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Ghemawat AAA Global Strategy Framework

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Question:

Discuss about the Ghemawat AAA Global Strategy Framework.
 
 

Answer:

Introduction

The business environment has become very competitive and companies need to reinvent and change on regular basis to achieve sustainable competitive advantages. Companies need to create capabilities through development and implementation of effective strategies to be able to achieve continuous growth. Ghemawat’s “AAA” global strategy framework is a strategic tool, which offers the companies three generic approaches for global value creation. These approaches are namely Adaptation, Aggregation and Arbitrage.The usageof these approaches is based upon companies' objectives and vision. 

Application of the “AAA” Global Strategy Framework

In the “AAA” Global Strategy Framework, the adaptation approach helps a company to increase the market share and total revenue by tailoring potential components of a company’s business model to fulfill the customers’ requirement or preferences. It is subdivided in five major categories such as variation, focus, externalization, design, and innovation.

Sub-division of the “AAA” Global Strategy Framework

Figure 1: Sub-division of the “AAA” Global Strategy Framework

Instead of this, aggregation strategy/approach is used to achieve economic scale and scope. Its objective is getting the benefit of the geographies similarities. On the other hand, arbitrage generic strategy is used for getting the global advantage through the reducing the cost reduction and risk reduction (Varbanova, 2013). The below tables is about the selection of AAA strategy through four companies under the two industries. 

AAA Strategy

Retail industry

Food industry

Adaptation,

Woolworths

Wesfarmers

Devondale Murray Goulburn

Teys Australia

Aggregation

 

 

 

Teys Australia

Arbitrage

Woolworths

Wesfarmers

 

 

Table 1: AAA Strategy Used by the Different Companies

Wesfarmers “A” Global Strategy

Wesfarmers also has a good market share in the retail industry. It has many supermarkets and stores worldwide. The strategy of the business expansion is aligned with AA global strategic. In this, Wesfarmers uses the adaptation approach in order to achieve the competitive advantage. The major aim of the company is to increase the marker share and annual sales. Through adaptation strategy, the company has increased its sales from 54513$M to 62129$M in the last five years (Wesfarmers, 2016). The company also takes the significant actions to simplify and improve its supply chain system. It supply chain system is based on the cost reduction. Along with this, the company’s strategy also focuses upon the new sales techniques and marketing channels that are able to increase the sales over the competitors (Varbanova, 2013). The strategy using the new marketing channel such as social media enables the firm to get access of large customers. Due to this, there has been a fine growth in the sales approximately 14%.    

Revenue and profitability Change and Growth of Wesfarmers

Figure 2: Revenue and profitability Change and Growth of Wesfarmers

Company’s strategy is also focused on expanding its business at the global level. As following this strategy; company has opened approximately 2417 stores and supermarket, there 20 million customers reach every week. The company also follows strong business culture strategy that enhances the customer loyalty toward the Wesfarmers’s stores. Along with this, Wesfarmers uses the arbitrage approach in order to achieve competitive advantage. It focuses on the use of psychological Pricing strategy to attract the customers. For example, it determines 9.99$ instead of 10.00$. The store location strategy is also based on the near the crowded area. It helps the company to access more and more customer in the stores (Eden and Ackerman 2013). The pricing strategy of the company focuses average income customers.   

Woolworths “AA” Global Strategy

Woolworths is a major retail company of Australia. The competitive strategy of the company is to provide a range of products at attractive prices through an extensive distribution which gives them the advantage over the competitors. The management of the Woolworths uses the AA global strategy under the Adaptation and arbitrage strategic approaches. In this, the consideration of the adaptation approach enables the company to increase the market share and revenue of the firm. In the company’s stores, there are various ranges available for a particular product according to price and quality. It allows the customers to select the product according to its willingness to pay. Its product variation strategy makes it different from the other small and large competitors. Woolworths also uses innovative strategy in the supply chain system that is able to provide a competitive advantage to the company. It is based on the increasing customer base and also trying to meet the needs of the customers.

revenue growth of the Woolworths

Figure 3: revenue growth of the Woolworths

Along with this, Woolworths also focuses also focuses on the arbitrage approach to achieve the competitive advantage (Woolworths limited, 2016). The company focuses on the cost-effectiveness strategy that helps to the company to determine the product price low than to its competitors. It also helps the company to attract more and more customers. The low pricing strategy is also effective to access more customers. Thus, the company reduces its business risks. Woolworths has also a good relationship with its suppliers, which help to develop new products and innovations for customers. 80% business of the company depends on the suppliers that show its dependency on the suppliers.            

