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Expansion Strategies – The Way to
Growth
Dr.Ashvini Ravi
Associate Dean – Academics
myBskool.com
Corporate strategy establishes the overall
direction that the organization hopes to go.
Types of Expansion Strategies
Expansion
Cooperation
International Concentration
Diversification Integration
Expansion - Types
1. Integration
2. Diversification
3. Cooperation
Vertical
Integration
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall. 6-5
Vertical Integration
• Combining activities related to the present
activity
• Committing to adjacent businesses
• Extending value chain from the basic raw
materials to ultimate consumer
• Two types- Vertical and Horizontal
Vertical Integration
• New products/services to serve own needs
• Supplying inputs or serving as a customer for
outputs
• Backward –Upstream-Going back to source of
raw material
• Forward –Downstream- Moving closer to
consumer
Expansion strategies   the way to growth | Online Mini MBA (Free)
What is Vertical Integration?
Leprino Foods
(Mozzarella Cheese)
Where your pizza comes from
Dairy Farmers
(milk)
Crop Farmers
(Alfalfa & Corn)
Seed Companies
(Alfalfa & Corn)
Food Distributors
Pizza Chains
End Consumer
Summary
Vertical Integration…
• Makes sense when value chain economies
can be created and captured
• May allow a firm to leverage capabilities
• May be a response to the threat of opportuniesm
and uncertainty
• As a form of exchange per se, is not rare nor
costly to imitate
Summary
Vertical Integration…
• Is an important consideration in the decision
to expand internationally (range of possibilities)
• Makes sense when done for the right reasons,
under the right circumstances
• Can be a costly mistake if done wrong
Ownership is costly—integrate only when the
benefits outweigh the costs of integration!
Apple
• In technology, for 35 years has championed a
vertical model, which features an integrated
hardware and software approach.
• For instance, the iPhone and iPad have
hardware and software designed by Apple,
which also designed its own processors for
the devices.
• This integration has allowed Apple to set the
pace for mobile computing.
• Starbucks grows own coffee beans in China
to support its ambitious growth plans in China
Conditions favoring Vertical Integration ???
5
Make or Buy
• Current trend favors outsourcing all activities
that do not directly represent or support core
competencies.
• Are there any dangers associated with aggressive
outsourcing? What are the implications for JIT
production?
• Cost of manufacturing vs cost of procuring from
suppliers
• Cost of selling vs price paid to sellers
Make-or-Buy Illustration
One of the best examples of vertically integrated
companies is the oil industry.
Oil companies, both multinational (such as ExxonMobil, Royal
Dutch Shell, or BP) often adopt a vertically integrated
structure.
This means that they are active all the way along the supply
chain from locating crude oil deposits, drilling and
extracting crude, transporting it around the world,
refining it into petroleum products such as
Petrol/Gasoline, to distributing the fuel to company-owned
retail stations, where it is sold to consumers.
Horizontal Integration
• The acquisition of additional business activities (
same type of products)at the same level of the
value chain is referred to as horizontal
integration.
• Eg suitcase company takes over its rival suitcase
company…
• Buying competitor‘s business to expand
geographically,
•
Horizontal Integration
Single-Industry Strategy
• Focus resources
Its total managerial, technological,
financial and functional resources
and capabilities are devoted to
competing successfully in one area.
• ‗Stick to its knitting‘
Company stays focused on what it does best,
rather than entering new industries where its
existing resources and capabilities add little
value.
Horizontal Integration is the process of acquiring or merging
with industry competitors in an effort to achieve the
competitive advantages that come with large scale and scope.
Staying inside a single industry allows a
company to:
Benefits of
Horizontal Integration
Profits and profitability increase when horizontal
integration:
1. Lowers the cost structure
• Creates increasing economies of scale
• Reduces the duplication of resources between two companies
2. Increases product differentiation
• Product bundling – broader range at single combined price
• Total solution – saving customers time and money
• Cross-selling – leveraging established customer relationships
3. Replicates the business model
• In new market segments within same industry
4. Reduces industry rivalry
• Eliminate excess capacity in an industry
• Easier to implement tacit price coordination among rivals
5. Increases bargaining power
• Increased market power over suppliers and buyers
• Gain greater control
Problems with Horizontal Integration
A wealth of data suggests that the majority of mergers
and acquisitions DO NOT create value and that many
may actually DESTROY value.
 Implementing a horizontal integration is not an easy
task.
• Problems associated with merging very different company
cultures
• High management turnover in the acquired company when
the acquisition is a hostile one
• Tendency of managers to overestimate the benefits to be had
in the merger
• Tendency of managers to underestimate the problems
involved in merging their operations
 The merger may be blocked if merger is perceived to:
• Create a dominant competitor
• Create too much industry consolidation
• Have the potential for future abuse of market power
examples
• The Standard Oil Company's acquisition of 40
refineries.
• An automobile manufacturer's acquisition of a
sport utility vehicle manufacturer.
• A media company's ownership of radio,
television, newspapers, books, and magazines.
Limitations
• Commitment to businesses serving the same
customers
• Main product failing /becoming obsolete
• More resources put in same market
Expansion types
1. Integration
2. Diversification
3. Cooperation
4. Internationalisation
Diversification
• Much used, Most important type
• Involves all strategic alternatives:
Internal/external, related/unrelated,
horizontal/vertical, active/passive
• New markets, technologies, products….
• Two types – concentric and conglomerate
Concentric Diversification
• Related to existing business in some way-
market, technology ….
• 3 types –
1. Marketing related – to same customer group –
printers and stationary
2. Technology related-an electronic major decided
to diversify into related businesses of cellular
phones, telecommunication equipment, electronic
components etc
3. Marketing and technology related- Books,
maps, calendars sold in same shops
Concentric diversification example
• At Proctor and Gamble a paper towels business and a baby
diapers business both use paper products as a primary input to
the manufacturing process. Having a joint paper manufacturing
plant that produces inputs for both units is an example of
operational relatedness.
Honda has developed and transferred its expertise in small and
now larger engines for a number of vehicles from motor cycles
and lawn mowers to its range of automotive products
•
Motorola’s remarkable long term success in semi-conductors
and wireless telecommunication products ( modems, networks,
broadband, radio, voip…..)
Conglomerate Diversification
• Diversification two types – concentric and
conglomerate
• Unrelated to existing business definition
• Eg ITC- Hotels, shampoo(fiama), biscuits(sun
feast);Hinduja, WIPRO,Tatas…
• Why do companies adopt conglomerate
diversification ???
• Minimise risks
• Exploit strengths or minimise weakness
• Slow growth in existing business due to Govt,
customer, …
Expansion strategies   the way to growth | Online Mini MBA (Free)
More about GE- presence in 100
countries
The products and services :
1. aircraft engines
2. power generation
3. water processing
4. household appliances
5. medical imaging
6. business and consumer
financing
7. industrial products.
.
Its segments include :
Energy Infrastructure
Aviation
Healthcare
Transportation
Home & Business
Solutions
GE Capital.
Tata Group
The Tata group operates in more than 80
countries and markets across:
• AFRICA
• ASIA
• AUSTRALIA
• NORTH AMERICA
• SOUTH AMERICA
• EUROPE
•
Business sectors
Tata companies operate in seven different
business sectors:
• information systems and communications
• Engineering
• materials
• services
• Energy
• consumer products
• chemicals.
Tata products and services for
consumers
• AgricultureAppliances
• AutomobilesBeverages
• Charter flights
• Crockery
• DTH television
• Financial services
• Food
• Holiday homes
• Hotels
• Housing
• Jewellery
• Leather
• Retail
• Solar appliances
• Telecommunications
• Watches and clocks
• Agriculture
The Tata group has established itself as a
leading provider of agricultural implements,
products and services.+ Agricultural tools
+ Agrochemicals
+ Resource centres
• Appliances
The Tata group offers customers a range of
home appliances to suit every budget+ Air-
conditioners, water coolers, water
dispensers
+ Water purifiers
• Automobiles
The Tata group has a significant presence in
both the commercial vehicles and passenger
car segments.+ Automotive components
+ Commercial vehicles
+ Passenger cars
• Beverages
Tata Global Beverages has a presence around
the world with a stable of leading global and
regional brands. The company is driven by a
mission to provide life-enhancing, sustainable
hydration alternatives.+ Coffee
+ Tea
+ Water
• Charter flights
The Tata group has, through TajAir, extended its
luxury hospitality services to include charter
flights.+ Air services
Crockery
Fine bone china crockery, including hollowware and
flatware products, is manufactured by Tata Ceramics
at its factory in Cochin.+ Ceramics
•
•
• DTH television
The direct-to-home television service offered by
the Tata group comes through Tata Sky, the
group's joint venture with Britain's Sky
Broadcasting Group.+ Satellite television
Financial services
The Tata group provides multiple services for
individual and corporate customers.+ Credit
cards
+ Home loans
+ Insurance
+ Mutual funds
+ Other services
•
Food
The Tata group is involved in the making and
marketing of a variety of food additives and
spices.+ Food additives
+ Spices
Holiday homes
For an off-beat holiday, the Tata Coffee
offers holiday homes in Coorg in southern
India.+ Vacations
•
Hotels
The Tata group's involvement with the
hospitality industry dates back to 1903, when
the Taj Mahal Palace opened in
Mumbai.+ Ginger
+ Taj Group
Housing
Tata Housing constructs residential buildings
and complexes, commercial properties and
information technology parks.
+ Residential and commercial buildings
• Jewellery
The jewellery business of the Tata group is a
flourishing one.+ Gold, platinum and gemstone
jewellery
Leather
Tata International is India's leading leather and
leather goods exporter.+ Finished leather goods
Retail
The Tata group operates some of India's largest and
fastest-growing retail chains.+ Croma
+ Landmark
+ Poltrona Frau Group Design Center
+ Star Bazaar
+ Tashi
+ Westside
•
Solar appliances
Tata BP Solar manufactures solar
photovoltaic and thermal products and
systems.+ Solar products and systems
• Telecommunications
The Tata group has a formidable presence in the
telecom industry through three companies, Tata
Communications, Tata Teleservices and Tata
Teleservices (Maharashtra). The telecom
offerings cover all segments, from retail and
enterprise to wholesale and international, and
deliver a complete range of telecom
solutions.+ Telecommunications
+ Telephony
• Watches and clocks
Titan Industries offers watches for everyone
– across different styles ages, price points
and brands.+ Wristwatches
Types of Expansion Strategies
Expansion
Cooperation
International Concentration
Diversification
•Related Businesses
•Unrelated Businesses
Integration
•Related Businesses
•Unrelated Businesses
Expansion types
1. Concentration
2. Integration
3. Diversification
4. Cooperation
5. Internationalisation
Cooperation
Competition could exist with cooperation
( Moore, Noorda, …)
Types :
1. Mergers
2. Takeovers
3. Joint Ventures
4. Strategic Alliances
Mergers – mutual need of buyer and seller
Takeover- Strong motivation of the buyer
Joint Venture- Independent firm is created by
at least two other firms.
Strategic Alliance- Partnership firms
resources, capabilities are combined
1. Mergers
• Voluntary Combination of two or more
organisations
• Exchange of cash or shares of one for the
assets and liabilities of another( merger)
• Or each dissolves to create a new entitiy..(
consolidation)
• In a merger of two corporations, the
shareholders usually have their shares in the
old company exchanged for shares in the
merged entity.
• They have become popular
• because of the enhanced competition,
• breaking of trade barriers,
• free flow of capital across countries
• and globalisation of businesses.
• increasing exposure to competition both
domestically and internationally.
Two types of mergers
• Merger through Absorption:- An absorption is
a combination of two or more companies into an
'existing company'. All companies except one
lose their identity in such a merger. For
example, absorption of Tata Fertilisers Ltd
(TFL) by Tata Chemicals Ltd. (TCL). TCL, an
acquiring company (a buyer), survived after
merger while TFL, an acquired company (a
seller), ceased to exist. TFL transferred its
assets, liabilities and shares to TCL.
• Merger through Consolidation:- A
consolidation is a combination of two or more
companies into a 'new company'. In this form of
merger, all companies are legally dissolved and a
new entity is created. Here, the acquired
company transfers its assets, liabilities and
shares to the acquiring company for cash or
exchange of shares. For example, merger of
Hindustan Computers Ltd, Hindustan
Instruments Ltd, Indian Software Company Ltd
and Indian Reprographics Ltd into an entirely
new company called HCL Ltd.
Examples
Types of Mergers
• Horizontal Mergers- Pharma company with
another pharma company
• Vertical- footwear company + shoe retail
stores
• Concentric- Related in terms of customer or
technology or ….eg footwear + socks, ….
