Aggregation by Professor S. Mathur (smathur.com

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AGGREGATION OVERCOMING DIFFERENCES Sameer Mathur, Ph.D.

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Agenda

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Sameer Mathur smathur.com Asst. Professor (Marketing) 2009 – 2013 Ph.D. and M.S. (Marketing) 2003 – 2009

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Introduction Importance of Regions Regional Strategy Archetypes Regionalization to Aggregation Possibilities Aggregation Overview

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Aggregation is a method of overcoming differences by employing cross-border mechanisms . The objective is to exploit similarities among countries in order to create economies of scale. What is Aggregation?

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Aggregation Overview Introduction Importance of Regions Regional Strategy Archetypes Regionalization to Aggregation Possibilities

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Trade within geographic regions has been steadily increasing . Intraregional trade (within regions) has become more dominant than interregional trade (between regions). Importance of Regions for Aggregation

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Source: Alan Rugman and Alain Verbeke Sample - 366 companies in the Fortune Global 88% derived at least 50 percent of their sales in 2001 from their home regions. Share of sales in the home region averaged 80%. Just 2 percent of the sample (9 companies) had sales of at least 20% in each of the “triad” regions of North America, Europe, and Asia. Regional Bias

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Countries that are geographically close often share many commonalities. These commonalities are further intensified through free trade agreements (i.e. NAFTA) and currency unification (i.e. the EU). Regional Bias

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A bias where companies prefer to trade with geographically close regions, thus earning the majority of their sales from their home regions . American companies are more active in trading and investing in Canada and Mexico than in other countries. Regional Bias

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Aggregation Overview Introduction Importance of Regions Regional Strategy Archetypes Regionalization to Aggregation Possibilities

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Regional Focus Regional Portfolio Regional Hubs Regional Platforms Regional Mandates Regional Networks Regional Strategy Archetypes

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Regional Strategy Archetypes

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Developed using the six stages of Toyota’s evolution. Provide a pattern of aggregation strategies for other companies to follow. Regional Strategy Archetypes

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Home focus is the starting point for all companies . Many firms stay regionally focused for long periods of time Example : Samsung sells worldwide but centralizes most R&D around one site in South Korea; It has been able to take advantage of key regional economies of scale. 1. Regional or Home Focus

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Used when : Home market very profitable. Need for deep local knowledge is present. High sensitivity to regional free-trade arrangements. Disadvantages : Potential outperformance by more locally focused strategies. Can run out of opportunities to grow or fail to recognize risks adequately. Regional Focus Continued

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For its first 50 years , it followed a strategy of regional focus. I t had essentially one production base , in Japan. Regional Focus by Toyota

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Regional Strategy Archetypes

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Involves operation outside a single region. Increased presence in particular regions or sub-regions is due to acquisitions rather than organic growth. This can create faster growth while reducing risks . 2. Regional Portfolio

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GE’ s globalization initiative in the 1980s targeted expansion into Europe. GE made a number of acquisitions. Regional Portfolio Continued

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In the 1980s, Toyota started to build more of a regional portfolio by making its first significant foreign investments in a second major region, in North America . Regional Portfolio by Toyota

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Regional Strategy Archetypes

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Building regional bases or hubs that provide a variety of shared resources or services to the local (country) operations. Creates economies of scale at a regional level . 3. Regional Hubs

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Dependent on proximity to suppliers and consumers. Firms risk adding too much cost, or sacrificing too many opportunities, to distribute costs among regions. Example : Dell sells built-to-order computers worldwide by relying on operating capabilities that get past distribution barriers. Regional Hubs

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In the 1990s ,Toyota began to create regional hubs. meant to make regions more freestanding and less dependent on Japan. Implemented by putting in regional design centers and permitting, for the first time, production of a limited number of locally exclusive models. Regional Hubs by Toyota

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Regional Strategy Archetypes

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Used to spread fixed costs over a region The goal is “ to deliver variety more cost-effectively . ” 4. Regional Platforms

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Example: Automobile Manufacturers use common, regional platforms greater economies of scale in design costs, engineering, procurement, administration and operations. Regional Platforms

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In the 1990s , Toyota moved towards more ( inter)regional platforms. by promoting “ global cars” with more commonality across regions while consolidating the number of major product platforms. Regional Platforms by Toyota

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Regional Strategy Archetypes

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Allows certain regions to supply particular products or perform particular organizational roles to create economies of specialization and scale . Focused resource distribution at regional or national levels. Example : global consulting, engineering, and financial services firms often develop “ centers of excellence ” 5. Regional Mandates

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It began awarding some plants or regions ( inter) regional mandates for scale-sensitive parts and systems such as engines and transmissions . Regional Mandate by Toyota

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Regional Strategy Archetypes

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Make use of “ Integration and division of labor among resources located in different regions. ” Example : Toyota is one of the only companies that has made significant progress in regional and global networking. Regional Networks

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It envisages an even more extensive ( inter)regional network going forward - but one still overlaid on the regions as the fundamental building blocks (because of concerns about protectionism as well as fundamental differences in gas prices across regions). Regional Network by Toyota

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Regional Strategy Archetypes

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Introduction Importance of Regions Regional Strategy Archetypes Regionalization to Aggregation Possibilities Analyzing Aggregation Managing Aggregation Aggregation Overview

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Aggregation is not only limited to the regional strategies already mentioned Aggregation can also occur by: Rescaling regions Aggregating along other CAGE dimensions Aggregating on non-country bases Regionalization to Aggregation

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No specific definition of a region, it can be of any geographic scale, and all archetypes can be applied to both international and intra-national regions. Example : Drinks company Diageo divides the world into four regions: North America, Europe, Asia Pacific, and International . Rescaling Regions

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Focus on regions along non-geographic CAGE dimensions, i.e. cultural, administrative/political, economic. Example: TATA Consultancy Services locates its regional delivery centers based on language and lifestyle similarities. i.e. Their delivery center in Hungary, where many people speak German as a second language, is designed to serve the Central European market. Aggregating Along Other CAGE Dimensions

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Unlike CAGE, which focuses on countries as a basis for grouping. Use grouping within each base to create strategies for local and global levels. Examples: Global accounts (Citicorp) Businesses (Procter & Gamble) Aggregating on Non-Country Bases

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Creating economies of scale to exploit similarities. Introduce economies of scale without jeopardizing local responsiveness. Aggregation - Summary

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Summary

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Over 500,000 views from more than 95 countries http://www.slideshare.net/ProfessorMathur/ Sameer Mathur smathur.com http://www.facebook.com/ProfessorSameerMathur/

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