Strategies in the Triad Markets Today - Essay Example

Multinationals till two decades ago were vertically integrated and hierarchically organized. The key functions were based in one of the triad economies of US, Europe and Japan. In the case of technology development, the basic research and development was done at some central laboratories while the application was carried out at triad production facilities (Lynn & Salzman, 2005). Now the multinationals disperse the core activities including the technological development. Today the “developing countries” are developing cutting edge technology. Software development and pharmaceutical research is being done in India while mobile and telecommunications is concentrated in China. Advanced aerospace work is being done in Brazil. The reason for driving work to these nations is due to the push to cut costs as globalization has heightened competition. At the same time there is a pull of growth markets in emerging economies that requires new engineering and technology development. This paper will discuss how the strategies in the triad markets have differed and the causes thereon. The triad nations viewed the world as highly bifurcated. Innovation was a race amongst the triad nations, was the general impression. As such, only obsolete technology was passed on to the emerging economies as they were thought to be limited in their ability for high level engineering and innovation. They were supposed to be weak in their infrastructure, human resources and government policies. In exchange for obsolete technology, these emerging nations sent their best talents to the triad nations for higher education and work opportunities. The trend has now changed posing challenges for the triad innovation countries. All the triad nations also now want their managers to have experience working outside their home country. In fact US forms have also integrated the foreign managers into their highest level positions, more than European or Japanese firms. Problems faced by European firms Firms that have been multinational for decades have now become true global firms. At the same time the business approach has undergone change to adapt to the local demands. Strategic thinking is required for the changing markets. For instance, a German automobile company tried to run its state-of-the-art manufacturing plant in Mexico by staffing it with German engineers but eventually this was not feasible as they could not retain the German engineers in Mexico (Lynn & Salzman, 2005). The products and the manufacturing process also required local adaptation. The company had to initiate a program to educate and train engineers at a local university to support this high technology plant. A French automobile company in Mexico found it needed to involve local engineers familiar with local conditions to address manufacturing problems. Vodafone of Europe wanted to enter the US market. Vodafone was an aggressive exporter and had clearly defined plans and the strategy. To avoid the hassles of licensing, which would necessitate permit to launch its services in US, Vodafone strategically started by acquisition and then went into joint venture. It was not able to acquire local telecommunication companies because of security laws and other regulatory barriers. Vodafone has a control-oriented strategy worldwide but in US it has a minority stake (Strategic, 2004). Even in Japan they have been unsuccessful because their handsets did not match the local culture. They learnt the hard way that to survive in the market they would have to tailor-make the handsets and not use the global model. An MNC in the service industry has to keep up with the regional culture and requirements to be successful. Disruptive innovation, value driven segmentation and commoditization have become important for global companies to succeed (Cravens, 2006). Problems and opportunities faced by US firms It was generally believed that firms should protect their core competencies at all costs making sure that they are difficult to imitate. The effort to protect technological competencies became dysfunctional as US firms found that to remain competitive in the market they would have to share technological information with vendors. Secondly, industries in which formal and tacit knowledge were important components of the engineering process, felt that physical location was crucial to the success of the projects. As such, Microsoft insisted that development being a contact sport should be housed under the same roof so that people keep bumping into each other ((Lynn & Salzman, 2005). Gradually there has been a shift in the approaches of firms like these. The trust-based enduring relationships between the firms and the suppliers, an approach adapted from the Japanese system was found to be changing the way firms worked. Firms like Toyota involved the suppliers from the design process itself and outsourced many of the engineering processes to the suppliers. The US followed this pattern and greatly enhanced their relationships with their suppliers. US firms like GM and Ford wanted to achieve economies by allowing suppliers to contribute to technological development. Geographic proximity is now less important than in the past. DHL, the global market leader of the international express and logistics industry, based in the US, specializing in providing innovative and customized solutions from a single source, was the first to enter the Chinese market in 1980 (Business Wire, 2006a). Instead on concentrating on developed economies, DHL studies the prospects in China and only after understanding the potential that China offered, did it join hands with China National Foreign Trade Transportation (Group) Corporation (SINOTRANS) in 1986. Joint ventures may perhaps be time-consuming and initially difficult, but yields optimum results both for the foreign firm and the local company offering partnership (Gross, 1995). Sinotrans had unrivalled local knowledge in the China foreign trade transport market while DHL was the leader in global air express industry. DSHL strategically takes the support of local companies to make its service effective. DHL had total support of the Chinese government