HOW NEW ENTRANTS HOW NEW ENTRANTS INTO THE GLOBAL INTO THE GLOBAL

ECONOMY CHALLENGE ECONOMY CHALLENGE TRADITIONAL WAYS OF TRADITIONAL WAYS OF

THINKING ABOUT THINKING ABOUT COMPETITIONCOMPETITION

Ivo ZanderAnders Wall Professor of EntrepreneurshipUppsala University

GLOBALIZATION 1.0GLOBALIZATION 1.0

18701870 1914 19451914 1945

Attitudes and drivers of globalizationAttitudes and drivers of globalization

20132013

00

2020

4040

6060

8080

100100

120120

19301930194019401950195019601960197019701980198019901990

AverageAveragefreight costsfreight costs

Air transportationAir transportation

Cost 3 min.Cost 3 min.callcall

TariffsTariffsTransportation and communication costsTransportation and communication costs

1913 1950 1990 20121913 1950 1990 2012

DeregulationDeregulation Liberalization of FDILiberalization of FDI

Outward flows of foreign direct Outward flows of foreign direct investment ($ bn.)investment ($ bn.)

1970 1980 1990 2000 20101970 1980 1990 2000 2010

UNCTAD (2012)UNCTAD (2012)

Electrolux’ strategy in the Electrolux’ strategy in the white goods industrywhite goods industry

1. Expand through foreign acquisitions1. Expand through foreign acquisitions

2. Retain leading local brands2. Retain leading local brands

3. Centralize production to few locations:3. Centralize production to few locations:

Close local production, transform Close local production, transform acquired companies to sales subsidiariesacquired companies to sales subsidiaries

4. Centralize production of components4. Centralize production of components

5. Coordinate global purchasing for 5. Coordinate global purchasing for increasedincreased bargaining powerbargaining power

Electrolux in the White Goods IndustryElectrolux in the White Goods Industry

The ideal long-term structureThe ideal long-term structure

Product AProduct A

Product BProduct B

Product CProduct C

ComponentsComponents

Product strategyProduct strategy

1. Locally supplied1. Locally supplied

2. Globally supplied according2. Globally supplied accordingto local standardto local standard

3. Group standard3. Group standard

1. Locally manufactured products according to market demands1. Locally manufactured products according to market demands2. Acquired brands, centrally manufactured according to local demand2. Acquired brands, centrally manufactured according to local demand3. Strategic products, centrally manufactured with global standard3. Strategic products, centrally manufactured with global standard

Electrolux in the White Goods IndustryElectrolux in the White Goods Industry

Cycleurope in the bicycle industryCycleurope in the bicycle industry

Cycleurope in the Bicycle IndustryCycleurope in the Bicycle Industry

““I invited all product managers to I invited all product managers to a group meeting concerning a group meeting concerning saddle designs. We all gathered in saddle designs. We all gathered in one room, and there were 650 one room, and there were 650 different models presented!”different models presented!”

Tony GrimaldiTony Grimaldi

Mars brand strategy Mars brand strategy

““We have over the last 10 years invested a We have over the last 10 years invested a lot in making our brands truly global. We lot in making our brands truly global. We changed things like Marathon in the UK to changed things like Marathon in the UK to Snickers. We changed Raider to Twix and we Snickers. We changed Raider to Twix and we did that not just on a European basis, we did did that not just on a European basis, we did that on a worldwide basis.”that on a worldwide basis.”

Mars in the Chocolate IndustryMars in the Chocolate Industry

““The cable industry became more The cable industry became more international because some leaders international because some leaders decided to go international. They drove decided to go international. They drove the industry behind them.”the industry behind them.”

Alcatel managerAlcatel manager

What are the options?What are the options?

CablesCables

The mental map of competitionThe mental map of competition

Game over, or…Game over, or…

GLOBALIZATION 2.0GLOBALIZATION 2.0

Ispat in the Steel IndustryIspat in the Steel Industry

Lakshmi MittalLakshmi Mittal

Ispat – key components of strategyIspat – key components of strategy

Ispat in the Steel IndustryIspat in the Steel Industry

Exploits emerging DRI and mini-mills Exploits emerging DRI and mini-mills technology.technology.

Targets underperforming, state-owned plants Targets underperforming, state-owned plants that are up for sale, primarily in developing that are up for sale, primarily in developing economies. economies.

Uses dedicated, international task-force to re-Uses dedicated, international task-force to re-structure new plants.structure new plants.

Builds on the founder’s dedication, attention Builds on the founder’s dedication, attention to detail, and involvement.to detail, and involvement.

