How Can E-commerce Help Businesses With Scattered Geographical Locations Better Compete?
As protectionist barriers crumble in emerging markets around the world, multinational companies are rushing in to find new opportunities for growth. Their arrival is a boon to local consumers, who do good from the wider choices at present available. For local companies, however, the influx often appears to exist a decease sentence. Accustomed to ascendant positions in protected markets, they of a sudden confront foreign rivals wielding a daunting assortment of advantages: substantial financial resources, advanced engineering, superior products, powerful brands, and seasoned marketing and management skills. Frequently, the very survival of local companies in emerging markets is at stake.
Strategists at multinational corporations can draw on a rich torso of work to advise them on how to enter emerging markets, but managers of local companies in these markets have had piddling guidance. How tin they overcome—and fifty-fifty take advantage of—their differences with competitors from advanced industrial countries? Many of these managers presume they tin can respond in one of merely 3 ways: by calling on the authorities to reinstate trade barriers or provide some other form of back up, past becoming a subordinate partner to a multinational, or by simply selling out and leaving the industry. We believe there are other options for companies facing stiff foreign contest.
In markets from Latin America to Eastern Europe to Asia, we have studied the strategies and tactics that successful companies have adopted in their battles with powerful multinational competitors. Vist in Russia and Shanghai Jahwa in China, for example, have managed to successfully defend their habitation turfs against such multinationals equally Compaq and Unilever. Others, including Jollibee Foods in the Philippines and Cemex in Mexico, have congenital on force at home and launched international expansion strategies of their own. Past studying these examples, managers of other companies from emerging markets can gain insight into their own strategic options.
Aligning Assets with Industry Characteristics
When Republic of india opened its automotive sector in the mid-1980s, the country'south largest maker of motor scooters, Bajaj Auto, confronted a predicament similar to what many "emerging-market place" companies face. Honda, which sold its scooters, motorcycles, and cars worldwide on the force of its superior technology, quality, and brand entreatment, was planning to enter the Indian market. Its remarkable success selling motorcycles in Western markets and in such nearby countries as Thailand and Malaysia was well known. For the independent-minded Bajaj family, a joint venture with Honda was not an option. But faced with Honda'due south superior resources, what else could the company do?
A closer look at the situation convinced Bajaj's managers that Honda'south advantages were not as formidable as they starting time appeared. The scooter industry was based on mature and relatively stable technology. While Honda would enjoy some advantages in product development, Bajaj would not have to spend heavily to go on up. The makeup of the Indian scooter market place, moreover, differed in many ways from Honda'southward established customer base. Consumers looked for low-cost, durable machines, and they wanted easy access to maintenance facilities in the countryside. Bajaj, which sold cheap, rugged scooters through an extensive distribution system and a ubiquitous service network of roadside-mechanic stalls, fit the Indian market well. Honda, which offered sleekly designed models sold mostly through outlets in major cities, did not.
Instead of forming a partnership with Honda, Bajaj'due south owners decided to stay independent and fortify their existing competitive assets. The company beefed up its distribution and invested more than in research and development. Its strategy has paid off well. Honda, allied with another local producer, did rapidly catch 11% of the Indian scooter market, but its share stabilized at just under that level. Bajaj's share, meanwhile, slipped only a few points from its earlier mark of 77%. And in the fall of 1998, Honda announced information technology was pulling out of its scooter-manufacturing equity articulation venture in India.
Bajaj's story points to the two key questions that every manager in emerging markets needs to accost: First, how strong are the pressures to globalize in your industry? 2d, how internationally transferable are your visitor's competitive avails? By understanding the basis for competitive advantage in your industry, you can better appreciate the bodily strengths of your multinational rivals. And past assessing where your own competitive assets are nearly constructive, you can gain insights into the breadth of business opportunities bachelor to you. Permit'due south take each question in plow.
Despite the heated rhetoric surrounding globalization, industries actually vary a corking bargain in the pressures they put on companies to sell internationally. At ane end of the spectrum are companies in such industries as aircraft engines, memory fries, and telecommunication switches, which face enormous stock-still costs for product development, capital equipment, marketing, and distribution. Covering those costs is possible only through sales in multiple markets. A single set of rules governs competition worldwide, and consumers are satisfied with the standardized products and marketing appeals that consequence.
