Competitive strategies:

Global vs. local

© Professor Daniel F. Spulber
 Global competitive strategies
The G5
 Platform strategy
 Network Strategy
 Intermediary strategy
 Entrepreneur strategy
 Investment strategy

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 Global competitive strategies

• Home, supplier, partner, and customer countries of

competitors – differences as sources of competitive
advantage
• Differences in global value connection
• Differences in products, brand, technology
• Differences in impacts of political, legal and
regulatory climate – trade agreements, home country
policies
Design global competitive strategies for competitive
advantage
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 Global competitive strategies
Competitive advantage must be relative to both
global and local competitors:

Unilever in US: Breyers, Nestlé in US: Dreyers

Ben and Jerry’s, Good
Humor, Klondike, Popsicle

The great ice cream battle

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UNILEVER in India – Kwality Wall
Hindustan Lever faces successful local competitor
• Gujarat Cooperative Milk Marketing Federation (GCMMF):
India's largest food products marketing organization.
• Two million farmers in the cooperative
• Slogan: “A taste of India”
• PRICE: 10 rupees (20 cents): 100 milliliter Amul ice cream versus
80 milliliter Hindustan Lever Kwality Wall vanilla ice cream
• ADVERTISING COSTS: Amul: 1% of sales versus
Hindustan Lever: 10-15% of sales on advertising

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Umbrella
brands:
Nestlé
products in
the super-
market.
Some
products
carry both
global
brand and
local
brand.

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 Global platform strategy
The global challenge

 Global market size: standardization

 Local differentiation: customization

Strategy: Determine best combination of global and local

activities for competitive advantage

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 Global platform strategy
Forces calling for global products (standardization):
• Convergence in customer preferences and income
across target countries with economic development
and trade
• Competition from successful global products
• International brand awareness
• Cost benefits from standardization
• Falling costs of trade with greater globalization

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 Global platform strategy
Forces calling for local products (customization):
• Differences in customer preferences and income
across target countries
• Build local brand recognition
• Competition from successful domestic products
• Regulatory requirements (quality, safety, technical
specifications, domestic content) -- EU product
standards
• High costs of trade create separate markets

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 Global platform strategy
Reduces development and production costs
Used in automobiles, mobile phones, computers, aircraft
Example: Cost per product (development and mfg): $80
Cost of basic platform development: $100
Cost of each variation (development and production): $50
Use platform when serving four or more customer country
markets: Compare costs of serving four markets:
Distinct products: 4 x $80 = $320
Platform and 4 variations $100 + 4 x $50 = $300 ***

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 Global platform strategy
Product variety versus economies of scale
Business sells 10 units each in Country A and in Country F
• Unit costs – economies of scale
Two local products at 10 units each $ 30/unit
Global product at 20 units $ 20/unit
• Price company can charge per unit:
Global product: $80/unit in each country
Two local products: $95/unit in each country
Global versus regional product:
Tailoring brings $ 5 more earnings per unit
Profit greater by $ 100
Improve tradeoff with platforms and flexible factories to
realize economies of scope (mass customization)
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 Global platform strategy
International business managers make decisions about
what should be global versus local:
• Products
• Technology and inputs
• Manufacturing
• Brands
• Marketing
• Distribution
Example: Wal-Mart must compete with both international
players such as Carrefour and local retailers

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 Global platform strategy
Local brand positioning of a
global brand and global product
• Corona sells the same beer, produced in 8
plants in Mexico, all over the world
• Advertising adapts to target countries:
begins as a working class beer in Mexico,
becomes a high quality import in most other
countries.
• Marketing adapts to local markets
• Corona coordinates internationally through
its subsidiaries

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 Global platform strategy
• Most products are local and not branded. For example: in
food sector Nestle estimates that only 1 % of all goods in
food markets are branded
• Increasing number of international brands, Corona, Nestlé,
Sony
• Increasing brand variations: BMW 3-series (1990s):
More than 1 million varieties can be ordered
• Local distribution and marketing
Example: McDonald’s, Coca-Cola: Global brand, some local
product tailoring, reliance on local distribution
• Local technology, production, customer service
Acer computer company

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 Global network strategy
• Create network of customers, suppliers, partners

• Use network to achieve global size and reach

• Use network to provide local customization

• Network relationships generate competitive

advantage

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 Global network strategy
Sellers Buyers The international business contributes
value by creating an international
network: Recall Li & Fung

