Offshoing

INSTITUTE OF PRODUCTIVITY AND MANAGEMENT

GLOBAL BUSINESS ENVIRONMENT

ASSIGNMENT-1

SUBMITTED TO:- RESPECTED RASHMI MAM
SUBMITTED BY:-DEEPAK
DATE:- 29/08/2013

1. Defender: Companies should adopt this position when they have low pressure to globalise and their competitive assets are customised to the local market. This is a defensive strategy that focuses on leveraging local assets in market segments where multinationals are weak.
For example, when Western cosmetic giants entered the Chinese market, Shanghai Jahwa, the local cosmetic company did not compete with them head on by targeting their global product ranges. Instead they responded by developing products that would suit the local complexion and appeal to local people.
Similarly Grupo Industrial Bimbo, a Mexican food company responded to global competition by defending their distribution system, which could reach the remote rural areas of the country. In India Videocon developed semi-automatic washing machines that were targeted at the value conscious Indian consumer and has successfully countered MNC competition by focusing on this segment.

2. Extender: Companies that possess competitive assets, that can be transferred abroad, can adopt this position when the pressure to globalise is low. They focus on expanding into markets similar to those of the home base, using competencies developed at home. Televisa, a Mexican media company globalised by making their Spanish language products available to the Spanish speaking population across the world.Another good example would be the case of Jollibee foods, a Philip-pines fast food chain that faced off McDonald's by developing spicier products better suited to the Filipino palate. They then followed the Filipino population across the world to globalise.

3. Dodger: Companies that have a high pressure to globalise, or are vulnerable to global competition, and do not have a transferable competitive advantage, have no other option but to dodge competition. These companies focus on a locally oriented link in the value chain, enter a joint venture, or sell out to a multinational.
For example, Kwality, a dominant player in the Indian ice-cream market sold its brands and manufacturing assets to Unilever, making Kwality-Walls the market leader in the Indian ice-cream market. Similarly, when the Iron Curtain came down, Vist , a Russian PC manufacturer did not compete with American or Japanese companies, but shifted focus to PC distribution. This was an artful move because distribution in Russia was ridden with corruption and foreign companies faced difficulties in distributing products. As a result of this today they form an important link and support the Japanese and American MNCs in their business.
4. Contender: Companies that have competitive advantages that can be leveraged abroad and also have a high pressure to globalise can compete aggressively in global markets. They focus on upgrading capabilities and re-sources to match multinationals globally, often by keeping to niche markets.
For example, Sundram Fasteners competes in global markets for niche auto components like radiator caps. A measure of its global competitiveness is the fact that it won the General Motors', 'Supplier of the Year' award for five consecutive years.Similarly, Bharat Forge, the second largest forging company in the world, competes by being a global supplier of specialised engine and chassis components for trucks and passenger cars. One out of every two trucks in the US uses front axles made at Bharat Forge.

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 appreciate the local touch and ignoring those who favour global brands.
Shanghai Jahwa, China's 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 across cultures, the pressure to globalize the cosmetics industry is weak. Nevertheless, as in other such industries, a sizable market segment is attracted to global brands. Young people in China, for example, are currently fascinated by all things Western. Instead of trying to fight for this segment, Jahwa concentrates on the large 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 instance, believe that human organs such as the heart and liver are internal spirits that determine the health of the body. Liushen, or "six spirits," is the name of a traditional remedy for prickly heat and other summer ailments, and it's made from a combination of pearl powder and musk. Drawing on this custom, Jahwa launched a Liushen brand of eau de toilette and packaged it for summer use. The brand rapidly gained 6o% 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 found their products appeal mainly to fashion-conscious city dwellers.
For those product lines that don't have such an intrinsic appeal to consumers, Jahwa has found that it can compete on price. Here Jahwa has taken advantage 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 often aren't profitable at prices low enough to attract many buyers in emerging markets. And even if they are, a multinational might damage its global brand by selling its products cheaply.