• Conglomerate – footwear + Pharma
Horizontal merger-
• Two companies that are in direct competition
and share the same product lines and markets
i.e. it results in the consolidation of firms that
are direct rivals.
• E.g. Exxon and Mobil,
• Ford and Volvo,
• Volkswagen and Rolls Royce and Lamborghini
• Daimler-Benz and Chrysler
• Lipton and Brooke bond,
• ICICI bank and bank of madura,
• centurion bank and hdfc,
• ACC and Damodar cement
Vertical merger-
• A customer and company or a supplier and
company i.e. merger of firms that have
actual or potential buyer-seller relationship
eg., Time Warner Incorporated, a major
cable operation, and the Turner Corporation,
which produces CNN, TBS, Pixar and Disney
Concentric mergers
• E.g. Phillip Morris-Kraft, Pepsico- Pizza Hut,
Proctor and Gamble and Clorox
Conglomerate merger-
• Two companies which merge have no obvious
relationship of any kind. E.g. BankCorp of
America- Hughes Electronics.
De mergers
• Opposite of mergers
• Eg Clariant from sandoz,
• Ciba speciality from Ciba Geigy
• Aptech from Apple
• Dabur Pharma from Dabur
• Reasons for mergers ???
1. Accessing new markets
# maintaining growth momentum
# acquiring visibility and international
brands
# buying cutting edge technology rather
than importing it
# taking on global competition
# improving operating margins and
efficiencies
# developing new product mixes
1. Increase stock value
2. Increase growth
3. Diversify
4. To reduce competition
5. Tax concessions
6. Acquire resources quickly
7. Synergy
8. Succession problems
Expansion strategies   the way to growth | Online Mini MBA (Free)
Expansion strategies   the way to growth | Online Mini MBA (Free)
Issues in Mergers
1. Strategic Issues
• Match in objectives of firms
• Should increase strength
2. Financial Issues-
• Valuation of firm –
DCF, CAPM(Capital Asset Pricing Method). EPS
of merged entity should be higher or neutral
Ranbaxy and Crosslands = positive
Punjab National Bank and New bank of India=
negative
• Source of funds- Increasing Debt,
Equity;NRIs, surplus, ….
• Chrysler and Daimler benz
3. Managerial Issues- Change in structure,
leadership, Authority, style
4. Legal Issues – Companies Act, Income Tax
Act ,
Cooperation- 2. Takeovers
• Post liberalisation- popular strategy
• SEBI introduced Takeover code in 1994
• Bhagwati code in 1996
• SEBI 1997 – modified takeover code
• To ensure transparency, fair
• A merger - the mutual decision of two
companies to combine and become one entity;
• it can be seen as a decision made by two
"equals",
• Takeover characterized the purchase of a
smaller company by a much larger one. This
combination of "unequals" can produce the same
benefits as a merger,
• but it does not necessarily have to be a mutual
decision
• In a Takeover,
• the acquiring firm usually offers a cash
price per share to the target firm‘s
shareholders
• or the acquiring firm's share's to the
shareholders of the target firm according
to a specified conversion ratio.
Issues in takeovers
1. Check Compatability of business styles
2. Treat people with dignity and concern
3. Trusted intermediary – Accountant,
Merchant bankers
4. Negotiations –
• What factors influence the price of
takeovers
• Asset valuation
• Goodwill
• Market opportunities
• Growth potential
• A leveraged buyout (or LBO, or highly-leveraged
transaction (HLT), or "bootstrap" transaction)
occurs when a financial sponsor gains control of a
majority of a target company's equity through
the use of borrowed money or debt. The purpose
of a LBO is to allow an acquirer to make large
acquisitions without having to commit a
significant amount of capital
Leveraged buyouts(LBOs) or bootstrap acquisitions
• In an LBO, there is most often a ratio of 70%
debt to 30% equity, although debt can reach
as high as 90% to 95% of the target
company's total capitalization. The equity
component of the purchase price is typically
provided by a pool of private equity capital.
• Often, the debt will appear on the acquired
company's balance sheet and the acquired
company's free cash flow will be used to
repay the debt.
• the assets of the target company are used as
collateral for the debt
Target
Company
Countr
y
Indian
acquirer
Value Type
Tetley UK 271
million
pound
LBO
Whyte
and
Mackay
UK 550
million
pound
LBO
Corus UK 11.3
billion $
LBO
America
n axle
USA 2 billion
dollars
LBO
Hansen
transmis
sion
Netherl
ands
465
million
euro
LBO
Target
Company
Country Indian
acquirer
Value Type
Tetley UK tata tea 271
million
pound
LBO
Whyte and
Mackay
UK UB group 550
million
pound
LBO
Corus UK Tata
Steel
11.3
billion $
LBO
American
axle
USA Tata
motors
2 billion
dollars
LBO
Hansen
transmissi
on
Netherla
nds
Suzlon 465
million
euro
LBO
Friendly takeover and
Hostile takeovers
• Friendly – both parties consent – same as a
merger eg tata tea –Asina coffee
• Hostile – resisted by the existing
management –pick up share in open market,
through support of other major share holders
– NEPC – Modiluft
• Pros and cons of takeovers
Motives behind M & A -Economies
of Scale:
• Average cost per unit is decreased through
increased production
• Fixed costs are shared over an increased number of
goods.
• More the products, more is the bargaining power.
• This is possible only when the companies merge/
combine/ acquired, as the same can often obliterate
duplicate departments or operation,
• It also provides varied pool of resources of both
the combining companies
• Larger share in the market
Increased revenue /Increased
Market Share:
• This motive assumes that the company will
be absorbing the major competitor and thus
increase its power (by capturing increased
market share) to set prices.
Cross selling:
• For example, a bank buying a stock broker
could then sell its banking products to the
stock brokers customers, while the broker
can sign up the bank‘ customers for
brokerage account.
• Or, a manufacturer can acquire and sell
complimentary products – cars /houses
# Corporate Synergy:
• Better use of complimentary resources. It
may take the form of revenue enhancement
(to generate more revenue than its two
predecessor standalone companies would be
able to generate) and cost savings (to
reduce or eliminate expenses associated
with running a business).
Taxes :
• A profitable can buy a loss maker to use the
target‘s tax right off i.e.
• wherein a sick company is bought by giants.
Geographical diversification
• # Geographical or other diversification: this
is designed to smooth the earning results of a
company, which over the long term smoothens
the stock price of the company giving
conservative investors more confidence in
investing in the company. However, this does
not always deliver value to shareholders.
# Resource transfer:
• Resources are unevenly distributed across
firms and interaction of target and acquiring
firm resources can create value through
either overcoming information asymmetry or
by combining scarce resources. Eg: Laying of
employees, reducing taxes etc.
Market Reach and industry visibility
• # Improved market reach and industry
visibility - Companies buy companies to reach
new markets and grow revenues and earnings.
A merge may expand two companies'
marketing and distribution, giving them new
sales opportunities. A merger can also
improve a company's standing in the
investment community: bigger firms often
have an easier time raising capital than
smaller ones.
Merger – a Case Study…
William Durant founded GM.
Lost control because of unconsolidated expansion
Lost control of GM
Started Chevrolet with a swiss Racer Louis
Chevrolet
Durant brought out Louis
Chevrolet became a popular brand
Used the money to buyout GM with a 5:1 swap of
shares
Merger of GM with Chevrolet
Legal Procedures for Merger,
Amalgamations and Take-overs
• The general law relating to mergers,
amalgamations and reconstruction is
embodied in sections 391 to 396 of the
Companies Act, 1956
•
Companies Act 1956• Permission for merger:- Two or more companies can amalgamate only when the
amalgamation is permitted under their memorandum of association. Also, the acquiring
company should have the permission in its object clause to carry on the business of the
acquired company. In the absence of these provisions in the memorandum of association, it
is necessary to seek the permission of the shareholders, board of directors and the
Company Law Board before affecting the merger.
• Information to the stock exchange:- The acquiring and the acquired companies should
inform the stock exchanges (where they are listed) about the merger.
• Approval of board of directors:- The board of directors of the individual companies
should approve the draft proposal for amalgamation and authorise the managements of the
companies to further pursue the proposal.
• Application in the High Court:- An application for approving the draft amalgamation
proposal duly approved by the board of directors of the individual companies should be made
to the High Court.
• Shareholders' and creditors' meetings:- The individual companies should hold separate
meetings of their shareholders and creditors for approving the amalgamation scheme. At
least, 75 percent of shareholders and creditors in separate meeting, voting in person or by
proxy, must accord their approval to the scheme.
• Sanction by the High Court:- After the approval of the shareholders and creditors, on
the petitions of the companies, the High Court will pass an order, sanctioning the
amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The date
of the court's hearing will be published in two newspapers, and also, the regional director of
the Company Law Board will be intimated.
• Filing of the Court order:- After the Court order, its certified true copies will be filed
with the Registrar of Companies.
• Transfer of assets and liabilities:- The assets and liabilities of the acquired company will
be transferred to the acquiring company in accordance with the approved scheme, with
effect from the specified date.
• Payment by cash or securities:- As per the proposal, the acquiring company will exchange
shares and debentures and/or cash for the shares and debentures of the acquired company.
These securities will be listed on the stock exchange.
The Competition Act, 2002
• Act regulates the various forms of business combinations throughCompetition
Commission of India.
• Under the Act, no person or enterprise shall enter into a combination, in the
form of an acquisition, merger or amalgamation,
• which causes or is likely to cause an appreciable adverse effect on competition
in the relevant market and such a combination shall be void. The Commission
while regulating a 'combination' shall consider the following factors :-
▫ Actual and potential competition through imports;
▫ Extent of entry barriers into the market;
▫ Level of combination in the market;
▫ Degree of countervailing power in the market;
▫ Possibility of the combination to significantly and substantially increase prices or
profits;
▫ Extent of effective competition likely to sustain in a market;
▫ Availability of substitutes before and after the combination;
▫ Market share of the parties to the combination individually and as a combination;
▫ Possibility of the combination to remove the vigorous and effective competitor or
competition in the market;
▫ Nature and extent of vertical integration in the market;
▫ Nature and extent of innovation;
▫ Whether the benefits of the combinations outweigh the adverse impact of the
combination.
• Thus, the Competition Act does not seek to eliminate combinations and only
aims to eliminate their harmful effects.
• The other regulations are provided in the:- The
Foreign Exchange Management Act, 1999
• the Income Tax Act,1961.
• the Securities and Exchange Board of India
(SEBI) has issued guidelines to regulate mergers
and acquisitions.
• The SEBI (Substantial Acquisition of Shares and
Take-overs) Regulations,1997 and its
subsequent amendments aim at making the take-
over process transparent, and also protect the
interests of minority shareholders.
•
New Takeover Code
• The minimum size of a compulsory public
offer has been increased from 20% to 26%
•
The 25% threshold (up from 15%) substantially
improves headroom and means that investors
can now acquire up to 24.99% holding without
triggering a public offer.
• In the old code, promoter groups with
majority or higher stakes were restricted
from increasing their holding (barring a one-
time 5% acquisition) even if they were below
the 75% mark and the company needed equity
— Fortunately, The new code allows
promoters to increase their stake in 5%
annual blocks all the way upto 75%.
Expansion strategies   the way to growth | Online Mini MBA (Free)
Difference between New take over
code and old code
• open offer trigger above
25%
• Open offer size increase to
26%
• Creeping Acquisition 5%
allowed to promoters up to
75%
• Scrapping of Non compete
fees to promoters
• Open offer trigger above
15%
• Open offer size 20%
• Creeping acquisition allowed
5% for promoters holding
between 15-55%
• Non compete fees for
promoters Allowed
Cooperation
1. Mergers
2. Takeovers
3. Joint Ventures
4. Strategic Alliances
Joint Venture
• Two or more businesses joining together
• under a contractual agreement to conduct a
specific business enterprise with both
parties sharing profits and losses.
• The venture is for one specific project only,
• Parryware with Roca to form Parry Roca
• Bharti-Walmart
• Sony-Ericsson is a joint venture by the
Japanese consumer electronics company
Sony Corporation and the Swedish
telecommunications company Ericsson to
make mobile phones.