Woolworths also uses to sell products worldwide that have been bought from the different companies after the price and quality comparison. The comparison of the price and quality of the products increase the bargaining ability of the company. Its benefit can be seen as procuring goods at the minimum cost. The vision of the company shows that its wants to provide quality products and services to its customer. All the strategies of the company follow this objective to deliver to customers the right shopping experience each and every time (Eden and Ackerman 2013). Hence, it can be said that through the effective use of Adaptation and Arbitrage strategies, company is able to provide good quality products to the customers and also provide a great experience each and every time.

Devondale Murray Goulburn “A”Global Strategy

The company follows the adaptation strategy and its major objective is to cover the major market of the Australian dairy farmers. By this strategy, it covers the mass market of the dairy industry in Australia and generates high revenues. The company focuses on the concept of covering local market at a broad level. There are majorly five key strategic areas below where the company works and increase the revenue and market share in the dairy industry (HBR, 2016).

Focus strategy – The company main target segment is farmer community and rural and regional areas of the Australian market. The company supplies 35% of dairy products and milk in major rural and regional areas of the country. The company supplies different products at different prices as per the area of the country. For example, high nutritional milk supplies to dairy farmers at low prices in a weaker section of the state. And similarly, the same product is also supplied at other economic sections at different prices. Heterogeneous prices due to the requirement of the areas (MGC, 2016).

Adaptation Strategy Used by the DMG

Figure 4: Adaptation Strategy Used by the DMG

Variation strategy- Company adopts variation strategy in services. Its supply chain channel and distribution centers are all over the country. Company’s tie up with global pediatric nutrition company and supply nutrition powder for infants in South Australia. In this strategic move, it reflects that the company changes their product strategy as per the growing needs of infants in South Australia. The company also opened the distribution centers in the remote areas of the society where the demand exceeds supply. Company’s products and policies are different in these areas and its work on a lower margin at higher volume (Mansfield, 2013).

Externalization Strategy- Company uses externalization strategy to tie up with French Food Company and provides nutritional diet supplements to the remote areas of the society. From this strategy, company business model is grown and its reaches the each and every part of the country. It also partnership with powder Company to supply the nutritious powder and milk to the Tasmania. This strategy benefits to the farmers and shareholders that gives the better returns and delivers best services in the country. The company opened the nutritional plant in Western Australia to meet the demand of the product. These partnerships depict the value added into their products and services (MGC, 2016).

Design strategy: Company opens distribution points in remote areas so that it reduces the cost of supply i.e. transportation costs and other local taxes. Company’s design distribution points as per the demand of the consumers. In most of the areas, the company offers the farms and complete dairy set up to the farmers and investors. From this strategy, the company meets the supply differences as per the area requirements. The company also fixed the standard supply prices of products and services for consumers according to the per capita income of the farmers (Ghemawat, 2013).

Innovation strategy: Company focus on product innovation continuously as per the changing needs of the customers according to the geographical differences. The company produces many dairy products such as milk, cheese and butter. As per the demand of the particular product the company changes the quantities of ingredients and flavors into the product. For e.g. company supply 15% of the high nutritious milk products to Tasmania due to demand and taste of the consumers. Similarly, the consumption of cheese in Queensland is 5% more than the milk due to taste and preferences of consumers (Davondale, 2016). The company opened the pediatric nutrition milk powder plant in Koroit, Western Australia, due to growing demands of infants market. The company also introduced the new package which assists the farmers and shareholders to tackle key challenges and make the most out from the business. So these innovations in products and supplies ensure success in future.

 

Teys Australia “AA”Global Strategy

Teys Australia adopts Adaptation and Aggregation strategy that help the company to capture the 25% of the market share in the beef market. Due to its high-quality beef meat production, company stepped into the international market as well. Below listed Adaptation strategies help company to become the largest exporter of quality meat in Australia (FutureBeef, 2016).

Focus strategy- Teys majorly export meat to China, Indonesia, Japan, USA, and South Koreavalued about 4.7 billion dollars. Due to an extreme low temperature in winter seasons, the consumption of meat is high. Company majorly focuses these countries and sells quality meats to increase its market share. In these countries, there are no restrictions on the sale of the beef.

