The modern business world is more competitive than ever before. Explain.
The modern business world is more competitive than ever before. In this world of globalization, the companies who are following a well thought out expansion strategies and a tactical policy of new market penetration are gaining a huge competitive advantage over their competitors. As opined by Bandeira-De-Mello et al. 2015, a company can obtain a number of strategies to gain a ground in the business world. Now in this volatile world of business it is very much important for a company to opt for an international expansion and operation. In this context, a company can follow a number of approaches. As discussed by Hallbäck and Gabrielsson 2013, considering the financial position, the strategic goals, the mission and the external business environment, a company can use the approaches and strategies of Aggregation, Adaptation and Arbitrage for the aim of global value creation in favor of its own. An enterprise can follow them distinctively or in integration. Depending on the scenario and the requirement of the company, the utilization tactics can be different. However, these strategies can surely be discussed as some of the pioneering and age-old strategies of world business expansion as a number of popular and highly profitable companies are following these plans. This essay is dedicated to an evaluation of these three strategies in the business operation of two companies from two different industries. From the retail industry of Australia, the author has chosen the Woolworths Supermarkets and Coles supermarkets. On the other hand, from the food/beverage industry Coca-Cola Amatil and JBS Australia have been chosen for the study of these strategies.
Adaptation can be described as a strategy of expanding the market share and increasing the chance of the new market entry by adjusting and customizing the business model or the product or services of a company to be suitable for the local markets (Verbeke 2013). This strategy is of the most followed approaches in the global value creation. There are a number of approaches that can be followed to obtain the strategic advantage while operating an international enterprise.
Variation: here in this approach, the companies make required changes in the products, policies, services and positioning of the company to obtain the market advantage or providing the targeted market is demand pattern of service. As discussed by Cavallari 2013, it is important for a country to understand the requirements and the structure of the market and customizing their services according to that to obtain the long-term validation in the targeted market.
Focus: as opined by Sinkovics et al. 2014, a company must focus on the some particular parts of the value chain or the market division to reduce the shock. This can often be seen in the entertainment industries. The movies from the different countries possess and celebrate a different culture. Therefore, while releasing them in other market the production team has to make some necessary changes in the movie detail. It helps them to avoid the threats like ban or bar of the audiences or the censor boards.
Externalization: here in this approach the companies make certain changes in the pricing pattern or transferring the business authority of the business model to a local company to meet the requirements of the target markets. As opined by Borchert et al. 2013, here the business structure of franchising, or licensing or strategic alliance can be helpful to satisfy the local market needs and thus reduce the market risk.
Design: the approach of variation can cost huge to a company. Therefore, to reduce the financial cost of the variation process, the approach of design can be followed. As discussed by Hu et al. 2013, to cut down the cost of the variation in the product or service of a company, it can opt for making pragmatic changes in the design of the delivered products and services. It can often be seen that the companies make technological changes and alter the design of the product, which is available in a lower price, or possess some typical facilities to obtain the market of the overseas economy.
Innovation: by using the innovative strategy, the companies try to improve the efficiency of the adaptation activities. For example, there are a number of companies, which have altered and used the innovative packaging techniques, which has helped them to cut down the shipping cost and thus allowed the companies to expand in the foreign economies (Cavallari 2013).
Now in the context of Woolworths Supermarkets and Coles supermarkets, the companies are utilizing the strategy of externalization of the adaptation approach (Michael and Mottram 2013). They are providing the local entrepreneurs the authority of running their business model in New Zealand. They are opting for the strategy of franchising and strategic alliance with the local brands to obtain the market share of the retail industry in New Zealand.
On the other hand, the companies like JBS Australia are also using the same strategy. This is originally the part of the JBS global group (Jbssa.com.au 2016). Now it is operating in Australia to obtain the market facilities of this particular country. While operating in Australia, it provides its authority of the business management to the local business initiative. Now, the company named Coca-Cola Amatil is also opting for the same approach while operating business outside Australia (Ccamatil.com 2016). They are partially allocating the authority of manufacturing and others to the local companies and partners. Thus, they are expanding their business in the countries of the pacific belt.
Here in this business strategy a company utilizes the similarities of two different markets. These differences can be manifold. As opined by Beamish and Lupton 2016, it is a method of doing business by exploiting the similarities among the countries. The diverse approaches of utilizing these similarities are:
Geographic: Sometimes the companies like to invest or establish a business relation to those countries, which are providing them some advantages in the production or operational levels. As discussed by Leih and Teece 2014, companies tries to focus on those countries which are geographically near or, have some special production capability or a trade agreement with that particular country. For example, the companies of the pacific region can be discussed. It can often be noticed that the companies of that region like to invest in those economies, which belong to the same region.
Economic: The companies make distinctive market analysis and distinguishes the economies as the developed, developing and the under developed countries. Now they adopt a selective strategy while making investment in those markets. As opined by Sinkovics et al. 2014, in accordance to the economic scenario of the global economy, it is better for most of the companies to invest in the markets of the developing economies.
Cultural: in this approach, the companies are more likely to invest or create a business relation with those countries, which share same cultural values or the same traditions in the consumer lifestyles. As opined by Musso and Francioni 2013, it will be profitable for a company to make investment in those countries where the customers share a same pattern and kind of market and product demands.