Joint Venture Strategies
• Absorption- Acquire another company
• Consolidation- Combine and form new company
•Joint ventures- partnership or
consortium for a specific purpose
Types of JVS
• Same industry, different industry,
international, national
• In one of their countries or third country
•Why JVs
• Easier to achieve objectives because of
partnership
• Reduce competition
• Diversification- different industries
• Need for technology
• Circumvent legal and regulatory hurdles-
international
• Threats and opportunities
• Activity uneconomical to do alone
• Sharing of risk
• Complementary competencies
• To overcome local environment roadblocks
• Complement each other : Roca –technology,
Parryware- Distribution
• Government regulations= India does not allow
100% FDI in wholesale cash and carry-
Walmart and Bharti
Government relaxes FDI caps –July
17th
• FDI cap in telecom raised to 100% from 74%; up to
49% through automatic route and beyond via FIPB
* No change in 49% FDI limit in civil aviation
* FDI cap in defence production to stay at 26%,
higher investment may be considered in state-of-the-
art technology production by CCS.
* 100% FDI allowed in single brand retail; 49%
through automatic, 49-100% through FIPB
• * FDI limit in insurance sector raised to 49% from
present 26%, subject to Parliament approval
* FDI up to 49% in petroleum refining allowed under
automatic route, from earlier approval route
• In power exchanges 49% FDI allowed through
automatic route, from earlier FIPB route.
* Raised FDI in asset reconstruction companies to
100% from 74%; of this up to 49% will be under
automatic route
JV must for entry into India as
100%FDI not permitted in some
sectors
•
* FDI limit increased in credit information companies to
74% from 49%.
• FDI up to 49% in stock exchanges, depositories allowed
under automatic route
* FDI up to 100% through automatic route allowed in
courier services
* FDI in tea plantation up to 49% through automatic
route; 49-100% through FIPB route
* No decision taken on FDI cap in airports, media,
brownfield pharma and multi-brand retail.
JV low risk option to enter into a
new market
• Motorola entered India in JV with Blue
Star, which had a reputed brand name and a
vast distribution network.
Opportunity to leverage their
core strengths
• Xerox entered India in venture with Modi-
early lead in the photocopier market
leveraging on the brand name of Modi
Examples of JVs
1. Cummins and TELCO – Manufacture Telco
engines
2. Ashok leyland and Singapore telecom- - AL
plans to enter telecom and handset
manufacture
Benefits and Draw back of JVs
Benefits :
Minimise risk, less investment, access to foreign
technology, access to new markets, synergies,
larger equity base
Disadvantage :
Problems in partnership, cultural,behavioural…
Time in negotiating the JV
Aligning thinking
Longer DM
Less freedom and flexibility
IPR concerns
Case study-JV- lack of strategic
fit
• 70;30 JV between Hotline (india) and
Haier(China)
• Haier wanted to focus on imports and
Increase stake to 49%
• Hotline disagreed
• JV broke up even before operations started
• Haeir reentered as 100% FDI subsidiary
JV – Case study-redundant
partner
• TVS and Suzuki (Japan) formed in 1983 and
broke in 2001
• Uneasy relationship between the partners
• TVS increased stake
• Suzuki was not contributing enough
• Suzuki wanted own manufacturing
• Suzuki no longer useful to TVS
JV- breach of terms of JV
• Danone and Wadia(Brittania) JV in 1995
• Wadias accused Danone of using Brittania ‗tiger‘
brand for products outside India.
• This not permitted as per the terms agreed
• Danone invested in a bio-nutrition firm
Avaesthagen
• Foreign company needs the consent of its
Indian partner before pursuing business
ventures in similar area.
• Wadia objected to the above…..
JV- lack of synergy
• 40:60 JV between Godrej Boyce and GE
(USA) formed in 1993. broke off in 2001
• JV failed to meet projected revenues (of Rs
35 billion vs actual Rs 8 billion)
• GE wanted to increase stake
• GE accuse the indian partner of lack of
professionalism
Broken JV
• Indian partner has to issue NOC for the
foreign partner to pursue other entry
avenues
• Indian partners try to ruin the chances…
• Wadia-Danone, Modi-dysney, TVS-suzuki…
Strategic Alliance:
• Any cooperative effort between two or more
• independent organizations to develop,
• manufacture, or sell products or services
• Involving anything from getting a better price
for goods by buying in bulk together
• to seeking business together with each of you
providing part of the product.
• The basic idea behind alliances is to minimize
risk while maximizing your leverage.
Strategic alliances –
• Unite to pursue common goals
• Companies otherwise are independent
• Partner firms contribute in a key strategic
area : technology, product, marketing …
• Pooling of resources for mutual gain
• all JVs are strategic alliances also. But all
SAs need not be JVs because SAs can happen
without equity participation
• Liberalisation has spurred the growth of SA
• Access to technology, markets, funds,
quality standards
• Funding, New Products, Risk sharing, higher
ROI,Validation, market access
How Strategic Alliances Create Value
Improve Current Operations
Shaping the Competitive Environment
Facilitating Entry and Exit
Value
Creation
How Strategic Alliances Create Value
Improving Current Operations
Exploiting economies of scale
• a partner brings increased market share
and/or manufacturing capacity
Learning from partners
• a partner brings technology and/or
market knowledge
Risk and cost sharing
• a partner bears a portion of the risk and/or
cost of the alliance
How Strategic Alliances Create Value
Shaping the Competitive Environment
Facilitating technology standards
Facilitating tacit collusion
• partners may agree on a standard and avoid
a market battle for the standard
• partners may communicate within an alliance
in subtle, legal ways whereas the same
communication between competitors outside
an alliance would be illegal
How Strategic Alliances Create Value
Facilitating Entry and Exit
Low-cost entry into new industries
Low-cost exit from industries
Managing uncertainty
Low-cost entry into new geographic markets
• a partner provides instant access and legitimacy
• a partner is an informed buyer
• alliances may serve as ‗real options‘
• partners provide local market knowledge, access,
and legitimacy with governments and customers
Pyramid of alliances
Merger
JV
R&D/technology transfer
Licensing /private label
Jointdistribution
Joint marketing
Vendor
Supplier
Evaluating your partner in a SA
Partner A Partner B
Contribution
Benefit
Issues in SA
• Get experienced expert to negotiate the
deal
• Upfront and milestone
payments/invesments/royalty/loan
• R&D funds
• Control of IPR
• Dispute resolution
What if it does not work out
• Prenuptial agreement – how to divide the
assets
• Money, fixed assets, product, IPR…..
Types of SA
Procompetitive alliances – value chain related –
supplier-buyer-intermediary
Noncompetitve –same industry, different
product range, territory - airline companies
share routes…
Competitive –Rival firms –
Precompetitive –firms from unrelated
industries =biotech + pharma
SA – examples…
• Nortel and Microsoft form SA – shared vision
of unified communication
• Nortel – world class network quality and
reliability
• Microsoft – ease of use
• Takes silos – email, instant messaging,
telephony, e-conferencing and uses advanced
technology to make it more efficient and easy
• Symantec and microsoft SA
• Symantec has apps that run on windows
platform
• Use each other‘s technology
• Symantec reduces the cost of windows
management
• Channel partners who sell both symantec and
microsoft..have more benefits
• Facebook and microsoft –
• Microsoft will sell advertising for facebook
globally
• Uses microsoft digital advertising solution
Examples of SA
• Network 18 and Sun
• Wipro and IBM
• TCS and Cisco
• ETS and NIIT
• Air India and Lufthansa
SUN18
COLORS, MTV, Nick, Vh1, Homeshop18, CNN-
IBN, CNBC-TV18, CNBC-Awaaz, IBN-7, IBN-
Lokmat, Disney, Disney XD, Hungama, SUN
TV
Strategic Alliances
• Starbucks partnered with Barnes and Nobles bookstores
to provide in-house coffee shops
• Starbucks partnered with Pepsico to bottle, distribute
and sell the popular coffee-based drink, Frappacino
• Eli Lilly partners with the Belgium-based company
Galapagos to develop treatments for osteoporosis. With
Canada's BioMS medical group for a novel treatment for
multiple sclerosis. In Japan, Lilly is partnering with Kyowa
Hakko Kogyo Co., Ltd., to bring a targeted cancer
treatment to market.
• Lilly will have the exclusive license to develop and sell the
product worldwide except in Japan, and the two companies
will share rights in certain Asian countries.
Internationalisation
• Type of expansion strategy where firms
market their products or services beyond
their domestic market
• Types – International, Multidomestic, global
and transnational
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International –
International company offers standardised
product to different countries without any
differentiation
Eg Coca cola, P & G
Multidomestic strategy ( Localisation)
• Multi-domestic Strategy
▫ Strategic & operating decisions are
decentralized to the strategic business unit in
each country to tailor products to the local
market.
eg Mc Donalds
Global –
Assumes more standardization of products across
country markets
Low cost approach standard undifferentiated
product across all countries
Economies of scale , production in favourable
locations
Transnational
• The firm seeks to achieve both global efficiency and
local responsiveness
• Low cost and customised
• Eg Indian software companies
Entry modes for International
strategies
• Export
• Contractual- Licensing, Franchising, Technical
agreement, BOT
• Investment entry- J.V, S.A,Subsidiaries
International Strategy
• Globalization drivers – Assess dual
pressures:
▫ Global efficiency – standardization
▫ National/local responsiveness - adaptation
―Forced‖ Standardization
• Coca-Cola in Chinese:
―bite the wax
tadpole‖
• Coca-Cola 30 liter
bottle??
• U.S. carmakers‘ left-
hand drive cars
Effective Standardization
Coca-Cola’s
“transnational polar bears”
McDonald’s
“Big Mac”
Barbie: The ―All-American‖
Girl Goes Overseas
• Barbie is 41 years old
• Sold in 130 countries
• National adaptations:
▫ Physical features
▫ Costumes
▫ Activity sets
• Standardized physique:
▫ Scaled to 6‘2‖, 110 lbs.
▫ 38-18-28
Effective Adaptation
• McMutton Pie in
Australia
• Wendy‘s shrimp
sandwich in Japan
• Campbell‘s non-
condensed soups in
the UK
• Coca-Cola‘s 175 ml
containers in Japan
Cadillac Seville
 1997 Asian edition
 Right-hand drive, shorter
seats, closer pedals, 10”
shorter, retractable mirrors
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International Strategy:
Managing Dual Pressures
PressuresforGlobalEfficiency
Pressures for Local Responsiveness
High
Low
HighLow
International Strategy:
Managing Dual Pressures
PressuresforGlobalEfficiency
Pressures for Local Responsiveness
High
Low
HighLow
Export
Strategy
??
International Strategy:
Managing Dual Pressures
PressuresforGlobalEfficiency
Pressures for Local Responsiveness
High
Low
HighLow
Export
Strategy
??
Multidomestic
Strategy
International Strategy:
Managing Dual Pressures
PressuresforGlobalEfficiency
Pressures for Local Responsiveness
High
Low
HighLow
Export
Strategy
??
Multidomestic
Strategy
Global
Strategy
International Strategy:
Managing Dual Pressures
PressuresforGlobalEfficiency
Pressures for Local Responsiveness
High
Low
HighLow
Export
Strategy
??
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Foreign Market Entry Modes
•Export
•Licensing
•Joint Venture
•WOS
▫Acquisition
▫Greenfield
Licensing vs Franchising
• McDonald's sells a franchisee : a franchisee
must follow all of their rules, including how to
cook the food, how to advertise, what the
staff say to customers, and other aspects of
the business. If McDonald's introduces a
"Road Kill Burrito", a franchisee is obligated
to put it on the menu and serve it. The
franchisee largely does not determine day to
day operations.
Licensing
• Caterpillar dealers have a license to use the
Caterpillar name and sell Caterpillar
equipment and parts. While they cannot
(generally) sell competing equipment, how
each dealer runs the business is largely left
up to them. When Caterpillar introduces a
new product line (for example, light duty
rentals), the dealers are not obligated to
introduce that product or service. The
licensee can largely determine the day to day
operations.
WOS-Wholly Owned Subsidies
• In a wholly owned subsidiary, the parent
company owns all of the shares of the
company and there are no minority
shareholders.
• Eg ford India, hyundai India
Examples
• AV Birla – manufactures carbon black in
Thailand and exports it to 30 other countries
• Blue Dart with Fedex – S.A
• Archies – Franchising
• 68 % of Coca Cola‘s revenues are generated
outside north America.
• Failure of Parker Pen in the 1980s -
standardised, high quality product, std
Advertising, pricing and distribution
• For low priced products like cigarettes, soft
drinks, etc population more important than
income – China and India attractive markets
• Coke waited for 15 years to make its entry
in russia, Pepsi had a 100% russian market
share
• Coke entered Russia in 1987 and had a 50%
market share by 1996
• Upscale prestigious segment- l‘oreal,
oriflame( narrow global market)
• Swiss watch Co. – watches from 50$ to 1
lakh $
Case Study on Internationalisation-
TOYOTA
• Toyota started off with exporting in a big
way
• In order to get around import barriers such
as local content regulations and import
quotas,……
Toyota - Transnational Strategy
• Toyota chose a Transnational strategy
• Why transnational ??
