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Marketing for MOST Module 12 – Strategic Management in the Asia-Pacific. 技術経営コンソーシアム 開発担当者 ： Ritsumeikan Asia Pacific University 教授: Takamoto, Akihiro 更新日 October, 2003. Module 12: Strategic Management in the Asia-Pacific. The Strategic Importance of the Asia Pacific
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Marketing for MOSTModule 12 – Strategic Management in the Asia-Pacific 技術経営コンソーシアム 開発担当者 ：Ritsumeikan Asia Pacific University 教授: Takamoto, Akihiro 更新日 October, 2003
Module 12: Strategic Management in the Asia-Pacific • The Strategic Importance of the Asia Pacific • Managing Strategic Alliance • Portfolio Management • Game Theory • Value and Supply Chain Management • Balanced Scorecard
Profile of Asia Pacific Region • The Asia Pacific region covers 25 countries from Mongolia in the north to New Zealand in the south, and from Pakistan in the west to Kiribati in the east. • With 1835 million inhabitants, the region represents 32 percent of the world’s population and 25 percents of the world’s output.
Asia Pacific Market • Widely diversified market • Different status of economic development • Expectation for quality and service varies • Market price also varies • Different cultures and customs • Different approaches required • - How to manage each market is a critical challenge
Four Major Blocks • Japan • Newly Industrialized Economies (NIEs)(Korea, Taiwan, Hong Kong, and Singapore) • Association of South East Asian Nations(ASEAN) • China
The Players in the Asia Pacific Arena Global Korean chaebol Taiwanese Japan kaisha American MNCs European MNCs Scope of Operation Regional Overseas Chinese Regional Domestic Overseas Chinese Local Small or Medium Sized Firms Government Owned Firms Local Low Cost Differentiation Basis of Competitive Advantages
The Simplest Way to View AP: Groups of Countries on a classic growth curve
A Strategic Framework for the Asia Pacific Ambition Mission, Vision, Objectives Positioning Strategy Investment Businesses Segments Countries Choice of: Choice of: Investment and Priority for Organization Resource Development Assets Building Competence Creation Choice of: Way to Compete Structure System Process
The importance of the AP as a Resource Base Sourcing Cost Customer Adaptation Service Technology Flexibility Market Intelligence Contact Speed New Materials Raw Materials Labor Components Logistics Financing New Processes Korean Singapore Indonesia China Japan Thailand Malaysia Hong Kong Taiwan Philippines
Country Attractiveness in Asia Pacific Region Philippines Singapore Hong Kong Indonesia Thailand Malaysia Japan Taiwan Korea China GDP size Inflation Unemployment Political Stability Investment Flow Ease of Licenses Management Control Tax Law Skilled Labor Cost of Labor Cost of Premises Most Attractive Least Attractive
Established Markets Integrate into global regional operations Joint Venture Expand Japan Maturing Markets Taiwan Korea Joint Venture Local Operation Expand Entry Modes in Asia Pacific Region Growth Markets Initiate several business activities Multiple presence China Thailand Indonesia Malaysia India Philippines Joint Venture Local Subsidiary Rationalization Emerging Markets Establish initial Investment through Joint venture or Local subsidiary Agents Representative offices Vietnam Myanmar Laos,Cambodia Platform Establish a base to learn, collect Information and set up contacts Regional offices For administration of synergies Singapore Hong Kong Set up a regional Office to coordinate efforts Entry Development Consolidation
Strategic Capabilities in the AP Region Mind Set Visibility &support Flexibility Developing Regional Competences Social, Cultural, Political know how Markets & Competitive Intelligence Building Assets Access to Resources . Logistics . Distribution networks . Product development . Brand reputation . Local human resources . Suppliers and sub-contractors . Contactors . Partners
How Did The Financial Crisis Affect Asia Pacific Strategies • Strategies were revised but long-term goals of presence in the region were maintained • Resources needed to be readjusted and expansion plans temporarily delayed, but not abandoned • Flexibility and adaptability remained key competences and could be preserved or enhanced • New opportunities offered by potential acquisitions had to be seriously considered
Prospects for Asia Pacific (Beyond The Crisis) • The regional market growth is still prominent • The regional trade liberalization and the gradual reduction of investment restrictions that started well before the crisis and that are all expected to prevail in the long-term. • With increased regionalization and increased number of countries competing for FDI
Economic Cooperation in the Asia Pacific Region • Several regional integration programs – sub-regional, regional, bilateral and multilateral approach. • Regional integration schemes of East Asia, mainly Asia-Pacific Economic Cooperation (APEC), the Association of South-East Asia Nations (ASEAN), ASEAN+3, ASEAN Regional Forum (ARF), and other bilateral cooperation, have strongly impact on recent economic position. • With the Impact of single European Union (EU) and NAFTA concept of trade liberalization, Asia Pacific Economic Cooperation (APEC) was established in 1989 and United States is supporting the APEC initiatives. • The prospect of APEC Common Currency Unit is the next challenge of Asia Pacific Region for the 21st century.
