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INTERNATIONAL PARTNERSHIPS IN DEVELOPING COUNTRIES
(Learning Objective #4)
Central and Eastern Europe, Asia, India, and Mexico offer opportunities to enter gigantic and
largely untapped markets. An obvious strategic alternative for entering these markets is the
strategic alliance. Potential partners trade market access for expertise.
Assuming that risks can be minimized and problems overcome, joint ventures in the transition
economies of Central and Eastern Europe could evolve at a more accelerated pace than past joint
ventures with Asian partners.
Russia is an excellent location for an alliance because it has a well-educated workforce, and
quality is very important to Russian consumers.
Disadvantages include organized crime, supply shortages, and outdated regulatory and legal
systems.
Hungary has the most liberal financial and commercial system in the region. It has also provided
investment incentives to Westerners, especially in high-tech industries.
Cooperative Strategies in Asia
(Learning Objective #5)
Asian cultures exhibit collectivist social values; cooperation and harmony are highly valued in
both personal life and the business world. Therefore it is not surprising that some of Asia's
biggest companies pursue cooperation strategies.
COOPERATIVE STRATEGIES IN JAPAN: KEIRETSU
Japan’s keiretsu represent a special category of cooperative strategy. A keiretsu is an inter-
business alliance or enterprise group that, in the words of one observer, “resembles a fighting
clan in which business families join together to vie for market share.”
Keiretsu exist in a broad spectrum of markets, including the capital, primary goods, and
component parts markets.
THE CULTURAL CONTEXT
Will Beer Drinkers Toast SABMiller’s Global Strategy?
South African Breweries PLC had a problem. The company owned more than 100 breweries in
24 countries. South Africa, where the company had a commanding 98 percent share of the beer
market, accounted for about 14 percent of annual revenues (see Exhibit 9-8). However, most of
the company’s brands, which include Castle Lager, Pilsner Urquell, and Carling Black Label,
were sold on a local or regional basis; none had the global status of Heineken, Amstel, or
Guinness. Nor were the company’s brands well known in the key U.S. market, where a growing
number of the “echo boom”—the children of the nation’s 75 million baby boomers—were
reaching drinking age.
In 2002, a solution presented itself: South African Breweries had an opportunity to buy the
Miller Brewing unit from Philip Morris. The $3.6 billion deal created SABMiller, a new
company that ranks as the world’s number two brewer in terms of production volume; Anheuser-
Busch InBev ranks first. Miller operates nine breweries in the United States, where its flagship
brand, Miller Lite, had been losing market share for a number of years. The challenge facing
SABMiller is to revitalize the Miller Lite brand in the United States and then launch Miller in
Europe as a premium brand.
SABMiller and its competitors are also making strategic investment in China, the world’s largest
beer market with $6 billion in annual sales.
As Sylvia Mu Yin, an analyst with Euromonitor, noted, “Local brewers are keen to explore
strategic alliances with large multinational companies. At the same time, foreign companies are
eager to sell to the 1.3 billion Chinese, but lack local knowledge.”
Meanwhile, some of SABMiller’s local brands are being introduced in the United States.
Keiretsu relationships are often cemented by bank ownership of large blocks of stock and by
cross-ownership of stock between a company and its buyers and nonfinancial suppliers.
Further, keiretsu executives can legally sit on each other’s boards, share information, and
coordinate prices in closed-door meetings of “presidents’ councils.” Thus, keiretsu are essentially
cartels that have the government’s blessing. While not a market entry strategy per se, keiretsu
played an integral role in the international success of Japanese companies as they sought new
markets.
Some observers have disputed charges that keiretsu have an impact on market relationships in
Japan and claim instead that the groups primarily serve a social function. Others acknowledge
the past significance of preferential trading patterns associated with keiretsu but assert that the
latter’s influence is now weakening.
Another type of manufacturing keiretsu consists of vertical hierarchical alliances between
automakers and suppliers and component manufacturers.
The keiretsu system ensured that high-quality parts were delivered on a just-in-time basis, a key
factor in the high quality for which Japan’s auto industry is well known.
HOW KEIRETSU AFFECT AMERICAN BUSINESS: TWO EXAMPLES
Clyde Prestowitz provides the following example to show how keiretsu relationships have a
potential impact on U.S. businesses.
In the early 1980s, Nissan was in the market for a supercomputer to use in car design. Two
vendors under consideration were Cray, the worldwide leader in supercomputers at the time, and
Hitachi, which had no functional product to offer. When it appeared that the purchase of a Cray
computer was pending, Hitachi executives called for solidarity; both Nissan and Hitachi were
members of the same big six keiretsu, the Fuyo group. Hitachi essentially mandated that Nissan
show preference to Hitachi, a situation that rankled U.S. trade officials. Meanwhile, a coalition
within Nissan was pushing for a Cray computer; ultimately, thanks to U.S. pressure on both
Nissan and the Japanese government, the business went to Cray.
COOPERATIVE STRATEGIES IN SOUTH KOREA: CHAEBOL
South Korea has its own type of corporate alliance groups, known as chaebol.
