During the modern era of globalisation, contemporary business organisations have found a significant number of opportunities in the business dynamics as target audience and economies have come to a lot closer. Therefore, globalisation has created a positive impact on the living standard of the people at the international level. Alternatively, certain challenges have also been dealt with in the process of internationalisation. Hence, maintaining an effective global framework is required to manage the challenges at the international level (Elias, 2012). Precisely, efficient management of globalisation challenges can become the leading factor to achieve a sustainable competitive advantage at the global market operations.
The study has been developed to identify the role of “AAA Triangle” Theory established by Pankaj Ghemawat dealing with the challenges and complexities of international business. Meanwhile, each of the A, in theory, represents Adaption, Aggregation, and Arbitrage. Notably, adaption is the adjustments to be developed by contemporary firms during their international operations suitable for market (Ghauri and Powell, 2008). Alternatively, aggregation illustrates the organisations to produce economies of scale leading to global business operations successfully. Lastly, arbitrage helps the organisations to utilise the differences in currency exchange rate, the cost of the labour and material, and taxation system of the countries for realising profits. The reported paper has been illustrated by identifying two companies from each food industry and the pharmaceutical industry that is growing exponentially in the international markets. Furthermore, the paper discusses how the AAA Framework has created a competitive edge at the bigger market perspective (Rensing, Karsten and Stiller, 2012).
The organisations in the food and beverage industry need to face a huge level of competition in the global market due to the existence of a large number of rivals. On the other hand, the eating and drinking habits of the people varies from one country to another. Hence, it is important for the management of food and beverage producing companies to understand the AAA models to choose adequate strategies to expand the business in the overseas market (Cunha and Salazar, 2013). In order to explain the application of the AAA model in the food and beverage industry, two companies have been chosen that are McDonalds and Coca-Cola. The applications of the AAA strategy for global business expansion by both the companies are discussed herein below:
Adaptation
McDonalds is one of the reputed food chain businesses that have its presence in more than 120 countries of the world. The company serves millions of customers every day with its variety of product range. One of the tag line of McDonalds is “Modifying the burgers across the globe”. The company began its operations from the United States and have grown to be the world’s largest food chain business (Milevski, 2014). McDonalds use the adaptation strategy by modifying its menu according to the needs of the customers. For example, the company introduced its veg restaurants in India for the first time to adopt according to the preferences of the customers. On the other hand, McDonalds sell McRice in Indonesia and Prawn burger in Japan and Singapore (Mujtaba and Patel, 2011). Furthermore, the company also offers alcoholic beverages in German and other Western European countries. Hence, the adaptation strategy of McDonalds has supported the firm to survive in the current competitive environment.
Figure: McDonalds Adaptation Strategy
Source: (Mujtaba and Patel, 2011)
McDonalds use the aggregation strategy to earn revenue and uses a diversified revenue generating model. For example, McDonalds invest in franchising of restaurants, properties and over the training of restaurant operators (Mujtaba and Patel, 2011). The company uses all possible means to maximise the revenue and minimise the costs. For example, it develops a huge number of restaurants in the foreign markets to seek economies of scale. On the other hand, the company minimises its cost by allowing franchise of the brand. Hence, the franchising model used by the firm has been quite effective in seeking growth of business over the global platform.
Arbitrage
McDonald’s make use of the arbitrage strategy to grow its brand in the foreign market. For example, McDonalds make use of its reputation in the US market to seek high class performance and excellence in other markets. The company has a good reputation among the people and customers consider it as a high quality Fast Food Chain business in the emerging economies (Milevski, 2014). On the other hand, the company develops good relationship with the farmers through contract farming to ensure continuous supply of required quality and quantity of raw materials. Hence, it helps the firm to ensure the taste and quality of food.