• Cost – competition
• Local – local govt regulations, needs of roads,
customers
•
• 1960s – Exporting
• 1980s- JV
• 1986- WOS
• Americanisation of Toyota
• Toyota crisis in 2010
• Cost vs quality
Examples of Global marketing
• Brand name – Coca Cola
• Product Design – Mcdonald(US),
toyota(Japan)
• Positioning – Unilever(GB)
• Distribution – Benetton ( Italy)
• Customer Service -Caterpillar (US)
• Sourcing – Toyota, Honda( Japan)
• Electral from FDC – sold in many countries
• Coca cola – strong brand name
• McDonald – restaurant system that can be
set up anywhere in the world.
• Orchid hotels, Hubli – now in Singapore, UK,
USA,Belgium, Dubai…
Advantages of Global
Marketing
•Economies of scale in production and distribution
•Lower marketing costs
•Power and scope
•Consistency in brand image
•Ability to leverage good ideas quickly and efficiently
•Uniformity of marketing practices
•Helps to establish relationships outside the "political
arena"
•Helps to encourage ancillary industries to be set up to
cater for the needs of the global player
Global Marketing:What It Is ?
An important task is to understand the extent
to which marketing plans & programs can be
extended worldwide, and the extent to which they
can be adapted.
This thinking resulted in the concept of ―Global
Localization‖.
A successful global marketer needs to ―Think globally and act locally.‖
Coke‘s success in Japan is a classic example of Global Localization.
By adapting sales promotion, distribution and customer service to the
local needs, the company achieved a 78% share of the soft-drinks
market.
The company built a complete local infrastructure with its sales
force, vending machines etc .Coke‘s success was due to its ability to
be as much of an insider as a local company but still reap the benefits
resulting from world-scale operations
•Global marketing essentially means widening
business horizons to encompass the world while
scanning for opportunity and threat.
Global Marketing:
What It Is Not ?
•Global marketing does not mean to develop
standardized, high-quality world products and
market them using standardized advertising,
pricing and distribution.
Parker Pen‘s failure in the world market is one such
example.
•Global marketing does not mean entering
every country in the world. The decision to
enter outside markets depends on the
company‘s resources, managerial mind-set and
the nature of opportunity and threat.
Global Market Segmentation
• It is the process of dividing the world
market into distinct subsets of customers
that behave in the same way or have similar
needs or…
• Process of identifying specific segments like
country groups or individual consumer groups
of potential customers with homogenous
attributes who are likely to exhibit similar
buying behavior.
Global Market Segmentation
Global companies may segment the markets as per
one or more criteria:
1.Geography
2.Demographics (national income and size of
population)
3.Psychographics (values, attitudes and lifestyles)
4.Behavioral characteristics and
5.Benefits sought
Another method of global segmentation is:
1.Vertical segmentation and
2.Horizontal segmentation
Geographic Segmentation
It is dividing the world into geographic segments.
Advantages: Proximity and easier to visit on the
same trip.
Limitations: Despite being in the same region,
markets need not be similar.
eg. Japan and Vietnam are both in East Asia but Japan
is a high-income, postindustrial society and the other
is an emerging, less developed preindustrial society.
Hermann Simon ranked geography as the lowest in
market segmentation, after Application, Customer
group, Product/Technology, Price level and Quality.
Demographic Segmentation
This is based on characteristics like:
Age, Gender, Income, Education & Occupation.
New demographic factors like: Aging population, fewer
children, working women, higher incomes and living
standards suggest the emergence of global segments.
National income is the major indicator of market
potential for most consumer & industrial products.
Annual per capita income varies widely from a low 81$ in
Congo 38587 $ in Luxembourg.
For low price products like cigarettes, soft drinks etc, population is
more important than income. China & India with a population of 1.3
& 1.0 billion are attractive target markets.
Psychographic Segmentation
•This involves grouping people in terms of their attitudes, values &
lifestyles. Data obtained from Questionnaires require respondents
to indicate the extent to which they agree or disagree with a series of
statements.
Psychographic profiles of Porsche‘s
American customers
Porsche AG, the German sports-car
maker turned to Psychographics
after sales declined from 50,000 in
‗86 to 14,000 in ‗93.
Data was used to develop advertising
tailored to each type.
Porsche’s U.S sales improved by
nearly 50% in ‘94
Category % of all
owners
Description
Top Guns 27% Driven & ambitious, Power
minded
Elitists 24% Old money, Personality not
asscd even with an
expensive car
Proud
patrons
23% Proud to own the car as a
reward
Bon Vivants 17% Jet setters and thrill seekers
Fantasists 9% Car is a form of escape,
don’t care about impressing
others
Behavior Segmentation
• Focuses on whether people buy and use a product
as well as how often and how much they use it.
Users can be categorized in terms of usage rates:
Heavy, Medium, Light and Non-user
Consumers can also be segmented as per user status:
Potential, nonusers, ex-users, regulars, first-timers &
users of competitor brands.
Financial institutions has also to consider Consumer
behavior towards saving and spending money.
Japan has the highest number of cash dispensers, followed
by Switzerland, Canada and the United States.
Benefit Segmentation
This focuses on B, the numerator in the Value equation,
V = B/P
V= value
B= perceived benefits - perceived costs
P= price
This approach can achieve excellent results by virtue of
marketers‘ superior understanding of the problem a
product solves or the benefit it offers irrespective of
geography.
eg. Nestle found that cat owners‘ attitudes towards feeding their
pets are the same everywhere.
A campaign was created for Friskies cat food based on the appeal
that dry cat food better suits a cat‘s universally recognised
independent nature.
Vertical vs. Horizontal Segmentation
• Vertical Segmentation
This is based on product category and price points.
In medical imaging market X-ray, C T scan, MRI etc.
are segmented based on price.
• Horizontal Segmentation
For the same product, market can also be
segmented by the health care system that is
regional, national & global.
This approach worked well in domestic as well as
outside markets.
Global Targeting
• Targeting- It is the act of evaluating and
comparing the identified groups and then selecting
one or more prospect/s with the highest potential.
• A Marketing Mix is then devised which creates the
maximum value to the customers, while providing
the best return on sales to the organization.
3 basic criteria for Targeting are:
1. Current Segment Size & Growth Potential
2. Potential Competition
3. Compatibility & Feasibility
urrent Segment Size & Growth Potential
• Is it large enough for the Company to make a profit ?
• Does the segment has a high growth potential for being
attractive in terms of the Company‘s long term strategy ?
• Is the global segment attractive enough for a
standardized product to be marketed in several countries.
eg. Billion plus members of the global MTV-generation is a
huge market in terms of size.
China alone offers attractive opportunities to many
industries.
eg. Financial services, personal computers, passenger cars
etc.
Potential competition
• Is the segment characterized by strong competition ?
• Is the local brand offering a tough fight to the new
Company ?
• Inspite of an established, can a new Company make inroads
?
eg. Fuji launched despite Kodak being already present as the
brand leader in the 2.4 billion $ U.S color film market.
Now, after two decades Fuji‘s U.S mkt. share is in the 10 to 16
% range.
• Fuji currently enjoys a 25% mkt. share in Europe whereas
Kodak has only 40% of the color film market.
Compatibility & Feasibility
• To reach global markets, does the Company has
adequate resources and money to spend on
distribution, travelling etc. ?
• Whether the segment targeted is compatible
with the company‘s overall goals and established
sources of competitive advantage. ?
Coke waited for 15 years to make its entry in Russia,
while Pepsi already had a 100% Russian cola market.
After entering in 1987, Coke has achieved a 50% mkt.
share by ‗96.
Global Target Market Strategy
• Standardized Global Marketing
Similar to mass marketing in a single country.
Involves creating the same marketing mix for the
potential buyers.
Uses extensive distribution in the maximum number
of retail outlets.
Objective : greater sales volume, lower production
costs & greater profitability.
Coca-Cola uses the appeal of youthful fun in its global
advertising.
Sponsorship is global and is adapted to events that are
popular in specific countries.
Concentrated Global Marketing
• In this type, marketing mix is devised to reach a
single segment of the global market. Such
companies define their markets narrowly. They go
for a global depth rather than a national breadth.
In Cosmetics, this approach has been used
successfully to target the upscale, prestigious
segment. eg. Oriflame, Lo‘real etc.
Winterhalter ( a German company) is a silent leader in
the dishwasher market. It focuses exclusively on
hotel chains, restaurants etc.
This narrowing of market has been one of their most
important strategic decision as well as the
foundation of their success.
Differentiated Global Marketing
• In this the marketing strategy is a variation of
concentrated global mktg.
• It involves targeting two or more distinct mkt.
segments with different mktg. mixes. This allows
a wider market coverage.
In the SUV segment, Rover has Range Rover for the
elite class and the Land Rover Discoverer which is
lower priced. The company has a concentrated
strategy for each segment.
Swiss Watch Co. (SWC) offers watches ranging from
50$ worldwide to the expensive one (Blancpain)
costing 1.0 lakh $.
Global Product Positioning
• It is the location of the product in the minds of
the customer. This depends on many factors, many
of which are controlled by the marketer. It is the way
to reach the target customer.
• Global positioning is most effective for the high-
touch/ tech consumers.
Manhattan Bank launched a 75 million $ global
advertising campaign with the theme ―profit from
experience‖.
The business and private banking clients of the bank
―span the globe and travel the globe. Hence, a uniform
experience globally results in less confusion.
Global Product Positioning
• High-Tech Positioning
Personal computers, video and stereo equipment etc are
examples for this type of promotion. They are
frequently purchased on product features. Buyers are
already have adequate technical knowledge or are
keen to know more.
These products can be categorised as:
technical products -ex. Computers, chemicals, financial
services.
special-interest products -Characterized by shared
experience & high involvement among users.
demonstrable products- Mode of use needs to be shown
at selling points –ex. Microwave ovens, Food
processors, Gas geysers etc.
Global Product Positioning
• High-Touch Positioning
Buyers in this segment are highly involved. They share a
common language and set of symbols relating to themes of
wealth, materialism and romance.
Products that solve a common problem- provide benefits
linked to life‘s little moments. ex. quenching thirst with a
soft drink
Global village products- products have a global appeal by
virtue of their country of origin. Sony is synonymous with
Japanese quality, Mercedes projects German engineering.
Products that use universal themes- advertising themes &
product appeals are across the globe. BMW car has its
own inhouse BMW magazine which reinforces the high-
touch concept.
Examples of Global Marketing
Strategy Company/Country
1.Brand Name Coca-Cola (U.S)
2.Product Design McDonald’s(U.S),
Toyota(Japan)
3.Positioning Unilever (Great
Britain)
4.Packaging Gillette (U.S)
5.Distribution Benetton (Italy)
6.Customer service Caterpillar (U.S)
Brand Name as a Strategy
•Coke from Coca-Cola is the best known
strongest brand in the world.
This has been made possible only due to the Company‘s
s
willingness and ability to back its flagship brand with a
strong local marketing effort.
•Electral from FDC Ltd. is another Indian ORS
brand sold in many countries.
This brand is a popular ORS worldwide and is approved
by global NGOs for the treatment of rehydration.
Product Design as a Strategy
•McDonald‘s has designed a restaurant
system that can be set up anywhere
in the world.
•India‘s own Kamat group of hotels which set
up its first hotel in Hubli in 1948 have now
expanded world over with restaurants in
Belgium, Japan, Singapore, United Kingdom,
USA and Dubai.
They also pioneered the concept of Ecotel revolution in
India as ORCHID Hotel in 1997 and are now eyeing
global markets like South Africa, China, Pakistan etc.
Positioning as a strategy
•Unilever uses a teddy bear picture to
position the benefits of softness
for its fabric-softener product in
various world markets across the
globe.
Packaging as a strategy
•Gillette uses the same packaging
for its flagship brand Gillette
Sensor Razor everywhere in the
world. This unique and distinct
packaging has made this a leading global
brand in this segment.
Distribution as a strategy
•Benetton uses a sophisticated
distribution system to quickly
deliver the latest fashions to its
worldwide net-work of stores.
Benetton produces approx. 130 Million garments every
year, sold in about 120 countries through about 5000
stores offering clothes that have style, quality and in
relevance to the market today.
Benetton‘s turnover is about 1.9 Billion Euros.
Customer service as a strategy
Since its inception 80 years ago, Caterpillar has
grown to be the world‘s largest manufacturer of
construction and mining equipment, diesel and
natural gas engines and industrial gas turbines.