because it recognized the logistics industry as a key driver of economic progress. Competition brought in modern management practices, aggressive promotion strategies, advanced technological support and high quality services but since the Chinese market was expanding, there was room for all to grow. In response to cost cutting and increasing production General Motors (GM) too wanted to act aggressively and start a joint venture in Japan, but they did not succeed. Hence, they changed their strategy and brought R&D functions into China at the request of the government. When other automobile companies were reluctant to drain technology and quality control, and confined themselves to assembly of finished cars, GM took the bold initiative to tie up with the government for R&D functions. GM’s PATAC, a joint venture R&D centre is an independent automotive research development company (Hara & Nakanishi, 2004). Today GM has local production, has established an R&D function, as well as developed its own sales channels to create a local sales function. Hence, the move by GM can be said to be strategic to have taken an initiative when others were hesitant against government policies in China. Motorola of US had clearly defined investment and insiderization policies (Hara & Nakanishi). It established joint committee with the government Electronics Department. It set targets for local content, carried out philanthropic activities including construction of elementary schools. It concentrated on high-end users in mobile phones sector to handle local competition. It could capture the sophisticated, wealthy, and young users due to its innovative design. IBM shifted its focus from microchip processors to OC assembly but the market soon became saturated fro the PC. Since the personal computer market has become commoditized the opportunity for profits has shifted from PCs to microchip processors (Intel) and software development (Microsoft). Strategies have to be developed in advance to counter the effects of profit shifts in the value chain (Cravens, 2006). Threats and opportunities by the Japanese firms Hitachi has been responding to the challenges posed by the rapidly changing market globally. They have stuck to their corporate strategy and have initiated steps in every direction accordingly. Like Toyota and Matsushita, Hitachi too believes in sending Japanese expatriates to foreign locations. This practice of human resource management affects policies like job transfers, seniority based pay, and lays emphasis on control through specialization (Belberdos & Heijltjes, 2002). It is effective to the extent that it can practice total quality control systems and JIT procedures. Rapid technological advances changed the industrial and market structure. Most electronics products now have short life-cycles and constant radical innovation. As a result cost reduction and product differentiation become critical to sustenance. In this case, Hitachi has responded by introducing innovative products. In response to this challenge, Hitachi aims that its new products would account for 75% of the total production shipments in 2007 from 50% in 2005 (Business Wire). Hitachi is now localizing development, production, marketing and service operations. This would accelerate globalization and improve the earnings of overseas business operations. The overseas sales are expected to go up to 45% by 2009, up from 38% in 2005 (Business Wire). While in Europe they would emphasize on railway system storage and power, in US they would concentrate on consulting and automotive equipments systems. In China the growth areas would be elevators and escalators. Localization of operations would help it to strengthen growth businesses. Migrant flows and internationalization of personnel It is generally difficult to find qualified engineers in the US workforce which led to a dramatic rise in migrants. It has been argued that this could also be as more job opportunities and better career prospects for the people was available in the filed of law and finance, which discouraged the US workforce to seek qualifications in science and engineering. While the European firms had a steady supply of their own engineers the US firms faced shortages which led to increased migrant flow. Japanese firms have traditionally helped each other in foreign countries, especially Matsushita, Toyota and Hitachi. They have strong incentives to replicate their domestic keiretsu relationship overseas. One large firm overseas would take the lead and help other firms to settle down in that country. Since the 1990s the Japanese electronics industry started facing tremendous pressure due to various reasons (Belberdos & Zou, 2006). The purpose of any company from the triad markets to become global is a response to competition and the pressure to reduce costs without compromising on quality of goods and services. While the US takes advantage of the cheaper transportation costs and the new communication technologies and outsources its production and software development to other nations, UK has a more conservative approach, The Bush administration is convinced that shifting the white collar jobs to the developing countries might cause short term pain but is a part of the positive transformation that will enrich the US economy over time (Vieth & Chen, 2004). Outsourcing is not just a new way of doing international trade; it has also opened up new areas and products that can be traded. Venkatraman (2004) asserts that outsourcing business process at lower costs and without significant loss of quality is increasingly becoming viable. This has resulted in downward pressure on domestic salaries. UK prefers to outsource it within Europe rather than offshore outsourcing. UK’s Cooperative Bank feels it is not advisable to locate their bank’s call center in India since its call centers were a critical capability and should be right shored to its own people (Gottfredson & Phillips, 2005). These people are trained and managed by the bank themselves with a dedicated focus on the customer’s needs. UK-based HSBC offshores its call centers for the same reason – serve the customers better. Similarly, Harland et al state that some organizations