Implementing Global Strategy by Arbitrage

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IMPLEMENTING GLOBAL STRATEGY BY ARBITRAGE EXAMPLES 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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a) Apple “Designed in California” Cultural and Economic Arbitrage

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Why are Apple’s products “Designed in California” but “Assembled in China”? Apple: Arbitrage in China

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Apple outsources the production of specific components and the assembly of components. Components of an iPhone are made all over the world; from screens made in Korea and Taiwan to chipsets from Germany and Japan. The components are assembled in China. Production in China Outsourcing Production

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It's about who can build the greatest number of iPhones within the shortest period of time. All while remaining flexible and instantaneously adaptable to Apple's needs. Apple Headquarters (Cupertino) Outsourcing Production

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Low cost labour; work six days a week, twelve hours a day, and they earn less than US$17 per day . It is taking advantage of China’s labour laws. 230,000 workers in assembly line ;only 50 US cities are large enough to provide that kind of labor pool. This leads to operational effectiveness. How does Apple achieve Economic Arbitrage by assembling in China? Economic Arbitrage

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Locations stir up images of the technological epicentre of the world. Labelling them with “Made in China”, Apple risks coming off as “cheap.” Designed by Apple in California” ; reassurance that Apple is providing the best quality products on the market. Cultural Arbitrage

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b) Apple Administrative Arbitrage by Tax Avoidance

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Most part of the companies are tech companies. Google for example cut its overseas taxes rate to 2.4 %, gaining 3.1$ Billion over three years. Companies avoiding taxes by employing “Double Irish with a Dutch Sandwich strategy”

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Administrative A rbitrage How to avoid taxes

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c) IBM Labour Arbitrage via Outsourcing

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In 2007, companies deciding whether to outsource. Economic Benefits IBM management discussing what jobs to outsource and which to keep.

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IBM keeping Specialized Jobs in US. Outsourcing more basic Programming jobs.

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IBM employed 53000 people up from 3000 in 2002. Huge Economic advantage and money saver in Labour costs for IBM.

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But: Indian companies also outsourcing work to North America. Very Strategic Placing employees close to customer base is beneficial.

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At IBM, need to leverage America’s advanced infrastructure. Good to develop technologies and market abroad.

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d) Coca-Cola Global Value Creation by ARBITRAGE

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Introduced in 1886, sold for 5 cents a glass. Considered the world’s most valuable brand. Sold and produced in more than 200 countries. 92400 employees with over 86% of them located outside the US. A Sip of Coca Cola Facts

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Coca Cola outsources and produces mainly in China with 39 facilities all across the country. Recently outsources warehousing of finished goods to DB Schenker Logistics , in Poland . Economic and Geographic Arbitrage

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From their website: "Coca-Cola has never intended to, and will not be making, any corporate or income tax exemption claim with respect to any activity concerning our involvement with the London 2012 Olympic Games.” Administrative Arbitrage: The 2012 London Olympics Case

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Used as a symbol of freedom , democracy , prosperity and capitalism during the Cold War . From the movie « Goodbye Lenin » (2003) Cultural Arbitrage: East Germany buys bottles of Freedom

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e) Lindt Swiss Chocolates Arbitraging on Reputation and Culture

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1845: Started in a small family confectionery by David Sprüngli -Schwarz and his son. 1879: Rodolphe Lindt developed the first chocolate which melts on the tongue ( “ Chocolat fondant” ). 1899: Renamed Chocoladefabriken Lindt & Sprüngli AG. Lindt & Spr ü ngli : History

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Premium chocolate and confectionary company. 160 years of business . Lindt & Spr ü ngli

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Switzerland = mountains, lakes, banks, snow, expensive, CHOCOLATE, luxury, watches. Renowned worldwide for high-quality chocolate. Switzerland’s Reputation

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Airports have many famous Swiss chocolate stores when you arrive in Zurich. Tours of chocolate factories. Lindt logo identifies Swiss origin. Leveraging a Reputation

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CHOCOSUISSE , the Association of Swiss Chocolate Manufacturers, was founded on 1901, to protect the good reputation of Swiss chocolate. Imitations are hunted-down worldwide. Protecting Reputation

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Lindt leverages its Swiss reputation for excellence, luxury, and high class products. Positioned as a high quality Swiss chocolatier in the mind of the consumer. Cultural Arbitrage

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f) Champagne Everything else is Sparkling Wine

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Made in the French region of Champagne. Anything else produced outside this region is called “ sparkling wine ”. Made from an exclusive blend of 3 grapes. Champagne

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France has a reputation of high quality, luxury goods. champagne and wines are exported from France worldwide. Viticulture: the French were the first to create this industry (first-mover advantage). Cultural Arbitrage

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The name “champagne” is legally protected by the treaty of Madrid. Labeling must pass regulations by Comité Interprofessional du Vin de Champagne. Administrative Arbitrage

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The cool climate and environment is unique to producing a certain grape. Their grapes have a certain level of acidity, extract and richness. 3 grapes are blended: pinot noir, pinot meunier and chardonnay. Geographic Arbitrage

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Summary

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Recommended Reading

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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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