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If it was true once upon a time in India

today it is Gospel.

International Current News Analysis

Competing with Giants

its no longer a fight between Giants

..its between David and Goliath

every ones invited

Three Conventional Ways through which the Lilliputs fought the Biggies...
By calling on the government to reinstate trade barriers or provide some other form of support. By becoming subordinate to the multinationals.

By simply sitting out ..and eventually exiting the industry (Hara-kiri )

Some Bloody battles fought and won by David Against Golaith...


David..
Vist in Russia Sanghai Jahwa in China Jollibee foods in the Philippines Cemex in Mexico

Goliath.
Compaq Unilever / P&G Mc. Donald Lafarge / France

WAR.Strategies..!!
Questions that the smaller players must ask..
How strong is the pressure to globalize in the specific industry ?
How internationally transferable are the companies competitive assets ?

How strong is the companys core competency vis a vis the MNCs ?
How diverse are the local customers with respect to the use of the product/ services ? Can the strength of the MNC be leveraged to convert it to its weakness? How agile is the competitor ?

Globalization : Prahalad and Hammel


Convergence among nation and Companies towards common ways of doing things
US Mgmt. Germany Japan

Fat is divided by Greater autonomy Constraints by Wall street mood to mgr except in obligations crisis arising from the corporate network Aim for breakthrough Co. effort Aggressive High Incremental and processed based Mild Medium Diffusion

R&D

Attitude Debt/ equity

Aggressive Low

S-curve for product

100%

90%

10% Introduction Growth Maturity

Shifting trends of Technology


Assembly Line
Automation Economy powered by Network Eco. shift from Tech. to IT enabled Creative right brain/entrepreneurial skills

Shift from Urban to Local Community/ linking of

Eight Critical Technology Trends


Vastly expanded computer power. Mass adoption of portable and home PC. Computer evolve into simple, inexpensive appliances. Microprocessor-enabled home appliance linked to internet. Consumer rapidly move online. Expansion of communication bandwidth. Object oriented programme for customized software. Increased computer literacy due to aging population.

Lead user Curve of Technology


Commercial Products
Profit

Usage

Creative Solution
Lead User

Routine Users
Early Adopters

Time

Shifting pattern of market segments


Premium segment Standard Qlty. Segment GM, Coke, Sears Value discount segment Starbuck, Haagen-Dazs, Barnes & Nobel

Wall mart, Toyota, Charles Schwab


1970 80 90 00 10

Emerging of Customized Economy


Customized Economy Standardized Economy

1890

1970

90

00

20

50

Henry Ford

GM/Ford

Retail Sector
Biggies
Increase expense in advertising to gain attention.

Lilliputs
No need in advertisement to grow attention. d V is constant

Cont. = Sales - Var. Cost


d C = d S - d V- dA E=dS /dA

dC=dS-dV

At inflection point of E dS= Constant


therefore d C have marginal increase.

.contd.

Retail Sector
.contd.

CC: More Brand name less cost advantage.

CC: Less brand name, more cost advantage

Shifting trends to private labels Fight for shelf space Increase in w.i.c/inventory More promotion

Dilution of brand /increase in contribution margin


Brand becomes a commodity =brand of small players

Four Forces of Industry Benchmark

Factors that should be reduced well below the industry standard.

The factors that should be eliminated that the industry has taken for granted.

The factors that should be created that the industry never offered.

Factors that should be raised well beyond the industry standard .

Pressure of Industrialization...
Hi Tech industry Consumer product (Chips, telecommunication,switches) (food , retailing) Enormous fixed cost for product development, capital equipment,marketing, distribution Covering the cost is possible only through sales in multiple markets Single set of rules govern the industry Consumers satisfied with the standard product

Companies compete on the well established relationship with their customers


Varied customer taste

No single set of rules govern the industry MNCs cant sell standardized products and focus on local product or market

Competitive Assets!!
Long term relationship with government/market /local players Strategic supplier alliances. Local distribution network that would take years for an MNC to replicate.

Distinctive product appealing only to local market


Cost competitive production. Better understanding of the local market/customized product Operating in a niche segment only

The winner is the one WHO FIGHTS THE WAR WITH A BETTER STRATEGY.