do not attain the desired benefit of outsourcing. According to a survey only 5 per cent of companies surveyed achieved significant benefits from outsourcing. This was due to focus on short term benefits, lack of formal outsourcing decision making process, and increased complexity in the total supply network. Hence as far as outsourcing is concerned while the US concentrates on reducing costs, UK feels they would be compromising on services if they offshore. Technology is the driving force for economic progress. High-tech markets experiences complexity and speed of change, market uncertainties, demand-side increasing returns, network compatibility issues, and tradability issues. These characteristics challenge the traditional approaches and concepts. Cultural diversity is another factor which increases the threats to operating global business. Rugman asserts that mangers should focus on regional business networks and triad clusters and competitors rather than developing pure global strategies. MNEs have come to accept that a pure pushy global strategy does not apply everywhere. Regional fine-tuning is essential in every sector be it the fast food, the hospitality industry, manufacturing or software development (Axinn & Matthyssens, 2001). According to Hofstede (1984), different cultures imply different mental programming, which governs activities, motivation and values (cited by Gilbert & Tsao). As such, the Ritz Carlton Hotel in the USA received the Malcolm Baldridge award for quality in 1992 but encountered problems in Hong Kong. Huyton and Ingold (1995) identified culture as the main cause. The ‘best practice’ approach of USA was not feasible in this setting. The Hong King culture did not permit them to work too closely with each or to share information as ‘knowledge is power’ (cited by Hope & Mühlemann). Teare (1995) emphasizes that the incentive packages too have to be flexible and vary across nations. The German managers in the hospitality industry prefer incentive based on thirteen-month salary bonus rather than a non-contributory pension scheme used in USA. The Great Wall Sheraton Hotel Beijing is a joint venture enterprise between the American ITT Sheraton Corporation and various Chinese business partners, and operated through a management contract under the brand name of ITT Sheraton Hotels and Resorts. ITT Sheraton’s global reputation for service excellence and quality requires the Beijing hotel’s commitment to quality and customer satisfaction (Mwaura, Sutton & Roberts, 1998). The Great Wall Sheraton Hotel has its own distinct US-influenced corporate culture. US companies strongly adhere to the US cultural values of social mobility, economic achievement, closeness to the customer and productivity through people but the influence of the Chinese is present in the environment, the language, the folklore and the practices of government, business and interpersonal relations. Theorists therefore argue that the Chinese culture is a strong determinant of the ways in which organizations in China are managed. Research demonstrated areas of divergence of between national and corporate cultures, which led to management difficulties. The auto industry has made great inroads not just in the triad countries but virtually in all countries of the world. Western Europe is the weakest of the triad producers as most of the production is concentrate in their frontiers. The European market is facing the danger of being squeezed in their own markets as there is pressure from the US as well as from Japan (Donnelly, Mellahi & Morris, 2002). While the Americans have opened their own plants, Japanese vehicles are imported in Europe. The changing nature of the production known as lean production has forced the European car manufacturers to rethink its production strategy. In Europe new car demand is static and replacement demand predominates. Fiat followed the investment pattern of Ford but still failed to attain success like its American and Japanese counterparts. In the airlines industry low cost airlines have caused disruptive innovation in UK. Thus it is evident that most markets require value segmentation which was the cause of failure of Vodafone both in the US and the Japan market. Adapting to local culture is essential to succeed in the hospitality industry as the ‘best practice approach’ does not fit all. Even as far as outsourcing and offshoring is concerned, opinions differ in different markets which affect the strategy. While Japan believes in localizing production, the US wants to keep it within their control and Europe even wants to use their own staff. Europe’s strategy does not meet with success as local adaptation has become essential in which Japan scores over other triad markets. The US has been alert to understanding and accepting the local government policies and hence ahs been able to operate in several countries through joint ventures with the government as in the case of DHL. UK has used strategies like disruptive innovation apart from having a conservative approach which is responsible for the slow growth in every sector. Japan has a positive approach and believes in having strong vendor relations which has been duplicated by the US. While threats arise from different factors, opportunities too are plenty and the right strategy is to be at the right place in the right way at the right time. References: Axinn, C. N., & Matthyssens, P., (2001), Limits of Internationalization theories in an unlimited world, International Marketing Review, Vol. 19 No. 5 pp. 436-449 Belberdos, R. & Zou, J. (2006), Foreign Investment, Divestment and Relocation by Japanese Electronics Firms in East Asia, asian Economic Journal, Vol. 20 No 1, pp. 1-27 Business Wire (2006), Hitachi Announces Its Corporate Strategy, 01 June 2007 Business Wire (2006a), DHL Unveils First in China Strategy, 01 June 2007 Cravens, D., (2006), Staregic Marketings global challenges and opportunities, Handbook of Business Strategy, pp. 63-70 Donnelly, T., Mellahi, K., & Morris, D., (2002), The European Automobile Indutsry: escape from parochialism, European Business Review, Vol. 14 No. 1 p. 30-39 Gilbert, D. & Tsao, J. 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