It‘s major success is due to a network of dealers
that supports a promise of
―24 hour parts and service‖.
Caterpillar is proud to be the leader in building the
World‘s infrastructure and in enabling progress
for millions of people around the globe.
Sourcing as a strategy
•Toyota and Honda‘s success was based on
exporting cars from its factories in Japan.
Now, both companies have invested in
manufacturing facilities in the United States
and other countries from which they export to
all over the world.
Importance of Global Marketing
•In the first quarter of the 20th century,
there were thousands of auto companies in the
world and more than 500 in the United States
alone.
•Today, fewer than 20 companies remain
worldwide, and only 2 are American.
•In most industries, the companies that will survive
and prosper in this century will be global
enterprises. Some companies that do not respond
to the challenges and opportunities of globalization
will be absorbed by more dynamic enterprises;
others will simply disappear.
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Expansion strategies the way to growth | Online Mini MBA (Free)

  • 1. Expansion Strategies – The Way to Growth Dr.Ashvini Ravi Associate Dean – Academics myBskool.com
  • 2. Corporate strategy establishes the overall direction that the organization hopes to go.
  • 3. Types of Expansion Strategies Expansion Cooperation International Concentration Diversification Integration
  • 4. Expansion - Types 1. Integration 2. Diversification 3. Cooperation
  • 5. Vertical Integration Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall. 6-5
  • 6. Vertical Integration • Combining activities related to the present activity • Committing to adjacent businesses • Extending value chain from the basic raw materials to ultimate consumer • Two types- Vertical and Horizontal
  • 7. Vertical Integration • New products/services to serve own needs • Supplying inputs or serving as a customer for outputs • Backward –Upstream-Going back to source of raw material • Forward –Downstream- Moving closer to consumer
  • 9. What is Vertical Integration? Leprino Foods (Mozzarella Cheese) Where your pizza comes from Dairy Farmers (milk) Crop Farmers (Alfalfa & Corn) Seed Companies (Alfalfa & Corn) Food Distributors Pizza Chains End Consumer
  • 10. Summary Vertical Integration… • Makes sense when value chain economies can be created and captured • May allow a firm to leverage capabilities • May be a response to the threat of opportuniesm and uncertainty • As a form of exchange per se, is not rare nor costly to imitate
  • 11. Summary Vertical Integration… • Is an important consideration in the decision to expand internationally (range of possibilities) • Makes sense when done for the right reasons, under the right circumstances • Can be a costly mistake if done wrong Ownership is costly—integrate only when the benefits outweigh the costs of integration!
  • 12. Apple • In technology, for 35 years has championed a vertical model, which features an integrated hardware and software approach. • For instance, the iPhone and iPad have hardware and software designed by Apple, which also designed its own processors for the devices. • This integration has allowed Apple to set the pace for mobile computing.
  • 13. • Starbucks grows own coffee beans in China to support its ambitious growth plans in China
  • 14. Conditions favoring Vertical Integration ???
  • 15. 5 Make or Buy • Current trend favors outsourcing all activities that do not directly represent or support core competencies. • Are there any dangers associated with aggressive outsourcing? What are the implications for JIT production? • Cost of manufacturing vs cost of procuring from suppliers • Cost of selling vs price paid to sellers
  • 17. One of the best examples of vertically integrated companies is the oil industry. Oil companies, both multinational (such as ExxonMobil, Royal Dutch Shell, or BP) often adopt a vertically integrated structure. This means that they are active all the way along the supply chain from locating crude oil deposits, drilling and extracting crude, transporting it around the world, refining it into petroleum products such as Petrol/Gasoline, to distributing the fuel to company-owned retail stations, where it is sold to consumers.
  • 18. Horizontal Integration • The acquisition of additional business activities ( same type of products)at the same level of the value chain is referred to as horizontal integration. • Eg suitcase company takes over its rival suitcase company… • Buying competitor‘s business to expand geographically, •
  • 19. Horizontal Integration Single-Industry Strategy • Focus resources Its total managerial, technological, financial and functional resources and capabilities are devoted to competing successfully in one area. • ‗Stick to its knitting‘ Company stays focused on what it does best, rather than entering new industries where its existing resources and capabilities add little value. Horizontal Integration is the process of acquiring or merging with industry competitors in an effort to achieve the competitive advantages that come with large scale and scope. Staying inside a single industry allows a company to:
  • 20. Benefits of Horizontal Integration Profits and profitability increase when horizontal integration: 1. Lowers the cost structure • Creates increasing economies of scale • Reduces the duplication of resources between two companies 2. Increases product differentiation • Product bundling – broader range at single combined price • Total solution – saving customers time and money • Cross-selling – leveraging established customer relationships 3. Replicates the business model • In new market segments within same industry 4. Reduces industry rivalry • Eliminate excess capacity in an industry • Easier to implement tacit price coordination among rivals 5. Increases bargaining power • Increased market power over suppliers and buyers • Gain greater control
  • 21. Problems with Horizontal Integration A wealth of data suggests that the majority of mergers and acquisitions DO NOT create value and that many may actually DESTROY value.  Implementing a horizontal integration is not an easy task. • Problems associated with merging very different company cultures • High management turnover in the acquired company when the acquisition is a hostile one • Tendency of managers to overestimate the benefits to be had in the merger • Tendency of managers to underestimate the problems involved in merging their operations  The merger may be blocked if merger is perceived to: • Create a dominant competitor • Create too much industry consolidation • Have the potential for future abuse of market power
  • 22. examples • The Standard Oil Company's acquisition of 40 refineries. • An automobile manufacturer's acquisition of a sport utility vehicle manufacturer. • A media company's ownership of radio, television, newspapers, books, and magazines.
  • 23. Limitations • Commitment to businesses serving the same customers • Main product failing /becoming obsolete • More resources put in same market
  • 24. Expansion types 1. Integration 2. Diversification 3. Cooperation 4. Internationalisation
  • 25. Diversification • Much used, Most important type • Involves all strategic alternatives: Internal/external, related/unrelated, horizontal/vertical, active/passive • New markets, technologies, products…. • Two types – concentric and conglomerate
  • 26. Concentric Diversification • Related to existing business in some way- market, technology …. • 3 types – 1. Marketing related – to same customer group – printers and stationary 2. Technology related-an electronic major decided to diversify into related businesses of cellular phones, telecommunication equipment, electronic components etc 3. Marketing and technology related- Books, maps, calendars sold in same shops
  • 27. Concentric diversification example • At Proctor and Gamble a paper towels business and a baby diapers business both use paper products as a primary input to the manufacturing process. Having a joint paper manufacturing plant that produces inputs for both units is an example of operational relatedness. Honda has developed and transferred its expertise in small and now larger engines for a number of vehicles from motor cycles and lawn mowers to its range of automotive products • Motorola’s remarkable long term success in semi-conductors and wireless telecommunication products ( modems, networks, broadband, radio, voip…..)
  • 28. Conglomerate Diversification • Diversification two types – concentric and conglomerate • Unrelated to existing business definition • Eg ITC- Hotels, shampoo(fiama), biscuits(sun feast);Hinduja, WIPRO,Tatas…
  • 29. • Why do companies adopt conglomerate diversification ???
  • 30. • Minimise risks • Exploit strengths or minimise weakness • Slow growth in existing business due to Govt, customer, …
  • 32. More about GE- presence in 100 countries The products and services : 1. aircraft engines 2. power generation 3. water processing 4. household appliances 5. medical imaging 6. business and consumer financing 7. industrial products. . Its segments include : Energy Infrastructure Aviation Healthcare Transportation Home & Business Solutions GE Capital.
  • 33. Tata Group The Tata group operates in more than 80 countries and markets across: • AFRICA • ASIA • AUSTRALIA • NORTH AMERICA • SOUTH AMERICA • EUROPE •
  • 34. Business sectors Tata companies operate in seven different business sectors: • information systems and communications • Engineering • materials • services • Energy • consumer products • chemicals.
  • 35. Tata products and services for consumers • AgricultureAppliances • AutomobilesBeverages • Charter flights • Crockery • DTH television • Financial services • Food • Holiday homes • Hotels • Housing • Jewellery • Leather • Retail • Solar appliances • Telecommunications • Watches and clocks
  • 36. • Agriculture The Tata group has established itself as a leading provider of agricultural implements, products and services.+ Agricultural tools + Agrochemicals + Resource centres
  • 37. • Appliances The Tata group offers customers a range of home appliances to suit every budget+ Air- conditioners, water coolers, water dispensers + Water purifiers
  • 38. • Automobiles The Tata group has a significant presence in both the commercial vehicles and passenger car segments.+ Automotive components + Commercial vehicles + Passenger cars
  • 39. • Beverages Tata Global Beverages has a presence around the world with a stable of leading global and regional brands. The company is driven by a mission to provide life-enhancing, sustainable hydration alternatives.+ Coffee + Tea + Water
  • 40. • Charter flights The Tata group has, through TajAir, extended its luxury hospitality services to include charter flights.+ Air services Crockery Fine bone china crockery, including hollowware and flatware products, is manufactured by Tata Ceramics at its factory in Cochin.+ Ceramics • •
  • 41. • DTH television The direct-to-home television service offered by the Tata group comes through Tata Sky, the group's joint venture with Britain's Sky Broadcasting Group.+ Satellite television Financial services The Tata group provides multiple services for individual and corporate customers.+ Credit cards + Home loans + Insurance + Mutual funds + Other services
  • 42. • Food The Tata group is involved in the making and marketing of a variety of food additives and spices.+ Food additives + Spices Holiday homes For an off-beat holiday, the Tata Coffee offers holiday homes in Coorg in southern India.+ Vacations
  • 43. • Hotels The Tata group's involvement with the hospitality industry dates back to 1903, when the Taj Mahal Palace opened in Mumbai.+ Ginger + Taj Group Housing Tata Housing constructs residential buildings and complexes, commercial properties and information technology parks. + Residential and commercial buildings
  • 44. • Jewellery The jewellery business of the Tata group is a flourishing one.+ Gold, platinum and gemstone jewellery Leather Tata International is India's leading leather and leather goods exporter.+ Finished leather goods Retail The Tata group operates some of India's largest and fastest-growing retail chains.+ Croma + Landmark + Poltrona Frau Group Design Center + Star Bazaar + Tashi + Westside
  • 45. • Solar appliances Tata BP Solar manufactures solar photovoltaic and thermal products and systems.+ Solar products and systems
  • 46. • Telecommunications The Tata group has a formidable presence in the telecom industry through three companies, Tata Communications, Tata Teleservices and Tata Teleservices (Maharashtra). The telecom offerings cover all segments, from retail and enterprise to wholesale and international, and deliver a complete range of telecom solutions.+ Telecommunications + Telephony
  • 47. • Watches and clocks Titan Industries offers watches for everyone – across different styles ages, price points and brands.+ Wristwatches
  • 48. Types of Expansion Strategies Expansion Cooperation International Concentration Diversification •Related Businesses •Unrelated Businesses Integration •Related Businesses •Unrelated Businesses
  • 49. Expansion types 1. Concentration 2. Integration 3. Diversification 4. Cooperation 5. Internationalisation
  • 50. Cooperation Competition could exist with cooperation ( Moore, Noorda, …) Types : 1. Mergers 2. Takeovers 3. Joint Ventures 4. Strategic Alliances
  • 51. Mergers – mutual need of buyer and seller Takeover- Strong motivation of the buyer Joint Venture- Independent firm is created by at least two other firms. Strategic Alliance- Partnership firms resources, capabilities are combined
  • 52. 1. Mergers • Voluntary Combination of two or more organisations • Exchange of cash or shares of one for the assets and liabilities of another( merger) • Or each dissolves to create a new entitiy..( consolidation)
  • 53. • In a merger of two corporations, the shareholders usually have their shares in the old company exchanged for shares in the merged entity.
  • 54. • They have become popular • because of the enhanced competition, • breaking of trade barriers, • free flow of capital across countries • and globalisation of businesses. • increasing exposure to competition both domestically and internationally.
  • 55. Two types of mergers • Merger through Absorption:- An absorption is a combination of two or more companies into an 'existing company'. All companies except one lose their identity in such a merger. For example, absorption of Tata Fertilisers Ltd (TFL) by Tata Chemicals Ltd. (TCL). TCL, an acquiring company (a buyer), survived after merger while TFL, an acquired company (a seller), ceased to exist. TFL transferred its assets, liabilities and shares to TCL.
