978-0134129945 Chapter 9 Lecture Note Part 2

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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Disadvantages include organized crime, supply shortages, and outdated regulatory and legal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.