Networks can consist of informal

business relationships or more formal
12 links contractual relationships

Networks facilitate coordination of

sourcing and serving

Network replaces n ∙ m links with

7 links m + n links (hub and spoke network)
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 Global network strategy
Physical networks:
• Communications: Wired and mobile telephone systems
• Internet
• Transportation: Railroads, Airlines, Shipping,
Intermodal systems
• Energy: Oil and natural gas pipelines, Electric power
transmission and distribution
• Logistics: Postal systems, Wholesale and retail
distribution
Business networks:
Manufacturing, services, distribution, technology,
social networks (trust and information sharing)
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Global network strategy:
The global factory
• Hong Kong manufacturers own or
contract with more than 40,000
factories in South China employing
four million workers
• To take advantage of specialized
sources in different countries - best
quality
• To take advantage of cost variations
across countries - least cost sources
• To take advantage of location -
minimize transport-costs, transaction
costs, and tariffs
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Global network strategy:
The global store
• Examples: Dairy Farm, Shell, Zara
• Growth: access to additional customers
• Develop global brands
• Coordination economies from
centralized regional warehouses and
production facilities
• Provide access to sourcing network –
Enhances value of supplier contacts by
expansion of distribution
• Lower transaction costs for suppliers
who deal with fewer distributors
• Lower risk from pooling demand
fluctuations
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 Global network strategy
• Network effects: Number of members can affect the value
of most of existing links
• Architecture: Structure of the network affects costs and
performance (hub-and-spoke versus point-to-point)
• Companies should capture the value created by their
network organizing activities
• Networks are mechanisms for delivering all kinds of
services, such as entertainment and information, rather
than physical products.
“Access is becoming a potent conceptual tool for rethinking
our world view as well as our economic view, making it
the single most powerful metaphor of the coming age.”
Jeremy Rivkin The Age of Access
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 Global network strategy
Partner networks
• Achieve global scale
• Members focus on their region
• Reduce competition by avoiding duplication of
facilities and operations
• Avoid government restrictions on ownership
and market dominance
• Technology standard setting
• Complements in production
• Complements in demand (game players and games)

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 Global network strategy
Partner networks: Global reach
British Airways / American Airlines
• Provide 60% of all transatlantic services
• "Alliance that Revolves Around You"
• ONEWORLD members: Iberia, Cathay Pacific, Quantas,
Finnair, Aer Lingus, Lan Airlines (Chile)
• The airlines cooperate on scheduling and ticketing, frequent
flyer programs, airport clubs, baggage handling, customer
service
• Competitive response to the STAR ALLIANCE from United,
Lufthansa, SAS, Air Canada and Thai Airways (210,000
Employees, flights to 578 cities in 106 countries)
• 600 destinations in 135 countries around the world, operating
over 8000 flights daily, 230 million passengers/year
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 Global network strategy
Partner networks: Technology standards

Mobile phone operating system: Owners

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 Global network strategy
Partner networks: Technology standards

Mobile phone operating system: Licensees

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 Global network strategy
Partner networks: Technology standards

• Software licensing company

• Open- standard operating system
• First open Symbian OS phone (in 2001):
Nokia 9210 Communicator
• About 85% market share
• Standard-setting network

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Global network strategy
Franchise networks
Advantages
• Rapid international growth
• Local ownership
• Local management
• Lower capital outlays
Disadvantages
• Search cost of finding franchise
owners overseas
• Costs of monitoring performance
across borders
• Transaction costs of forming franchise
contracts in other country remains
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 Global intermediary strategy

Matchmaker
Brings buyers and sellers together across
international borders

Market maker
Creates and operates markets that cross international
borders

Agent
Provide representation in other countries

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 Global intermediary strategy
Matchmaker
• Bridge international differences in goods and services,
business practices, law and regulations, currencies,
languages, time zones
• Provide value-added activities
• Representative agents in sales, distribution, purchasing,
financing, contracting, and supply chain managers
• Match offers to buyer and seller needs: product features,
location, time.
• Avoids costs of search for buyers and sellers
• Reduces buyer and seller risks from dealing with few
trading partners,

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 Global intermediary strategy
Matchmaker
• Language: Seller speaks
Chinese, buyer speaks Spanish,
intermediary speaks both
• Currency: Seller wants pesos,
buyer has dollars, intermediary
changes dollars to pesos
• Distance: Seller is in Thailand,
buyer is in Brazil, intermediary
arranges transportation
• Trust: Buyer and seller both
trust the intermediary without
having dealt directly with each
other
• Time: Seller is in Japan, buyer is
in Mexico, intermediary operates
in both time zones
• Knowledge: Seller in Germany
knows production technology,
buyer in US knows preferences of
US customers, intermediary
combines knowledge of supply
and demand across borders
• Culture: Seller and buyer are in
different countries, intermediary
adapts products, services, contract
terms and negotiation to diverse
social customs
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Mitsui

