chapter six global competitors. copyright © houghton mifflin company. all rights reserved. chapter...

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


“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


The Globalization of Competition

• Global firm versus global firm • Global firm versus local firm


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


Coke Versus Pepsi

Close in U.S.; but Coke much stronger overseas


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


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


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


Strategies for Local Firms

• Defend

• Extend

• Contend

• Dodge


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”


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


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


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?


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


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)


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



• 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



• 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!


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


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


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


Market Liberalization

“ The encouraging of competition where prior barriers or strict controls existed.”


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


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


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


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


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


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”


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?


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

http://www.tata.com/


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


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


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


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


Country of Origin (cont’d)

• In a few cases, certain countries connote more general product attributes+ Germany - engineering+ Italy - design + US – marketing & advertising



• 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



• 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)


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


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.

chapter six global competitors. copyright © houghton mifflin company. all rights reserved. chapter...

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