Generic Strategies For Global Value Creation

Adaptation

Discuss about the Generic Strategies for Global Value Creation.

The AAA framework aims to create global value through tailoring of business strategies as per local requirements. Despite of globalization, the role of domestic market cannot be ignored; it is a major economic growth contributor in each nation. Globalization might cause problems of scared resources, increase in product price, transfer of investment, business complexities due to fluctuation in currency value; exports etc. according to AAA framework managing difference is still a major challenge for organizations. This paper aims to evaluate the application of AAA framework in context of computer and food and beverage industry; two companies from each industry have been selected for evaluation. It includes analysis on strategies that these companies adopted and used this model to pursuit their business goals.

Adaption is widely adopted strategy that aims to globalize the business through localization of taste and preferences. Different type of strategies organizations are adopting to get well with the local market, first among those is variation strategy that leads to change in products, services, marketing strategies, business strategies, positioning of product according to local market. Second is focused approach that aims to reduce the influence of differences among markets, it also reduce need for adaptation (2012books.lardbucket.org, 2012). Third strategy is externalization, in which it is easy to transfer business responsibility to local market, for example McDonalds gives franchisee to local markets. Fourth adaptation strategy is to become design focused by launching a standard model that is easily acceptable by mass market, for example TATA motors in India. Finally, adaptation can also be implemented through innovation, for instance Apple Inc. improved its packaging in such a manner that it helped in reducing cost of transport and impact of geographic differences reduced (Mintzberg, 2003).

Food industry is highly globalized and localized according to customer taste and preference. Food and beverages are customized according to local taste. For example, McDonalds has made huge success in India through adoption of local taste, they even changed recipes and menu according local culture. Initially, Ham burger was sold by the company but Ham is not eaten by Indians, so that started off with burgers made from potatoes which are locally grown. Later salad sandwiches were also launched in the market as in western culture raw vegetables are preferred by customers but it was a flop, later on grilled sandwiches were launched as Indian customers prefer cook food (Teece, 2010). 

Food and Beverage Industry

In beverage segment, Coca-Cola also opted for localization by focusing on local positioning and marketing strategies. It uses different advertisements in different markets. It adopted variation strategy by adapting to local culture, language and marketing strategies. For examples, in Indian market it uses Bollywood and film stars for advertisements but in Africa they use football players; even advertisements are made in local languages, with different taglines to get associated with customer personality (Warkentin, 2014).

Prominent example of adaptation can be noticed in computer hardware and software, though it might be stated that computer hardware’s are same in all market but organizations need to make certain adaptations to ensure sustainable presence in particular market.  Google has adopted different market local laws, policies and strategies; they have adapted local culture in terms of product design, service offering, and change in business and marketing policy. There is use of different Google page in different country according to local festivals and days. It adopted variation strategy to abide by local censorship in China (Fortune.com, 2014).

Similarly, Apple Inc. also opted for localization in terms of design, it does not change its product offering according to market, rather it focus on single product design to be offered in global market. It opts for a segment focused approach by offering high quality and premium price product, which target niche, technology oriented customers, early adopters different from mass population in any geographic region (Cruikshank, 2006). Apple Inc. is also known for its innovative designs and packaging, that reduced weight without putting product at any risk, it helped in exporting large number of products at a time, reducing cost of transportation as well as waste from environment.

It is not always easy to adapt to changes, it might cost huge to company impacting profitability adversely. In such cases, companies try to achieve economies of scale by finding similarities between geographic regions; it aims to group different processes to achieve economies of scale within groups. Companies opts for regional focus strategy that help in making each market independent of other, it helps in combating environmental issues without impacting global business (Ghemawat, 2003). There are six strategies that can be adopted to achieve regional aggregation. It include regional focus in which companies keep their certain activities centralized; regional hubs, regional portfolio, regional platform, regional mandates and regional networks. Apart from this, aggregation can also occur in nongeographic focus, it include cultural, administrative, geographic, and economic.

ICT Industry

McDonalds adopted aggregation strategy, when the brand entered in Philippine market, it used US taste and US menu, the same strategy was adopted by the brand in China also with the objective of achieving economies of scale, but it failed miserably. However, it aims at establishing regional and global operations, McDonalds operated in regional operations, with local heads and management to understanding national culture.

On contrary to above, Coca-Cola shows tremendous impact of aggregation; in the year 1996 the CEO of the company announced his new tagline, “Think global. Act global”. According to company strategy, it is important to decide on degree of adaptation it will take from local market and the extent to which it will exploit the differences to gain benefit. Coca-Cola aims to achieve worldwide economies of scale; therefore it works beyond regional focus. It focuses on geographic aggregations in different markets such as Burma, India with its regional focus production and distribution strategy (Beattie, 2013). Coca-Cola adopted regional portfolio strategy to expand its business in non-home segment through localization of production and distribution process.