  • 56. • Merger through Consolidation:- A consolidation is a combination of two or more companies into a 'new company'. In this form of merger, all companies are legally dissolved and a new entity is created. Here, the acquired company transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares. For example, merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd and Indian Reprographics Ltd into an entirely new company called HCL Ltd.
  • 58. Types of Mergers • Horizontal Mergers- Pharma company with another pharma company • Vertical- footwear company + shoe retail stores • Concentric- Related in terms of customer or technology or ….eg footwear + socks, …. • Conglomerate – footwear + Pharma
  • 59. Horizontal merger- • Two companies that are in direct competition and share the same product lines and markets i.e. it results in the consolidation of firms that are direct rivals. • E.g. Exxon and Mobil, • Ford and Volvo, • Volkswagen and Rolls Royce and Lamborghini • Daimler-Benz and Chrysler • Lipton and Brooke bond, • ICICI bank and bank of madura, • centurion bank and hdfc, • ACC and Damodar cement
  • 60. Vertical merger- • A customer and company or a supplier and company i.e. merger of firms that have actual or potential buyer-seller relationship eg., Time Warner Incorporated, a major cable operation, and the Turner Corporation, which produces CNN, TBS, Pixar and Disney
  • 61. Concentric mergers • E.g. Phillip Morris-Kraft, Pepsico- Pizza Hut, Proctor and Gamble and Clorox
  • 62. Conglomerate merger- • Two companies which merge have no obvious relationship of any kind. E.g. BankCorp of America- Hughes Electronics.
  • 63. De mergers • Opposite of mergers • Eg Clariant from sandoz, • Ciba speciality from Ciba Geigy • Aptech from Apple • Dabur Pharma from Dabur
  • 64. • Reasons for mergers ???
  • 65. 1. Accessing new markets # maintaining growth momentum # acquiring visibility and international brands # buying cutting edge technology rather than importing it # taking on global competition # improving operating margins and efficiencies # developing new product mixes
  • 66. 1. Increase stock value 2. Increase growth 3. Diversify 4. To reduce competition 5. Tax concessions 6. Acquire resources quickly 7. Synergy 8. Succession problems
  • 69. Issues in Mergers 1. Strategic Issues • Match in objectives of firms • Should increase strength 2. Financial Issues- • Valuation of firm – DCF, CAPM(Capital Asset Pricing Method). EPS of merged entity should be higher or neutral
  • 70. Ranbaxy and Crosslands = positive Punjab National Bank and New bank of India= negative • Source of funds- Increasing Debt, Equity;NRIs, surplus, …. • Chrysler and Daimler benz
  • 71. 3. Managerial Issues- Change in structure, leadership, Authority, style 4. Legal Issues – Companies Act, Income Tax Act ,
  • 72. Cooperation- 2. Takeovers • Post liberalisation- popular strategy • SEBI introduced Takeover code in 1994 • Bhagwati code in 1996 • SEBI 1997 – modified takeover code • To ensure transparency, fair
  • 73. • A merger - the mutual decision of two companies to combine and become one entity; • it can be seen as a decision made by two "equals", • Takeover characterized the purchase of a smaller company by a much larger one. This combination of "unequals" can produce the same benefits as a merger, • but it does not necessarily have to be a mutual decision
  • 74. • In a Takeover, • the acquiring firm usually offers a cash price per share to the target firm‘s shareholders • or the acquiring firm's share's to the shareholders of the target firm according to a specified conversion ratio.
  • 75. Issues in takeovers 1. Check Compatability of business styles 2. Treat people with dignity and concern 3. Trusted intermediary – Accountant, Merchant bankers 4. Negotiations –
  • 76. • What factors influence the price of takeovers
  • 77. • Asset valuation • Goodwill • Market opportunities • Growth potential
  • 78. • A leveraged buyout (or LBO, or highly-leveraged transaction (HLT), or "bootstrap" transaction) occurs when a financial sponsor gains control of a majority of a target company's equity through the use of borrowed money or debt. The purpose of a LBO is to allow an acquirer to make large acquisitions without having to commit a significant amount of capital Leveraged buyouts(LBOs) or bootstrap acquisitions
  • 79. • In an LBO, there is most often a ratio of 70% debt to 30% equity, although debt can reach as high as 90% to 95% of the target company's total capitalization. The equity component of the purchase price is typically provided by a pool of private equity capital.
  • 80. • Often, the debt will appear on the acquired company's balance sheet and the acquired company's free cash flow will be used to repay the debt. • the assets of the target company are used as collateral for the debt
  • 81. Target Company Countr y Indian acquirer Value Type Tetley UK 271 million pound LBO Whyte and Mackay UK 550 million pound LBO Corus UK 11.3 billion $ LBO America n axle USA 2 billion dollars LBO Hansen transmis sion Netherl ands 465 million euro LBO
  • 82. Target Company Country Indian acquirer Value Type Tetley UK tata tea 271 million pound LBO Whyte and Mackay UK UB group 550 million pound LBO Corus UK Tata Steel 11.3 billion $ LBO American axle USA Tata motors 2 billion dollars LBO Hansen transmissi on Netherla nds Suzlon 465 million euro LBO
  • 83. Friendly takeover and Hostile takeovers • Friendly – both parties consent – same as a merger eg tata tea –Asina coffee • Hostile – resisted by the existing management –pick up share in open market, through support of other major share holders – NEPC – Modiluft
  • 84. • Pros and cons of takeovers
  • 85. Motives behind M & A -Economies of Scale: • Average cost per unit is decreased through increased production • Fixed costs are shared over an increased number of goods. • More the products, more is the bargaining power. • This is possible only when the companies merge/ combine/ acquired, as the same can often obliterate duplicate departments or operation, • It also provides varied pool of resources of both the combining companies • Larger share in the market
  • 86. Increased revenue /Increased Market Share: • This motive assumes that the company will be absorbing the major competitor and thus increase its power (by capturing increased market share) to set prices.
  • 87. Cross selling: • For example, a bank buying a stock broker could then sell its banking products to the stock brokers customers, while the broker can sign up the bank‘ customers for brokerage account. • Or, a manufacturer can acquire and sell complimentary products – cars /houses
  • 88. # Corporate Synergy: • Better use of complimentary resources. It may take the form of revenue enhancement (to generate more revenue than its two predecessor standalone companies would be able to generate) and cost savings (to reduce or eliminate expenses associated with running a business).
  • 89. Taxes : • A profitable can buy a loss maker to use the target‘s tax right off i.e. • wherein a sick company is bought by giants.
  • 90. Geographical diversification • # Geographical or other diversification: this is designed to smooth the earning results of a company, which over the long term smoothens the stock price of the company giving conservative investors more confidence in investing in the company. However, this does not always deliver value to shareholders.
  • 91. # Resource transfer: • Resources are unevenly distributed across firms and interaction of target and acquiring firm resources can create value through either overcoming information asymmetry or by combining scarce resources. Eg: Laying of employees, reducing taxes etc.
  • 92. Market Reach and industry visibility • # Improved market reach and industry visibility - Companies buy companies to reach new markets and grow revenues and earnings. A merge may expand two companies' marketing and distribution, giving them new sales opportunities. A merger can also improve a company's standing in the investment community: bigger firms often have an easier time raising capital than smaller ones.
  • 93. Merger – a Case Study… William Durant founded GM. Lost control because of unconsolidated expansion Lost control of GM Started Chevrolet with a swiss Racer Louis Chevrolet Durant brought out Louis Chevrolet became a popular brand Used the money to buyout GM with a 5:1 swap of shares Merger of GM with Chevrolet
  • 94. Legal Procedures for Merger, Amalgamations and Take-overs • The general law relating to mergers, amalgamations and reconstruction is embodied in sections 391 to 396 of the Companies Act, 1956 •
  • 95. Companies Act 1956• Permission for merger:- Two or more companies can amalgamate only when the amalgamation is permitted under their memorandum of association. Also, the acquiring company should have the permission in its object clause to carry on the business of the acquired company. In the absence of these provisions in the memorandum of association, it is necessary to seek the permission of the shareholders, board of directors and the Company Law Board before affecting the merger. • Information to the stock exchange:- The acquiring and the acquired companies should inform the stock exchanges (where they are listed) about the merger. • Approval of board of directors:- The board of directors of the individual companies should approve the draft proposal for amalgamation and authorise the managements of the companies to further pursue the proposal. • Application in the High Court:- An application for approving the draft amalgamation proposal duly approved by the board of directors of the individual companies should be made to the High Court. • Shareholders' and creditors' meetings:- The individual companies should hold separate meetings of their shareholders and creditors for approving the amalgamation scheme. At least, 75 percent of shareholders and creditors in separate meeting, voting in person or by proxy, must accord their approval to the scheme. • Sanction by the High Court:- After the approval of the shareholders and creditors, on the petitions of the companies, the High Court will pass an order, sanctioning the amalgamation scheme after it is satisfied that the scheme is fair and reasonable. The date of the court's hearing will be published in two newspapers, and also, the regional director of the Company Law Board will be intimated. • Filing of the Court order:- After the Court order, its certified true copies will be filed with the Registrar of Companies. • Transfer of assets and liabilities:- The assets and liabilities of the acquired company will be transferred to the acquiring company in accordance with the approved scheme, with effect from the specified date. • Payment by cash or securities:- As per the proposal, the acquiring company will exchange shares and debentures and/or cash for the shares and debentures of the acquired company. These securities will be listed on the stock exchange.
  • 96. The Competition Act, 2002 • Act regulates the various forms of business combinations throughCompetition Commission of India. • Under the Act, no person or enterprise shall enter into a combination, in the form of an acquisition, merger or amalgamation, • which causes or is likely to cause an appreciable adverse effect on competition in the relevant market and such a combination shall be void. The Commission while regulating a 'combination' shall consider the following factors :- ▫ Actual and potential competition through imports; ▫ Extent of entry barriers into the market; ▫ Level of combination in the market; ▫ Degree of countervailing power in the market; ▫ Possibility of the combination to significantly and substantially increase prices or profits; ▫ Extent of effective competition likely to sustain in a market; ▫ Availability of substitutes before and after the combination; ▫ Market share of the parties to the combination individually and as a combination; ▫ Possibility of the combination to remove the vigorous and effective competitor or competition in the market; ▫ Nature and extent of vertical integration in the market; ▫ Nature and extent of innovation; ▫ Whether the benefits of the combinations outweigh the adverse impact of the combination. • Thus, the Competition Act does not seek to eliminate combinations and only aims to eliminate their harmful effects.
  • 97. • The other regulations are provided in the:- The Foreign Exchange Management Act, 1999 • the Income Tax Act,1961. • the Securities and Exchange Board of India (SEBI) has issued guidelines to regulate mergers and acquisitions. • The SEBI (Substantial Acquisition of Shares and Take-overs) Regulations,1997 and its subsequent amendments aim at making the take- over process transparent, and also protect the interests of minority shareholders. •
  • 98. New Takeover Code • The minimum size of a compulsory public offer has been increased from 20% to 26% • The 25% threshold (up from 15%) substantially improves headroom and means that investors can now acquire up to 24.99% holding without triggering a public offer.
  • 99. • In the old code, promoter groups with majority or higher stakes were restricted from increasing their holding (barring a one- time 5% acquisition) even if they were below the 75% mark and the company needed equity — Fortunately, The new code allows promoters to increase their stake in 5% annual blocks all the way upto 75%.
  • 101. Difference between New take over code and old code • open offer trigger above 25% • Open offer size increase to 26% • Creeping Acquisition 5% allowed to promoters up to 75% • Scrapping of Non compete fees to promoters • Open offer trigger above 15% • Open offer size 20% • Creeping acquisition allowed 5% for promoters holding between 15-55% • Non compete fees for promoters Allowed
  • 102. Cooperation 1. Mergers 2. Takeovers 3. Joint Ventures 4. Strategic Alliances
  • 103. Joint Venture • Two or more businesses joining together • under a contractual agreement to conduct a specific business enterprise with both parties sharing profits and losses. • The venture is for one specific project only,
  • 104. • Parryware with Roca to form Parry Roca • Bharti-Walmart • Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones.
