Going Global: The Challenges Vol. I

Case Studies on

Going Global: The Challenges – Vol. I

Icfai Books

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ISBN:978-81-314-1938-0

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Wal-Mart’s Foray into Japan: Heading Towards Success or Hara-kiri? 1 Asian Paints India Ltd.: The Global Strategies 17 Lindsay Owen-Jones: L’Oréal’s Global Makeover Strategist 31 AstraZeneca’s Crestor: Challenges in the US Market 43 Corona: The Mexican Beer’s Marketing Strategies in USA 55 Tesco: The British Supermarket Chain’s Global Expansion

Strategies and Challenges 71

Metro AG: The German Retailer’s Internationalisation Strategies

through ‘Cash & Carry’ Model 85

CNOOC: Growth Strategies of the Chinese Oil Giant 101 Hyundai in the US: Prospects and Perils 121 Indian Institutes of Management (IIMs): Going Global 135 Corporate China Shopping for Global Brands: Prospects and Perils 173 FEMSA: The Mexican Beverage Giant’s “Continental”

Growth Strategies 183

Nissan in America: The Troubled Strategy 211 Interpublic (USA), the World’s Third-Biggest Marketing

Services Group: The Perils of Reckless Global Expansion 227

OVERVIEW

Globalisation was there even during seventeenth and eighteenth centuries, in the form of trading companies circling around the globe. For instance, spices were imported from East Indies to Northern Europe where they were in deficit. Late eighteenth century saw trader fleets carrying out offshore manufacturing. The British took to foreign direct investment (and ruled with power) in various parts of the world in the nineteenth and early twentieth centuries. Using low labour costs there, they exported labour-intensive, capital-light manufactured goods like textile and clothing. This gave them huge economic benefits. In the late twentieth century, globalisation seemed unstoppable and continued at its inexorable pace. Companies began to splinter all over the world; Europe, US, China and India were the widely chosen destinations. In the twenty first century going global no longer remains an abstract but a stark reality, which the companies, large and small, must confront to exist. Globalisation has not confined itself to a particular sector, but has become a force that pervades every aspect of business. It makes firms – both domestic as well as international – chalk out strategies to sustain any assault from any market. Companies use a variety of entry strategies for international expansion. Joint ventures, mergers and acquisitions (M&A), sales, marketing and R&D alliances, and green field operations are the prominent vehicles of global expansion. Joint ventures prove to be the best option to grab the markets whereas M&A is the best for maintaining control over operations in an overseas market and acquiring local talent. Sales and marketing alliances help tap overseas markets. R&D alliances reward new sources of innovation. But for the success of all these strategies – M&A, joint ventures and alliances – companies need to ensure that they have management leadership and direction, clarity of objectives, understanding of markets and a clear roadmap for integration. When these are in place, chances for failure are less.

Global expansion can offer many gains, but numerous obstacles arise nonetheless. Being responsive to the local markets, integrating and coordinating the global operations, transfer of learning from one part of the world to another are the prime functions in gaining global efficiency. However, these only apply to large companies with some experience of global markets. Small- and medium-sized firms have different concerns. They are more worried of learning about international markets, selecting an appropriate arena to compete, difficulties of entering into new markets and determining how to leverage core competencies. Once entered, they concentrate on building their position in these markets, establishing a local presence, developing new products and customising them to local tastes and

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preferences. For further expansion, the company needs to give up its country-centered strategies and improve integration and coordination across national markets, leverage its competencies and skills to become a leader. But challenges in the international markets are bound to pop up at any of these stages. Major challenges are change, complexity, competition and conscience. These influence the company’s competitive advantage and determine how readily it can achieve economies of scale and scope, as well as synergise its worldwide operations. Change pervades all aspects of business activities – technological changes, knowledge obsolescence, intensity of competition, changing political and economic context. Technological change causes product development, process development, obsolete experience (of earlier technology), escalates investments and competitive pressure. It shrinks the product lifecycle as well. Till the 1980s change was predictable, but since then it has swung so much that it has become complicated and unpredictable. Development of telecommunication networks in developing countries, for example, could be predicted based on the trends in developed countries. But cellular technology defies this and makes it possible for quick adaptation by any country. Even consumers are dizzily changing, as they are exposed to new ideas through the global media. New products and innovations are spreading more horizontally across all countries, rather than trickling down from opinion leaders. Political events like the dissolution of Soviet Union halted economic growth there. But the same event made its trading partners look out for new international markets. Change has both positive and negative impacts. Change-sensitive firms have countless opportunities while those that are not perish.

