1. Chapter 14 Emerging Global Players:
The Companies

2. Emerging countries competitors
Haier Group
Cemex
SABMiller
Ranbaxy Laboratories Ltd
Huawei
Tata
Lenovo
Petronas 2

3. Globalization and local firms: the traditional views
High
Local firms are weak
Local firms are competing
with global firms
Global markets
Pressure to
globalize
Multidomestic markets
Strong positioning of local
enterprise
Local firms dominate
MNCs tend to dominate
Local firms can take advantage of
blind spots
Low
Competitive advantage
of local firms
Local knowledge
Global competences and capabilities
(costs, resources) 3

4. Globalization and local firms: recent views
The strategic logic of emerging countries competitors
Use their knowledge of local environment
Use their ‘national’ preference
Use their low labor costs
Sometime use their natural resources
On the domestic front
On the international front
Dominate bottom of the pyramid
Gain volume
Progressively push their capabilities upward
Eventually compete head-on with multinational players
Export low cost products
Buy ( copy?) technology 4

5. Globalization and local firms: recent views cont.
Development of national champions
Korea
China
1970’s
1980’s
1990’s and beyond
1960’s
1990’s
2000’s
2005 and beyond
Japan •
Low cost manufacturing based on low labor costs and financing
Large part of activities based on original equipment manufacturing minimizing marketing costs
Technology is acquired thru licensing or joint Ventures -
Time
Labor
costs still moderate
Brand creation and development
Investment in research and
develoment
International expansion
1970’s’s and beyond
Proprietary Technology
Own brand
International marketing
Sources of competitive advantage
Invest in advanced production technology

6. Globalization and local firms: the recent views cont.
Development of national champions
Compete head-on with traditional global firms
Start international expansion mainly by acquisitions
Invest in modern manufacturing technology
Start to build their own brand
Start their own R&D
Protected domestic markets
Low cost manufacturing based on low labour costs
In some cases access to natural resources
Technology is acquired through licensing or joint ventures
Large part of activities based
on original equipment manufacturing
Time
Step 1
Domestic player
and exporter
Step 2
Internationalization
Step 3
Global player 6

7. National champions: building the business
High-end markets
Dominated by multinationals
High
Performances
and
products/Services
Functionalities
Disruptive development paths
Low-end markets
dominated by domestic firms
Canon in Japan in the 60’s
Honda motorcycles in the 60’s
Galanz in China in the 90’s microwaves
TCL in China inTV
Samsung in Korea with microelectronics in the 80’s
Reliance in India in the 90’s in pharmaceuticals
Low
Time

8. Emerging competitive battlefield
Global
Multinational firms from USA, Europe, Japan, Korea and Australasia, plus emerging
Indian and Chinese mutinational firms)
Scope
Domestic players
both large and small
Local
Contextual and
political know-how
Low resource
costs
Technology
and marketing
Competitive approaches

9. Emerging competitive battlefield: China
High
DIFFERENTIATED
POSITIONING APPLIED
TO HIGH-END SEGMENTS
Price premium
Low volume
High costs
Good technolgy
Strong brands
Most Western competitors
EMERGING BATTLEFIELD
Low cost
Mass distribution
Differentiated
Technology
and
marketing advantages
COST LEADERSHIP
POSITIONING APPLIED TO HIGH VOLUME LOW END SEGMENTS
Low price
Mass distribution
Large Chinese competitors
E.g. Kanko, Haier
Low
High
Low
Local knowledge and preferential advantages

10. “Dragons at your door”
Chinese companies disrupt global competition through cost innovation.
i.e. they use cost advantages in radically new ways to offer customers around the world dramatically more for less
Start in China and overcome fragmentation
Export looking for loose bricks in competitors’ defenses
(unexplored markets or products)
Move up market: technology at low cost (licensing, copying) and variety at low cost
See Ming Zeng and Peter Williamson, Dragons at Your Door:
How Chinese Cost Innovation is Disrupting Global Competition.
Harvard Business School: 2007

11. Earth-moving equipment: wheel loaders
Global market: 720,000 units
China market: 120,000 units
Production capacity in China: 200,000 units
Prices:
CAT, Volvo: 120,000$
Komatzu: 60,000 $
Chinese co.’s 30,000 $
Chinese co. exported:
2,000 units in 2004
3,500 units in 2005

12. The Whirlpool story in China
By mid 1990’s Whirlpool had big ambition for Asia
China was considered to be a key market
Very fragmented industry with 650 appliances manufacturers operating in China
Customer focus on local brands
Some emerging Chinese leaders: KELON, Haier

13. The Whirlpool story in China cont.
Whirlpool entered in 1994:
JV in Beijing for refrigerators (Snowflake)
JV in Shanghai for washers (Whirlpool Narcissus)
JV in Shendu for microwaves (MCV)
JV in Shenzhen for air conditioners (Whirlpool Raybo)
Plus bigger Chinese HQ in Hong Kong and a Design Centre in Singapore
Whirlpool exited the market for refrigerators and air conditioners in 1997
Still produces compressors in Beijing, microwaves in Shendu and washers in Shanghai

14. The Whirlpool Story in China cont.
The market is dominated by local players
China’s appliances
market share in 2002
100%
90%
Other
80%
70%
Meiling
60%
50%
Xinfei
40%
Haier
30%
20%
10%
Kelon 0%