Variation strategy- In several parts of Australia, climate conditions are adverse that affects the cattle fields. During that time, there is only about 1/4th of the total meat production locally. Government supports the company and cattle owners at that situation and made flexible export policies of trade for meat production. So, due to these climatic conditions, company follows this strategy to remain in the competition (TeysAustralia, 2016).

Externalization Strategy- Company’s 50:50 stake ventures with US-based Company Cargill, gives access to the global markets. It expands the base of the export in international markets. This strategy helps the company to increase net exports annually in different countries by 35%. After this partnership, there is an increase of feedlot capacity to 3000 to 17000 units. (TeysAustralia, 2016).

Innovation Strategy- After the joint venture between Teys and Cargill, Company competitiveness has increased due to the adoption of innovative technology and automated slaughterhouses. Due to its high technology and Automation, Company production cost and time reduced from 5% to 3%.The special red meat alone exported to 60% in the USA as compared to other meat variants. This product specialty and taste made the remarkable profits for the company (MLA, 2016).

How Adaptation Strategy Used by the Teys Australia

Figure 5: How Adaptation Strategy Used by the Teys Australia

Aggregation strategy- The Company adopted aggregate approach first, locally, and later, globally. The company opened its cattle houses and established beef processing units in Australia. After the 50% stake in the venture with Cargill group; the company exports the major production of meat in international markets. As Australian market is already penetrated, the company created the demand in the major international markets. Due to this strategic move,company achieves the economies of scale (Poynter, 2016).

Conclusion

From the above discussion, it can be concluded that “AAA” Global Strategic Framework is useful in framing, implementing, and monitoring companies’ strategies to achieve competitive advantage. The consideration of this enables the company to increase market share and total revenue. It can also be concluded that the all thechosen companies adopt different strategies to remain competitive in the market. Furthermore, it can be concluded that these strategies are beneficial for all the companies to attain the high revenues and capture major market share locally as well as globally.

 

Reference

Davondale (2016) News release.MurrayGoulburn establishing strategic supply alliance with Mead Johnson Nutrition. [Online].Available at: https://www.mgc.com.au/media/32160/2-ASX-Announcement-Mead-Johnson-Strategic-Supply-Alliance-15-March-2016.pdf (Accessed by: 13 September 2016)

Eden, C. and Ackerman F. (2013) Making Strategy: The Journey of Strategic Management.UK:SAGE

FutureBeef (2016) About FutureBeef. [Online].Available at: https://futurebeef.com.au/about/ (Accessed by: 13 September 2016)

Ghemawat (2013) Redefining Global Strategy: Crossing Borders in A World Where Differences Still Matter.USA: Harvard Business Press.

HBR (2016) Managing Differences: The Central Challenge of Global Strategy. [Online].Available at: https://hbr.org/2007/03/managing-differences-the-central-challenge-of-global-strategy (Accessed by: 13 September 2016)

Mansfield, R. (2013) Company Strategy and Organizational Design.UK: Routledge.

MGC (2016) Corporate strategy. [Online].Available at https://www.mgc.com.au/our-story/corporate-strategy/ (Accessed by: 13 September 2016)

MLA (2016) Innovation Review- Teys. [Online].Available at: https://off-farm.mla.com.au/Building-enterprise-capability/Innovation-Review-Teys (Accessed by: 13 September 2016)

Poynter (2016) the seven steps to a successful aggregation strategy for your news organization. [Online].Available at: https://www.poynter.org/2011/the-seven-steps-to-a-successful-aggregation-strategy-for-your-news-organization/137285/ (Accessed by: 13 September 2016)

TeysAustralia (2016) Teys Australia is a 50/50 partnership between the Teys family and the Cargill Company. [Online].Available at:  https://www.teysaust.com.au/about/ (Accessed by: 13 September 2016)

Varbanova, L. (2013) Strategic Management in the Arts.UK:Routledge

Wesfarmers (2016) Available at: https://www.wesfarmers.com.au/(Accessed: 12 September 2016)

Woolworths limited (2016) Available at:https://www.woolworthslimited.com.au/page/Who_We_Are/Strategy_and_Objectives/   (Accessed: 12 September 2016).

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