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The Idea in Brief
In the largest emerging markets, established multinationals and local players are battling for dominance. Conventional wisdom says MNCs rule in high-end, knowledge-intensive businesses; local companies, in low-end segments where production and logistics matter most.
But the game is changing, say Ghemawat and Hout. Some MNCs in low-end segments are beating local players at their own game. And some local challengers are besting their supposedly more sophisticated competitors in knowledge-intensive industries.
Key ideas from the Harvard Business Review article By Pankaj Ghemawat, Thomas Hout Whichever type of company yours is, you can invade the other's turf using these strategies:
� Exploit evolving market conditions. MNC Otis Elevator beat locals in China during a high-rise construction boom by quickly building out a service network.
� Manage convergences in costs. As local players offer more sophisticated products, their cost advantage declines, creating openings for established MNCs.
� Rework value chains. For example, consider specializing in one part of the chain. Bharti Airtel outsourced everything but customer care--and became the largest mobile-services operation in India.
The Idea in PracticeA closer look at the three competitive strategies suggested by Ghemawat and Hout:
Exploit Evolving Market Conditions
As economies develop, customers and competitors evolve. By anticipating the changes and leveraging your knowledge of customers, you can spot opportunities to bundle services and products where you have an advantage.
Indian wind-turbine maker Suzlon Energy leveraged its local knowledge and networks to offer a turnkey approach to selling: It began helping customers acquire permits for wind farmland, deliver and maintain the farms, and sell the power generated. Profits from these parts of the business have sometimes been higher than from the turbines themselves.
Manage Convergences in Costs
Local companies in emerging markets formerly enjoyed cost advantages in manufacturing and distribution, based on their proximity to materials and customers. But that cost advantage is eroding: Governments in emerging markets are removing barriers to outside MNCs, thus lowering their costs. And market demand is forcing local players to offer more sophisticated products that cost more to produce. Result: a more level playing field for emerging and established MNCs. Both types of companies can work around or capitalize on this convergence.
India's software services provider Tata Consultancy Services is acquiring new low-cost capacity in locations outside India, such as Latin America. It's also investing in U.S. and European operations to defend its position with customers around the world.
Telecom MNC Nokia has expanded its Chinese production facilities, neutralizing up-and-coming local competitor Ningbo Bird's cost advantages.
Rework Value Chains
Emerging and established MNCs alike can find competitive opportunities by closely examining what customer needs may not be served by existing industry value chains. Some companies succeed by specializing; for example, Taiwanese computer assembly contractors help established multinationals such as Dell fend off competition from Chinese computer companies. And instead of competing with each other, they can collaborate to piece together and manage value chains across industries and geographies.
Li & Fung, the world's largest contract supply-chain-management firm, manages front-end design, marketing, sales, and corporate governance in Hong Kong and production in China. For instance, the company can source product anywhere in the world for Western retailers who simply provide the brand. Or it can go further and manage the brand for the client, as it does for Levi Strauss in Asia. |
