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Chapter 14 Emerging Global Players: The Companies - PowerPoint PPT Presentation


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Chapter 14 Emerging Global Players: The Companies. Emerging countries competitors. Haier Group. Cemex. SABMiller. Ranbaxy Laboratories Ltd. Huawei. Tata. Lenovo. Petronas. 2. Globalization and local firms: the traditional views. High. Local fi rm s are weak.

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slide2

Emerging countries competitors

Haier Group

Cemex

SABMiller

Ranbaxy Laboratories Ltd

Huawei

Tata

Lenovo

Petronas

2

globalization and local firms the traditional views
Globalization and local firms: the traditional views

High

Local firms are weak

Local firms are competing

with global firms

Global markets

Pressure to

globalize

Multidomestic markets

  • Strong positioning of local
  • enterprise
  • Local firms dominate
  • MNCs tend to dominate
  • Local firms can take advantage of
  • blind spots

Low

Competitive advantage

of local firms

Local knowledge

Global competences and capabilities

(costs, resources)

3

slide4

Globalization and local firms: recent views

The strategic logic of emerging countries competitors

  • Use their knowledge of local environment
  • Use their ‘national’ preference
  • Use their low labor costs
  • Sometime use their natural resources

On the international front

On the domestic front

  • Dominate bottom of the pyramid
  • Gain volume
  • Progressively push their capabilities upward
  • Eventually compete head-on withmultinational players
  • Export low cost products
  • Buy ( copy?) technology

4

slide5

Proprietary Technology

Proprietary Technology

Own brand

Own brand

International marketing

International marketing

Brand creation and development

Brand creation and development

Investment in research and

Investment in research and

develoment

develoment

International expansion

Sources of competitive advantage

Invest in advanced production technology

costs still moderate

Labor

Labor

Low cost manufacturing based on low labor costs and financing

Large part of activities based on original equipment manufacturing minimizing marketing costs

-

-

Technology is acquired thru licensing or joint Ventures

Japan

Time

Time

1960’s

1960’s

1970’s’s and beyond

Korea

1960’s

1970’s

1980’s

1990’s and beyond

China

1980’s

1990’s

2000’s

2005 and beyond

Globalization and local firms: recent views cont.

Development of national champions

slide6

Globalization and local firms: the recent views cont.

Development of national champions

  • Compete head-on with traditional global firms
  • Start international expansion mainly by acquisitions
  • Invest in modern manufacturing technology
  • Start to build their own brand
  • Start their own R&D
  • Protected domestic markets
  • Low cost manufacturing based on low labour costs
  • In some cases access to natural resources
  • Technology is acquired through licensing or joint ventures
  • Large part of activities based
  • on original equipment manufacturing

Time

Step 1

Domestic player

and exporter

Step 2

Internationalization

Step 3

Global player

6

slide7

National champions: building the business

High-end markets

Dominated by multinationals

High

Performances

and

products/Services

Functionalities

Disruptive development paths

Low-end markets

dominated by domestic firms

Canon in Japan in the 60’s

Honda motorcycles in the 60’s

Galanz in China in the 90’s microwaves

TCL in China inTV

Samsung in Korea with microelectronics in the 80’s

Reliance in India in the 90’s in pharmaceuticals

Low

Time

slide8

Emerging competitive battlefield

Global

Multinational firms from USA, Europe, Japan, Korea and Australasia, plus emerging

Indian and Chinese mutinational firms)

Scope

Domestic players

both large and small

Local

Low resource

costs

Technology

and marketing

Contextual and

political know-how

Competitive approaches

slide9

Emerging competitive battlefield: China

EMERGINGBATTLEFIELD

Low cost

Mass distribution

Differentiated

COST LEADERSHIP

POSITIONING APPLIEDTO HIGH VOLUMELOW END SEGMENTS

Low price

Mass distribution

DIFFERENTIATED

POSITIONING APPLIED

TO HIGH-END SEGMENTS

Large Chinese competitors

E.g. Kanko, Haier

Price premium

Low volume

High costs

Good technolgy

Strong brands

Most Western competitors

High

Technology

and

marketing advantages

Low

High

Low

Local knowledge and preferential advantages

slide10

“Dragons at your door”

Chinese companies disrupt global competition through cost innovation.

i.e. they use cost advantages in radically new ways to offer customers around the world dramatically more for less

  • Start in China and overcome fragmentation
  • Export looking for loose bricks in competitors’ defenses

(unexplored markets or products)

  • Move up market: technology at low cost (licensing, copying) and variety at low cost

See Ming Zeng and Peter Williamson, Dragons at Your Door:

How Chinese Cost Innovation is Disrupting Global Competition.