“Our first core

competence is
facilitating
international trade
with innovative
services tailored to
client needs”

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Mitsui

“Our second core

competence is
working with our
global clientele to
create new trade
flows and new
business”

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Mitsui

“Distributor of goods and

services;
Mitsui
Transfer agent for
technology;
Financier, Investor;
Project organizer;
Market developer;
Resource developer;
Well-informed consultant
and business partner.”

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Mitsui is in top 15 of Fortune Global 500

http://www.mitsui.co.jp/tkabz/english/corp/index.htm
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 Global intermediary strategy
Beating bypass competition
Trade Transaction strategy
Country H offers innovative
Transaction cost T transactions
Your costs of trade T
Example: must be less than
Li & Fung competitor costs of
trade T*

Source Serve
Bypass competition Country A
Country B
Transaction cost T*

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 Global intermediary strategy
Market maker

• Cemex The global market

maker aggregates
• Mittal demand across
countries and
• Cargill aggregates supply
across countries
• BP Amoco

• eBay

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 Global intermediary strategy
Market maker
Ingram Micro: the leading international
wholesaler of technology products and services
• Wholesales 280,000 computer hardware and software products
– think of number of prices!
• Sources in US and many other countries from 1,700
manufacturers
• Serves 175,000 resellers in more than 100 countries
• Serves through operations and affiliates in 35 countries
• Establishes prices, coordinates sales and purchases, clears the
market, allocates products

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 Global intermediary strategy
Market maker
• Creates and operates international markets
• Chooses prices, conveys information
• Adjusts sourcing and serving to clear markets – avoids
efficiency losses from market imbalances
• Provides immediacy: ready to buy and sell
• Allocates goods and services across countries
• Gathers and aggregates information about customers and
suppliers on an international level, inventories, orders, and
production
• Applies IT to international coordination
• Earns returns from international risk pooling

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 Global intermediary strategy
Agents
• Export Marketing Company (EMC) represents sellers,
can be broker or dealer, bears risks, arranges resale,
transportation, credit
• Export Trading Company (ETC) represents buyers,
handles imports, usually takes title to goods
• Act as international agent: provide expertise in negotiation,
market knowledge
• Provide trust to buyers and sellers
• Allows principal to delegate authority for distant
transactions
• Provides market expertise, often to smaller firms

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 Global intermediary strategy
More agents
• Piggyback arrangements: e.g. Sony distributes in Japan for
Whirlpool; GE Trading Co. distributes for other US
manufacturers in Africa and Latin America
• General Trading Companies: In Japan, there are Sogo
Shosha (large scale) and Senmon Shosha (smaller scale)
trading companies. Similar companies exist in Europe, South
Korea, Taiwan, Singapore and Hong Kong
• Government Procurement Agencies, e.g. China Central
Trade Offices
• Distributor/Importer (jobbers, dealers, wholesalers)
• Direct sales (representatives that work on commission)
• Overseas retailers, wholesalers

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 Global entrepreneur
strategy

• Bring buyers and sellers together in new combinations

• Provide new products to new customer countries
• Arrange new production and procurement in supplier
countries
• Introduce innovative transaction methods across borders
– Citigroup financial services, Google, eBay
• Apply innovative technologies and business methods
• Create new business firms in other countries
• New inter-country connections!
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 Global entrepreneur strategy
Micro credit
In 1974, Yunus, a Bangladeshi economist from
Chittagong University, led his students on a field
trip to a poor village. They interviewed a woman
Muhammad who made bamboo stools, and learnt that she had
Yunus of to borrow the equivalent of 15p to buy raw
Bangladesh bamboo for each stool made. After repaying the
and the
Grameen Bank
middleman, sometimes at rates as high as 10% a
jointly awarded week, she was left with a penny profit margin.
the 2006 Nobel 1983: Yunus founds Grameen Bank
Peace Prize.
In Bangladesh today, Grameen Bank has 1,084
branches, with 12,500 staff serving 2.1 million
borrowers in 37,000 villages.
www.grameen.com 41
 Investment strategy next time
Summary and take-away points
• Coordination of competitive actions across
borders key to gaining global competitive
advantage

• Achieve standardization and customization

• Advantage over global and local competitors

• Many more strategies possible…

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