IB L2 2013 (1)

7/27/2019 IB L2 2013 (1)

1/29

Tying it up

Seeing the ElephantDataClear

Key points of the case:-

Software is a global business, what you dont

learn early about cross border management will

come back to haunt you later. ClearCloud is a complex product, it needs

service infrastructure, manuals translated into

local languages.

Id stay focused on US as long as possible..

The Salmon was visible under the

surface.were the conditions here

different?

7/27/2019 IB L2 2013 (1)

2/29

Tying it up


Interpretation:-

Its imperative that DataClear goes global

However at this juncture It lacks the resources and

capabilities to go global But that doesnt mean that it sits with hands folded!

A lot of background work is required before the first

overseas office is opened. The value chain needs to be

well defined with each activity The US market is still unexplored

The opportunity to expand and go global is visible, yet

the company lacks the ability to seize the moment

7/27/2019 IB L2 2013 (1)

3/29

Tying it up


Objective- Build capabilities of cross border management

ScopeDefine what ClearCloud offers to clients

Advantage- To cross the $ 100 million mark in next

years and provide maximum return to the investing

partners

UVPTo offer what VisiDat doesnt

Value ChainTo tie up all back office work and service

Trade-offDefine what DataClear will never do FitSynchronize and minimize the thru-put time of

activities

ConsistencyNever react to a competitors offerings

(Intel)

7/27/2019 IB L2 2013 (1)

4/29

Tying it up

Seeing the ElephantEuro Disney

Key Points of the Case:-

Respecting and utilizing French culture in its themes

Euro Disney was expected to generate 28000 jobs and

boost real estate industry

The site was being set up in one of the richest

agricultural land in France

Disneys strict appearance code and enforcement of

American WAY of doing things In first six months only 29% of the visitors were French

Major payment disputes arose with subcontractors

The next Government in 1996 didnt agree or support the

terms and conditions agreed upon by its predecessor

7/27/2019 IB L2 2013 (1)

5/29

Tying it up


Interpretation:- Disneys strict appearance code and American Way of

doing things was in direct contradiction of the agreementto respect French Culture

The appearance code while conforming to certain basicaspects of cleanliness and uniformity had to take intoaccount French sensitivities, this was not helping theemployment issue

For the first time Disney was operating in a multi lingual

and multi cultural setup, where there were less admirersof the American WAY.

The Arrogance of being a Big MNC didnt go down wellwith French Public, Contractors, visitors to the park,

employees and the powers that be

7/27/2019 IB L2 2013 (1)

6/29

Tying it up


Objective To help the host country tide over employmentand other economic issues

Scope- To promote family entertainment, while beingsensitive to European culture

Advantage Become the largest and the most popularentertainment park in entire Europe over a period of 10 years

UVPAmerican icons in an European guise!

Value Chain Float tenders in all European languages andnegotiate well with contractors

Trade-offpromote and impose the American Way

FitRelook all the activities of the park in European context

Continuity Evolve as a multicultural and multilingualentertainment destination

7/27/2019 IB L2 2013 (1)

7/29

Tying it up

Seeing the ElephantKonka

Key Points of the Case:- By 1999 Konka was the Largest CTV maker in China

By end of 1999, Konka diversified into Mobile handsets

Konka started as a subcontract manufacturer, later on with

a series of acquisitions it became a large player in thedomestic market with Govt. support

The Chinese CTV industry was marked by excess capacityand price wars

Konka expanded overseas in the low end of the CTVmarket in Australia and US. In India its initial foraysfailed due to wrong tie ups and later on due to stiffdomestic competition

Technology was not easy to acquire and not capital

intensive, therefore was a commodity

7/27/2019 IB L2 2013 (1)

8/29

Tying it up

Seeing the ElephantKonka

Interpretation of the Case:-

The deciding factor here was INDUSTRY DYNAMICS

The industry dynamics in two of the biggest emerging

markets were sameovercapacity, strong competitors

and price wars

The domestic growth was attained with Govt. support

and Konka lacked the cross border talent and asset

management skills, essential to become a global giant.

Its branding in overseas markets was a major issue

To its credit, Konka attempted to narrow the technology

gap with HDTV

The initial headways were left to be consolidated

7/27/2019 IB L2 2013 (1)

9/29

Tying it upSeeing the ElephantKonka

Objective- to capture the low end of the Asian markets, esp.in India

Scope- Low priced, easily serviceable, yet smart looking TVsets for the lower segment of the population

Advantageto become the largest CTV maker by volume in

all major emerging Asian Markets and later on in all BRICmarkets

UVPLow price, high quality, pride of ownership

Value chain- Build a sourcing network from China toMalaysia

Trade-offDont compete with the likes of Sony

Fitminimize the cost and time of activities

ContinuityGradually evolve as a leading Televisioncompany over a period of 20 years.

