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International Marketing Handout

Globality: Why Companies Are Competing with Everyone from Everywhere for Everything

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A global maker of baby products invents a new product every 12 hours. An automaker owns two of the

world most prestigious luxury car brands and also makes the world’s cheapest car. A telecom firm uses a

novel distribution channel that achieves near perfect deliveries without computers.

Well, these three companies have in common is all are based in so-called rapidly developing economies

and they are putting the world of global business on notice. According to globality, a new book by Harold

Sirkin, James Hemerling and Arindam Bhattacharya, colleagues from the Boston consulting group.

Harold L.Sirkin (senior partner & managing director, BCG): Globality is the word comes after

globalization. For last forty years, we have heard about the global economy emerging. But for the first

time we are seeing it happen. We are seeing companies from India, China, Russia, and Brazil emerging to

become real competitors. That’s the sign we’ve entered the era of globality.

Prof. Mauro F. Guillen (Wharton Management Department): It is no secret that a lot of European and

American and also Japanese companies are in trouble and the pressure they see is coming from emerging

market multinationals. I think this has taken a lot of us by surprise is the speed at which the process is

taking place. So it was to be expected Indian firms or Chinese firms, or Mexican firms, which sooner or

later become competitive threats.

Prof. Mauro F. Guillen (Wharton Management Department): Five years ago, nobody was thinking

about this.

Harold L. Sirkin (senior partner & managing director, BCG): The global playing field is lovely.

In this report, we examine how the world largest firms from the most powerful nations are increasingly

being threatened by emerging challenges with lower costs, innovative products, and global ambitions.

During the earlier phases of globalization, many companies saw going global as a choice. They could

make a decision to participate in the phenomenon by operating in low cost countries, seeking out foreign

markets and availing themselves of global supply chain resources or not.

Harold L. Sirkin (senior partner & managing director, BCG): Going global is no longer a choice. If you

don’t capture the low cost, you will be at a significant cost disadvantage. If you don’t capture the large

markets, you will miss tremendous scale benefits and if you don’t capture learnings, you remain behind

the competitors. Going global, participating in the world of globality is no longer a choice. It’s a must for

survival.

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A perfect example of a global challenger is TATA motors. Though the firm had been a huge auto

producer in India since the 1960s, few People out of the country gave it much thought. TATA has now a

developed a nano car. A $2500 car that has very few features but it’s the world’s cheapest car.

Harold L. Sirkin (senior partner & managing director, BCG): At the same time, TATA decided it would

buy Jaguar and Land Rover from Ford. Tata’s further expansion in the automotive business has

significant implications for the world’s automakers. On the low-end side, you see summing the world

never has been thought about in either Detroit or Nagoya or Stuttgart. Engineers would never believe you

could produce a $2500 car but TATA does. On the high end Tata’s new brands, Jaguar and Land Rover,

give them the ability to take their production which is high quality and produce the versions of those cars

at substantial lower cost which will challenge a lot of the high end automotive manufactures.

A number of factors created these new competitive pressures. One example is governments that control

more than half the world’s population have been opening their economist to global competition.

Prof. Stephen J. Kobrin (Wharton Management Department): The World Bank called it the sea change

in attitudes and over the course of late 80s and through the 90s, most developing countries opened up,

moved to its market economies by privatizing and deregulating and really saw that their way of

development and growth was to participate in the world economy.

In 1969, The Brazilian government created Embraer to produce aircraft for the military and local airlines.

Prof. Mauro F. Guillen (Wharton Management Department): They were privatizing in the 1990s and

again this is another case of a company that has been learning how to use technology and how to develop

it. Given Brazil size and distance between cities, regional jets are an ideal mode of transportation. So

Embraer became an expert of producing these aircrafts.

Airlines love regional jets. They are lower cost because of different work rules. And because they are

smaller, they can serve markets that were uneconomical with large jets. On the other hand, passengers

generally hate region jets. They tend to be small, cramped, and noisy and passengers can’t get their bags

into the overhead bins, which are very small in regional jets.

Embraer looked at the problem and said it didn’t have to accept these compromises. Because the planes

can be redesign in a different way using the double bubble technology. They can design a regional jet that

is as economic for the airlines as the traditional regional jet. But it is also much better for passengers.

Prof. Mauro F. Guillen (Wharton Management Department): This is a sophisticated company obviously

in a hi-tech field. It is competitive and of course, sure, it has been subsidized over the years so has several

multi airs and so have an Airbus and Boeing.

That very obstacle that make it hard to do business in emerging economies can actually create competitive

advantage for the firms who learn to overcome the obstacles, Professor Guillen has found.