Harvard Business School: 2007

slide11

Earth-moving equipment: wheel loaders

Global market: 720,000 units

China market: 120,000 units

Production capacity in China: 200,000 units

Prices:

CAT, Volvo: 120,000$

Komatzu: 60,000 $

Chinese co.’s 30,000 $

Chinese co. exported:

2,000 units in 2004

3,500 units in 2005

slide12

The Whirlpool story in China

  • By mid 1990’s Whirlpool had big ambition for Asia
  • China was considered to be a key market
  • Very fragmented industry with 650 appliances manufacturers operating in China
  • Customer focus on local brands
  • Some emerging Chinese leaders: KELON, Haier
slide13

The Whirlpool story in China cont.

  • Whirlpool entered in 1994:
  • JV in Beijing for refrigerators (Snowflake)
  • JV in Shanghai for washers (Whirlpool Narcissus)
  • JV in Shendu for microwaves (MCV)
  • JV in Shenzhen for air conditioners (Whirlpool Raybo)
  • Plus bigger Chinese HQ in Hong Kong and a Design Centre in Singapore
  • Whirlpool exited the market for refrigerators and air conditioners in 1997
  • Still produces compressors in Beijing, microwaves in Shendu and washers in Shanghai
slide14

The Whirlpool Story in China cont.

The market is dominated by local players

China’s appliances

market share in 2002

100%

90%

Other

80%

70%

Meiling

60%

Xinfei

50%

40%

Haier

30%

20%

10%

Kelon

0%

slide15

An example of a Chinese champion

  • HUAWEI TECHNOLOGIES
  • Telecommunication networks, products and solutions
  • Started in 1988: digital fixed switch
  • In 1997: launched GSM equipment
  • Established joint R&D labs with Texas Instruments, Motorola, IBM, Intel, Agere Systems, Sun Microsystems, Altera, Qualcomm, Infineon & Microsoft
  • As of 2005, Huawei Technologies has a total of 10 joint research labs
  • In 2000, Huawei established R&D centers in Silicon Valley and Dallas
  • Cisco Systems alleged that Huawei Technologies had infringed some of their technology patents (litigation was resolved)
  • 4 billion USD revenues in 2004
slide16

Examples of Indian Champions

  • India's oldest business conglomerate
  • Spread over seven business sectors: engineering; chemicals; materials; energy; consumer products; IT; communication
  • 98 companies operating in six continents
  • Sales of 28.8 billion USD in 2007
  • Employs some 289,500 people

TATA

Conglomerate

  • Created in 1961
  • India's largest pharmaceutical company
  • Ranked amongst the top ten generic companies worldwide
  • Manufacturing operations in 8 countries
  • Subsidiaries presence in 49 countries
  • Products available in over 125 countries
  • Went public in 1973
  • Company global sales of 1330 million USD in 2006

RANBAXY LABORATIES LTD

Pharmaceuticals

16

slide17

Multinational corporations from China and India

India

China

Bajajauto – Automotive

Cipla – Pharmaceuticals

Hindalco - Metals

Infosys – IT services

Mahindra – Automotive

Reliance – Chemicals

Tata Steel – Steel

Tata Tea – Food and beverages

Videocon – Consumer electronics

Wipro - Pharmaceuticals

Aluminium Corporation of China – metals

BYD – Consumer electronics

China Netcom – Telecom services

Sinopec – Fuels

Erdos – Textiles

Haier – Home appliances

Nanjing Automobile Corp. – Automotive

Shoushang - Steel

Tsingtao Brewery – Food and beverages

Wanxiang - Engineering

slide19

Business groups in emerging countries

  • In most emerging countries the industrial, financial and trading
  • sectors are controlled by three groups of players:
  • Government-owned enterprises
  • Multinationals
  • Domestic “business groups”
  • The domestic business groups exhibit the following typical characteristics:
  • They are highly diversified
  • They are personally controlled
  • They are most often controlled by families or ethnic groups
slide20

Business groups in emerging countries cont.

