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HI6006 Competitive Strategy Proof Reading Services
We live in an era of globalization. Globalization is the process of international integration, which arises from world views, ideas, products and other aspects of culture. Different companies adapt to globalization through different frameworks. One such framework that is used for defining the way in which companies adapt to globalization is AAA framework. The three A’s in the triple A framework stand for adaptation, arbitrage and aggregation. Adaptation strategy is one of the most widely addressed strategies amongst the three A. Companies use this strategy to increase their share of market by the process of adopting some components of business model so that it is in a better position to address the requirements and preferences at local level. Aggregation strategies on the other hand seek to achieve economies of scale through creation of global efficacies. Arbitrage strategies neither aim to address local requirements nor does it aim to create global efficacies. Instead, while using arbitrage strategy the companies try to create global value by taking advantage of the differences between markets. That is they procure or manufacture goods at lower costs in some markets and then sell the same products or services at higher costs in other countries or markets. In the following pages, the differences between these three different strategies would be looked into by looking at how these strategies have been used in the pursuit of globalization by 4 different companies in two different industries.
As said before in this era of globalization the companies need to compete on the global scale. However, the question that arises in front of the companies is the strategy that they should be using for the purpose of pursuing globalization or competing on the global scale. When it comes to the formulating of a global strategy there are basically two different assumptions that are made (de Kluyver, 2010). These assumptions are to strike a right balance between economies of scale and the responsiveness of a company to local conditions on the other and the second assumption is that greater is the degree of emphasis that a company places on economies of scale in worldwide operations more is the degree of globalization of their strategy. These assumptions are problematic. This is because while competing across several geographies the main challenge that is faced by the organizations is to manage the large differences that appear at border irrespective of whether these borders are defined geographically or otherwise (Ramsey, Alvim, Forteza & Micheloni, 2010). Thus, whether a company develops a strategy whereby it is more responsive to local varieties or follows a strategy of standardization; both can be seen as valid response to that challenge. Moreover, there can be another interesting response to the challenge of differences at borders and that response is termed as arbitrage (Ariño, 2015). In arbitrage, rather that adjusting to local differences as is done in case of adaptation and overcoming the differences through standardization and global economy of scale as is done in case of aggregation, the companies simply try to exploit the differences that exist at borders. Companies are increasingly using this strategy for creating value and are placing different parts of the value chain different countries to exploit these differences (Gui, 2010). However, although it is noted that most companies start with any one of the above mentioned strategies they would be required to change their strategies or combine several strategies so as to be in a better position to address evolving business needs. In order to evaluate the use of either of these strategies let us look at two different companies from the computer industry.
Companies would emphasize on different A’s at different times in their path of evolution towards a global enterprise. For instance, IBM, which is a huge company in the computer industry, started its operations on global scale through adaptation strategy. For a greater part of its global operation, IBM has pursued this strategy and while pursuing it has opened mini-IBM in each of the countries that it has targeted. Each of these mini-IBMs is required to perform a complete set of activities that are part of the value chain. Each of these mini-IBMs is found to be adapted to differences at the local level. However, there was a growing level of dissatisfaction within IBM during the 1980s and 1990s about the fact that country-to-country adaptation was curtailing its opportunity to gain international economies of scale (Ghemawat, 2010). This fact led to the overlaying of the regional structures on the mini-IBMs, which were previously required to be able to cater to the differences at local levels. This led to the aggregation of countries into regions so that it would result in better coordination and economies of scale at the regional and global level. Thus, IBM which was seen to be pursuing the adaptation strategy shifted its focus to aggregation strategy along with adaptation strategy. Recently IBM has started taking advantage of the differences between countries and has thus started using arbitrage as a strategy. For exploiting the wage differences that exist between countries IBM has started recruiting greater number of employees in countries like India where the wage rate is much lower (Ghemawat, 2010). Most of these employees are being recruited as part of IBM global services, the part of the company, which is growing at the fastest rate but has the lowest margins. IBM is trying to improve the margins of this division by cutting on costs through the recruitment of employees in lower wage countries as compared to the strategy of increasing prices.
Another company of the computer industry, which is successfully using the AAA strategy, is the Tata Consultancy services. A Tata Consultancy service, which is one of the Indian IT companies, has traditionally taken advantage of the arbitrage strategy to help it in the pursuit of globalization. Tata Consultancy services have taken advantage of difference in labor costs across different countries and have exported software services to those markets where the labour cost is high. However, recently the company has started the process of augmenting the arbitrage strategy with the strategy of aggregation (Ghemawat, 2010). While using the strategy of aggregation or building global economies of scale it has built a new coherent global delivery structure, which comprises of three different kinds of software development centres. Amongst the three different kinds of software development centres, the global centres are mostly located in India. They are used for serving large global customers are pound to possess depth and breadth of skills. The centres in India also possess quality control processes and coding skills. In addition, there are regional centres, which are located in Brazil for example (Ghemawat, 2010). These centres which emphasize on addressing of cultural and language based challenges are found to have select capabilities. Then there are near shore centers, which are located at Boston for example. These centres focus on building comfort of customers through proximity of the centres to them.