Managing international operations often produces complexity. Novel technology helps manage, direct, control and coordinate operations on a broader scale. But simultaneously, it adds complexity in the form of problems to adopt and master the technology. Regional market integration, linkage between corporate headquarters and local management, linkages with customers and suppliers and with other organisations become more critical along with the scope of the company’s expanding operations in global markets. Incompatibility of communication systems, across the company’s supply chain and the linkages with other companies, add to the complexity of global operations.

Increasing competition is yet another challenge while going global. Competitive pressures increase, with the opening up of new markets and changing technology. As markets open up, competition multiplies posing new threats and dangers to the existing players. Like that of companies from emerging markets like India,

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China, Malaysia and Brazil from late 1990s. These countries have opened their markets for foreign companies; in turn, domestic companies – becoming aware of international opportunities and competition – are incited to go global. On the other hand, advances in technology and communication are speeding up competitor response that is no longer giving a lead time for pioneers. However competition is market-based and only depends on the company’s efficient use of knowledge to deliver superior value to consumer.

Conscience relates to moral and social responsibility. Companies have to be reactive to issues such as limiting pollution of atmosphere (gases and toxic wastes), conserve resources (paper, fuel and plastics), etc. This becomes even more important in the third world where consumers are less aware of the product safety standards or the activities of the company that can harm their health and environment. So companies have the responsibility to produce, design and package environmental friendly products and also extend the responsibility to educate customers about their merits and demerits. Rapid change, increased competition and complexity also drive companies to act responsibly in the global market.

Global dreams should make companies transform and rethink ways of responding to the competitive landscapes and smartly deploy resources to get to the desired growth levels. Navigating successfully in these global waters is in itself a challenge facing today’s firms. So by bracing up for change, complexity, competition and conscience, companies can prosper.

However, not all companies that go global are successful, a poignant theme of this book. It speaks of how successful companies overcame challenges in global markets. Even how strategies of few others proved perilous – outlined in case studies like Interpublic (USA), The World’s Third-Biggest Marketing Services Group: The Perils of Reckless Global Expansion.In there, are few cases – namelyAsian Paints India Ltd.: The Global Strategies,CNOOC: Growth Strategiesof the Chinese Oil Giant, IIMs: Going GlobalandCorporate China Shopping for Global Brands: Prospects and Perils– highlighting how establishments, from developing countries like India and China, are trying to establish their presence outside their home markets; even their various expansion strategies are discussed. Other case studies – likeWal-Mart’s Foray into Japan: Heading Towards Success or Hara-kiri?,Tesco: The British Supermarket Chain’s Global Expansion Strategies and ChallengesandMetro AG: The German Retailer’s Internationalisation Strategies Through ‘Cash & Carry’ Model– discuss their market entry strategies and challenges while expanding into Asia in search of new potential markets. Lindsay Owen-Jones: L’Oreal’s Global Makeover Strategieshighlights Jones’ strategies to face global competition; while

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Femsa: The Mexican Beverage Giant’s Continental Growth Strategieshighlights its expansion in Latin America through acquisitions, partnerships, agreements and joint ventures.Nissan in America: the Troubled Strategynarrates Nissan running into trouble in the US market and how Carlos Ghosn formulated strategies to revive its position. Hyundai in US: Prospects and Perils,Corona: The Mexican Beer’s Marketing Strategies in USA andAstraZeneca’s Crestor: Challenges in the US Marketdiscuss their US market strategies and their challenges like the dilemma of distribution channels, competitive scenario in the US drug market, etc. This book burrows into different aspects of global expansion and the resulting challenges and strategies. In all, this book provokes readers to the practical implications of going global and rising to the occasion accordingly.