AAA Framework- What are your Globalization Options?

Globalization, the international integration, is adapted by an organization by

adapting various approaches. One of the framework was identified by
Ghemawat- AAA Framework in which the three As stand for Adaptation,
Aggregation and Arbitrage.

Adaptation Strategies: These strategies increase market share and revenue

by adapting some components in a business model of a company such that it
is suitable to suffice local preferences and requirements. This is the most
widely used strategy among the three. Generally, to penetrate into new
customer base in a new market, the organization tend to adapt the measures
and practices which are favored locally. This leads to easy acceptance by the
customers. Adaptation is further divided into five parameters- Variation
(making changes in products and services and also making adjustments
to policies, business positioning, and even expectations for success), Focus
(on particular products, geographies, vertical stages of the value chain,
or market segments as a way of reducing the impact of differences across
regions), Externalization (transfer through strategic alliances, franchising,
user adaptation, or networking), Design (flexibility so as to overcome supply
differences) and Innovation (improving the effectiveness of adaptation
efforts). Example- McDonald's has included various items such as Paneer
Salsa Wrap, the Chicken Maharaja Mac, the Veg McCurry Pan to suit Indian
customers instead of hamburgers made of beefs, etc. which are less preferred
by Indian consumers.

Aggregation Strategies: These strategies seek to achieve economies of

scale/scope by generally creating global efficiencies. These usually involve
standardization of the part of the value proposition which could further lead
to the assemblage of production and development processes. To create
substantial cost advantage by centralizing purchasing of raw materials,
producing end products, etc. in few places where the relative cost incurred in
labor and other resources is less, some organizations although globalised, use
to follow aggregation strategies instead of adaption. The only avenue is not
geographic aggregation for generation of economies of scale or scope. The
other non geographic parameters- CAGE
(cultural, administrative, geographic, and economic) also tend to be important
dimensions. The corporate diplomacy could be approached by avoiding the
appearance of homogenization or hegemonism and being sensitive to any
backlash. Example- In Whirlpool Corporation, while it was expanding
globally, the new scale that emerged from the acquisitions offered a
significant competitive advantage, but only if the individual operations and
resources were working in concert with each other. It could be deduced that
that real challenge is integration of businesses together to create leverage and
competitive advantage.

Arbitrage Strategies: These strategies neither include bridging the different

markets nor adapting the local demands. Rather these inculcate the strategy
of creation of global value by exploiting the difference between the markets
itself, usually by profiting by the margin of difference in the separate supply
chain’s parts in different places. One could buy from a cheap market place
and sell where the price is higher. The bargaining power use to be an added
advantage in such cases. Sometimes, a particular place is famous for some
products, concepts and other entities. This fact could be leveraged and that
particular essence of particular place could be used to earn revenue by setting
the market where demand for such products exists. Thus, it also includes
Cultural (country-of-origin effects), Administrative (taxes, regulations,
security), Geographic (distances, climatic differences) and Economic
(differences in prices, resources and knowledge) effects. Example- Walmart
use to sell products worldwide which have been bought from China and earn
from the differences in the prices.

When managers first hear about the broad strategies that make up the AAA
triangle framework for globalization, their most common response by far is
“Let’s do all three”. But it’s not that simple. A close look at the three
strategies reveals the differences – and tensions – among them. Business
leaders must figure out which elements will meet their companies’ needs and
prioritize accordingly.