It can be seen in the above examples how the two companies in the computer industry for the purpose of globalization have used adaptation, aggregation and arbitrage at different times. Given below are two other examples taken from the retail industry. Retail industry in general has tested mixed success with globalization. While retailers have experienced success in some of the markets they have tried to expand, they have also experienced failure in other markets at the same time.
One retailer, which has expanded slowly but persistently, is Aldi, which is a discount supermarket retailer, based in Germany. Aldi by offering new value proposition to customers have been able to attract customers in all the regions that it operates (Corstjens and Lal, 2012). The hard discounter proposition of the German retailer is found to expand across border in a far better manner as compared to other formats as there is a sizable portion of customer segment in every country who is interested in offerings low in price and are no-frills attached. Aldi has been able to successfully grow in USA, Australia and Europe through the pioneering concept of small stores. The factors that have played a role in the success of Aldi in different markets are the simplicity of the format and its effort aimed at reduction of operating costs. This has in turn resulted in lowering of prices. Aldi also limits the number of SKUs, which are permissible in each of the categories. This is done so as to ensure that most of its private level suppliers produce sizable volume of each item. This allows the extraction of economies of scale. Aldi can offer prices that are 40% lower than the prices offered at super markets due to simplicity in the layout of the stores and the consequences for logistics (Corstjens and Lal, 2012). Both of these factors also translate into convenience for shoppers as he or she is typically half the time spending the shopping time that a typical customer needs to spend at Aldi at a super market. Thus, as appears from the above discussion, the strategy, which Aldi has used for the purpose of globalization, is aggregation.
Another company in the retail industry, which has successful expanded overseas, is Walmart. Walmart is arguably the number one retailer in the world. After achieving dominant position in the United States, Walmart decided to pursue globalization (Govindarajan and Gupta, 2002). Wal-Mart’s decision to globalize was because the American market was already saturated and Walmart was still hungry more growth so as to satisfy the capital markets and for the satisfaction of the expectation of its own employees. Walmart decided to start its expansion abroad through Canada. In Canada, it acquired a local supermarket, which was performing poorly and was thus available at economical prices. After its acquisition of the local player, Walmart imposed its style of operations in the retailer and incorporated it into business. The store was able to make a turnaround within 2 years (Govindarajan and Gupta, 2002). However, Walmart followed a different strategy while entering into China. The market of China was culturally, linguistically and economically very different from America. Thus in order to be successful at China Walmart had to adapt its business model according to local preferences. In order to find the perfect business model that would be successful in China Walmart experimented with stores of different formats. Thus, Walmart has followed different strategies under the AAA framework for entering into different markets.
Thus, as seen from the above discussion different companies in different industries have used different strategies of the AAA framework for globalization. It is important to be understood that each of the three different A’s are associated with different types of organization. For instance, a company, which is emphasizing upon adaptation should have a country centered organization. On the other hand, if the focus of the organization is on aggregation, then it should focus on cross border groupings of different types (Ghemawat, 2013). A vertical organization, which lays emphasis upon balancing of supply and demand across and within the boundaries of organization best, pursues arbitrage. Thus, while deciding on the path of globalization an organization should decide about the path that it should follow and is best suited for it.
Companies now live in an era of globalization, which is simply the process of international integration. However, one of the most important questions that the companies need to answer before embarking on globalization is the path that it should follow towards globalization. In other words the organization has to decide about the way in which it would manage the differences across borders, that is whether it would try to overcome the differences and pursue the path of aggregation, or it would try to adapt to the local differences and follow the path of adaptation or it would follow neither of those and simply try to exploit the differences and make a profit by locating various parts of value chain in different markets. In the above pages various strategies that 4 different companies have pursued in 2 different industries have been described. It appeared from the discussion that IBM which initially pursued adaptation later on started pursuing aggregation in the search of economies of scale. In recent times, however IBM has pursued the strategy of arbitration by taking advantage of lower labour costs in countries like India. On the contrary, TCS started its journey by pursuing arbitration but has pursued aggregation recently. In the retail industry, Aldi is seen to pursue aggregation and Walmart is seen to change its strategy depending on market of entry. The particular strategy, which suits a particular organization, depends on organization type.
Ariño, A. (2015). Semiglobalization: A Relevant Reality. In Emerging Economies and Multinational Enterprises (pp. 35-42). NY: Emerald Group Publishing Limited.
Corstjens, M. and Lal, R., 2012. Retail doesn’t cross borders: here’s why and what to do about it. [Online]. Available at < https://hbr.org/2012/04/retail-doesnt-cross-borders-heres-why-and-what-to-do-about-it > [Accessed on 15th September 2016].
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