Like the Japanese keiretsu, chaebol are composed of dozens of companies, centered around a
central bank or holding company, and dominated by a founding family.
However, chaebol are a more recent phenomenon, dating from the early 1960s.
The chaebol were a driving force behind South Korea’s economic miracle; GNP increased from
$1.9 billion in 1960 to $238 billion in 1990.
TWENTY-FIRST CENTURY COOPERATIVE STRATEGIES
(Learning Objective #6)
The U.S. government, concerned that key companies in the domestic semiconductor industry
were having difficulty competing with Japan, agreed to subsidize a consortium of 14 technology
companies beginning in 1987. The task facing the consortium was to save the U.S. chip-making
equipment industry, whose manufacturers were rapidly losing market share in the face of intense
competition from Japan.
Although initially plagued by attitudinal and cultural differences among different factions,
Sematech eventually helped chip makers try new approaches with their equipment vendors. By
1991, the Sematech initiative, along with other factors such as the economic downturn in Japan,
reversed the market share slide of the semiconductor equipment industry.
Sematech’s creation heralded a new era in cooperation among technology companies. As the
company has expanded internationally, its membership roster has expanded to include Advanced
Micro Devices, Hewlett-Packard, IBM, Infineon, Intel, Panasonic, Qualcomm, Samsung, and
STMicroelectronics. Companies in a variety of industries are pursuing similar types of alliances
The “relationship enterprise” is another possible stage of evolution of the strategic alliance.
Relationship enterprises are groupings of firms in different industries and countries that are held
together by common goals that encourage them to act almost as a single firm.
More than the simple strategic alliances we know today, relationship enterprises will be super-
alliances among global giants, with revenues approaching $1 trillion.
With home bases in all major markets, they will enjoy the political advantage of being a “local”
firm almost anywhere.
The virtual corporation will seem to be a single entity with vast capabilities but will really be the
result of numerous collaborations assembled only when they’re needed.
The virtual corporation would combine the twin competencies of cost effectiveness and
responsiveness; thus, it could pursue the “think globally, act locally” philosophy with ease.
This reflects the trend toward “mass customization.”
MARKET EXPANSION STRATEGIES
(Learning Objective #7)
Companies must decide whether to expand by seeking new markets in existing countries or,
alternatively, seeking new country markets for already identified and served market segments.
These two dimensions in combination produce four market expansion strategy options, as
shown in Table 9-6.
Strategy 1, country and market concentration, involves targeting a limited number of
customer segments in a few countries. This is typically a starting point for most companies.
In Strategy 2, country concentration and market diversification, a company serves many
markets in a few countries. This strategy was implemented by many European companies that
remained in Europe and sought growth by expanding into new markets. It is also the approach of
the American companies that decide to diversify in the U.S. market as opposed to going
international with existing products or creating new, global products. According to the U.S.
Department of Commerce, the majority of U.S. companies that export limit their sales to five or
fewer markets. This means that U.S. companies typically pursue Strategies 1 or 2.
Strategy 3, country diversification and market concentration, is the classic global strategy
whereby a company seeks out the world market for a product. The appeal of this strategy is that,
by serving the world customer, a company can achieve a greater accumulated volume and lower
costs than any competitor and therefore have an unassailable competitive advantage. This is the
strategy of the well-managed business that serves a distinct need and customer category.
Strategy 4, country and market diversification, is the corporate strategy of a global, multi-
business company such as Matsushita. Overall, Matsushita is multicountry in scope and its
various business units and groups serve multiple segments. Thus, at the level of corporate
strategy, Matsushita may be said to be pursuing Strategy 4. At the operating business level,
however, managers of individual units must focus on the needs of the world customer in their
particular global market. In Table 9-6, this is Strategy 3—country diversification and market
concentration. An increasing number of companies all over the world are beginning to see the
importance of market share not only in the home or domestic market but also in the world
market. Success in overseas markets can boost a company’s total volume and lower its cost
position.
TEACHING TOOLS AND EXERCISES
Additional Cases:
“Samsung Electronic Co.: Global Marketing Operations”. John A. Quelch; Anna Harrington:
HBS 504051.
Videos:
Video on International Marketing Exporting Tactics – The highlights of successfully selling
American-made products overseas. March 2011 – 69 minutes long.
Link: http://www.youtube.com/watch?v=zDQ_tI_TZrA
Five minute video of Jerome Couturier talking about international expansion opportunities. He
discusses why some companies would want to go global during a recession. October 2009.
Link: http://www.youtube.com/watch?v=6nJ-KEgGmo8&feature=relmfu
LSEF Global MBA Video—11 minutes—Introduction to International Strategy and determining
whether a company has what it takes to go global. Standardization vs. Adaptation, Modes of
Entry, etc.
Link: http://www.youtube.com/watch?v=vII1HJcCxTk&feature=related
Activities: Students should be preparing or presenting their Cultural-Economic Analysis and
Marketing Plan for their country and product as outlined in Chapter 1.
Students will find an example of company that has been / has altered its marketing and
investment strategy(s) to compete in the global market. Students will explain why the strategy is
being changed.