Despite the heated rhetoric surrounding globalization, industries really vary a great deal in the pressures they put on companies to sell internationally.
At the other end of the spectrum are industries in which success turns on coming together the item demands of local consumers. In beer and retail cyberbanking, for example, companies compete on the basis of well-established relationships with their customers. Consumer preferences vary enormously considering of differing tastes, perhaps, or incompatible technical standards. Multinationals tin can't compete only by selling standardized products at lower price. Alternatively, high transportation costs in some sectors may discourage a global presence. In all of these industries, companies can still prosper by selling just in their local markets.
Almost industries, of course, lie somewhere in the middle of the spectrum. International sales bring some advantages of calibration, only adapting to local preferences is besides important. Past thinking about where their industry falls on the spectrum, managers from emerging markets can begin to get a picture of the strengths and weaknesses of their multinational competitors. Merely they need to place their industry carefully. As Bajaj found, industries that seem like may be far autonomously on the spectrum—pressures to globalize scooters plow out to be much weaker than those to globalize automobiles. Bajaj may become global in the future, as the Indian market evolves, merely it has no need to do and then now.
Once they empathise their industry, managers need to evaluate their company'due south competitive avails. Like Bajaj, nearly emerging-market companies have assets that give them a competitive advantage mainly in their dwelling market place. They may, for example, have a local distribution network that would take years for a multinational to replicate. They may have longstanding relationships with government officials that are simply unavailable to foreign companies. Or they may have distinctive products that appeal to local tastes, which global companies may be unable to produce cost effectively. Any such nugget could form the ground for a successful defense of the abode market.
Some competitive assets may as well be the footing for expansion into other markets. A company can utilise its access to low-cost raw materials at home, for example, to undercut the price of appurtenances sold in other countries. Or a company may apply its expertise in building efficient factories to establish operations elsewhere. Avails that may seem quite localized, such as experience in serving idiosyncratic or hard-to-reach market segments, may actually travel well. By paying shut attention to countries where market atmospheric condition are like to theirs, managers may notice that they have more transferable assets than they realize. The more they take, the greater their take a chance of success outside the home base.
These two parameters—the forcefulness of globalization pressures in an industry and the caste to which a company'south assets are transferable internationally—can guide strategic thinking. If globalization pressures are weak, and a company'southward ain assets are not transferable, then, like Bajaj, the company needs to concentrate on defending its turf against multinational incursion. We call a company employing such a strategy a defender. If globalization pressures are weak but the company'due south assets can be transferred, then the company may exist able to extend its success at home to a limited number of other markets. That sort of company is an extender.
Two parameters—the strength of globalization pressures in an manufacture and the company's transferable assets—tin can guide that company's strategic thinking.
If globalization pressures are strong, the company volition face bigger challenges. If its assets work only at home, and then its continued independence will hang on its power to dodge its new rivals by restructuring effectually specific links in the value chain where its local avails are still valuable. Such a visitor, in our terminology, is a dodger. If its assets are transferable, though, the company may actually exist able to compete caput-on with the multinationals at the global level. We phone call a company in that situation a contender.
We can plot these four strategies on a matrix. (Come across the showroom "Positioning for Emerging-Market Companies.") Every bit with any strategic framework, our matrix is non intended to prescribe a class of activity but to assistance managers retrieve virtually the broad options available.
Positioning for Emerging-Market Companies
To proceeds a clearer view of all four options, let'due south look at how companies have used them to succeed in a newly competitive environment. We'll kickoff with industries where the globalization pressures are weak, then move to industries where those pressures are strong.
Defending with the Dwelling house Field Advantage
For defenders like Bajaj, the cardinal to success is to concentrate on the advantages they enjoy in their dwelling market. In the face up of aggressive and well-endowed foreign competitors, they ofttimes need to fine-tune their products and services to the particular and often unique needs of their customers. Defenders need to resist the temptation to try to reach all customers or to imitate the multinationals. They'll do better by focusing on consumers who capeesh the local affect and ignoring those who favor global brands.
