Managing Global Context via Adaptation

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MANAGING IN GLOBAL CONTEXT Adaptation: Adjusting to Differences Sameer Mathur , Ph.D. ( http://smathur.com ), Emily Wagar

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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 to ADAPTATION as a Global Strategy Overview Importance Purpose Difficulties Example: Home Appliances ADAPTATION Tools Levers and Sublevers Competitive Strategies Applying ADAPTATION Agenda - Adaptation

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A djusting parts of a company’s business model to be suitable for local markets ex. Coke is slightly different across markets. An Overview of Adaptation

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The world is globalized but many differences exist between countries and cultures. Adaptation involves adjusting to these differences. Importance of Adaptation

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Increase demand Enhance sales/willingness to pay Purpose/Benefits of Adaptation

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Companies often believe all consumers in developed countries live similar lifestyles Observation proves differently Difficulties of Adaptation

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Cross-border variation exists amongst appliances Additional domestic differences can exist Example: Home Appliances

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Cultural Differences Administrative Differences Geographic Differences Economic Differences Idiosyncratic Differences Electrical Standards: -plugs and outlets -voltages -cycles Climate: -temperature -sunlight Income Levels: lower cost or willingness-to-pay Derived Entrenchment Environmental Regulations Bulk or low value-to-weight ratios Growth: new household formation Mostly mature products Protectionism (tariffs up to 20% in US) Price/availability of substitutes or complements: -space -electricity Lack of consumption externalities CAGE Framework: Cross-Border Variation in Home Appliances

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In addition to cross-border variation: color material size energy efficiency noisiness environmental friendliness layout door design shelf configuration freezer position defroster controls Domestic Differences Among Appliances

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Products need variety, so firms must apply different levers and sublevers to implement ADAPTATION . Levers and sublevers are not mutually exclusive but serve as a set of options for firms to choose from. Tools for Adaptation

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VARIATION FOCUS (Reduce need for Variation) EXTERNALIZATION (Reduce burden of variation) DESIGN (Reduce cost of variation) INNOVATION (Improve effectiveness of variation) products products strategic alliances flexibility transfer policies geographies franchising partitioning localization repositioning verticals user adaptation platforms recombination metrics segments networking modularity transformation Adaptation: Levers and Sublevers

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VARIATION: FOCUS (Reduce need for Variation) EXTERNALIZATION (Reduce burden of variation) DESIGN (Reduce cost of variation) INNOVATION (Improve effectiveness of variation) products products strategic alliances flexibility transfer policies geographies franchising partitioning localization repositioning verticals user adaptation platforms recombination metrics segments networking modularity transformation Variation: Changes in Products, Policies, Positioning and Metrics

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Even standardized products must be varied a great deal. Example : Adapting Windows to different languages such as Arabic, which flows from right to left. Products

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Policies are used in an attempt to strike a balance between internal consistency and the external environment. Example: Lincoln electric has been able to succeed in environments where piecework (paying workers based on the number of units they produce) both is and isn’t allowed. Policies

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Repositioning involves broadly changing the entire position of a product. Example: Coke in India and China are sold for lower margins at higher volumes . Repositioning

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This requires the adjustment of profitability targets to different levels across countries. Example: Whirpool remains present in Europe despite it being a less profitable market than the US . Metrics

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VARIATION: FOCUS (Reduce need for Variation) EXTERNALIZATION (Reduce burden of variation) DESIGN (Reduce cost of variation) INNOVATION (Improve effectiveness of variation) products products strategic alliances flexibility transfer policies geographies franchising partitioning localization repositioning verticals user adaptation platforms recombination metrics segments networking modularity transformation Adaptation: Levers and Sublevers

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Sublevers : Product Focus Geographic Focus Vertical Focus Segment Focus Focus: Reduce Need for Variation

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Firms focus on specific geographies , products , or vertical stages . This reduces the need for variation and keeps complexity under control . Focus

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Globally there are significant differences in the amount of variation required in specific product categories. Example: Unlike many other films, nature and science documentaries are successful at crossing borders because they possess very few cultural/political biases. Product Focus

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Restriction to a specific geographic scope can increase success by minimizing coordination problems, distances, and differences. Example: Cognizant, a software services firm, differentiates itself by tailoring its consulting services towards companies needs in specific international markets. Geographic Focus

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Firms focus only on specific activities in their value chains in order to simplify cross-border operations. Example: Brunswick, a retailer in recreational boats, began by first by selling only engines internationally, not entire boats. Vertical Focus

