GLOBAL COMPETITION :GLOBAL COMPETITION ANEEL KARNANI The University of Michigan


Agenda :Agenda Major trends Global competition Strategies for success Emerging economies


Global Competitive Environment :Global Competitive Environment Rapid pace of change Pervasive shift towards markets Broad and fast diffusion of capabilities Emerging markets New global competitors Excess capacity and slow growth Regionalization of trade New rules of global competition


Causes of Past Growth :Causes of Past Growth Pro-business, pro-market policies Prudent monetary and fiscal policies Secure property rights Openness to trade and foreign technology Physical capital growth. High savings rate. Investment in education


Potential Problems in Emerging Economies :Potential Problems in Emerging Economies Political instability and succession Too much government intervention Unequal income distribution Infrastructure bottlenecks Overheated economies (inflation, current a/c deficits) Shortage of skilled labor Legal environment (corruption, intellectual property) Inefficient financial systems Overcapacity


Emerging Markets :Emerging Markets Emerging markets are larger than what the ‘per capita income’ numbers would lead you to believe. Purchasing power vs. exchange rates Unequal income distribution Regional inequalities ‘Parallel’ economy


Strong Local Competitors :Strong Local Competitors Lenovo (China, personal computers) Haier (China, appliances) Asian Paints (India, paints) Nirma (India, detergents) Pollo Compere (Central America, fast food) Jollibee (Philippines, fast food) Giodarno (Hong Kong, garments) Acer (Taiwan, personal computers) Cemex (Mexico, cement)


Spectrum of Industries :Spectrum of Industries Country centered Separate markets Portfolio of subsidiaries Global Linked markets Integrated system across countries Continuum


Advantages of global firms :Advantages of global firms Scale related Manufacturing Learning curve Sourcing R&D Marketing, distribution Arbitrage Comparative advantage Scanning and learning from environment Institutional incentives Exchange rate volatility Cross-subsidization


Expatriates in US Firms :Expatriates in US Firms 56% of companies planned to increase the number of overseas assignments. For 97% of companies, the cost of overseas posting equals at least twice the expatriate’s salary; for 68%, the cost was three to five times the salary. Only 38% of the companies guaranteed expatriates a position upon their return. At 60% of the companies, fewer than a quarter of the expatriates knew their new assignments four months before their repatriation. 87% of companies said that most expatriates were not promoted when they returned. 77% of expatriates returned to jobs with less responsibility than the overseas position. About half of expatriates quit within three years of their return. Source: Survey of 152 companies, Conference Board


Advantages of Localization :Advantages of Localization Close to customer Adapt to local supply conditions Governmental preferences Organizational speed Lower overhead


Continuum :Continuum Industry Firm Function Global Multi-domestic Consumer Electronics Auto Packaged foods Honda GM Fiat Research Manufacturing Marketing Service


The Challenge :The Challenge Winning locally Converting global capability into local advantage Enriching global capability from local know-how


Effective Global Manager :Develop and use global strategic skills Manage change and transition Manage cultural diversity Design and function in flexible organizational structures Ability to work with others and in teams Ability to communicate Learn and transfer knowledge in an organization Effective Global Manager


Organizational Initiatives :Organizational Initiatives Use of cross-border task forces (91%) Globally integrated MIS (81%) Global electronic networking capabilities (79%) International business units (77%) Centers of excellence (74%) Shift power from country subsidiaries to global divisions (60%)


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HR Initiatives :HR Initiatives Worldwide management development program International experience a condition for promotion to top management Multi-national management group


MNCs in Emerging Countries :MNCs in Emerging Countries Sell to local market Sell to regional market Export platform for the world market Objective:


MNCs: Strategic Challenges :MNCs: Strategic Challenges Local competitors getting stronger Nature and role of alliances Expand the market; target the lower and middle segments Invest in distribution and marketing Heterogeneous regions Develop local managerial and technical talent Global strategy (vs. ‘flag planter’) Local adaptation


Mode of Entry :Mode of Entry Indirect Agent/distributor Licensing Franchising Technical agreements Service contracts Management contracts Construction/turnkey contracts Contract manufacture Sole venture Joint venture


Expand the Market :Expand the Market Not a market Real Opportunity Most MNCs target this tip only. Grow the market. Grow with the customer.


Key Success Factors :Key Success Factors Distribution Fragmented Poor physical infrastructure Geographically fragmented Too many tiers Service infrastructure: poor Marketing; invest in relationships and brand equity


Typical Local Enterprise :Typical Local Enterprise Individual/family owned and managed. Firm objective may not be solely financial. Centralized decision making structure. Authority determined by relationship with founder Entrepreneurial, risk-taking leadership, focused on opportunistic deal-making Political/government connections, social networks and personal relations are sources of opportunity and resources Conglomerate with multiple diverse business units/enterprises Cross-subsidization, and sharing of risk, capital, technology, and information


Typical Local Enterprise :Typical Local Enterprise Competitive Strengths Speed, fast moving, nimble Flexible, adaptive Entrepreneurial, risk taking, opportunistic Relationship building, trust Competitive Weaknesses Dependence on patriarch, single individual Vulnerable to changing family dynamics Lack of competence in technology, marketing, etc. Lack of synergy in disparate businesses Management and capital constraints


Past Success :Past Success Entrepreneurial management Rapid economic growth Constantly rising property prices Large pools of cheap labor Political connections Personal connections Inefficient markets (specially capital markets) Monopolies, or virtual monopolies Family controlled conglomerates Vertically integrated Paternalistic management style


Changing Environment :Changing Environment Economic liberalization: deregulation, privatization, globalization Increasing competition; winners and losers More ‘efficient’ markets Growing ‘consumer’ class Increasing customer sophistication Changing ‘value chain’ New rules of the game Limits to past success ‘Guanxi’ ??‘Competitive advantage’


Future Challenges :Future Challenges Develop competitive advantage Establish regional (or even global) presence Move to higher value added activities Move into services and consumer goods Expand the market


Strategic Imperatives :Strategic Imperatives Family managed Hierarchical organization Family owned Conglomerate Local country Vertically integrated Alliances for technology Alliances for brand image Export abroad OEM supplier Professionally managed Empowered organization Publicly owned Focused company Regional (even global) Outsourcing Own technology Marketing oriented Market abroad Higher value added activities


Growth Strategies :Growth Strategies Organizational excellence Critical mass Technology Marketing sophistication Capital Strategic alliances