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Chapter Six
Global Competitors
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 2
Shampoo in China
• P & G battles MNCs Kao, L’Oreal and Unilever for the burgeoning Chinese shampoo market
• A new millennium?– Local Chinese brands recapture the market,
jump from one-third SOM to two-thirds SOM in two years
– Compete on price and quality
• P & G responds to the successful launch of Olive shampoo
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 3
“These days new local brands are always coming at you. And we take them very seriously, whereas five years ago all eyes were on the other multinationals.”
--P&G General Manager, Shampoo Division
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 4
The Globalization of Competition
• Global firm versus global firm • Global firm versus local firm
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 5
Global Competitors Face Off
• Cross-country subsidization– Profits made in one market subsidize business
development in another market
• Counter-parry– Pro-actively or reactively defending against an
attack on your market(s)
• Globally coordinated strategy (i.e. “Saturation Strategy”)– Multi-pronged assault meant to paralyze other
potential entrants
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 6
Coke Versus Pepsi
Close in U.S.; but Coke much stronger overseas
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 7
Cola Wars
• Coke buys Pepsi’s Venezuelan distributor• Pepsi brings successful antitrust suit against
Coke in Mexico• When Coke sponsors the Argentina soccer
team, Pepsi sponsors the soccer championship
• Both battle for India, but Pepsi is ahead– Coke refused to divulge secret formula to India, causing
“bad blood”– Pepsi gained a foothold because of Coke’s delays
They address each other by
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 8
Airbus Versus Boeing and the Governmental Subsidies Issue
• Aerospace is a global industry– Buyers are global– R&D costs are extremely high
• Industry increasingly defined by two firms – Airbus (EU) and Boeing (USA)– Companies rely on government subsidies to help
fund R&D costs– Contention over amount and types of subsidies
each government gives to their aerospace companies – led to several WTO complaints
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 9
Can Local Firms Compete with Global Firms?
• Ramlosa watches Perrier march through Europe with non-premium segment
• Ramlosa defends against Perrier in Sweden by pre-emptively launching a premium brand
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 10
Strategies for Local Firms
• Defend
• Extend
• Contend
• Dodge
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 11
Defender Strategy
• Leverage– Knowledge of local tastes/ customs– Good relationships with local distributors
and/or suppliers • Turkish fast food – bring back regional and
traditional cuisines• Chilean banks – outsource check processing
to achieve a more efficient and effective “marketing front-end”
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 12
Extender Strategy
• Assets that work for defenders may also work in similar markets abroad– South African Breweries – used to primitive
distribution and production facilities - enters “primitive” Eastern Europe
– Televisa moves north and competes with Univision, assuming Mexican and Mexican American markets are similar
– Bimbo: Mexican-US crossover failed as “mom & pop” distribution is less important in U.S. markets
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 13
Contender Strategy
• Firms upgrade capabilities to compete – R & D– Manufacturing– Management
• Private firms may have to go public• Contenders can seek out under-served
niches• Arcelik (Turkish) wins Japanese excellence
award for washing-machine manufacturing facility
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 14
Dodger Strategy
• For firms that can’t or don’t want to be contenders
• Cooperate with global competitors– Contract manufacturing– Contract distributor– Contract marketer
• Sell out?
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 15
Cultural Attitudes Toward Competition
• Rules - written and unwritten - of the competitive game vary across countries
• Is competition good or bad? – U.S. antitrust laws traditionally encourage
competition but are focused on benefitting the consumer
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 16
Competition in Europe
• Family-owned businesses play a substantial role in the economy– Germany – family-owned businesses employing
less than 500 employees account for 70% of all employment
• Many European companies leery of stock market– Concerned that stock market listing forces
management to focus more on short-term rather than long-term goals
– Feel corporate governance is more about policing than adding value (anti-regulation)
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 17
Competition in Europe (cont’d)
• Emotional ties to national champions still exist– Survey suggests that barriers to
integration within the European Union may be more emotional than regulatory • 13 of the 15 “most visible” companies cited by
respondents in Germany and France were based in the respondents’ home countries• 11 of 15 British respondents cited U.K.-based
companies
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 18
Competition in Europe (cont’d)
• Cartel behavior tolerated later and longer than in the U.S. – Antitrust laws rarely enforced until 1980s
• But EU now enforces antitrust laws with a new vigilance
• EU antitrust laws focus on guaranteeing fairness among competitors
• The EU is concerned about global mergers for competition’s sake– Grand Metropolitan and Guinness– General Electric and Honeywell
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 19
Competition in Europe (cont’d)
• Historically, European governments intervened more than the U.S. government to save their failing companies
• After September 11th, the U.S. government offered its airlines a $5 billion bailout with an additional $10 billion in loan guarantees
• TARP: Automobile industry and banks• European anti-trust legislation refused to allow
European governments to bail out airlines. – European carriers had to respond immediately—
cutting costs and reducing debts – now they are leaner and meaner than U.S. rivals!
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 20
Competition in Japan
• Horizontal “Keiretsus”– “Order” or “System”– Six large industrial groups involved in nearly all
industries including a group bank, akin to the U.S. “conglomerate”
– “Cross-pollination”– Board seat exchange programs and minority
shareholdings
• Weak players were traditionally protected, but not as much lately
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 21
Cracks in the Keiretsu System?