Shanghai Jahwa, Communist china'due south oldest cosmetics company, has thrived by astutely exploiting its local orientation—especially its familiarity with the distinct tastes of Chinese consumers. Because standards of beauty vary so much beyond cultures, the pressure to globalize the cosmetics industry is weak. Even so, as in other such industries, a sizable market segment is attracted to global brands. Young people in People's republic of china, for example, are currently fascinated by all things Western. Instead of trying to fight for this segment, Jahwa concentrates on the big group of consumers who remain loyal to traditional products. The company has developed low-cost, mass-market brands positioned around beliefs about traditional ingredients.
Many Chinese consumers, for example, believe that human being organs such as the heart and liver are internal spirits that determine the health of the body. Liushen, or "half dozen spirits," is the proper name of a traditional remedy for prickly heat and other summertime ailments, and it'south made from a combination of pearl powder and musk. Drawing on this custom, Jahwa launched a Liushen brand of eau de toilette and packaged information technology for summer utilise. The brand rapidly gained 60% of the market and has since been extended to a shower cream also targeted at the liushen user. Unilever and other multinational companies lack this familiarity with local tastes; they have institute their products appeal mainly to style-conscious urban center dwellers.
For those product lines that don't have such an intrinsic appeal to consumers, Jahwa has plant that it can compete on price. Here Jahwa has taken reward of the constraints that multinational companies face in adapting Western-designed products to developing countries. Multinationals typically optimize their operations on a global level by standardizing product characteristics, administrative practices, and even pricing, all of which can hamper their flexibility. Products designed for affluent consumers oftentimes aren't assisting at prices low enough to concenter many buyers in emerging markets. And even if they are, a multinational might damage its global brand past selling its products cheaply.
Equally a result, a number of Jahwa'southward strange rivals have been stuck in gilded cages at the top of the marketplace, giving Jahwa an reward in reaching consumers with piddling discretionary income. Revlon, for example, estimates its target market in Red china to be merely 3% of the state, or 39 one thousand thousand people, whereas Jahwa aims at over half the market. (See the insert "The Importance of Staying Flexible.")
Jahwa has also benefited from the sheer visibility of the multinationals' strategies. Product formulations, brand positioning, and pricing are often well known long before a multinational launches its brands in a strange market. This transparency affords defenders both the knowledge and the time to preempt a new brand with rival offerings of their own. Jahwa quickly launched its Chiliad.LF line of colognes, for example, to protect itself from the entry of a global brand targeted at the upscale urban male segment, which Jahwa had ignored.
Jahwa's strategy has immune it to weather the initial opening of China's markets—a period when multinational companies oft appear irresistible to consumers and local competitors akin. At first, consumers ofttimes flock to foreign brands out of curiosity or out of a blind conventionalities in their virtues. Procter & Take chances, for example, grabbed over half the Chinese market for shampoo in just a few years, despite the substantially higher price of its product. Just by focusing on offerings that reverberate local preferences, Jahwa was able to protect some sales and buy time in which to build up the quality of its products and marketing. Jahwa's managers take expert reason to believe that many consumers will eventually milkshake off their expensive infatuation with foreign brands and get dorsum to Jahwa and other local lines.
Other defenders have been able to blunt the force of foreign competition past beefing up their distribution network. Grupo Industrial Bimbo, the largest producer of bread and confectionery products in Mexico, seized on that asset when faced with foreign competition. Over the years, Bimbo had built up an extensive sales and distribution force to get its products into tiendas, the ubiquitous corner stores where Mexicans still practice most of their shopping. The visitor employs 14,000 drivers who blanket the state with 420,000 deliveries daily to 350,000 clients.
Far from weighing downwardly operations with depression-margin sales, the company's distribution network was the key to defending its home turf.