Administrative: there are certain administrative barriers for the foreign business investments. As discussed by Kumar 2016, it is a prerequisite of a company to concentrate on the administrative regulations of that target country. Here, the example of the drug market of the European countries can be cited. Some European countries have some administrative compulsion regarding the drug market penetration of the European Union.
Now, in the context of the companies like Woolworths Supermarkets and Coles supermarkets they are perfectly utilizing the approach of geographic aggregation strategy (Michael and Mottram 2013). Being the companies of the pacific region, they are greatly exploiting the geographic advantage of New Zealand. In addition to this, Australia has an age-old commercial relationship with New Zealand. These two companies are exploiting these advantages. On the other hand, they are also using the cultural approach of the aggregation strategy. Being the countries of the same region and climate, the cultural values of Australia and New Zealand are more or less same. Therefore, it is easy for the companies to understand the customer behavior pattern and the market demands of that market. Therefore, these companies are easily making their business in the foreign land by supplying the right kind of products and services.
On the other hand, the company named JBS Australia is exploiting the cultural approach of the aggregation strategy with a bit different style. JBS is the biggest protein processor of the world. As discussed by Verbeke 2013, the cultural values of people determines the food habits of the population. The food habits of the countries with the production platforms (Brazil, the U.S., Australia, Canada, Italy, Argentina, Uruguay, Paraguay, Mexico, China, Russia etc.) are more or less same (Jbssa.com.au 2016). Hence, operating in Australia is providing the company a strong strategic advantage. Coca-Cola Amatil is also following the same strategy for the same reason. Moreover, the Coca -Cola Amatil is also following the geographic approach of the aggregation strategy. They are successfully operating their business in the countries like New Zealand, Indonesia, Papua New Guinea, Fiji and Samoa, which belong to the same Asia Pacific region (Ccamatil.com 2016).
This particular strategy of global value creation can generally be discussed as the buying of a product or service in one market in a cheap price and selling them in another market in a higher price. In this environment of global village and global economy, the strategy of arbitrage is a short-lived opportunity. Therefore, it is important for a company to utilize the strategy in the right time. This strategy follows the core essence of the idea of globalization. It particularly talks about the cross border business strategy (Hallbäc and Gabrielsson 2013). Here, a company exploits and makes the use of the market differences in order to gain entrepreneurial advantages.
There are a number of approaches, which a company can use to implement the strategy of arbitrage.
Economic: In the economic approach of the arbitrage, strategy of value creation a company can use the initiative of outsourcing and off shoring. After the global acceptance of the “TRIPS”, the companies that are operating globally exploiting these two approaches to their fullest (Bandeira-De-Mello et al. 2015).
Geographic: using the time and environmental difference comes under the category of the geographic approach of the arbitrage strategy. In the European countries, the companies are accepting clients in the daytime and processing the customer claims, and then the remaining task is being transferred to the Asian countries overnight to utilize the time difference and deliver the service to the client in the following morning (Cavallari 2013).
Cultural: the companies associate the cultural popularity of a country to certain products to leverage the acceptance of that product in the market. It can regularly be seen that the companies, which are dealing in the coffee market, connect their product to Colombia to provide it the same acceptance of the Colombian coffee (Sinkovics et al. 2013).
Administrative: administrative arbitrage can be described as the acquisition or the investments of a company to a local brand of the foreign markets. The companies follow this approach to obtain the tax benefits. In various countries, the local brands and initiatives can get certain monitory benefits; this approach helps the foreign investors to acquire this benefit (Beamish and Lupton 2016).
Here in Australia, the companies like Woolworths Supermarkets and Coles supermarkets are using the strategies of economic arbitrage while operating business in the New Zealand market. As they are operating in the retail industry, it is profitable for them to collect the product from the local distributors (Woolworths Online 2016). They collect the products from them and distribute them to the New Zealand market. The company Coca-Cola Amatil has utilized the approach of administrative arbitrage by the investment. It holds 29% share of the company (Ccamatil.com 2016). On the other hand, JBS Australia is also a part of the JBS global. JBS Australia is using the strategy of economic arbitrage. They are collecting and processing their product from the countries they are operating and thus using the resources of those countries (Jbssa.com.au 2016). It would be less profitable for them if they manufacture their products from their head quarters and sell them to the Australian market. Therefore, they are collecting the raw materials from the Australian land, and selling them to the same. Moreover, they are utilizing the
Conclusion:
These strategies of Aggregation, Adaptation and Arbitrage have their intrinsic strains and tensions among them. It makes them hard to use simultaneously. However, most of the leading companies of the world have used all of these strategies in the operation of their business with the aim of expanding their market operation. The combined utilization of the three strategies can provide a company a strong and developed managerial ability. It helps them to operate in compound corporate cultures. It also helps them to strategically lowering the cost of the production. Therefore, it can be said that the companies have to focus on these strategies in an integrated manner. Externalization should obtain a special focus in this context. However, the companies also have to be careful about the utility of the strategies and should be careful about the market scenarios. The pragmatic utilization of these approaches can provide the companies an advantage in acquiring the foreign markets.
References:
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