ.
Employ a global strategy when a position in one countryaffects a position in another country.
Employ a multidomestic strategy when a position in onemarket 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
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Framework for Global StrategyBuild on foundation of
unique competitive position
Emphasize consistent positioning strategy
across international markets
Establish clear home base
for each distinct business
Leverage product-line home bases
at different locations
Disperse activities toextend home base advantages
Coordinate and integrate
dispersed activities
Global
Strategy
Source: Adapted from
Michael E. Porter,
“Competing AcrossLocations: 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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Global Strategy: Build upon a
Unique Competitive Position
1. Globalize in those businesses and
product lines where the firm has a
unique competitive advantage.
2. Advantage must be on cost and/or
differentiation where valuesupports a premium price.
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Global Strategy: Emphasize a
Consistent Positioning Strategy
1. Maintain a consistent product and
service offering from one country to
another.
2. Strategy requires patience andlong-term dedication.
3. It is not necessary to try and
expand product assortment to
capture a limited market.
4. It’s better to maintain a consistent
position.
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Global Strategy: Establish a Clear
Home Base for Each Business
1. Corporate location is not as
important as having a clear home
base.
2. Home base is where:1. Strategy is set
2. Core product & process technology is
created
3. Critical mass of production resides4. Research & service is conducted
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Home Base (continued)
Home base should be located
where there is favorable access to:
1. Required resources
2. Supporting industries Home base should serve as the
integrating point for activities.
Home base should have clear
worldwide responsibility for thebusiness unit.
Gl b l St t L
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Global Strategy: Leverage
Product-Line Home Bases at Different
Locations
As a firm’s 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.
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Extending Competitive Advantages
Having a strong home base to housecore activities is important.
However, other activities can bedispersed to extend the firm’scompetitive advantage.
Three areas are…
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Disperse Activities to Extend Home-
base Advantage
1. Capture competitive advantages inprocurement by purchasing at most cost-effective locations.
2. Securing or improving market access bylocating selected activities at their properlocation to take advantage of costs,politics, and/or local preferences.
3. Selectively tapping competitive advantagesat other locations for skills, materials ortechnologies.
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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 toensure that rewards accrue for truly value-
driven actions
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