At the fourth dimension that Mexico was opening its markets, Bimbo's managers were considering a lower-toll approach that would have cutting out a number of these daily runs to tiendas, many of which brought but nearly $ten in revenue per commitment. When PepsiCo aggressively entered the Mexican bakery market in 1991, nonetheless, those plans were quickly shelved. The motion shocked Bimbo'south managers into examining their actual sources of competitive advantage. Far from weighing downwards operations with low-margin sales, Bimbo'south distribution network was the key to defending its habitation turf. The network tapped into Mexican consumers' preference for freshness and their habit of shopping daily at a nearby store, creating a huge barrier to entry for foreign competitors. Instead of reducing deliveries, Bimbo'due south managers increased them—although they did lower costs by sending to the smaller tiendas trucks with multiple products instead of the unmarried-product deliveries sent everywhere else. Their defensive strategy paid off: Bimbo has maintained leading positions in each of its major market segments.
Extending Local Advantages Abroad
In some cases, companies in local industries tin go beyond defending their existing markets. With the right transferable assets, these extenders tin can use their success at home as a platform for expansion elsewhere. A selective policy of international expansion, carefully tied to the company's central assets, tin can reap added revenue and scale economies, non to mention valuable learning experiences.
Extenders can leverage their assets most effectively by seeking analogous markets—those like to their home base in terms of consumer preferences, geographic proximity, distribution channels, or government regulations. Expatriate communities, to take a simple case, are probable to be receptive to products adult at habitation.
Jollibee Foods, a family-owned fast-food visitor in the Philippines, has extended its reach by focusing on Filipinos in other countries. The company first overcame an onslaught from McDonald's in its home market, partly past upgrading service and commitment standards simply besides by developing rival menus customized to local tastes. Along with noodle and rice meals made with fish, Jollibee created a hamburger seasoned with garlic and soy sauce—allowing it to capture 75% of the burger market and 56% of the fast-food business organisation in the Philippines. Having learned what it takes to compete with multinationals, Jollibee had the conviction to go elsewhere. Using its battle-tested recipes, the company has now established dozens of restaurants almost large expatriate populations in Hong Kong, the Centre East, and California.
Similarly, managers tin wait for countries with a common cultural or linguistic heritage. Televisa, Mexico's largest media company, used that approach to become the earth'south most prolific producer of Castilian-language soap operas. Recognizing that its programs would accept considerable value in the many Spanish-speaking markets outside Mexico, the company targeted consign markets in Latin America, Spain, the U.S. border states, and Florida. Recently, Televisa has begun its own news broadcasts, teaming up with Rupert Murdoch's News Corporation for distribution to Castilian-linguistic communication markets worldwide.
The concept of analogous markets tin can be stretched far indeed. Republic of india's Asian Paints controls 40% of the market for house paints in its home base, despite aggressive moves past such major multinationals as ICI, Kansai Paints, and Sherwin Williams. The company has thrived against foreign competitors by developing its local avails, notably an extensive distribution network. Its paint formulations and packaging practices make for an extremely low-toll production—1 that, its managers take discovered, holds considerable appeal in other developing countries. Later on its success exporting to neighbors such as Nepal and Fiji, the company is now pursuing joint ventures abroad.
Asian Paints brings substantial advantages to these countries. Its managers are used to dealing with the kind of marketing surroundings there—thousands of scattered retailers, illiterate consumers, and customers who want only pocket-size quantities of pigment that tin then be diluted to salve money. Multinational rivals, by contrast, accept built their operations around the demands of affluent customers looking for a wide option of colors and finishes. Their departer managers are used to air-conditioned offices and bottled water that costs more than per liter than most customers are willing to pay for pigment. Even afterward they develop a low-end pigment product, the multinationals will still have a long way to go to catch up in emerging markets. Asian Paints already knows how to speak the language of these customers.
Dodging the Onslaught
In industries where pressures to globalize are strong, managers volition not be able to but build on their visitor's local assets—they'll have to rethink their business model. If their assets are valuable only in their home country, so the best class may be to enter into a articulation venture with, or sell out entirely to, a multinational. The Czech carmaker Skoda took that latter stride after the collapse of the Soviet Marriage in 1989. Like many companies in communist countries, Skoda'south position equally an official producer under the old Soviet government had allowed the company simultaneously to survive and to stagnate. Only the pick-starved consumers in the former Eastern bloc could appreciate Skoda'southward cars, and even they recognized how outdated the designs were, how poor the quality was, and how express the appeal of the make was compared with Western makes.