Positioning for Emerging Market Companies Competitive assets


Customised to the home market
Pressures to Globalize in the Industry
High

Transferable abroad
Contender
Focuses on upgrading capabilities and resources to match multinationals globally, often by keeping to niche markets

Dodger
Focuses on a locally oriented link in the value chain, enters a joint venture or sells out to a multinational

Defender
Focuses on leveraging local assets in market segments where multinationals are weak Low

Extender
Focuses on expanding into markets similar to those of the home base, using competencies developed at home

Defender
Focus on the advantages they enjoy in the home market . Resist the temptation to reach all the customers or imitate the MNCs Focus on their customer base who favour the local touch Ignore those who favour global brands Astutely exploit its local orientation - familiarity with distinct tastes Position itself from a product specific company to a customer specific company.

Defender
Case Study: Shanghai Jahwa Chinas oldest cosmetic company. Familiarity with the distinct tastes of the Chinese consumers The Chinese have a distinct culture which also defines Beauty very differently as compared to what is generally perceived by the MNC's Strategy:

Pressure of Globalization is weak as the products of the MNC's appeal largely to the affluent city dwellers
Mass market brands developed around traditional ingredients and beliefs E.g. Liushen Gain in market share Formed strategic alliances with Japanese companies to expand its product line

Extender
They go beyond defending their local markets They have Transferable assets that can be used as a platform for success elsewhere Focus reaping added revenue and scale economies

They focus on deriving valuable learning experiences


They often seek analogous markets ;consumer preferences,geographic proximity,distribution channels,government regulations Focus on large expatriate communities

Extender
Case Study
Jollibee Foods.a fast food company in the Philippines Developed customized menus to meet local tastes E.g. garlic seasoning in burgers to compete with Mc. Donalds Targeted the expatriate population in Hong Kong,middle east

Asian Paints
Their strategy is honed to serve a highly price sensitive market as compared to the MNC's that cater to the demands of affluent customers

Extensive Distribution network to deter the MNC's


Seeking of analogous markets ;scattered retailers,illiterate consumers etc E.g. Nepal, Fiji The MNC's have a difficult time adjusting to the peculiarities of the native market practices and buying behavior

Dodgers
There is strong pressure to globalize E.g. Skoda Alternatives like forming a JV with a MNC, selling out Focus on links in the value chain where local assets work well E.g..Vist Redefine their core business or even compliment a multinationals offerings or adapt them to the local market Re- Orientation by becoming suppliers of key components to the MNC's Focus on niches

Contenders
They have transferable assets selling at the global level

The need to get smaller before getting bigger.


They follow stringent quality constraints to compete with global offerings Often benchmark their practices against other companies

Sundaram Fasteners
Join a production consortium with GM Sole supplier to GMs NA div. Drove home the technology

Reasons for Success of the Lilliputs


Standardized product characteristics,administrative practices, pricing to bring about a degree of uniformity,hampers flexibility. E.g. J&J Fear of Dilution of the brand Image
Sheer visibility of strategy before the actual launch triggers a reaction Longer time to change Existing strong distributor network. E.g. Grupo Bimbo

Challenges faced by Lilliputs


Survival 1. Smaller businesses do not have the support structure that their larger counterparts have; 2. The owner/manager does not possess the operational and functional skills of operating a business; 3. The business is not commercially viable; sales or margins are not high enough to support expenses;

4. Insufficient capital to cope with both the start-up costs and working capital, meaning that cash flow problems cause the company to fail, even though it may be financially viable.

Different Competitive Strategies


1. Innovation Strategy

2. Information Technology Strategy


3. Niche Strategy 4. Network and Flexible Production Strategies 5. Foreign Direct Investment (FDI) Strategy

Network and Flexible Production Strategies


It typically have the following five characteristics: Reliance upon multi-purpose equipment Continual innovation Clustering Networking Spillover effects

Dealing with change


.trends that will have an impact :
1. Growth of a knowledge based economy 2. Increasing use of the Internet and e-business 3. Increasingly demanding customers

4. Increasing industrialisation of developing countries and cheaper labour


5. Increasing globalisation even by smaller firms.

6. Finding appropriate staff (skills) and managing them effectively


7. Increasing expectation/obligation on firms to take good care of their employees and the environment.

Linear Relationship between Components of the Innovation Process Invention Innovation Design Diffusion

Interaction between the Components of the Innovation Process Innovation

Invention

Tech Transfer

Design

Diffusion

Judo Strategy
At the heart of judo strategy is :

The premise that sheer size and raw strength are no match for balance, skill, and flexibility.
Wal-Mart, PalmPilot, CNET, Principles of judo into a winning business strategy:

1. use movement to throw off your opponent's balance;


2. maintain your balance as you respond to attacks; 3. exploit leverage to magnify your strength.