Strategic Alliance Partnership between two or more entities that allow an exchange of resources for mutual benefit
Why Form Strategic Alliance • Open new market and territories • Gain greater speed to market • Enhance company’s creditability and value • Increase revenue opportunity • Maintain focus on core strengths • Access new products and technologies
Firm A Firm B Partnerships between firms where their Resources Capabilities Core Competencies are combined to pursue mutual interests to Develop Goods Manufacture Services Distribute Strategic Alliances
Firm B Resources Capabilities Core Competencies Resources Capabilities Core Competencies Firm A Mutual interests in designing, manufacturing, or distributing goods or services Combined Resources Capabilities Core Competencies Strategic Alliance
Types of Strategic Alliances • Equity Strategic Alliance • Equal Partners (50 – 50 %) • Not Equal Partners (30 – 70 %) • Multiple Partners (More Than Two) • Non-Equity Strategic Alliance • Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing)
Types of Alliances STRATEGIC IMPORTANCE Acquisition Minority Interest High JointVenture Joint Marketing JointDevelopment Projects Medium LicensingAgreements Commercial Contract Low Technology Trials Low High LEVEL OF COMMITMENT
* Gain access to a restricted market * Establish franchise in a new market * Maintain market stability * Gain market power * Gain access to complementary resources *Overcome trade and non-tariff barriers * Meet competitive challenge * Pool resources for large projects * Learn new business practices * Form industry technology standards *Share risky R&D expenses * Overcome uncertainty Slow Cycle Market Reasons for Alliances by Market Type Standard Cycle Market Fast Cycle Market * Speed-up product, service or market entry * Maintain market leadership
Types of Strategic Alliances Complementary Alliances Competition Reduction Alliances Business-Level Competition Response Alliances Uncertainty Reduction Alliances Diversification Alliances Corporate-Level Synergistic Alliances Franchising
Complementary Strategic Alliances Supplier Value Chain Vertical Alliance Buyer Value Chain Japanese manufacturers rely on close relationships with and among suppliers to implement Just-In-Time inventory systems Partnerships that build on the complementarities among firms that make each more competitive Include distribution, supplier or outsourcing alliances where firms rely on upstream partners or downstream partners to build competitive advantage
Complementary Strategic Alliances Horizontal Alliance Buyer Value Chain Buyer Value Chain For example: Marketing agreements between Various Airlines Used to increase the strategic competitiveness of the partners
Types of Business-Level Strategic Alliances • Competition Reduction Strategies Avoiding competition by using tacit collusion such as price fixing • Competition Response Strategies Firms join forces to respond to a strategic action of another competitor • Uncertainty Reduction Strategies Alliances can be used to hedge against risk & uncertainty OPEC petroleum cartel Many of the airline alliances Yahoo’s 50% interest in the Overture
Types of Corporate-Level Strategic Alliances • Diversifying Alliances Allows a firm to expand into a new product or market area with an acquisition • Synergistic Strategic Alliances synergy across multiple businesses between firms • Franchising Allows firms to grow and relatively strong centralized control without significant capital investments Samsung Group’s moves into a range of industries Sony shares development with many small firms McDonald’s or KFC
International Cooperative Strategies Cross-border strategic alliance • an international cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage • a firm may form cross-border strategic alliances to leverage core competencies that are the foundation of its domestic success to expand into international markets
International Cooperative Strategies • Allows risk sharing by reducing financial investment • Host partner knows local market and customs • International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints • Must gauge partner’s strategic intent so they do not gain access to important technology and become a competitor
Alliance Success Factors Have a clear strategic purpose Find a fitting partner Allocate task and responsibility Create incentive for cooperation Minimize conflicts between partners Share information Exchange personnel Operate with long time horizon Develop multiple joint projects Be flexible
References • Hitt Michael. A (1995). “Strategic Management: Competitiveness and Globalization”, West Publishing Company. • Ramu Shiva. S (1997). “Strategic Alliances: Building Network Relationships For Mutual Gain”, A Division of Sage Publications. • Harvard Business Review (2002). “Strategic Alliances”, Harvard Business School Press.