Where globalization pressures are strong, managers can't but build on their company's local assets; they will have to rethink their business concern models.
When markets opened in Eastern Europe, Skoda'south position became untenable. Multinational carmakers arrived with the sort of insurmountable advantages fabricated possible by their global calibration: superior models, well-known brands, and fiscal muscle. The Czech authorities soon sold the company to Volkswagen, which subsequently restructured Skoda'southward operations, invested heavily in new products and engineering science, and positioned it every bit the value brand in Volkswagen'south global line of vehicles.
In many cases, however, there are alternatives to selling out. Consider the Russian personal-computer maker Vist. When Russia liberalized its economy, Vist's managers knew they would win few battles going caput to head with the likes of Compaq, IBM, and Hewlett-Packard. Rather than sell out or seek a articulation venture, however, they sidestepped oblivion by redefining their core business organization. They dodged the global threat by focusing on links in the value chain where Vist'southward avails provided competitive reward. Instead of viewing the company as a manufacturer of personal computers, they increasingly emphasized the downstream aspects of Vist's existing business—distribution, service, and warranties.
While its multinational rivals concentrated on selling machines to government and corporate markets in Moscow, Vist took reward of its familiarity with the wider market. It reached into the interior of the country through an extended dealer network and developed exclusive distribution agreements with several cardinal retailers. It too established its ain full-service centers in dozens of Russian cities.
That approach was well suited to the Russian computer marketplace, which is still in its early stages. Russians demand much more data and reassurance than most Western buyers before they volition purchase a figurer, and they capeesh a local presence. All of Vist'southward manuals are in Russian, and the company provides lengthy warranties, unlike rivals, which merely sell extended service contracts. The computers that Vist sells—the production of a low-cost associates operation using mostly imported components—are unremarkable; nevertheless its downstream avails have made Vist the leading brand in Russia with 20% of the market. And as the Russian computer market advances, Vist'southward network of service centers will alert the company to changes before its rivals come across them.
Just every bit defenders focus on market segments responsive to their local strengths, dodgers like Vist move to links in the value chain where their local assets yet work well. Simply, as Skoda's feel shows, not all companies can brand the jump that dodgers take to brand. Vist was able to restructure effectually distribution and service considering information technology was already active in those areas; Skoda had trivial room to maneuver because it was devoted nearly entirely to one part of the value chain. Skoda also had enormous investments in capital-intensive manufacturing (not to mention a large number of jobs) that the Czech government was understandably reluctant to driblet in lodge to refocus on other parts of the business.
While distribution and service are common recourses for dodgers, at that place are others. 1 arroyo is to supply products that either complement multinationals' offerings or adapt them to local tastes. When Microsoft moved into China, for example, local software companies shifted their focus from developing Windows look-akin operating systems to developing Windows application programs tailored to the Chinese market.
Dodgers can besides motility to the other stop of the value chain. As Mexico has opened its markets, many manufacturing companies have reoriented themselves, condign local component suppliers to the newly built factories of foreign multinationals.
Dodging may exist the almost difficult of the four strategies to execute because it requires a visitor to revamp major aspects of its strategy—and to do so earlier it'due south swept under by the tide of foreign contest. Simply past focusing on carefully selected niches, a dodger tin employ its local assets to establish a viable position.
Contending on the Global Level
Despite the many advantages of their multinational rivals, companies from emerging markets should not always rule out a strategy of selling at the global level. If their avails are transferable, they may be able to become total-fledged multinationals themselves. The number of these contenders is steadily increasing, and a few, such as Acer of Taiwan and Samsung of Korea, have become household names. The reasons for their success are like to those of any thriving company that competes in a global industry. Even so, contenders often have to accept into consideration a different set of opportunities and constraints.
About contenders are in commodity industries where plentiful natural resources or labor requite them the low-cost advantage. From Indonesia, Indah Kiat Pulp & Paper (IKPP), for instance, has aggressively moved into consign markets by drawing on a ready supply of logs—the product of favorable tropical growing conditions, low harvesting costs, and regime-guaranteed timber concessions. In its core paper business, information technology enjoys production costs that are nearly half those of its North American and Swedish competitors, a huge advantage in consign markets.