• Recession through 1990s– Real estate bubble burst– Banks became more careful about lending
and forgiving bad debt– Sony withdraws from some businesses
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 22
Competition in Emerging Markets
• Developing countries were traditionally wary of competition – very protectionist
• Foreign competitors often faced discrimination
• Tariffs and restrictions on imports• Restrictions on foreign ownership and
investment• Government control of inputs such as land,
power, or water• Difficulty getting permits to start a business
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 23
Market Liberalization
“ The encouraging of competition where prior barriers or strict controls existed.”
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 24
Why Liberalize?
• External pressures – USA liberalized and demanded
liberalization in other countries• Companies obviously want access to the U.S.
market
– WTO pressures
• Internal pressures– Consumer pressure– Government export goals
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 25
Antitrust in Mexico: Coke
• Pepsi versus Coke in Mexico– Exclusivity agreements between Coke
and mom & pop stores leads to Pepsi’s anti-trust allegations
– Coke ordered to stop using exclusivity agreements restricting retailers from carrying competitors’ products
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 26
Competitors from Emerging Markets
• State-owned enterprises (SEOs)– China– Former Soviet Union– France
• Business groups– The non-Japanese equivalent of Keiretsus– These operational and financial structures are
more “tightly woven” than those of Keiretsus
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 27
State-Owned Enterprises
+ Get priority financing+ Protected from bankruptcy+ Don’t have to be profitable+ Often granted monopoly status– Ancillary agendas– Re-investment funds aren’t always available– Sometimes profits fund unanticipated
government initiatives that are completely unrelated to the core business
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 28
SOEs in China
• Still important part of the economy• Many Chinese companies are SOE hybrids
– “private” companies where government holds a partial (though usually significant) equity position
• SOEs compete with foreign firms but do hire foreign managers!– The Jinjiang Group’s president of its core
business unit, Jinjiang International Hotel Management, is an American
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 29
Privatization
• The sale of state-owned enterprises or their assets • A major trend worldwide • Why privatize?
– Lack of funds to expand and modernize– Lack of managerial prowess– Ideology: a sign of advancement and liberalization
• SOEs are still formidable competitors in some markets– Example: China Post versus Fed Ex, UPS, and DHL– a case in home-country “discrimination”
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 30
Business Groups
• Diverse business portfolios (like GE)• Fiduciary bond• Financial core – i.e. association with a bank• Government relations• Family-owned but expanded beyond the
family• Threatened by liberalization
– Restructure?– Divest individual businesses?– Specialize?
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 31
The House of Tatahttp://www.tata.com/
• Founded by Jamsetji Tata - Last quarter of the 19th century
• Basic statistics about the company:– 91 operating companies (tea, chemicals, electronics,
etc.)– 7 business sectors– 2004-05 revenues = $17.6 billion (Rs 769,296
million), the equivalent of about 2.9 per cent of the country's GDP
– Employs 220,000+ people– 32 publicly listed enterprises have a combined
market capitalization that is the highest among Indian businesses in the private sector, and a shareholder base of over 2 million
– Operates in 40 countries across six continents – exports products and services to 140 nations
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 32
Country Actions Affect Global Competitiveness of Firms
• Direct subsidies to firms (as well as quotas and high tariffs) discouraged by the WTO
• Still, governments can help their own firms compete in the global arena – Export assistance – Negotiations for major contracts– Tax rates– Labor laws– Energy markets
EU liberalizes
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 33
Supporting National Champions
• Countries may allow monopolistic or oligopolistic behavior at home in order to strengthen a firm’s resources to compete overseas
• The Cemex controversy – Allegations of dumping into US markets
spurred by monopoly power at home
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 34
The Country of Origin Advantage
…Or disadvantage?
– Country of origin denotes the country with which a firm is associated - usually its home country• Microsoft, Google - USA• Sony, Toyota- Japan• BMW - Germany
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 35
Country of Origin
• Country of Origin is often product specific and can enhance the capability of competitors in product groups for which their country is well known+ Iran - Persian carpets+ France - Wines, perfumes+ Russia – Vodka+ US – Fast Food, Web Concepts, Movies– Russia - Automobiles? Romania - Dracula
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 36
Country of Origin (cont’d)
• In a few cases, certain countries connote more general product attributes+ Germany - engineering+ Italy - design + US – marketing & advertising
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 37
Country of Origin (cont’d)
• In general, consumers believe products from developed countries are better than those from developing countries, though sometimes there is confusion – Many people think Samsung is Japanese not
South Korean– Same for Hyundai cars
• But country of origin perception can change over time
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 38
Country of Origin (cont’d)
• Increasingly complicated by the fact that multinational companies produce products in various countries– Country of manufacture– Country of parts
• In some cases, a strong brand can offset the negative connotations associated with where a product is produced….(but not always)
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 39
Managing Country of Origin Perceptions
• Production may be moved to a country with a positive country-of-origin effect.
• Key parts can be sourced from such countries
• A channel that distributes already accepted complimentary products can be used– Hard to do in reality (brand equity dilution issues)
• A communications campaign designed to strengthen the association between product and country-of-origin can be developed
Copyright © Houghton Mifflin Company. All rights reserved. Chapter 6 | Slide 40
Country of Origin Issues – Beyond Quality
• Consumer Ethnocentrism– Buyers are
disinclined to purchase foreign products because they believe buying imported products results in job losses and hardship at home
• Consumer Animosity– Buyers harbor
political objections to purchasing products from a specific foreign country
– Iraq war example – boycotts from Germany, France, etc.