7/27/2019 IB L2 2013 (1)

10/29

The 3 Cs of making the Elephant Walk

COMMITMENT

CO-

EVOLUTION

COST

INNOVATION

7/27/2019 IB L2 2013 (1)

11/29

The 3 Cs of making the Elephant Walk

Strategic CommitmentHyundai in India

Strategic Co-EvolutionPanasonic in China

Strategic Cost InnovationHonda in Vietnam

7/27/2019 IB L2 2013 (1)

12/29

The Core of the Diamond

Till mid 2000s, the business model of leading MNCs

involved sourcing from low cost hubs and selling it at 10-20 times the total cost in developed markets. The huge

margins covered all overheads, yet provided a decent

ROCE.

The financial meltdown of 2008-9 and the subsequent

Euro Zone crisis changed all that. The developed markets

now have an ageing population, slow growth rates, double

digit unemployment and high levels of debt.

As a result, MNCs have now turned their attention to

EMERGING markets of BRIC nations and SA.

Whereas the products they have sold so far and their high

margin business models are unsuitable for emerging

markets

7/27/2019 IB L2 2013 (1)

13/29


To add to their woes, they will now have to contend withemerging market giants, like Hyundai, Samsung, Huawei,Haier, Tata Motors, M&M and so on. These emergingmarket giants know their home base better than the MNCsfrom Japan, Germany or USA.

Competing on emerging markets require a complete

rethink of the existing business model of the MNCs andthey will have to be ready for with a business model todrill into the core of the diamond.

income range % population % Consumption

Upper class > $ 60k 2 17

Middle class 14k-59k 37 55

Lower class 14k< 61 28

(Source- Mckinsey Qtly, July 2010.)

7/27/2019 IB L2 2013 (1)

14/29


The consumption distribution has transitioned from apyramid into a diamond shaped structure over last 10years

Which suggests that the potential of emerging markets likeIndia and China, may now reside at the core of thediamond. For India this translates to a population of 40

crores approx and growing. Majority of the European, American and Japanese MNCs

didnt have a business model and a product range to sell tothis core of the diamond, where purchasing power andtastes and preferences vary widely, from region to region

This calls for a mass customized business level strategy,atomization of the value chain and standardization ofglobal product platforms, which paradoxically will bringdown the cost of customization.

7/27/2019 IB L2 2013 (1)

15/29

Drilling into the Diamond-Strategic

Commitment- Hyundai in India

Market Shares of Leading Auto Companies in India as of

2013 in passenger cars (source:- www.autobei.com)

MSIL39% (1051046)

Hyundai14% (383611)

Tata -12% (314464)

M&M -11.5% (310707)

Toyota6% (165504)

GM -3.3% (88150)

Ford 2.9% (77,225) Honda -2.75% (73,483)

VW2.4% (65,465)

Renault1.9% (52463)

7/27/2019 IB L2 2013 (1)

16/29



Model Wise top 10, March 2013 (source teambhp)

Alto27356

Dzire -20078

Swift19654

Wagon-R-14681

Bolero -11675

I 10 -8686

Eon -8604

Innova8422 I 20 -6988

Duster -6313

7/27/2019 IB L2 2013 (1)

17/29



WHAT DID HYUNDAI DODIFFERENTLY?

7/27/2019 IB L2 2013 (1)

18/29



Unlike the big six who were testing the waters in 1996

with stripped down models, Hyundai pursued anaggressive FDI strategy and set up shop in India.

It focused on the upwardly mobile Indian middle classconsumer (the then purchaser of Zen model of Maruti), forwhom buying a car was NOT A LET-DOWN on

international terms

It hired top notch Bollywood stars

It marketed models with contemporary designs andtechnology at prices closely matching the market leader.

It showed high levels of commitment towards the Indianconsumer and the Indian market with a large factory (&not looked down on him as a poor man who cant afford acar) and invested heavily in after sales with more than 300outlets within 2 years.

7/27/2019 IB L2 2013 (1)

19/29

Drilling into the Diamond-Strategic Co-

Evolution, Panasonic in China

The tension between local adaptation and global

integration is a perennial one. This tension is more amplified for MNCs entering

emerging markets, with vast regional and cultural

differences

The usual strategy is a trade-off, adapting a greater degreeof localization (McDonalds in India) or a greater degree of

globalization (Wal-Mart in China)

However with a high degree of coordination between the

country office and global office, a deeper localization canresult in a greater degree of knowledge assimilation in

corporate headquarters, which in turn can spark off

another round of localization this concept is known as

STRATEGIC CO-EVOLUTION

7/27/2019 IB L2 2013 (1)

20/29


Evolution, Panasonic in China Panasonic came to China in 1987 with a CRT unit for

televisions Panasonic during this time was organized along the lines

of SBUs. Each major product category had its own SBUhead. There were 40 SBUs then.

Between 2000 and 2006, under the then CEO Kunio

Nakamura, Panasonic reorganized itself into 14 businessdomain units. This companies broadly included similarproducts and the reorganization eliminated efforts inR&D, Marketing and service dept costs

In 2003, Panasonic created a separate company called Panasonic Corporation of China.