IKPP'southward price advantage is non due entirely to geography. The company has also invested heavily in advanced machinery to make its production more than efficient. This is an important lesson for all companies trying to capitalize on lower costs of resource or labor, particularly as multinationals set up their own operations in developing countries. Rather than being content to permit resources provide the sole reward, contenders demand to mensurate themselves against the practices of leading companies in their industry. Many, like IKPP did, will find their quality or productivity levels lacking. Others will have severe deficiencies in service, delivery, or packaging. As a outcome, the cost advantage they bask will often be undermined past deficiencies in other areas. Only by moving toward the productivity, quality, and service levels of their competitors from adult countries, local contenders in commodity industries can build a sustainable basis for long-term competitive success.
For would-be contenders that lack admission to key resources, finding a distinct and defensible market niche is vital. One increasingly common approach is to bring together a production consortium, in which a pb company manages a regional or global web of component developers and suppliers. Few emerging-market companies have the market presence, coordination capabilities, or innovative technology they would need to act as the lead organization in a far-flung product network. Near of them will demand to concentrate on building scale and expertise along particular pieces of their industry's value concatenation.
For would-be contenders that lack admission to key resources, finding a distinct and defensible market niche is vital.
When General Motors decided to outsource the product of radiator caps for its North American vehicles, India's Sundaram Fasteners seized the opportunity to get global. Sundaram bought an entire GM product line, moved it to India, and a year later became the sole supplier of radiator caps to GM's North American sectionalisation. In addition to the obvious benefits to the lesser line that accrue from the guarantee of selling 5 one thousand thousand radiator caps a yr, participation in GM's supply network fabricated it easier for Sundaram to develop its capabilities and learn virtually emerging technical standards and evolving client needs. Sundaram was one of the commencement Indian companies to achieve QS 9000 certification, a quality standard adult by U.S. automakers, which GM requires for all its component suppliers. The skills learned during the certification process also benefited Sundaram's core fastener concern, putting it in a position to target the European and Japanese markets. Unlike local suppliers to multinational companies, Sundaram'due south Indian operations are capable of supplying factories all over the world. (See the sidebar "How to Stay Independent with Partnerships.")
Sundaram was able to transfer the knowledge it gained by being role of a production consortium directly to its core business. Just finding a viable niche in a global industry usually means an extended procedure of restructuring. Many companies may accept to shed businesses that can't be sustained on the global level. To many managers in emerging markets who are witting of links between their businesses, that process will exist hard. But shedding businesses, outsourcing components previously made in-house, and investing in new products and processes are the keys to repositioning contenders as focused, global producers. Indeed, the need to get smaller earlier getting larger is one of the major themes in the corporate restructuring process under way in Eastern Europe.
In Hungary, Raba, for instance, used to produce a diverse line of vehicles and components—from engines and axles to complete buses, trucks, and tractors. When markets in Eastern Europe opened, the company faced a collapse in demand. Nonetheless as the automotive manufacture apace consolidated globally, Raba managed to avoid Skoda'due south fate. Information technology focused on the worldwide market for heavy-duty axles, a segment in which its engineering science was adequately shut to the standards of international competitors. Restructuring has paid off, especially in the United States, where the company has captured 25% of the large market for heavy-duty tractor axles. Axles now business relationship for over ii-thirds of Raba'south sales, and most all of them are exported.
Past contrast, the company's remaining operation in the wider engine and vehicle marketplace, where information technology operates but in Eastern Europe, is facing a severe challenge from such major multinationals every bit Cummins and DaimlerChrysler. Despite Raba's all-encompassing service network, the globalization pressures in that manufacture, throughout its value chain, may be too stiff to withstand.
Mayhap the greatest challenge for contenders is to overcome deficiencies in skills and fiscal resources. Specially in high-tech industries, where product life cycles are curt, contenders are often put at a disadvantage by their distance from leading-edge suppliers, customers, and competitors. The toll of capital is also much higher for them than information technology is for their multinational rivals, a directly outcome of the greater political and economic risk in emerging markets. The nearly successful contenders—those that take moved beyond competing solely on the ground of cost—have learned to overcome those disadvantages past accessing resource in adult countries.