Aggregation can also be noticed in information communication and technology companies, regional focus in common in this industry. This type of companies generally uses certain features which are kept common in all markets, achieving economies of scale. For example, in communication companies like Vodafone, the GSM system has been kept same throughout all markets except Japan (Grant, 2005). To enter into regional markets companies opt for merger, acquisitions and joint ventures. Further, with expansion companies also aim to decrease dependency of regional markets on home country by forming regional hubs.

Aggregation strategy can be noticed in case of Apple Inc. also, as the product is being considered as luxury item in certain countries, its target niche customer segment. The configuration and product offering remain same throughout all markets, it keeps a common global image in the market, the packaging, products features and offers are kept same in global market. Apple Inc. also follows standardization and centralization of its manufacturing, to ensure low cost of production and standard quality for all products, designing is done in USA whereas assembling is done in China.

This strategy is different from above do, it neither aims to adapt the differences nor it tries to bridge them, rather it aims to exploit them towards organizational growth, cost reduction and performance enhancement. For example, purchasing material from a country at low price (for example electronic items from china) but selling the product at high price in another market (India or USA). It is the oldest strategy in the market; industries like farming, mining and textile have used this strategy from years (Porter.E. & Kramer, 2006). It is being considered as cheap labor and capital strategy that helps in reducing cost of manufacturing and selling at higher profits in the market. Different type of arbitrage includes cultural arbitrage, for example French culture is known for its wines and perfumes. Administrative arbitrage i.e. differences in policies, tax and other trade barriers impact business decisions; for instance making investment in china through third party to get better tax incentives and legal protection. Economic arbitrage is most common in industry due to its impact of cost of production, for example Apple Inc. setting its assembling unit in China due to low cost of materials and labors in the market.

Aggregation

Though arbitrage industry is less discussed but it is widely and commonly used global business strategy in the market, it aims to gain advantage from differences.

In terms of food industry, there is high success of American popular culture which is used in various markets for launching brands. For instance, Burger is not an Indian food, but American culture has been used to market this product in Asian market that helped in its easy acceptance. There is also use of economic arbitrage by the company as it outsourced its production process in developing countries as it helps in producing at low cost (Ghemawat, 2013). After decade Coca-Cola changed its strategy of act global to local in order to take business advantage; it has lowered its cost of manufacturing by lowering its cost of operation, localizing bottling and input. 

Information communication technology industry generally adopts this strategy for gaining performance enhancement and risk reduction benefit, through cost reduction is also in the list but it is secondary for multinational organization.  It is easy to outsource work in developing countries like India with availability of skilled labor in low cost. However, China offers high technology, flexibilities and business opportunities that help MNC’s in reducing its business risk, better operations and performance enhancement.  

Google also opt for arbitrage strategy to remain competitive in different market, for instance China is a capitalist economy that prefers growth of local brands and have implemented strict censorship for international brands. To sustain in such market, company opts for administrative arbitrage to operate in distinctive business law environment but company actions failed to poor cultural integrations (Cavusgil, Knight, Riesenberger, Rammal, & Rose, 2014).

Economic arbitrage aims to exploit economic differences that cannot be derived from any other element; it aims to take advantage of cost of capital and labor. High tech companies take advantage by hiring highly skilled laborers at low cost; Apple Inc. aims to outsource its manufacturing process in China due to immense availability of supplier, engineering changes, and flexibility (Carpenter & Dunung, 2012). Company produce standardized products, which does not require quick market response of customized offerings, rather Apple manufacturing process demands quick ramp up and ramp down of manpower according to changes required in supply chain, which is possible in China market due to availability of labors, according to management China offer better flexibility to manage business risk than USA (Forbes Leadership Forum, 2012).

Arbitrage

It is not easy for organization from any industry to build an AAA framework, be it Coke or McDonalds both have seen slow market growth, falling profitability before understanding the right A that works for the brand. Earlier McDonalds and Coke opted global standardized strategy of their food item, which was not accepted by global consumers, rather customer seeks modification and cultural adaptation in their offerings; due to which later on business strategies changed. Companies like Apple Inc. have adopted both aggregation and arbitrage whereas McDonalds implemented all three strategies one by one to achieve global presence with local taste and preference at optimum cost and quality.  Analysis also helped in understanding that different globalization strategies need to be adopted according to business component models and business strategic decisions.

Conclusion

While analyzing adaptation strategies of companies it was clear that different organizations have adopted different method to go well with local market, few have changed  their offering completely according to local market, but few have kept their product same but changed their marketing or business strategy. Aggregation strategy helps in bridging the global gap by adopting regional practices forming hubs and network that leads to cost advantage and business growth. Finally arbitrage aims to understand those differences and use them without making any primary changes or adjustments. Companies can either focus on any one A or all three AAA depending on their market of expansion, objectives and scale of business. It is also impacted by the generic strategy that company follows, whether it want to remain focus, achieve cost leadership or offer differentiation in the market (Goffin & Mitchell, 2005).

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