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Competitive Strategy Australia Add in library

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Question:

Students need to research and identify 2 to 3 companies from the following 2 or 3 industries to apply “AAA” framework:
  • Car Industry
  • Beer Industry
  • Steel industry
  • Processed food/Small goods
  • Computer Hardware (can be Lenovo/Motorola in China as per subject outline)
  • Computer Software
  • Pharmaceutical Industry
  • Health Care and medical services
  • Airline
  • Each member needs to bring two journal articles on the company/industry and explain how this company has been pursuing some or all the elements of this “AAA” framework.
  • Has this company been successful or not successful in pursuing their business by using this framework?
  • In conclusion – Your comments !
  • Every member needs to submit 2 articles each with their assignment (hard copy)
  • Assessment criteria have been given in the subject outline.
  • References Harvard style

Note: There are 5 people in this group and need 2 articles each in 250 words each on the company/industry and explain how the company has been pursuing some or all the elements of this “AAA” framework.

 

Answer:

1. Introduction to AAA Framework:

When it comes to worldwide procedure, most business pioneers and scholastics make two suppositions: first and foremost, that the focal test is to strike the privilege adjust between economies of scale and responsiveness to nearby conditions, and second, that the more attention organizations put on scale economies in their overall operations, the more global their methods will be.

The AAA Framework is an acronym for Adaption Aggregation Arbitrage. Adaption may refer to getting in sync with a foreign country’s culture and legislations.

Aggregation refers to a company’s decision to differentiate different markets, for example, a UK based company wants to exploit the huge market in a Developing economy such as China will concentrate more in China and less focus on a Developed economy like USA, or even its home country UK.

Arbitrage is somewhat the opposite of Adaption, it refers to exploiting foreign markets rather than adapting to it. For example, a lot of US based companies outsource a lot of activities to low cost destinations such as India.

Let us compare some Multi-national corporations from various industries who have employed the AAA Framework.

2. Aggregation in Healthcare: Outsourcing Radiology services to India by US:

Owing to cheaper costs (as less as 1/8th) a lot of radiology services are outsourced to India by the US. This has been made possible due to the advent of technology and an increase in the labour force in India who are skilled and qualified to perform such services.

The process of this outsourcing is not done due to cost cutting alone; the quality of the workforce operating in India, when it comes to radiology is extremely efficient and effective. It adds to the quality. Moreover, due to the time difference, these services are ready in the US by the following morning.

 
3. Adaption by Coco-Cola in Spain:

Coco-Cola withdrew its two litre bottles from Spain after realizing that most Spaniards did not own refrigerators that had compartments big enough to store the two litre variety.

This is an excellent example in adaptability by a huge MNC like Coco-Cola. They quickly realized that the two litre bottles would not sell as much as in Spain as in other countries. Two litre bottles generally are not consumed immediately. It is stored for continuous usage. Refrigerators are the machines that store these bottles. Hence Coco-Cola showed an example of adaptability in this case.

4. Flat packaging by IKEA:

Another example in adaptation used by a company to successfully innovate and enter new markets would be the Flat packaging techniques employed by IKEA.

The Flat packaging has helped IKEA reduce on transportation costs, and hence it has been able to expand to newer markets because of this advantage.

5. Philips adapting to the smaller Japanese Kitchens:

Like Coco-Cola, Philips too showed immense adaptability when it reduced the size of its coffee makers to suit the smaller Japanese kitchens.

The size of kitchens in Japan is considerably smaller than most other parts of the world. Philips had a coffee maker that was too big for most Japanese homes. In order to fully tap the potential in the Japanese market, Philips innovated and reduced the size of its coffee machines to suit and gel into the small kitchens in Japan.

6. Starbucks closing in Israel:

Starbucks being forced to withdraw its operations in Israel can be cited as an example of Aggregation by the company.