15. An example of a Chinese champion
HUAWEI TECHNOLOGIES
Telecommunication networks, products and solutions
Started in 1988: digital fixed switch
In 1997: launched GSM equipment
Established joint R&D labs with Texas Instruments, Motorola, IBM, Intel, Agere Systems, Sun Microsystems, Altera, Qualcomm, Infineon & Microsoft
As of 2005, Huawei Technologies has a total of 10 joint research labs
In 2000, Huawei established R&D centers in Silicon Valley and Dallas
Cisco Systems alleged that Huawei Technologies had infringed some of their technology patents (litigation was resolved)
4 billion USD revenues in 2004

16. Examples of Indian Champions
India's oldest business conglomerate
Spread over seven business sectors: engineering; chemicals; materials; energy; consumer products; IT; communication
98 companies operating in six continents
Sales of 28.8 billion USD in 2007
Employs some 289,500 people
TATA
Conglomerate
Created in 1961
India's largest pharmaceutical company
Ranked amongst the top ten generic companies worldwide
Manufacturing operations in 8 countries
Subsidiaries presence in 49 countries
Products available in over 125 countries
Went public in 1973
Company global sales of 1330 million USD in 2006
RANBAXY LABORATIES LTD
Pharmaceuticals 16

17. Multinational corporations from China and India
Bajajauto – Automotive
Cipla – Pharmaceuticals
Hindalco - Metals
Infosys – IT services
Mahindra – Automotive
Reliance – Chemicals
Tata Steel – Steel
Tata Tea – Food and beverages
Videocon – Consumer electronics
Wipro - Pharmaceuticals
Aluminium Corporation of China – metals
BYD – Consumer electronics
China Netcom – Telecom services
Sinopec – Fuels
Erdos – Textiles
Haier – Home appliances
Nanjing Automobile Corp. – Automotive
Shoushang - Steel
Tsingtao Brewery – Food and beverages
Wanxiang - Engineering

18. Cross-borders acquisitions from China and India
Million US $

19. Business groups in emerging countries
In most emerging countries the industrial, financial and trading
sectors are controlled by three groups of players:
Government-owned enterprises
Multinationals
Domestic “business groups”
The domestic business groups exhibit the following typical characteristics:
They are highly diversified
They are personally controlled
They are most often controlled by families or ethnic groups

20. Business groups in emerging countries cont.
Business groups control large sectors of economies:
Overseas Chinese in South East Asia
Korean Chaebol
Indian family groups
Rejuvenated state-owned enterprises in China
Latin American “grupos”

21. Overseas Chinese in South East Asia: traditional role
DISTRIBUTE
BUY
RURAL
AREAS
CREDIT
IMPORT
FOREIGN
COUNTRIES
CREDIT
DISTRIBUTE
URBAN
AREAS
P/OC/K/K 5

22. Evolution of overseas Chinese groups in Southeast Asia
Banking and
financial services
Real estate
Progressive vertical
integration in
upstream activities
Investment in
industrial activities
(assembling, downstream)
either direct, through joint ventures
or licensing
Diversified
activities
Diversified
activities
Diversified
activities
Diversified
activities
Start up in
“trading”

23. Overseas Chinese groups: organization and management

24. 8 billion USD before crisis
Charoen Pokphand
200 companies
8 billion USD before crisis
Animal Feed
Poultry
Milk
Pig Farming
Feedmill
machinery
Planatation
Animal health
Sausage
Meat
Farm
Aqua Feed
Shrimp
Chemical
Seeds
Plant
Protectiony
Logistics
Trading
Trucks
Motorcycles
Drill
Healthy
Drinks
Supermarkets
Frozen Foods
Distrib.
Real Estate
Condominium
Golf
PVC
Luggages
Toys
Sponge
Leather
Telephone
Cable TV
Fiber
Optics
Switching
Equip
Petroleum

25. Why so strong? Why so diversified?
Scarce resources
Over-regulated economies
Market imperfection
Monopolies
Lack of reliable information
Opportunities
Inefficient judicial systems
Simplified “business systems”

26. Do business groups add value?
Source of value added
Modern Western managerial
and financial theories about
the value of a group
Emerging countries
Yes - in developing markets, personalised control reinforces discipline
Some resource transfer, vertical integration, otherwise little
Yes definitely
Yes - as long as market imperfections stay
Not per se but pride to belong to a reputable corporation
Discipline: Implementation of rigorous management practices
Synergies: Resource pooling and transfer; asset sharing; competencies transfer
Leverage: Access to scarce resources; political clout; image
Innovation: ability to develop new businesses

27. How groups in developing countries handle such diversity
In each of the businesses - limited competition (monopolies, oligopolies)
Innovation (products, processes) is purchased (licensing, joint ventures)
Marketing is essentially a matter of sales and distribution - brands are sourced externally, as are products
The key managerial task is to run logistics and production efficiently
Logistics
Production
Innovation
Marketing
Concentrate on sales and distribution in oligopolistic markets. Brands and products sourced externally.
Obtained through licensing and joint ventures
Key operational
task

28. What has changed? Markets pressures: globalization, deregulation
Increased competition both domestic and international
More complexity in management because of the need to develop
its own R&D and marketing capabilities
Increasing financial stakes due to the move towards capital intensive
activities
Overcapacities
Higher dependencies on foreign capital

29. What are the consequences?
Since mid-1998, a large number of Asian entrepreneurial conglomerates have announced a series of moves under the generic heading ‘restructuring’.
COST CUTTING: wage cuts; bonus freezes; headcount reduction
DEBTS RESTRUCTURING: the 200% D/E ratio imposed in Korea
PORTFOLIO REDEFINITION: definition of core business; concentration of similar activities in the same group; inter-group mergers
DIVESTMENT OF NON-CORE ACTIVITIES: spin off; selling off
REORGANIZATION: flatter structures; decentralization of decision-making