Back home, the Home appliance BDU had its HQ inKusatsu, Japan and had a Japan lifestyle research center,which provided inputs on consumer preferences to productdevelopment

7/27/2019 IB L2 2013 (1)

21/29



Overseas however Panasonic didnt have any such

research centers and its products outside Japan werelargely models modified for foreign markets, but

developed at home (a mistake the big six auto firms made

in India)

Panasonic around 2000 was losing market share to localcompetition and the company realized that without a

deeper understanding about the local consumer, their

competitiveness in Chinese markets will not last long

Addressing this concern, Panasonic opened a China lifestyle research center in 2005.

The center started creating an extensive local lifestyle

database

7/27/2019 IB L2 2013 (1)

22/29



The database build up a rich data bank on regional

differences. Such as use of short grain rice in northernChina, medium grain rice in central China and long grain

rice in southern China (similar to use of short grain rice in

Southern India and long grain rice in Northern India and

semi boiled rice in eastern India). The mission of CLRC goes beyond building a database of

local tastes and preferences. A staff member at CLRC is

usually assigned a product, say Washing Machine.

The staff member at CLRC collects data on washingmachine habits and usage across the country.

He then interacts with the BDU engineer in-charge of

product development of washing machines at Kusatsu

7/27/2019 IB L2 2013 (1)

23/29



One of key findings of CLRC was that 90% of the

housewives washed under garments with hand, althoughthey had washing machines.

In-depth interviews with housewives revealed that they

fear about bacterial infection of under garments, when

washed in washing machine with normal garmentsexposed to dust and infections from streets.

Accordingly it was communicated to Kusatsu about

incorporating bacteria sterilization function in the product-

Panasonic didnt have this technology at its disposal then. The BDU in Kusatsu came out with a washing machine

with sterilization function after an year, and made it a

standard feature in all washing machines (Globalization),

which resulted in a 15% market share, up from 3%.

7/27/2019 IB L2 2013 (1)

24/29



Once Panasonic had the technology enabler (Sterilization),

it allowed the CLRC to probe further into local adaptation(yet deeper localization)

Panasonic then opened a European Lifestyle Research

Center in 2009, a similar center was opened in 2010 in

India. The company is further exploring the co-evolution

dynamics with its Marugoto (Wall to Wall) philosophy.

A wall to wall approach, entails making all electronic and

electrical appliances used at homes world wide, whichcalls for a high degree of localization combined with

global technology platforms.

7/27/2019 IB L2 2013 (1)

25/29

Drilling into the Diamond-Strategic Cost

InnovationHonda in Vietnam

The Japanese companies are used to selling high quality

products at a premium price in West, yet they offer morefeatures at a comparable price than their western

counterparts (made possible by lean manufacturing). This

has been the USP of Japanese auto and home appliance

companies for very long now. Honda in Vietnam had a 35% market share in bikes in

1996. By 2001 it dipped to 10%, in face of competition

from low cost Chinese bikes.

Honda sold its flagship model CUB in emergingmarkets like Cambodia, Vietnam, Burma and Thailand for

$ 1500. The Chinese bikes were selling for $ 500 to $ 700

and the overall bike market had expanded by 300% to 2

million units in five years, due to advent of Chinese bikes.

7/27/2019 IB L2 2013 (1)

26/29


InnovationHonda in Vietnam But Hondas sales stagnated at 10% and was decreasing

day by day. Through this Honda learned that there is ahuge market at sub $ 750 price range and it doesnt have a

model to adress this segment (A predicament face by top 6

auto firms in India in 1996, and they are still addressing

that!).

Research revealed that the Vietnamese cities are very

crowded and they rarely drive at speeds exceeding 80

kms/hr. Therefore the need of the hour is a fuel efficient,

low cost bike with minimum features, that will transport

the person from point A to B (Something Hero Honda didin India in 1985). The Vietnamese are looking at

transporters, not life style products.

Accordingly a new bike called WAVE was introduced in

2002 with a price tag of $ 800.

7/27/2019 IB L2 2013 (1)

27/29


InnovationHonda in Vietnam Key Lessons

Jugaad or Frugal Innovation

A deeper insight into evolving customer preferences

Willing to work with diversity

Providing a greater degree of autonomy to the local unit,

strategy should not be formed in New York, Tokyo orMunich

Building up a cross country network of parts and

component suppliers, as Honda did with its CUB and

WAVE models and with CITY in India. This allowedHonda to access the ASEAN market, as well as the Indian

market.

7/27/2019 IB L2 2013 (1)

28/29

Making the Elephant Walk

CommitmentUnderstand your host better

Co-Evolution adapt to local tastes betterbuild newerglobal technology and management practices probe

deeper into the continuously evolving and expanding

milieu of cultures.

Frugal Innovation Develop newer products, with worldclass quality at affordable prices.

7/27/2019 IB L2 2013 (1)

29/29

Making the Elephant Walk: Key Strategic

Points to consider Fluid and evolving segments, not well defined

A mix of lifestyle and need driven segments

Scope exists for creation of new product categories

A need for sturdy, maintenance free and functional

products

A still price sensitive and emerging middle class Highly fragmented and poorly connected distribution

channels

Problem of scaling up quickly

Multiple price points and multiple customizations

Danger of overestimation of the market (a billion middle

class)

Documents

IB L2 2013 (1)