Dealing with differences

Three main strategies:

Adaptation (adjusting to cross national differences)

Arbitrage (exploiting cross-national differences)
Aggregation (overcoming cross country differences to achieve scale/
scope)

Adaptation and the home appliance

industry

Adaptation and the home appliance industry

International differences affecting requisite variety in home appliances

Cultural diff.

Administrative diff.

Geographic diff.

Economic diff.

idiosyncratic tastes

Electrical standards:
plugs&outlets
voltage

Climate

Income levels

home as culture-bound
(e.g. fridge sizes depend on
cooking habits,shopping habits,
life style etc)

Environmental regulations

Bulk or low value-to-weight

ratios

Growth: new household

formation

Protectionism (tariffs)

Price or avaliability of space

and electricity

Variation:
Electrolux (500 companies, 15,000 varieties by late 90s)
Focus: reduce need for variation
focus on geographic area, products, vertical stages: Indesit and regional
focus, Haier and focus on compact products
Externalization: reduce internal burden via joint ventures, alliances...
Haier partners with Michael Jemal to adapt to the USmarket
Design to reduce the cost of variation
Indesit, one basic platform for each category of products
Innovation: going beyond...
Whirlpool, innovation for everyone and everywhere, e.g. innovative
front-loading washer ( a world washer)

Arbitrage: differences as opportunities

the most traditional leverage of internationalization
The most diffused form of arbitraging is now labor cost arbitraging
(e.g. WalMart has been among the first to heavily source to China)
When arbitraging is overlooked: how LEGO lost market dominance

Cultural arbitrage: Tokyo's Benihana, "the Japanese Steakhouse" one outlet in Japan, more than 100 worldwide.
Adminstrative arbitrage: exploiting tax differentials.
Geographic arbitrage: transportation as geographic arbitrage.
Sophisticated logistic services. Round-the-clock programming.
Economic arbitrage: exploiting cheap labor. Capital cost arbitraging.

Arbitrage and the Indian pharma industry

Starting from administrative arbitrage. Before Indias admission to

WTO, it recognized process patents but not product patents
-> developing capabilities at reverse engineering of imported drugs
-> developing low cost manufacturing for generic drugs

Some arbitraging strategies in the Indian pharma industry:

till now: imitating drugs still under patent and selling them in
unregulated markets (e.g. CIPLA: anti-HIV drugs in Africa)
Collaborating with western firms in-licensing and manufacturing/
marketing in India
Innovating: e.g. innovating off-patent drugs by developing new
delivery systems (e.g. one-day formulations, inhalation, subdermal
patches...)
Contract R&D (exploiting differential cost of scientific labor)
Outsourced clinical trials

Aggregation

Exploiting Scale and Scope

Implementing mechanisms that operate at levels somewhere between

an individual country and the whole world.

Regions:

Regions:

Company level data display similar patterns:

among US firms operating in only 1 foreign country, 60% operate in
Canada.
Even multinationals exhibit strong regional bias...
88 % of the major 350 ones derive more than 50% of their sales in their
home regions.
Competitive interactions are often at the regional level...
Nearshoring (Mexico and eastern Europe)

Toyota: regional strategies

Phase 1
one production base: Japan.
overseas production <5%.
Phase 2
1980s: first significant FDI in US. Building more cars where they were
already sold.
Phase 3
1990s Bases or Hubs for individual regions
Initial production of exclusively local models

Phase 4
(overlapping with phase 3) promotion with global cars with crossregional economies. Reducing the number of major platfroms from 11
to 6.
Phase 5
2000s: consolidation of regions with plants receiving near-global
mandate.
E.g.: pick up truck engines and transmission produced in Japan and
assembled in Latin America.
Phase 6
towards a global network with mutual supply to optimize production
and supply at the global level. Still organized around regional nodes.

Phase 4
(overlapping with phase 3) promotion with global cars with cross-

regional regional economies. educing the number of major platforms

from 11 to 6.

Beyond regional aggregation...

Cultural aggregation: Tata consulting services (largest Indian software
services firm)

regional delivery center in Uruguay serves Latin America &
Portugal, Spain ...

regional center in Hungary serves Mitteleuropa...
Administrative aggregation:

Raytheon (defense contractor): commonwealth marketing
group (similar procurement practices in such countries)
Economic aggregation: emerging vs developed countries

Adaptation

Aggregation

Arbitrage

Variation

Regions

Cultural

Focus

Other country
groupings

Administrative

Externalization

Non-country groupings Geographic

(e.g. global accounts)

Design
Innovation

Economic

The market for medical diagnostic imaging

General Electric Health (GEH)

ca 30% market share
Siemens Medical Solutions (SMS) ca 25% market share
Philps Medical Systems (PMS)
ca 20% market share

high R&D intensity (10% of sales)

GEH and SMS: economies of scale and scope (skills based),

GEH acquisition capabilities
GEH: sourcing manufacturing
GEH: Country focus marketing
SMS: business focus on core imaging
PMS: empowering country managers

Dynamics of AAA strategies

Dynamics of AAA strategies

P&G

IBM

TataCS