As a result, a number of Jahwa's foreign rivals have been stuck in gilded cages at the top of the market, giving Jahwa an advantage in reaching consumers with little discretionary income. Revlon, for example, estimates its target market in China to be just 3% of the country, or 39 million people, whereas Jahwa aims at over half the market.
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 foreign market. This transparency affords defenders both the knowledge and the time to pre-empt a new brand with rival offerings of their own. Jahwa quickly launched its G.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 allowed it to weather the initial opening of China's markets—period when multinational companies often appear irresistible to consumers and local competitors alike. At first, consumers often flock to foreign brands out of curiosity or out of a blind belief in their virtues.
Procter & Gamble, for example, grabbed over half the Chinese market for shampoo in just a few years, despite the substantially higher price of its product. But by focusing on offerings that reflect 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 have good reason to believe that many consumers will eventually shake off their expensive infatuation with foreign brands and go back to Jahwa and other local lines.
The Czechoslovakian car maker Skoda and the Russian PC manufacturer Vist are both examples of Dodgers. After the fall of communism in 1989, Skoda was stuck with poor quality, outdated technology and plants, and little demand for its products. A ‘win-win’ solution involved selling out to Volkswagen, which injected fresh funds, technology (product designs) and knowledge of quality manufacturing methods to make Skoda competitive. With the added advantages of low labour costs, and especially of Czech engineering talent, Skoda could entice customers by offering low prices.
After a time, Volkswagen started sourcing some models, to be sold under the VW badge, from Skoda, whose low cost structure considerably enhanced Volkswagen’s profit margins. In contrast, Visit ‘dodged’ global competition in a different fashion, by emphasizing the downstream aspects (distribution, service and warranties) of its core business. It avoided competition with incoming MNCs by staying out of the cities and establishing an extensive dealer network in the interior of the country, providing documentation in the Russian language and offering lengthy warranties, all of which served as sources of differentiation from its MNC rivals.
Acer Inc, the Taiwan based computer and peripherals manufacturer, illustrates Dawar and Frost’s Contender strategy. By aggressively moving into international markets, it has become one of the largest players in the PC arena. India’s dominant scooter manufacturer Bajaj Auto used the Defender strategy to successfully counter the threat from Honda’s entry into its home market. Bajaj enjoyed two key advantages over Honda in the Indian market d it had a very strong sales and service network available to customers in every nook and corner of the vast country, and its low-tech scooters, based on decade sold technology, could be cost effectively repaired by roadside mechanics. Interestingly, neither of these strengths could have helped Bajaj compete in overseas markets.
While Honda’s state-of the-art technology gave its products aerodynamic styling and lighter weight, attractive to particular segments such as women riders, it proved unable to capture a large share of the mass market.
Asian Paints, India’s leading decorative paints manufacturer, is an excellent example of the Extender strategy. It has entered markets such as Fiji, Tonga, Mauritius, Bangladesh and Sri Lanka, which share several characteristics: they are small ‘standalone’ markets and hence of less interest to the industry leaders; they are either geographically proximate to or share a cultural heritage with India; they have a strong demand for decorative paints (rather than technology intensive and global-giant-dominated industrial paints); and their fragmented retail structure is somewhat similar to India’s, requiring the slow build-up of a local position. By focusing on these markets, Asian Paints reduced the management complexity, at least during the early stages of internationalization, enhancing its likelihood of success.

The Wanxiang Group serves as an excellent example of a Contender strategy. The Chinese auto components industry has witnessed explosive growth due both to the rapid development of the local market and the entry of multinational components manufacturers such as Delphi, Bosch and Bridgestone, who recognised that making components in China can lead to significant cost reductions. Many Chinese firms, lacking world-class manufacturing processes or quality standards have suffered due to low productivity and high defect rates. However stronger firms such as Wanxiang, an ISO 9002-certified manufacturer of auto parts including universal joints, bearings and CV joints, have flourished by serving not only China based auto firms but also customers in the United States, Canada, Latin and South America and Europe. By 2004, the Wanxiang Group employed 20,000 people and was the second largest non state-owned company in China. According to company sources, Wanxiang’s U.S. sales grew by 60% in 2004 (to approximately US$400 million), and those of its smaller European division by 30%.

Hainan Yedao Co. Ltd serves as an excellent example of a Defender strategy. With a population of 1.2 billion China represents a large market for packaged food. While a few pioneering MNCs entered the country in the 1980s, the continued growth of the market has attracted new MNC firms, as well as encouraging those who already have a presence to escalate their commitment to the market. In 2001, Pepsi had 40 affiliates in China (including both wholly owned subsidiaries and joint ventures) had invested US$800 million, employed 10,000 people and had annual revenues of US$700 million. Its key rival Coca Cola, had an even greater commitment to the China market, reflected in its market leadership (with a 23% market share against Pepsi’s 17%). This increased MNC attention on the Chinese market clearly led to more intense competition for local firms, but the industry’s low globalization pressures have allowed Chinese firms to compete effectively.
Hainan Yedao which employs 3,000 people and has more than 30 subsidiaries was listed on the Shanghai Stock Exchange in 1999. Its product range includes Chinese wine, beverages, health care products, nutrition foods, ethyl alcohol and amylase (most of which were developed internally), sold through 22 companies and over 200 sales offices throughout China. It is recognized as one Contenders aimed for strong international market presence and technological parity, supporting strategic positioning with employee development programs Typically, Defenders adopted a low-cost product positioning and emphasized a strong local touch and distribution network. 304 Rising to the Global Challenge of Hainan province’s leading enterprises, and has received government accolades such as ‘the first competitive assessment enterprise’, and enjoys AA plus credit rating.