SWAT teamSWAT team Liquidity fixLiquidity fix DebugDebug Product mixProduct mix IntegrateIntegrate PrunePrune

Remove Remove most most existing existing managers managers and and replace replace with Mittal with Mittal executives executives to get the to get the company company running on running on a a commerciacommercial basis l basis quickly.quickly.

Reestablish Reestablish credit with credit with suppliers to suppliers to assure a assure a steady flow steady flow of raw of raw materials. materials. End barter End barter arrangemenarrangements that ts that beget beget corruption corruption and destroy and destroy cash flow.cash flow.

Bring in Bring in Mittal Mittal technicians technicians to improve to improve operations operations such as such as rolling mills rolling mills and blast and blast furnaces. furnaces. Rework Rework maintenanmaintenance ce schedules schedules to reduce to reduce downtime.downtime.

Shift to Shift to production production of higher-of higher-value value goods such goods such as cold-as cold-rolled steel rolled steel and and galvanized galvanized sheets. Try sheets. Try to sell to to sell to end users end users rather than rather than middlemenmiddlemen..

Form Form regional regional groups to groups to boost boost purchasing purchasing power and power and prevent prevent plants from plants from competing competing with each with each other for other for the same the same customers.customers.

Close or Close or sell off sell off noncore noncore subsidiariesubsidiaries, from s, from catering to catering to hotels. hotels. Gradually Gradually cut back cut back staff, staff, possibly possibly through through buyout buyout programs.programs.

How to turn around a steel plantHow to turn around a steel plant

Business Week, December 20, 2004Business Week, December 20, 2004

Ispat in the Steel IndustryIspat in the Steel Industry

Organization and profitability (2002)Organization and profitability (2002)

LNM HoldingsLNM Holdings

Ispat Nova HutIspat Nova HutIspat SidexIspat SidexIscorIscorIspat KarmetIspat KarmetIspat Annaba (Algeria)Ispat Annaba (Algeria)PT Ispat Indo (Indonesia)PT Ispat Indo (Indonesia)

Revenue: $ 3.8 billionRevenue: $ 3.8 billionNet profit: $ 564 millionNet profit: $ 564 million

Ispat InternationalIspat International

Ispat Unimetal (France)Ispat Unimetal (France)Ispat GermanyIspat GermanyIspat International (Britain)Ispat International (Britain)Ispat Sidbec (Canada)Ispat Sidbec (Canada)Caribbean Ispat (Trinidad)Caribbean Ispat (Trinidad)Ispat Inland (U.S.)Ispat Inland (U.S.)Ispat MexicanaIspat Mexicana

Revenue: $ 4.9 billionRevenue: $ 4.9 billionNet profit: $ 49 millionNet profit: $ 49 million

Ispat in the Steel IndustryIspat in the Steel Industry

HaierHaier

Zhang RuiminZhang Ruimin

HaierHaier

The Haier Group - The Haier Group - key components of strategykey components of strategy

1984 Technology alliance with Liebherr Company of Germany.

1991- Domestic acquisitions and diversification into new product areas: freezers, washers, microwaves, heaters, air- conditioners, TV sets, mobile phones.

1996 Joint venture established in Indonesia.

2000- Joint ventures in Philippines, Dubai, Iran, Algeria, Jordan, Pakistan, and Bangladesh.

2006 World largest market brand share for refrigerators, 4th largest among global white goods manufacturers.

Innovation at Haier Innovation at Haier

ChinaChina Washing machine model that serves the Washing machine model that serves the purpose of purpose of washing both clothes and vegetables.washing both clothes and vegetables.

Small-sized washing machines for humid Small-sized washing machines for humid regions.regions.

IndonesiaIndonesia Flexible-voltage appliances.Flexible-voltage appliances.

United StatesUnited States Refrigerator model with fold-out table Refrigerator model with fold-out table aimed foraimed for

students. Wine cellars.students. Wine cellars.

HaierHaier

TataTata

Ratan TataRatan Tata

$ 5 bn$ 5 bn

$ 28 bn$ 28 bn

TataTata

Select Tata acquisitionsSelect Tata acquisitions

20002000 Tetley Group (United Kingdom, USD 434 million)Tetley Group (United Kingdom, USD 434 million)

20042004 Daewoo Commercial Vehicle Company (Korea, USD 102 Daewoo Commercial Vehicle Company (Korea, USD 102

million)million)

20052005 Teleglobe International (United States, USD 239 million)Teleglobe International (United States, USD 239 million)

20052005 Brunner Mond (United Kingdom, USD 111 million)Brunner Mond (United Kingdom, USD 111 million)

20062006 Eight O’clock Coffee Company (United States, USD 220 Eight O’clock Coffee Company (United States, USD 220

million)million)

20072007 Corus (United Kingdom/Netherlands, USD 12 billion)Corus (United Kingdom/Netherlands, USD 12 billion)

20072007 Ritz-Carlton (Boston, United States, USD 170 million)Ritz-Carlton (Boston, United States, USD 170 million)

20082008 Jaguar, Rover (from Ford, USD 2.3 billion)Jaguar, Rover (from Ford, USD 2.3 billion)

Assimilation of technology that is increasingly up for sale Assimilation of technology that is increasingly up for sale inin international markets.international markets.