Adaptation
Coco-Cola is the world’s leading non-alcoholic beverage brand with its operations in around 200 countries across the globe. Notably, the company has not modified the taste of its products according to the preferences of the customers (Rama, 2016). But, have introduced new products based on the customers’ preference. On the other hand, the company uses the adaptation strategy to modify the design of its logo to attract the customers. An example has been presented herein below for better understanding:
Figure: Coca-Cola’s Adaptation Strategy
Source: (Syposs, Reichart and Mészáros, 2015)
On the basis of the above figure, it can be seen that the company adapts the language of the nation to market its product in a particular nation. Hence, the packaging of the products changes with change in the market.
Aggregation
Coca-Cola uses the aggregation strategy to expand its business and seek advantage of economies of scale. The company offers more than 350 brands in more than 200 countries of the world. Coca-Cola has a long history of acquisition such as the company acquired Minute Maid in the year 1960 and Thumps Up in the year 1993 (Yan, Eynard and Ion, 2008). Furthermore, the company develops its manufacturing sites in the emerging markets to seek economies of scale and reduce its transportation costs. The availability of labour in the emerging markets are cheap that makes the company locate its manufacturing plants in the developing countries of Asia.
Arbitrage
The company uses the arbitrage strategy in order to seek advantage of the cheap labour in the emerging nations. Coca-Cola has developed its manufacturing plants in the emerging countries like India, China and other nations. Furthermore, the company has proper license for bottling and packing the beverage products (Yan, Eynard and Ion, 2008). This strategy is used by Coca-Cola to take the advantage of labour, raw materials and cheap technology in the developing nations. Hence, the arbitrage strategy is one of the success factors for Coca-Cola in the global market.
In the event of globalisation and technological advancement, pharmaceutical companies have registered robust growth in the past couple of decade or so. In addition, development and substantial funding in research and development have contributed largely to the growth of pharmaceutical firms. Leading to the business, the organisations have come up with new drugs that can provide a clear market advantage to the firms (Granier and Trinquard, 2010). Precisely, due to a substantial amount of cost in research and development, the companies have made it sure that patenting, licensing, testing, drug marketing, and legal obligations should be dealt with utter responsibility (Calfee, 2011). Notably, in the study, Pfizer Inc and Sun Pharmaceutical Industries Limited have been selected as the two companies to be discussed using AAA Framework.
Adaptation
Product marketing in different markets can be a significant challenge for any business. As Pfizer is operating in the global pharmaceutical industry, the company has to make significant adaptation and modification in business activities to gain competitive advantage. Precisely, for a drug company, different countries have developed various types of rules, regulations, and drug licensing practices. In such conditions, Pfizer Inc has successfully made the required adjustment to be fit in the diverse target market (Kyle, 2017). For instance, the sales strategy of Pfizer Inc in the Latin American market has been appreciable. Based on culture, regulations, and economic status, the organisation, has established extensive brands to reach out to the social public. Alternatively, the organisation has utilised eminent resources to help the patients to find the right drug at an affordable price.
Aggregation
Pfizer Inc has set an exceptional example of administrative aggregation in their business environment. Decisively, the drug-selling right to the European countries has to be earned following a number of regulations and guidelines. Pfizer Inc has set the example by meeting the regulations and guidelines of the countries to earn the drug-selling rights in Europe (Walton, 2008). Evidently, the management of the firm has established the authority of business to become qualified as a drug selling and manufacturing company in the European nations.
Arbitrage
Pfizer Inc has set a great example of tax arbitrage in the United Kingdom market. In the contemporary business status, Pfizer Inc has utilised the policy of merger and acquisition in the UK market to gain substantial advantages in tax (Vogel, 2012). In a business deal, the organisation has taken over AstraZeneca to become one of the leading drug-marketers in the UK market. By making the acquisition deal, the company has got the right not to provide the tax on overseas earnings. According to the taxation law of the UK, the UK firms have not required paying taxes on their earnings at the international level. Furthermore, the tax rate is relatively lower for the domestic companies (Salgado, Shi and Banks, 2012). Lastly, the UK companies have to offer less tax for already patented drugs. Therefore, Pfizer Inc has made more profit by taking over the business of the UK firm drawing substantial tax advantages leading to profitability.