Principle 1

Move rapidly to uncontested ground to avoid head-to-head conflict


Do:Move to new product that redefine the competition??? space Move to new pricing models that your competitor is unable to emulate Move to new tasting???? & distribution models that avoid competitive strength

Principle 1

Move rapidly to uncontested ground to avoid head-to-head conflict


Dont:Suppose that constant movement is possible or desirable Allow excessive movement to destroy your focus & weaken credibility

Treat rapid movement as a substitution for long term vision

Principle 2

Be flexible & give away when attacked directly by superior force


Dos:-

Avoid Sumo matches if you are not big


Embrace & extend rivals smart move Flexibility and tactical adjustment with long term strategic plans

Principle 2

Be flexible & give away when attacked directly by superior force


Dont :Escalate Wars Be afraid to cannibalize your own product

Principle 3

Exploit leverage that uses the weight & strength of opponent against them
Dos:-

Turn opponents strength to your advantages


Co-operate & co-ordinate with others having similar threat of your opponent

Principle 3

Exploit leverage that uses the weight & strength of opponent against them
Dont :Forget that the greater is your success, more is the chance that leverage can be used against you

Different Models for Evolution of Innovation


Model I: Generating Technology Innovation Production of know-how R&D Supply Global Closed Medium/long term Linear Rational Model II: Following Technology Combination of existing knowhow Communication Demand In-company Open Iterative Recurring Serendipity Model III: Core Competence Building on core competence Innovation management Core competence In-company Open Medium/long term Recurring Rational

Core Activity Economy Scope Type of Problem Timescale Evolution Planning Strategy

Why the Biggies will stumble ?


Big size higher fixed cost higher product cost.
More time to respond t5o change in dynamic environment Product life cycle is the function of size of brand Increase pressure for growth in mature market Highly visible in terms of strategy

Strategy taken at corporate level and tactics decided at operational level


Backbone/backhand do not support customization

..contd.

Why the Biggies will stumble ?


contd. Incremental increase in Working Capital Cycle increase in high loss and as a result in less contribution. Customers are knowledgeable Low switching for the customer Counterstrategy can not be predicted

Patching and Re-patching


(Rx solution to size?no.)
(Chaos theory)
Seemingly change in one place can create large and often unpredictable change in distance place. Without traffic light chaotic traffic. Too many light gridlock

Patch scale determine (Charles Gulunic and Stuart Kaffman)


Conditions 1. Attention to size 2. Individual business Modular (not customer)

3. Specific strategy for local market

The Current Trends


Shrinking product life cycle

Only thing constant is change


Agility/rate of change is important and not the Quantity

Customers are demanding /knowledgeable


Competitors are proactive Dynamic increase in the productivity of natural resources Unbundling of organization i.net enable customize better too to analyze

The future trends


Community formation the new Business model (small firms will overtake the biggies)

Shift from advertising to Beta testing (biggies get a hole in their pocket)
Companies being proactive in market

Change in banking sector (restructuring)


Huge banks to small banks (More personal touch, loans)

Development will not be in the laboratory of biggies but a collaborative effort.


(IT has already shifted from hidden source to open code platform)

Things to ponder
Just a thought: To steal ideas from one person is plagiarism; to steal from many is research.

The Challenges
In a forest there are a few large trees, a greater number of medium-sized trees, and a very large number of small trees. All vie for their share of the available resources. Some of the small trees are seedlings of large trees that will eventually grow to replace the current giants of the forest. Other small trees are in their mature stage and will never grow any larger. But even the giants of the forest do not last forever. The forest is continually evolving in a natural process of birth, growth, decay and death.

Bibliography
The Lexus and the olive tree-T.l. Friedman

The complete dynamics of internet time


by M.A Cusumano

Creating new market space by W. C. Kim


Competing with giantsby N. Dawar and T.Frost

..Thank you .