Entry via geographical regions and/or industry segments Entry via geographical regions and/or industry segments notnot emphasized by established multinational corporations.emphasized by established multinational corporations.

Flexible and entrepreneurial decision making by one Flexible and entrepreneurial decision making by one dominantdominant owner, owner family, or CEO.owner, owner family, or CEO.

Supported by national governments.Supported by national governments.

Gradual movement into more value-added activities and Gradual movement into more value-added activities and segments.segments.

Ultimately, buy out parts of established multinationals, if Ultimately, buy out parts of established multinationals, if not entirenot entire operations.operations.

New entrant characteristicsNew entrant characteristics

““It almost disgusts me to see how some of It almost disgusts me to see how some of our competitors in China work on strategic our competitors in China work on strategic plans that extend 20 years into the future, plans that extend 20 years into the future, while everyone here’s looking at the while everyone here’s looking at the quarterly reports.”quarterly reports.”

Carl-Henric Svanberg, CEO Carl-Henric Svanberg, CEO EricssonEricsson

They have a planThey have a plan

THERE IS ONE MORE THERE IS ONE MORE THINGTHING

Frugal innovation, ‘Jugaad’Frugal innovation, ‘Jugaad’

China’s market for TV setsChina’s market for TV sets

TV setsTV sets

Leading vendors:Leading vendors:

Panasonic, Philips,Panasonic, Philips,SonySony

Share of market:Share of market:

13%13%

Leading vendors:Leading vendors:

Hisense, Skyworth,Hisense, Skyworth,TCLTCL

Share of market:Share of market:

62%62%

Leading vendors:Leading vendors:

KonkaKonka

Share of market:Share of market:

25%25%

PremiumGood-

enoughLow-end

From Gadiesh et al. (2007)

LOOKING INTO THE LOOKING INTO THE FUTUREFUTURE

Annual average growth rates Annual average growth rates (real GDP, 1980-2010)(real GDP, 1980-2010)

UNCTAD, Handbook of Statistics, 2011UNCTAD, Handbook of Statistics, 2011

UNCTAD, Handbook of Statistics, 2011UNCTAD, Handbook of Statistics, 2011

World population, 2010 World population, 2010 (millions)(millions)

5,5455,545

1,0251,025

UNCTAD, Handbook of Statistics, 2011UNCTAD, Handbook of Statistics, 2011

MNCs from select developing MNCs from select developing economieseconomies

UNCTAD (2006)UNCTAD (2006)

Growth in outward foreign direct Growth in outward foreign direct investment ($ bn.)investment ($ bn.)

UNCTAD (2012)UNCTAD (2012)

1970 1980 1990 2000 20101970 1980 1990 2000 2010

Changing distribution of Changing distribution of outflowsoutflows

of foreign direct investmentof foreign direct investment

WHAT DOES THIS MEAN?WHAT DOES THIS MEAN?

√√ Established managerial mindsets are gearedEstablished managerial mindsets are gearedtowards competition in the developed market towards competition in the developed market economieseconomies

butbut

√ √ Growth is in traditionally neglected andGrowth is in traditionally neglected andunfamiliar marketsunfamiliar markets

√ √ Existing products are too sophisticated for the Existing products are too sophisticated for the main market segmentsmain market segments

√ √ ‘‘Wrong’ institutional frameworkWrong’ institutional framework

The writing is on the wallThe writing is on the wall

Concerted efforts toConcerted efforts topromote new businesspromote new business

formationformation

Vigorous protectionVigorous protectionof premium segmentsof premium segments

Rapid change ofRapid change ofmindset and strategiesmindset and strategies

Three choicesThree choices

It happens now, not some time It happens now, not some time in the future!in the future!

Market shares that are missed or lost today are Market shares that are missed or lost today are going to be very hard and costly to regain in going to be very hard and costly to regain in the future.the future.

““Change before you have Change before you have to.”to.”

Jack WelchJack Welch