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Firms only target specific segments. Example: Zara focuses on fashion-sensitive consumers by capitalizing on quick inventory turnovers. Segment Focus

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VARIATION: FOCUS (Reduce need for Variation) EXTERNALIZATION (Reduce burden of variation) DESIGN (Reduce cost of variation) INNOVATION (Improve effectiveness of variation) products products strategic alliances flexibility transfer policies geographies franchising partitioning localization repositioning verticals user adaptation platforms recombination metrics segments networking modularity transformation Adaptation: Levers and Sublevers

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Sublevers : Strategic Alliances Franchising Adaptation and Networking Externalization: Reduce burden of Variation

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Externalization occurs when firms develop joint ventures and partnerships in order to reduce internal burden. Externalization

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Strategic alliances provide firms with access to local knowledge and connections otherwise inaccessible in distant markets. Example: The pharmaceutical company Lilly set up standardized management for all of its alliances, making use of a database that held all the information from each alliance, a standardized training program, and an annual survey of each alliance. Strategic Alliances

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Franchising helps chains relax their internal growth constraints in order to increase local responsiveness and achieve innovation . Example: Fast-food chains share knowledge extensively in both directions. Franchising

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This requires the involvement of customers and other third parties , i.e. through the use of mashups . Example: Linux’s open source software that individual developers are free to add to. User Adaptation and Networking

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VARIATION: FOCUS (Reduce need for Variation) EXTERNALIZATION (Reduce burden of variation) DESIGN (Reduce cost of variation) INNOVATION (Improve effectiveness of variation) products products strategic alliances flexibility transfer policies geographies franchising partitioning localization repositioning verticals user adaptation platforms recombination metrics segments networking modularity transformation Adaptation: Levers and Sublevers

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Sublevers : Flexibility Partitioning Platforms Modularity Design: Reduce Cost of Variation

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Design works to reduce the cost of, rather than need , for variation. Design

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Flexibility requires the design of business systems that reduce fixed costs attributed to variation. Example: Amazon sells online; has a large variety of products without shelf space constraints. Flexibility

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Partitioning requires firms to separate the elements which are variable from those that are integral to their business strategy. Example: McDonald’s food variety across cultures. Partitioning

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Platforms are utilized as a method of cost-effective customization. Example: McDonald’s creation of combi oven that can cook several varieties of dishes at once. Platforms

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Modularity defines the standardized interfaces between all key elements in order for firms to mix and match. Example: Computer production- different parts are worked on independently by specialized groups. Modularity

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VARIATION: FOCUS (Reduce need for Variation) EXTERNALIZATION (Reduce burden of variation) DESIGN (Reduce cost of variation) INNOVATION (Improve effectiveness of variation) products products strategic alliances flexibility transfer policies geographies franchising partitioning localization repositioning verticals user adaptation platforms recombination metrics segments networking modularity transformation Adaptation: Levers and Sublevers

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Sublevers : Transfer Localization Recombination Transformation Innovation: Improve Effectiveness of Variation

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Innovation works to improve the effectiveness of adaptation efforts through the creation of new products or ideas. Innovation

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Transferring innovations from one part of the world to another. Example: The expansion of Disney’s US model to create Latin Disney. Transfer

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Localization involves explicit focus on innovation in a target geography. Example: Shampoos in India are designed for extremely price sensitive consumers. Localization

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Melding elements of the parent’s business model with opportunities that arise in new contexts. Example: The Indian version of “Who wants to be a millionaire” was successful because of the parent companies’ knowledge of local preferences and production expertise. Recombination

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Transformation reduces the need for adaptation by seeking to shape/transform local environments in which the firm operates. Example: Starbucks transformed US coffee drinkers to expect a high quality experience. Transformation

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VARIATION: FOCUS (Reduce need for Variation) EXTERNALIZATION (Reduce burden of variation) DESIGN (Reduce cost of variation) INNOVATION (Improve effectiveness of variation) products products strategic alliances flexibility transfer policies geographies franchising partitioning localization repositioning verticals user adaptation platforms recombination metrics segments networking modularity transformation Adaptation: Levers and Sublevers

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Adaptation cannot be applied in isolation; aggregation and arbitrage strategies must also be applied simultaneously . Applying Adaptation

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Introduction to ADAPTATION as a Global Strategy Overview Importance Purpose Difficulties Example: Home Appliances ADAPTATION Tools Levers and Sublevers Competitive Strategies Applying ADAPTATION Summary - Adaptation

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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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