Adaptation
Sun Pharmaceutical Industries Limited is the fifth largest pharmaceutical companies in the global market. Mainly, the business of the firm is based on the Indian subcontinent market. In order to lead globalisation of business, the company has made significant adaptation like drug formula, pricing, product packaging, and distribution system based on infrastructure and economic status of the countries. Invariably, the research and development (R&D), as well as target market-oriented strategy of Sun Pharmaceutical Industries Limited, has delivered suitable competitive edge over the other drug marketers. Moreover, the company has patented high-valued medicines throughout the years (Vogel, 2012). Thus, the company can provide generic versions of drugs at affordable price towards the target audience of developing markets.
Aggregation
In the modern era of globalisation, Sun Pharmaceutical Industries Limited has established its business in 19 countries at the international level by implementing acquisition and merger strategy. Thus, the global business presence of Sun Pharma has delivered sustainability towards business in the longer run (Scherer, 2008). Apparently, the organisation has invented drugs on a regular basis to market more products at different nations supporting the global presence of the firm.
Arbitrage
Incredibly, the R&D of Sun Pharmaceutical Industries Limited has delivered significant establishment to the business in developing economies. The R&D of the firm has enabled the company to reduce the cost of drugs in the target markets. Thus, the organisation has influenced product marketing in massive markets such as India by offering drugs at a competitively low rate. Moreover, Sun Pharmaceutical Industries Limited has set its manufacturing facilities in the Asian countries to use the services and labours at a relatively lower cost (Scherer, 2008). In this way, the company can export the products at a higher price to the developed nations.
Conclusion
The paper focuses on the growth of two different industries using the “AAA” global expansion strategic framework. It is important for the organisations to use these strategies and maintain a balance to seek success in the international market. Hence, these strategies help all the four firms to manage cross cultural differences and seek growth over the international platform. Furthermore, it is important for every industry to adapt the globalisation strategy to maintain their market positioning and fight the growing competition. Conclusively, it is recommended to every organisation to observe the differences between the markets to plan adequate strategy for growing its businesses over the global platform.
References
Calfee, J. (2011). Pharmaceutical Price Controls and Patient Welfare. Annals of Internal Medicine, 134(11), p.1060.
Cunha, D. and Salazar, M. (2013). Efficiency of Brazilian food and beverage industry post productive restructuring. Revista de Economia, 39(1).
Elias, O. (2012). The impact of globalisation on human rights. Amicus Curiae, 2000(28).
Ghauri, P. and Powell, S. (2008). Globalisation. 1st ed. London: Dorling Kindersley.
Granier, L. and Trinquard, S. (2010). Entry deterrence and mergers under price competition in pharmaceutical markets. Applied Economics, 42(3), pp.297-309.
Kyle, M. (2017). Pharmaceutical Price Controls and Entry Strategies. Review of Economics and Statistics, 89(1), pp.88-99.
Milevski, L. (2014). Grand Strategy and Operational Art: Companion Concepts and Their Implications for Strategy. Comparative Strategy, 33(4), pp.342-353.
Mujtaba, B. and Patel, B. (2011). McDonalds Success Strategy And Global Expansion Through Customer And Brand Loyalty. Journal of Business Case Studies (JBCS), 3(3), p.55.
Rama, R. (2016). Empirical study on sources of innovation in international food and beverage industry. Agribusiness, 12(2), pp.123-134.
Rensing, C., Karsten, M. and Stiller, B. (2012). AAA: a survey and a policy-based architecture and framework. IEEE Network, 16(6), pp.22-27.
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Syposs, Z., Reichart, O. and Mészáros, L. (2015). Microbiological risk assessment in the beverage industry. Food Control, 16(6), pp.515-521.
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