A huge multinational corporation, Starbucks had to exit Israel due to lack of proper planning. However, the exit itself can be seen as an example of Aggregation. Starbucks closed operations in Israel due to a mismatch of corporate cultures with its Joint Venture Partner Delek Israel Fuel Company (DIFC) in Israel.

 
7. Tata Nano and its policy of aggregation:

Tata Nano, owned and manufactured by Tata Motors is an economy four wheeler, costing around $20,000. The directors at the company realized that the car would not be marketed in developed countries such as USA or in the European Union, and thus have decided to sell the cars in only emerging markets such as Sri Lanka India etc.

This could be cited as an example of reverse innovation in a globalized economy, however it has aggregation attributes to it.

8. Cognizant’s AA Strategy:

Cognizant, started with its operations in India, but soon expanded to USA. Their change in markets is not a routine one. They have successfully implemented a dual model in either country. Each model is specific to either country (one for India, one for USA).

Cognizant is an example of Adaptation as well as Arbitrage. While it may be uncommon for a company to practise both, as they are contradictory in nature, Cognizant has managed to achieve this feat. While they hire more non Indians than Indians in their organization, the employees are sent to India for cultural assimilation. Moreover, all proposals are jointly carried out in India as well as USA.

9. Shift from Adaption to Aggregation for Philips Medical Systems:

While Philips Medical systems (PMS) mainly concentrated on adapting techniques in its local countries, its highly efficient competitors from Japan were concentrating on Aggregation, which was making PMS lose out on a great deal of market share.

However, soom PMS realized that adaption wasn’t the solution for them and joined the strategy of aggregation.

10. IBM follows into the Aggregation model:

A similar problem was sighted with IBM, as in the case of PMS (above). With its high adapting country centric management, IBM was losing out on achieving economies of scale. However, it too shifted to aggregating policies, by focussing on regions rather than being country specific.

11. Lufthansa adapts to local cuisines:

After major problems and complaints with its on board meals, Lufthansa finally decided to serve country specific meals, especially in the countries of its operation. This shows an adaptive technique by the German Airline.

 
12. Conclusions:

For a large portion of the previous 25 years, the talk of globalization has been focused on business sectors. Just as of late has the spotlight turned to generation, as firms have ended up mindful of the arbitrage opportunities accessible through off shoring. This wonder seems to have outpaced key considering it. Numerous scholastic compositions stay concentrated on the globalization (or non globalization) of business sectors. Furthermore just a modest division of the numerous organizations that participate in off shoring seem to contemplate it deliberately: Only 1% of the respondents to a late review led by Arie Lewin at Duke University say that their organization has a corporate wide methodology in this respect. The AAA system gives a premise to considering worldwide methodologies that envelops every one of the three compelling reactions to the substantial contrasts that emerge at national fringes. Clearer considering the full scope of technique choices ought to expand the apparent open doors, hone key decisions, and upgrade worldwide execution.

 

References:

Ghemawat, P. (2007) Differences: The Central Challenge of Global Strategy, March, [Online], Available: https://hbr.org/2007/03/managing-differences-the-central-challenge-of-global-strategy [15 January 2015].

Govindarajan & Ramamurti (2011) 'REVERSE INNOVATION, EMERGING MARKETS,AND GLOBAL STRATEGY', Global Strategy Journal, pp. 191-205.

Gustaffson et al (n.d) 'An IKEA Case Study', Lund University.

https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=541306&fileOId=626088

Kalnins & Stroock (2011) 'Pouring Israel into a Starbucks Cup', Cornell University School of Hotel Administration.

https://scholarship.sha.cornell.edu/cgi/viewcontent.cgi?article=1229&context=articles

Kotler, P. (1986) 'Global Standardization - Courting Danger.', The Journal of Consumer Marketing, vol. 3, no. 2.

Levy & Hu (2006) 'Offshoring Radiology Services to India', Massachusets Institute of Technology Working Paper, September.

Lufthansa (2015) Food and beverages, [Online], Available: https://www.lufthansa.com/in/en/Food-and-beverages_1 [15 January 2015].

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