Portfolio Models • Portfolio Models: History • McKinsey sells GE on the idea of Strategic Business Units (SBUs) • BCG attacks McKinsey with the Growth-Share Matrix and the Portfolio model • McKinsey responds with its own Portfolio model, the Business Attractiveness Matrix
Portfolio Models • Boston Consulting Group Matrix • (BCG Matrix) • General Electric Grid • GE Grid
Strategic Business Units (SBUs) • Most firms consist of multiple units producing numerous products. • The mission, objectives, strategies, and tactics will be different for each unit. • For efficiency, a multiproduct organization should be divided according to its major markets or products • These divisions are called Strategic Business Units (SBUs)
Characteristics of a Strategic Business Unit (SBU) • It is a single business or collection of related businesses that can be planned for separately from the rest of the company. • It has its own set of competitors. • It has a manager who is responsible for strategic planning and profit performance and who controls most of the factors affecting profits.
Assigning Resources to Each SBU Analytical tools are needed for classifying businesses by profit potential, for decisions on whether to build, maintain, harvest, or divest individual SBUs. Two well-known business portfolio evaluation models are the Boston Consulting Group (BCG) growth/share matrix and the General Electric multi-factor portfolio matrix
Boston Consulting Group Matrix Business portfolio matrix that uses market growth rate and relative market share as the indicators of the firm’s strategic position • Market growth rate • A measure of the annual growth percentage of the market in which the business operates. • Relative market share • The firm’s market share divided by the market share of its largest competitor.
BCG Growth/Share Matrix This model classifies SBUs into either: • Question marks (high growth + low market share). • Stars (high growth + high market share). • Cash cows (low growth + high market share). • Dogs (low growth + low market share).
BCG Growth/Share Matrix Once classified, four alternative objectives can be pursued for each SBU: • Build: increase market share. • Maintain/hold: preserve market share. • Harvest: increase short-term cash flow. • Divest: sell or liquidate.
BCG MATRIX: COMPANY’S MARKET SHARE High Low High Stars Question marks INDUSTRY GROWTH RATE Low Cash cows Dogs
Portfolio Planning Models: The BCG Growth-Share Matrix HIGH Earnings: low, unstable, growing Cash flow: negative Strategy: analyze to determine whether business can be grown into a star, or will degenerate into a dog Earnings: high stable, growing Cash flow: neutral Strategy: invest for growth ? Annual real rate of market growth (%) Earnings: high stable Cash flow: high stable Strategy: milk Earnings: low, unstable Cash flow: neutral or negative Strategy: divest $$$$$$ LOW HIGH Relative market share LOW
Stars Question Marks 22 20 18 16 14 Business Growth Rate 12 (Percent) 10 Cash Cows Dogs 8 6 4 2 0 4x 2x 1x 10x 1.5x 0.5x 0.4x 0.3x 0.2x 0.1x Relative Competitive Position BCG Growth-Share Matrix Source: B. Hedley, “Strategy and the Business Portfolio,” Long Range Planning (February 1997), p. 12. Reprinted with permission.
Boston Consulting Group’s Four Cell Business Portfolio Matrix • Question Marks/Problem Children • Rapid Market Growth • Cash Needs are High (Cash Hog) • Options • Aggressive Grow-and-Build (Overall and Reposition) or • Divest