  • 105. Joint Venture Strategies • Absorption- Acquire another company • Consolidation- Combine and form new company •Joint ventures- partnership or consortium for a specific purpose
  • 106. Types of JVS • Same industry, different industry, international, national • In one of their countries or third country
  • 108. • Easier to achieve objectives because of partnership • Reduce competition • Diversification- different industries • Need for technology • Circumvent legal and regulatory hurdles- international • Threats and opportunities
  • 109. • Activity uneconomical to do alone • Sharing of risk • Complementary competencies • To overcome local environment roadblocks • Complement each other : Roca –technology, Parryware- Distribution • Government regulations= India does not allow 100% FDI in wholesale cash and carry- Walmart and Bharti
  • 110. Government relaxes FDI caps –July 17th • FDI cap in telecom raised to 100% from 74%; up to 49% through automatic route and beyond via FIPB * No change in 49% FDI limit in civil aviation * FDI cap in defence production to stay at 26%, higher investment may be considered in state-of-the- art technology production by CCS. * 100% FDI allowed in single brand retail; 49% through automatic, 49-100% through FIPB
  • 111. • * FDI limit in insurance sector raised to 49% from present 26%, subject to Parliament approval * FDI up to 49% in petroleum refining allowed under automatic route, from earlier approval route • In power exchanges 49% FDI allowed through automatic route, from earlier FIPB route. * Raised FDI in asset reconstruction companies to 100% from 74%; of this up to 49% will be under automatic route
  • 112. JV must for entry into India as 100%FDI not permitted in some sectors • * FDI limit increased in credit information companies to 74% from 49%. • FDI up to 49% in stock exchanges, depositories allowed under automatic route * FDI up to 100% through automatic route allowed in courier services * FDI in tea plantation up to 49% through automatic route; 49-100% through FIPB route * No decision taken on FDI cap in airports, media, brownfield pharma and multi-brand retail.
  • 113. JV low risk option to enter into a new market • Motorola entered India in JV with Blue Star, which had a reputed brand name and a vast distribution network.
  • 114. Opportunity to leverage their core strengths • Xerox entered India in venture with Modi- early lead in the photocopier market leveraging on the brand name of Modi
  • 115. Examples of JVs 1. Cummins and TELCO – Manufacture Telco engines 2. Ashok leyland and Singapore telecom- - AL plans to enter telecom and handset manufacture
  • 116. Benefits and Draw back of JVs
  • 117. Benefits : Minimise risk, less investment, access to foreign technology, access to new markets, synergies, larger equity base Disadvantage : Problems in partnership, cultural,behavioural… Time in negotiating the JV Aligning thinking Longer DM Less freedom and flexibility IPR concerns
  • 118. Case study-JV- lack of strategic fit • 70;30 JV between Hotline (india) and Haier(China) • Haier wanted to focus on imports and Increase stake to 49% • Hotline disagreed • JV broke up even before operations started • Haeir reentered as 100% FDI subsidiary
  • 119. JV – Case study-redundant partner • TVS and Suzuki (Japan) formed in 1983 and broke in 2001 • Uneasy relationship between the partners • TVS increased stake • Suzuki was not contributing enough • Suzuki wanted own manufacturing • Suzuki no longer useful to TVS
  • 120. JV- breach of terms of JV • Danone and Wadia(Brittania) JV in 1995 • Wadias accused Danone of using Brittania ‗tiger‘ brand for products outside India. • This not permitted as per the terms agreed • Danone invested in a bio-nutrition firm Avaesthagen • Foreign company needs the consent of its Indian partner before pursuing business ventures in similar area. • Wadia objected to the above…..
  • 121. JV- lack of synergy • 40:60 JV between Godrej Boyce and GE (USA) formed in 1993. broke off in 2001 • JV failed to meet projected revenues (of Rs 35 billion vs actual Rs 8 billion) • GE wanted to increase stake • GE accuse the indian partner of lack of professionalism
  • 122. Broken JV • Indian partner has to issue NOC for the foreign partner to pursue other entry avenues • Indian partners try to ruin the chances… • Wadia-Danone, Modi-dysney, TVS-suzuki…
  • 123. Strategic Alliance: • Any cooperative effort between two or more • independent organizations to develop, • manufacture, or sell products or services • Involving anything from getting a better price for goods by buying in bulk together • to seeking business together with each of you providing part of the product. • The basic idea behind alliances is to minimize risk while maximizing your leverage.
  • 124. Strategic alliances – • Unite to pursue common goals • Companies otherwise are independent • Partner firms contribute in a key strategic area : technology, product, marketing … • Pooling of resources for mutual gain • all JVs are strategic alliances also. But all SAs need not be JVs because SAs can happen without equity participation
  • 125. • Liberalisation has spurred the growth of SA • Access to technology, markets, funds, quality standards • Funding, New Products, Risk sharing, higher ROI,Validation, market access
  • 126. How Strategic Alliances Create Value Improve Current Operations Shaping the Competitive Environment Facilitating Entry and Exit Value Creation
  • 127. How Strategic Alliances Create Value Improving Current Operations Exploiting economies of scale • a partner brings increased market share and/or manufacturing capacity Learning from partners • a partner brings technology and/or market knowledge Risk and cost sharing • a partner bears a portion of the risk and/or cost of the alliance
  • 128. How Strategic Alliances Create Value Shaping the Competitive Environment Facilitating technology standards Facilitating tacit collusion • partners may agree on a standard and avoid a market battle for the standard • partners may communicate within an alliance in subtle, legal ways whereas the same communication between competitors outside an alliance would be illegal
  • 129. How Strategic Alliances Create Value Facilitating Entry and Exit Low-cost entry into new industries Low-cost exit from industries Managing uncertainty Low-cost entry into new geographic markets • a partner provides instant access and legitimacy • a partner is an informed buyer • alliances may serve as ‗real options‘ • partners provide local market knowledge, access, and legitimacy with governments and customers
  • 130. Pyramid of alliances Merger JV R&D/technology transfer Licensing /private label Jointdistribution Joint marketing Vendor Supplier
  • 131. Evaluating your partner in a SA Partner A Partner B Contribution Benefit
  • 132. Issues in SA • Get experienced expert to negotiate the deal • Upfront and milestone payments/invesments/royalty/loan • R&D funds • Control of IPR • Dispute resolution
  • 133. What if it does not work out • Prenuptial agreement – how to divide the assets • Money, fixed assets, product, IPR…..
  • 134. Types of SA Procompetitive alliances – value chain related – supplier-buyer-intermediary Noncompetitve –same industry, different product range, territory - airline companies share routes… Competitive –Rival firms – Precompetitive –firms from unrelated industries =biotech + pharma
  • 135. SA – examples… • Nortel and Microsoft form SA – shared vision of unified communication • Nortel – world class network quality and reliability • Microsoft – ease of use • Takes silos – email, instant messaging, telephony, e-conferencing and uses advanced technology to make it more efficient and easy
  • 136. • Symantec and microsoft SA • Symantec has apps that run on windows platform • Use each other‘s technology • Symantec reduces the cost of windows management • Channel partners who sell both symantec and microsoft..have more benefits
  • 137. • Facebook and microsoft – • Microsoft will sell advertising for facebook globally • Uses microsoft digital advertising solution
  • 138. Examples of SA • Network 18 and Sun • Wipro and IBM • TCS and Cisco • ETS and NIIT • Air India and Lufthansa
  • 139. SUN18 COLORS, MTV, Nick, Vh1, Homeshop18, CNN- IBN, CNBC-TV18, CNBC-Awaaz, IBN-7, IBN- Lokmat, Disney, Disney XD, Hungama, SUN TV
  • 140. Strategic Alliances • Starbucks partnered with Barnes and Nobles bookstores to provide in-house coffee shops • Starbucks partnered with Pepsico to bottle, distribute and sell the popular coffee-based drink, Frappacino • Eli Lilly partners with the Belgium-based company Galapagos to develop treatments for osteoporosis. With Canada's BioMS medical group for a novel treatment for multiple sclerosis. In Japan, Lilly is partnering with Kyowa Hakko Kogyo Co., Ltd., to bring a targeted cancer treatment to market. • Lilly will have the exclusive license to develop and sell the product worldwide except in Japan, and the two companies will share rights in certain Asian countries.
  • 141. Internationalisation • Type of expansion strategy where firms market their products or services beyond their domestic market • Types – International, Multidomestic, global and transnational
  • 143. International – International company offers standardised product to different countries without any differentiation Eg Coca cola, P & G
  • 144. Multidomestic strategy ( Localisation) • Multi-domestic Strategy ▫ Strategic & operating decisions are decentralized to the strategic business unit in each country to tailor products to the local market. eg Mc Donalds
  • 145. Global – Assumes more standardization of products across country markets Low cost approach standard undifferentiated product across all countries Economies of scale , production in favourable locations
  • 146. Transnational • The firm seeks to achieve both global efficiency and local responsiveness • Low cost and customised • Eg Indian software companies
  • 147. Entry modes for International strategies • Export • Contractual- Licensing, Franchising, Technical agreement, BOT • Investment entry- J.V, S.A,Subsidiaries
  • 148. International Strategy • Globalization drivers – Assess dual pressures: ▫ Global efficiency – standardization ▫ National/local responsiveness - adaptation
  • 149. ―Forced‖ Standardization • Coca-Cola in Chinese: ―bite the wax tadpole‖ • Coca-Cola 30 liter bottle?? • U.S. carmakers‘ left- hand drive cars
  • 151. Barbie: The ―All-American‖ Girl Goes Overseas • Barbie is 41 years old • Sold in 130 countries • National adaptations: ▫ Physical features ▫ Costumes ▫ Activity sets • Standardized physique: ▫ Scaled to 6‘2‖, 110 lbs. ▫ 38-18-28
  • 152. Effective Adaptation • McMutton Pie in Australia • Wendy‘s shrimp sandwich in Japan • Campbell‘s non- condensed soups in the UK • Coca-Cola‘s 175 ml containers in Japan Cadillac Seville  1997 Asian edition  Right-hand drive, shorter seats, closer pedals, 10” shorter, retractable mirrors
  • 154. International Strategy: Managing Dual Pressures PressuresforGlobalEfficiency Pressures for Local Responsiveness High Low HighLow
  • 155. International Strategy: Managing Dual Pressures PressuresforGlobalEfficiency Pressures for Local Responsiveness High Low HighLow Export Strategy ??
  • 156. International Strategy: Managing Dual Pressures PressuresforGlobalEfficiency Pressures for Local Responsiveness High Low HighLow Export Strategy ?? Multidomestic Strategy
  • 157. International Strategy: Managing Dual Pressures PressuresforGlobalEfficiency Pressures for Local Responsiveness High Low HighLow Export Strategy ?? Multidomestic Strategy Global Strategy
  • 158. International Strategy: Managing Dual Pressures PressuresforGlobalEfficiency Pressures for Local Responsiveness High Low HighLow Export Strategy ?? Multidomestic Strategy Global Strategy Transnational Strategy
  • 159. Foreign Market Entry Modes •Export •Licensing •Joint Venture •WOS ▫Acquisition ▫Greenfield
  • 160. Licensing vs Franchising • McDonald's sells a franchisee : a franchisee must follow all of their rules, including how to cook the food, how to advertise, what the staff say to customers, and other aspects of the business. If McDonald's introduces a "Road Kill Burrito", a franchisee is obligated to put it on the menu and serve it. The franchisee largely does not determine day to day operations.
  • 161. Licensing • Caterpillar dealers have a license to use the Caterpillar name and sell Caterpillar equipment and parts. While they cannot (generally) sell competing equipment, how each dealer runs the business is largely left up to them. When Caterpillar introduces a new product line (for example, light duty rentals), the dealers are not obligated to introduce that product or service. The licensee can largely determine the day to day operations.