  • Business groups control large sectors of economies:
  • Overseas Chinese in South East Asia
  • Korean Chaebol
  • Indian family groups
  • Rejuvenated state-owned enterprises in China
  • Latin American “grupos”
slide21

Overseas Chinese in South East Asia: traditional role

DISTRIBUTE

BUY

CREDIT

IMPORT

RURAL

AREAS

FOREIGN

COUNTRIES

CREDIT

DISTRIBUTE

URBAN

AREAS

P/OC/K/K 5

slide22

Evolution of overseas Chinese groups in Southeast Asia

Banking and

financial services

Real estate

Progressive vertical

integration in

upstream activities

Investment in

industrial activities

(assembling, downstream)

either direct, through joint ventures

or licensing

Diversified

activities

Diversified

activities

Diversified

activities

Diversified

activities

Start up

in

“trading”

slide24

Farm

Seeds

Animal Feed

Shrimp

Aqua Feed

Poultry

Milk

Plant

Protectiony

Chemical

Feedmill

machinery

Pig Farming

Trading

Logistics

Animal health

Planatation

Charoen Pokphand

200 companies

8 billion USD before crisis

Sausage

Meat

Trucks

Motorcycles

Healthy

Drinks

Drill

Supermarkets

Frozen Foods

Distrib.

Petroleum

Telephone

PVC

Fiber

Optics

Cable

TV

Luggages

Real Estate

Condominium

Switching

Equip

Toys

Sponge

Leather

Golf

slide25

Why so strong? Why so diversified?

  • Scarce resources
  • Over-regulated economies
  • Market imperfection
  • Monopolies
  • Lack of reliable information
  • Opportunities
  • Inefficient judicial systems
  • Simplified “business systems”
slide26

Do business groups add value?

Source of value added

Modern Western managerial

and financial theories about

the value of a group

Emerging countries

Yes - in developing markets, personalised control reinforces discipline

Some resource transfer, vertical integration, otherwise little

Yes definitely

Yes - as long as market imperfections stay

Not per se but pride to belong to a reputable corporation

Discipline: Implementation of rigorous management practices

Synergies: Resource pooling and transfer; asset sharing; competencies transfer

Leverage: Access to scarce resources; political clout; image

Innovation: ability to develop new businesses

slide27

How groups in developing countries handle such diversity

  • In each of the businesses - limited competition (monopolies, oligopolies)
  • Innovation (products, processes) is purchased (licensing, joint ventures)
  • Marketing is essentially a matter of sales and distribution - brands are sourced externally, as are products
  • The key managerial task is to run logistics and production efficiently

Logistics

Production

Innovation

Marketing

Concentrate on sales and distribution in oligopolistic markets. Brands and products sourced externally.

Obtained through licensing and joint ventures

Key operational

task

slide28

What has changed?

  • Markets pressures: globalization, deregulation
  • Increased competition both domestic and international
  • More complexity in management because of the need to develop
  • its own R&D and marketing capabilities
  • Increasing financial stakes due to the move towards capital intensive
  • activities
  • Overcapacities
  • Higher dependencies on foreign capital
slide29

What are the consequences?

Since mid-1998, a large number of Asian entrepreneurial conglomerates have announced a series of moves under the generic heading ‘restructuring’.

  • COST CUTTING: wage cuts; bonus freezes; headcount reduction
  • DEBTS RESTRUCTURING: the 200% D/E ratio imposed in Korea
  • PORTFOLIO REDEFINITION: definition of core business; concentration of similar activities in the same group; inter-group mergers
  • DIVESTMENT OF NON-CORE ACTIVITIES: spin off; selling off
  • REORGANIZATION: flatter structures; decentralization of decision-making