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Prof. Mauro F. Guillen (Wharton Management Department): It’s good preparation for life. It builds

character but most importantly, it makes you essentially look for an efficient solution to whatever

problems come up. Because they were operating in markets or in countries in which the transportation

system wasn’t good, you couldn’t get the supplies on time, you wouldn’t be able to find the appropriate

suppliers or you need to look for them. You wouldn’t able to find the enough managers so this is how

companies learned the hard way; how to run a business. And so when they enter the developed markets

where everything is easier then of course they win big. Because they have learnt how to be very efficient in

all of the sides of efficient context in which life is much much harder. And another very important part is

that the component of their advantages or the strategy is that they have developed the ability to come up

with products or services for niches in the market. And they know how to move very fast from product

assigning to product development and then manufacturing and distribution. And I think this has become a

key advantage.

An example is “Good Baby,” a Chinese producer of children’s toys and baby products. In 1989, a school

head master used a small bank loan to turn an A-link tool factory into a baby stroller’s manufacturer that

has for years produced low cost strollers for the world market. The company sells more than 1600 items in

15 categories including strollers, beds, clothing, car seats, toys, and diapers.

Harold L. Sirkin (senior partner & managing director, BCG): ‘Good Baby’ is an innovation machine. It

created new product every 12 hours. That’s more than 700 products each year. Good Baby, although

based in China has tailored its products to meet the needs of local consumers. So if you were to find a

good baby stroller in Scandinavia, it would have that beautiful, sleek Scandinavian design. When you go

buy a Good Baby stroller in Japan, it does exactly what the Japanese want. It folds up to the smallest

possible space. When you buy a Good Baby stroller in United States that looks more like an SUV. It’s

large and has plenty of room for cup holders.

No doubt, that the multinationals that bought expensive strollers from far away in China and rebranded

them for sale in the Europe and the US. Never imagined what a global powerhouse, they were helping to

create.

Harold L. Sirkin (senior partner & managing director, BCG): The challenges are growing very quickly.

Over the last three years, the challenges have grown at an average rate of 30% per year, which is more

than 3 times the speed of some of the fastest growing companies in the developed world. In spite of the

rapid growth, the challengers are very profitable. The average profitability in 2006 was 17%. The

average profit ability of the S&P 500 companies was only 14%.

Prof. Mauro F. Guillen (Wharton Management Department): The job of the CEO, the job of the

cooperative strategy has become even more complex because now you have to gather information from

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many more places around the world. And you have to do it really fast because some of these companies

are growing very quickly to become the major competitors in the respective industries.

These emerging challenges and others like them are successfully selling to competitive global markets. But

they also have an edge when it comes to selling in their town. The challengers are in a better position to

understand the local environment, culture and consumers and the ins and outs of reaching them. For

example, Bharti Airtel, an Indian mobile phone operator found an ingenious way to distribute sim chips

and prepaid phone cards to its customers in the city of Mumbai. The company created the delivery system

by tapping into the existing network of some 5000 dabba walas or lunch box carriers. These carriers

deliver thousands of hot meals every day from the homes of workers in the distant suburbs to the offices

down town without mixing up or losing the meal. Then return utensils to the workers homes in the

afternoon. The reliability of these carriers without using any computers exceeds that of six sigma. And

they keep the cost of their service low by using public transportation. Now along with curries and naan the

dabba wallas deliver phone cards and sim chips.

Exciting new solutions to the developed world’s biggest problems are also coming from unexpected

places. Even in health care, Aravind eye care in Tamil Nadu, India has become the world’s largest

provider of Cataract surgery, performing over 250,000 surgeries a year. In 1976, Dr. Van carter Swami

known as Dr. V began pursuing a goal of wiping out needless blindness.

Harold L. Sirkin (senior partner & managing director, BCG): Dr. V and Arvind looked at the world very

differently as I thought about Cataract surgery and better than a traditional hospital process in which

surgeries begin at about 7 o’clock in the morning and equipment only operates till 3 or 4 o’ clock in the

afternoon. They decided that they should take advantage of the availability of the equipment 24 hours a

day. So they have changed the entire process of surgery. And in Cataract surgery, they operate in

assembly line and the patients stay still but the doctor’s move from bed to bed doing exactly what they

need to do at that point in time. And it’s not enough Arvind eye care sells its product for about 40% of

what it might cost in United States, gives away 60% of its products that is it gives free surgeries to 60% of

the patients that it sees and still makes a profit. This ingenious approach by Arvind and Dr. V allows them

to cure hundreds and thousands of people of needless blindness. Many of those who got that surgery free.

Globality will affect everyone, everywhere, and everything and that means you, one day it may be your

company that Tata group wants to acquire, your child calling home from Shanghai, your gallop moving to

Mexico city and your brand new nano car gleaming in the drive way and if you learn to compete with

everyone from everywhere for everything, you might find globality offers you great opportunities than

you could have ever imagined.