An extreme case is Korea's Samsung, which moved to the frontier of retentiveness chip technology by establishing a major R&D eye in Silicon Valley and and so transferring the know-how gained there dorsum to headquarters in Seoul. But fifty-fifty contenders in mature industries can benefit from looking abroad.
Consider Mexico'southward Cemex, which has transformed itself from a diversified business group into a focused producer of cement—now the third largest in the world. Although Cemex enjoys depression product costs at home, information technology has had to overcome major disadvantages. To lower its cost of capital, Cemex tapped international markets by listing its shares on the New York Stock Exchange. The conquering of two Spanish cement producers in 1992 put information technology in the backyard of a major international competitor, French republic'due south Lafarge, and also allowed Cemex to shift its financing from brusque-term Mexican peso debt to longer-term Spanish peseta debt. What's more, its foreign acquisitions profoundly reduced the company'southward dependence on the Mexican cement market, always a concern given the country's history of economic volatility.
In addition, Cemex has aggressively sought to be on the forefront of information technology—a primal cistron for success in the logistics-intensive cement industry. Its managers have worked closely on systems development with IBM, and the company has invested extensively in employee development programs designed to support its emphasis on logistics, quality, and service. Through its efforts, Cemex has go 1 of the world's everyman-toll producers of cement, and it has practical the lessons it has learned to boost efficiency in its caused companies. Instead of being the target of multinationals, Cemex has since bought additional companies of its own. In the swallow-or-be-eaten world of global competition, Cemex is positioning itself at the top of the food chain.
Managing Transitions
A recurring theme in these examples is the importance of beingness flexible in response to market opportunities. This familiar advice is often forgotten by managers from emerging markets, for whom manufacture boundaries take traditionally been taken equally a given, in many cases established past government mandate. Liberalization is at present making the structure of many industries much more fluid, and managers exposed to new kinds of competitors demand to realize that they can reply by positioning their companies in a variety of ways.
By better understanding the relationship between their company's avails and the particular characteristics of their industry, managers can besides anticipate how their strategies may evolve over fourth dimension. As more and more companies learn to compete in global markets, we are bound to meet a growing number of aggressive contenders like Cemex. But few are likely to brand the jump presently, in office considering globalization pressures in many industries will continue to be weak. Nosotros suspect that many of the most successful companies will remain focused on their local markets, strengthening their main sources of competitive reward. Others will build on a successful defense of their home base of operations and await for opportunities abroad, only they may never make the final step upwardly to global contest. Managers will need to revisit their assumptions and conclusions every bit the capabilities of their companies develop.
Not only volition managers find their strategies likely to evolve over time, but the nature of their industry may change equally well. A company in a predominantly local business concern may prosper considering of its superior service and distribution. But a competitor may make a movement that changes the industry fundamentally, giving advantages to global players. That is what happened in the insulin business, when the major players raised the dues by developing a superior product—genetically engineered homo insulin—at a fixed price that but companies with global reach could justify. The new manufacturing process drove prices below anything that local producers could sustain.
Not only volition managers find their strategies likely to evolve over time, but the nature of their industry may change every bit well.
Merely every bit the structure of some industries favors companies that operate on a large scale, and so can the structure of other industries evolve to favor companies operating at a small calibration. In India, Arvind Mills took a seemingly global product—blue jeans—and refashioned it to fit the budgets of millions of rural villagers. While Levi Strauss and other multinationals aim for the urban center class, Arvind has built a new and protected market place for itself. (Come across the sidebar "A Tale of Two Strategies.")
In many emerging markets around the world today, we've establish a fundamental dynamic. Multinationals are seeking to exploit global calibration economies while local enterprises are trying to fragment the market and serve the needs of distinct niches. The onetime bring an assortment of powerful resources that can intimidate even the most cocky-assured local manager. But similar David against Goliath, the smaller competitor can rise to the challenge and prevail.
A version of this article appeared in the March–April 1999 issue of Harvard Business Review.
Source: https://hbr.org/1999/03/competing-with-giants-survival-strategies-for-local-companies-in-emerging-markets
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