  • 162. WOS-Wholly Owned Subsidies • In a wholly owned subsidiary, the parent company owns all of the shares of the company and there are no minority shareholders. • Eg ford India, hyundai India
  • 163. Examples • AV Birla – manufactures carbon black in Thailand and exports it to 30 other countries • Blue Dart with Fedex – S.A • Archies – Franchising
  • 164. • 68 % of Coca Cola‘s revenues are generated outside north America. • Failure of Parker Pen in the 1980s - standardised, high quality product, std Advertising, pricing and distribution • For low priced products like cigarettes, soft drinks, etc population more important than income – China and India attractive markets
  • 165. • Coke waited for 15 years to make its entry in russia, Pepsi had a 100% russian market share • Coke entered Russia in 1987 and had a 50% market share by 1996 • Upscale prestigious segment- l‘oreal, oriflame( narrow global market) • Swiss watch Co. – watches from 50$ to 1 lakh $
  • 166. Case Study on Internationalisation- TOYOTA • Toyota started off with exporting in a big way • In order to get around import barriers such as local content regulations and import quotas,……
  • 167. Toyota - Transnational Strategy • Toyota chose a Transnational strategy • Why transnational ?? • Cost – competition • Local – local govt regulations, needs of roads, customers •
  • 168. • 1960s – Exporting • 1980s- JV • 1986- WOS • Americanisation of Toyota • Toyota crisis in 2010 • Cost vs quality
  • 169. Examples of Global marketing • Brand name – Coca Cola • Product Design – Mcdonald(US), toyota(Japan) • Positioning – Unilever(GB) • Distribution – Benetton ( Italy) • Customer Service -Caterpillar (US) • Sourcing – Toyota, Honda( Japan)
  • 170. • Electral from FDC – sold in many countries • Coca cola – strong brand name • McDonald – restaurant system that can be set up anywhere in the world. • Orchid hotels, Hubli – now in Singapore, UK, USA,Belgium, Dubai…
  • 171. Advantages of Global Marketing •Economies of scale in production and distribution •Lower marketing costs •Power and scope •Consistency in brand image •Ability to leverage good ideas quickly and efficiently •Uniformity of marketing practices •Helps to establish relationships outside the "political arena" •Helps to encourage ancillary industries to be set up to cater for the needs of the global player
  • 172. Global Marketing:What It Is ? An important task is to understand the extent to which marketing plans & programs can be extended worldwide, and the extent to which they can be adapted. This thinking resulted in the concept of ―Global Localization‖. A successful global marketer needs to ―Think globally and act locally.‖ Coke‘s success in Japan is a classic example of Global Localization. By adapting sales promotion, distribution and customer service to the local needs, the company achieved a 78% share of the soft-drinks market. The company built a complete local infrastructure with its sales force, vending machines etc .Coke‘s success was due to its ability to be as much of an insider as a local company but still reap the benefits resulting from world-scale operations •Global marketing essentially means widening business horizons to encompass the world while scanning for opportunity and threat.
  • 173. Global Marketing: What It Is Not ? •Global marketing does not mean to develop standardized, high-quality world products and market them using standardized advertising, pricing and distribution. Parker Pen‘s failure in the world market is one such example. •Global marketing does not mean entering every country in the world. The decision to enter outside markets depends on the company‘s resources, managerial mind-set and the nature of opportunity and threat.
  • 174. Global Market Segmentation • It is the process of dividing the world market into distinct subsets of customers that behave in the same way or have similar needs or… • Process of identifying specific segments like country groups or individual consumer groups of potential customers with homogenous attributes who are likely to exhibit similar buying behavior.
  • 175. Global Market Segmentation Global companies may segment the markets as per one or more criteria: 1.Geography 2.Demographics (national income and size of population) 3.Psychographics (values, attitudes and lifestyles) 4.Behavioral characteristics and 5.Benefits sought Another method of global segmentation is: 1.Vertical segmentation and 2.Horizontal segmentation
  • 176. Geographic Segmentation It is dividing the world into geographic segments. Advantages: Proximity and easier to visit on the same trip. Limitations: Despite being in the same region, markets need not be similar. eg. Japan and Vietnam are both in East Asia but Japan is a high-income, postindustrial society and the other is an emerging, less developed preindustrial society. Hermann Simon ranked geography as the lowest in market segmentation, after Application, Customer group, Product/Technology, Price level and Quality.
  • 177. Demographic Segmentation This is based on characteristics like: Age, Gender, Income, Education & Occupation. New demographic factors like: Aging population, fewer children, working women, higher incomes and living standards suggest the emergence of global segments. National income is the major indicator of market potential for most consumer & industrial products. Annual per capita income varies widely from a low 81$ in Congo 38587 $ in Luxembourg. For low price products like cigarettes, soft drinks etc, population is more important than income. China & India with a population of 1.3 & 1.0 billion are attractive target markets.
  • 178. Psychographic Segmentation •This involves grouping people in terms of their attitudes, values & lifestyles. Data obtained from Questionnaires require respondents to indicate the extent to which they agree or disagree with a series of statements. Psychographic profiles of Porsche‘s American customers Porsche AG, the German sports-car maker turned to Psychographics after sales declined from 50,000 in ‗86 to 14,000 in ‗93. Data was used to develop advertising tailored to each type. Porsche’s U.S sales improved by nearly 50% in ‘94 Category % of all owners Description Top Guns 27% Driven & ambitious, Power minded Elitists 24% Old money, Personality not asscd even with an expensive car Proud patrons 23% Proud to own the car as a reward Bon Vivants 17% Jet setters and thrill seekers Fantasists 9% Car is a form of escape, don’t care about impressing others
  • 179. Behavior Segmentation • Focuses on whether people buy and use a product as well as how often and how much they use it. Users can be categorized in terms of usage rates: Heavy, Medium, Light and Non-user Consumers can also be segmented as per user status: Potential, nonusers, ex-users, regulars, first-timers & users of competitor brands. Financial institutions has also to consider Consumer behavior towards saving and spending money. Japan has the highest number of cash dispensers, followed by Switzerland, Canada and the United States.
  • 180. Benefit Segmentation This focuses on B, the numerator in the Value equation, V = B/P V= value B= perceived benefits - perceived costs P= price This approach can achieve excellent results by virtue of marketers‘ superior understanding of the problem a product solves or the benefit it offers irrespective of geography. eg. Nestle found that cat owners‘ attitudes towards feeding their pets are the same everywhere. A campaign was created for Friskies cat food based on the appeal that dry cat food better suits a cat‘s universally recognised independent nature.
  • 181. Vertical vs. Horizontal Segmentation • Vertical Segmentation This is based on product category and price points. In medical imaging market X-ray, C T scan, MRI etc. are segmented based on price. • Horizontal Segmentation For the same product, market can also be segmented by the health care system that is regional, national & global. This approach worked well in domestic as well as outside markets.
  • 182. Global Targeting • Targeting- It is the act of evaluating and comparing the identified groups and then selecting one or more prospect/s with the highest potential. • A Marketing Mix is then devised which creates the maximum value to the customers, while providing the best return on sales to the organization. 3 basic criteria for Targeting are: 1. Current Segment Size & Growth Potential 2. Potential Competition 3. Compatibility & Feasibility
  • 183. urrent Segment Size & Growth Potential • Is it large enough for the Company to make a profit ? • Does the segment has a high growth potential for being attractive in terms of the Company‘s long term strategy ? • Is the global segment attractive enough for a standardized product to be marketed in several countries. eg. Billion plus members of the global MTV-generation is a huge market in terms of size. China alone offers attractive opportunities to many industries. eg. Financial services, personal computers, passenger cars etc.
  • 184. Potential competition • Is the segment characterized by strong competition ? • Is the local brand offering a tough fight to the new Company ? • Inspite of an established, can a new Company make inroads ? eg. Fuji launched despite Kodak being already present as the brand leader in the 2.4 billion $ U.S color film market. Now, after two decades Fuji‘s U.S mkt. share is in the 10 to 16 % range. • Fuji currently enjoys a 25% mkt. share in Europe whereas Kodak has only 40% of the color film market.
  • 185. Compatibility & Feasibility • To reach global markets, does the Company has adequate resources and money to spend on distribution, travelling etc. ? • Whether the segment targeted is compatible with the company‘s overall goals and established sources of competitive advantage. ? Coke waited for 15 years to make its entry in Russia, while Pepsi already had a 100% Russian cola market. After entering in 1987, Coke has achieved a 50% mkt. share by ‗96.
  • 186. Global Target Market Strategy • Standardized Global Marketing Similar to mass marketing in a single country. Involves creating the same marketing mix for the potential buyers. Uses extensive distribution in the maximum number of retail outlets. Objective : greater sales volume, lower production costs & greater profitability. Coca-Cola uses the appeal of youthful fun in its global advertising. Sponsorship is global and is adapted to events that are popular in specific countries.
  • 187. Concentrated Global Marketing • In this type, marketing mix is devised to reach a single segment of the global market. Such companies define their markets narrowly. They go for a global depth rather than a national breadth. In Cosmetics, this approach has been used successfully to target the upscale, prestigious segment. eg. Oriflame, Lo‘real etc. Winterhalter ( a German company) is a silent leader in the dishwasher market. It focuses exclusively on hotel chains, restaurants etc. This narrowing of market has been one of their most important strategic decision as well as the foundation of their success.
  • 188. Differentiated Global Marketing • In this the marketing strategy is a variation of concentrated global mktg. • It involves targeting two or more distinct mkt. segments with different mktg. mixes. This allows a wider market coverage. In the SUV segment, Rover has Range Rover for the elite class and the Land Rover Discoverer which is lower priced. The company has a concentrated strategy for each segment. Swiss Watch Co. (SWC) offers watches ranging from 50$ worldwide to the expensive one (Blancpain) costing 1.0 lakh $.
  • 189. Global Product Positioning • It is the location of the product in the minds of the customer. This depends on many factors, many of which are controlled by the marketer. It is the way to reach the target customer. • Global positioning is most effective for the high- touch/ tech consumers. Manhattan Bank launched a 75 million $ global advertising campaign with the theme ―profit from experience‖. The business and private banking clients of the bank ―span the globe and travel the globe. Hence, a uniform experience globally results in less confusion.
  • 190. Global Product Positioning • High-Tech Positioning Personal computers, video and stereo equipment etc are examples for this type of promotion. They are frequently purchased on product features. Buyers are already have adequate technical knowledge or are keen to know more. These products can be categorised as: technical products -ex. Computers, chemicals, financial services. special-interest products -Characterized by shared experience & high involvement among users. demonstrable products- Mode of use needs to be shown at selling points –ex. Microwave ovens, Food processors, Gas geysers etc.
  • 191. Global Product Positioning • High-Touch Positioning Buyers in this segment are highly involved. They share a common language and set of symbols relating to themes of wealth, materialism and romance. Products that solve a common problem- provide benefits linked to life‘s little moments. ex. quenching thirst with a soft drink Global village products- products have a global appeal by virtue of their country of origin. Sony is synonymous with Japanese quality, Mercedes projects German engineering. Products that use universal themes- advertising themes & product appeals are across the globe. BMW car has its own inhouse BMW magazine which reinforces the high- touch concept.
  • 192. Examples of Global Marketing Strategy Company/Country 1.Brand Name Coca-Cola (U.S) 2.Product Design McDonald’s(U.S), Toyota(Japan) 3.Positioning Unilever (Great Britain) 4.Packaging Gillette (U.S) 5.Distribution Benetton (Italy) 6.Customer service Caterpillar (U.S)
  • 193. Brand Name as a Strategy •Coke from Coca-Cola is the best known strongest brand in the world. This has been made possible only due to the Company‘s s willingness and ability to back its flagship brand with a strong local marketing effort. •Electral from FDC Ltd. is another Indian ORS brand sold in many countries. This brand is a popular ORS worldwide and is approved by global NGOs for the treatment of rehydration.
  • 194. Product Design as a Strategy •McDonald‘s has designed a restaurant system that can be set up anywhere in the world. •India‘s own Kamat group of hotels which set up its first hotel in Hubli in 1948 have now expanded world over with restaurants in Belgium, Japan, Singapore, United Kingdom, USA and Dubai. They also pioneered the concept of Ecotel revolution in India as ORCHID Hotel in 1997 and are now eyeing global markets like South Africa, China, Pakistan etc.
  • 195. Positioning as a strategy •Unilever uses a teddy bear picture to position the benefits of softness for its fabric-softener product in various world markets across the globe.
  • 196. Packaging as a strategy •Gillette uses the same packaging for its flagship brand Gillette Sensor Razor everywhere in the world. This unique and distinct packaging has made this a leading global brand in this segment.
  • 197. Distribution as a strategy •Benetton uses a sophisticated distribution system to quickly deliver the latest fashions to its worldwide net-work of stores. Benetton produces approx. 130 Million garments every year, sold in about 120 countries through about 5000 stores offering clothes that have style, quality and in relevance to the market today. Benetton‘s turnover is about 1.9 Billion Euros.
  • 198. Customer service as a strategy Since its inception 80 years ago, Caterpillar has grown to be the world‘s largest manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. It‘s major success is due to a network of dealers that supports a promise of ―24 hour parts and service‖. Caterpillar is proud to be the leader in building the World‘s infrastructure and in enabling progress for millions of people around the globe.
  • 199. Sourcing as a strategy •Toyota and Honda‘s success was based on exporting cars from its factories in Japan. Now, both companies have invested in manufacturing facilities in the United States and other countries from which they export to all over the world.
  • 200. Importance of Global Marketing •In the first quarter of the 20th century, there were thousands of auto companies in the world and more than 500 in the United States alone. •Today, fewer than 20 companies remain worldwide, and only 2 are American. •In most industries, the companies that will survive and prosper in this century will be global enterprises. Some companies that do not respond to the challenges and opportunities of globalization will be absorbed by more dynamic enterprises; others will simply disappear.