Out-Of-Class Reading: Bamford, James, David Ernst, and David G. Fubini. “Launching a
World-Class Joint Venture,” Harvard Business Review 82, no. 2 (February 2004) pp. 91-100.
Debate: The Merits of the Keiretsu. Divide the class into two teams. Team A: The keiretsu
violates anti-trust laws because it is anti-competitive. Team B: American companies should
increase alliances patterned after the Japanese keiretsu because of Japanese success in the auto
and electronics industries. Each team has 10 minutes to prepare, 5 minutes to present its
arguments, and 5 minutes to refute the opposing team.
SUGGESTED READINGS
Books
Bleeke, Joel, and David Ernst. Collaborating to Compete. Somerset, New Jersey: John Wiley &
Sons, 1991.
Contractor, Farok, and Peter Lorange. Cooperative Strategies in International Business.
Cambridge, MA: Ballinger, 1987.
D’Aveni, Richard. Hypercompetition. New York: Free Press, 1994.
Doz, Yves L., and Gary Hamel. Alliance Advantage: The Art of Creating Value Through
Partnering. Cambridge: Harvard Business School Press, 1998.
Doorley, Thomas L. III. Teaming Up for the '90s: A Guide to International Joint Ventures and
Strategic Alliances. New York: Business One Irwin, 1991.
Harbison, John R. and Peter Pekar. Smart Alliances: A Practical Guide to Repeatable Success.
San Francisco: Jossey-Bass, 1998.
Miyashita Kenichi, and David Russell. Keiretsu: Inside the Hidden Japanese Conglomerates.
New York: McGraw-Hill, 1996.
Oster, Sharon. Modern Competitive Analysis. New York: Oxford University Press, 1990.
Prestowitz, Clyde V. Jr. Trading Places: How We Are Giving Our Future to Japan and How to
Reclaim It. New York: Basic Books, 1989.
Root, Franklin R. Entry Strategies for International Markets. New York: Lexington Books, 1994.
Rugman, Alan. The End of Globalization. New York: Amacom, 2001.
Yoshino, Michael Y., and U. Srinivasa Rangan. Strategic Alliances: An Entrepreneurial
Approach to Globalization. Boston: Harvard Business School Press, 1995.
Articles
Agarwal, Sanjeev. “Socio-Cultural Distance and the Choice of Joint Venture: A Contingency
Perspective.” Journal of International Marketing 2, no. 2 (1994), pp. 63-80.
Beamish, Paul W. “The Characteristics of Joint Ventures in the People’s Republic of China.”
Journal of International Marketing 1, no. 2 (1993), pp.29-48.
Chang, Sea-Jin and Philip M. Rosenzweig. “The Choice of Entry Mode in Foreign Direct
Investment.” Strategic Management Journal 22, no. 8 (August 2001), pp. 7447-776,
Fey, Carl F., and Paul W. Beamish. “Strategies for Managing Russian International Joint Venture
Conflict.” European Management Journal 17, no. 1 (February 1999), pp. 99-106.
Kim, W. Chan and Peter Hwang. “Global Strategy and Multinationals’ Entry Mode Choice.”
Journal of International Business Studies 23, no. 1 (1992), pp. 29-54.
Lamming, Richard. “Japanese Supply Chain Relationships in Recession.” Long Range Planning
33, no. 6 (December 2000), pp. 757-778.
Lin, Xiaohua, and Richard Germain. “Sustaining Satisfactory Joint Venture Relationships: The
Role of Conflict Resolution Strategy.” Journal of International Business Studies 29, no. 1
(1998), pp. 179-196.
McDougall, Patricia. “New Venture Strategies: An Empirical Identification of Eight ‘Archetypes’
of Competitive Strategies for Entry.” Strategic Management Journal 11, no. 6 (October
1990), pp. 447-467.
Nair, Ajit S., and Edwin R. Stafford. “Strategic alliances in China: Negotiating the Barriers.”
Long Range Planning 31, no. 1 (February 1998), pp. 139-146.
Reuer, Jeffrey. “The Dynamics and Effectiveness of International Joint Ventures.” European
Management Journal 16, no. 2 (April 1998), pp. 160-168.
Sargent, John. “Getting to Know the Neighbors: Grupos in Mexico.” Business Horizons
(November-December 2001), pp.16-24.
Shama, Avraham. “Entry Strategies of U.S. firms to the Newly Independent
States, Baltic States, and Eastern European Countries.” California Management Review 37
(Spring 1995) pp. 90-109.
Steensma, H. Kevin, and Marjorie A. Lyles. “Explaining IJV Survival in a Transitional Economy
Through Social Exchange and Knowledge-based Perspectives.” Strategic Management
Journal 21, no. 8 (August 2000), pp. 831-851.
Yavas, Ugur, Dogan Eroglu, and Sevgin Eroglu. “Sources and Management of Conflict: The
Case of Saudi-U.S. Joint Ventures.” Journal of International Marketing 2, no. 3 (1994),
pp. 61-82.
