Fundamentals of Global Strategy Chapter 3 Generic Strategies for Global Value Creation

Chapter Generic Strategies for Global Value Creation In this chapter , we introduce three generic strategies for creating value in a global adaptation , aggregation , and a number of variants for each . This conceptualization was introduced by in his important book Global Strategy and , as such , is not new . In the next chapter , we extend this framework , however , by integrating these generic strategies with the proposition that global strategy formulation is about changing a company business model to create a global competitive advantage . This chapter draws substantially on ( URL books 51

Global Strategy Framework framework offers three generic approaches to global value creation . Adaptation strategies seek to increase revenues and market share by tailoring one or more components of a company business model to suit local requirements or preferences . Aggregation strategies focus on achieving economies of scale or scope by creating regional or global they typically involve a portion of the value proposition and grouping together development and production processes . Arbitrage is about exploiting economic or other differences between national or regional markets , usually by locating separate parts of the supply chain in different places . Ada global value by changing one or more elements of a company offer to meet local requirements or probably the most widely used global strategy . The reason for this will be readily apparent some degree of adaptation is essential or unavoidable for virtually all products in all parts of the world . The taste of in Europe is different from that in the United States , differences in water quality and the kind and amount of sugar added . The packaging of construction adhesive in the United States informs customers how many square feet it will cover the same package in Europe must do so in square meters . Even commodities such as cement are not immune its pricing in different local energy and transportation costs and what percentage is bought in bulk . adaptation strategies into categories variation , focus , externalization , design , and innovation ( Figure Strategies and Their Variants ) Variation strategies not only involve making changes in products and services but also making adjustments to policies , business positioning , and even expectations for success . The product dimension will be obvious Whirlpool , for example , offers smaller washers and dryers in Europe than in the United States , the space constraints prevalent in many European homes . The need to consider adapting policies is less obvious . An example is Google dilemma in China to conform to local censorship rules . Changing a company overall positioning in a country goes well beyond changing products or even policies . Initially , Coke did little more than skim the cream off big emerging markets such as India and URL books

China . To boost volume and market share , it had to reposition itself to a lower volume strategy that involved lowering price points , reducing costs , and expanding distribution . Changing expectations for , say , the rate of return on investment in a country , while a company is trying to create a presence is also a prevalent form of variation . Figure and Adaptation Aggregation Arbitrage Variation Focus Reduce Need for Adaptation Reduce Burden of Adaptation Design Reduce Cost of Adaptation Improve on Adaptation A second type of adaptation strategies uses a focus on particular products , vertical stages of the value chain , or market segments as a way of reducing the impact of differences across regions . A product focus takes advantage of the fact that wide differences can exist within broad product categories in the degree of variation required to compete effectively in local markets . cites the example of television programs action films need far less adaptation than local newscasts . Restriction of geographic scope can permit a focus on countries where relatively little adaptation of the domestic value proposition is required . A vertical focus strategy involves limiting a company direct involvement to steps in the supply chain while outsourcing others . Finally , a segment focus involves targeting a more limited customer base . Rather than adapting a product or service , a company using this strategy URL books 53

chooses to accept the reality that without , their products will appeal to a smaller market segment or different distributor network from those in the domestic market . Many luxury good manufacturers use this approach . Whereas focus strategies overcome regional differences by narrowing scope , externalization strategies strategic alliances , franchising , user adaptation , or for specific parts of a company business model to partner companies to accommodate local requirements , lower cost , or reduce risk . For example , Eli Lilly extensively uses strategic alliances abroad for drug development and testing . growth strategy abroad uses franchising as well as stores . And software companies heavily depend on both user adaptation and networking for the development of applications for their basic software platforms . A fourth type of adaptation focuses on design to reduce the cost of , rather than the need for , variation . Manufacturing costs can often be achieved by introducing design so as to overcome supply differences . Introducing standard production platforms and in components also helps to reduce cost . A good example of a company focused on design is Tata Motors , which has successfully introduced a car in India that is affordable to a number of citizens . A fifth approach to adaptation is innovation , which , given its crosscutting effects , can be characterized as improving the effectiveness of adaptation efforts . For instance , IKEA design , which has reduced the impact of geographic distance by cutting transportation costs , has helped that retailer expand into dozen countries . 11 When Ray opened his in Des , Illinois , he could hardly have envisioned the golden arches rising decades later in one of the oldest commercial streets in the world . But began dreaming of India in 1991 , a year after opening its first restaurant in China . The attraction was obvious billion people , with 300 million destined for status . But how do you sell hamburgers in a land where cows are sacred and in people are vegetarian ?

And how do you serve a largely poor consumer market that stretches from the to the shores of the URL books 54 Indian Ocean ?

executives in Oak Brook struggled for years with these questions before the road to success . has made big gains since the debut of its first two restaurants in India , in Delhi and Mumbai , in October 1996 . Since then , the chain has grown to more than 160 outlets . The Indian market represents a small fraction of 24 billion in annual revenues . But it is not insignificant because the company is increasingly focused on markets . The decision to go in wasn complicated , James Skinner , chief executive officer , once said . The complicated part was deciding what to At , path into India was fraught with missteps . First , there was the burger made with mutton . But the science was off mutton is fat ( beef is 25 fat ) making it rubbery and dry . Then there was the french fry debacle . started off using potatoes grown in India , but the local variety had too much water content , making the fries soggy . Chicken kabob burgers ?

Sounds like a winner except that they were skewered by consumers . Salad sandwiches were another Indians prefer cooked foods . If that was not enough , in May 2001 , the company was picketed by protesters after reports surfaced in the United States that the chains fries were injected with beef extracts to boost serious infraction for vegetarians . executives in India denied the charges , claiming their fries were different from those sold in America . But the company persevered , learned , and succeeded . It out what Indians wanted to eat and what they would pay for it . It built , from scratch , a mammoth supply farms to a country where elephants , goats , and trucks share the same roads . To deal with India massive geography , the company divided the country into two regions the north and east , and the south and west . Then it formed joint ventures with two Indian entrepreneurs Vikram , who made his fortune in real estate , runs the northern region and Amit , an entrepreneur who comes from a family of successful industrialists , manages the south . Even though neither had any restaurant experience , this management structure gave the company what it needed local faces at the top . The two entrepreneurs also brought money before the URL books

restaurant opened , the partners invested 10 million into building a workable supply chain , establishing distribution centers , procuring refrigerated trucks , and finding production facilities with adequate hygiene . They also invested 15 million in Vista Processed Foods , a food processing plant outside Mumbai . In addition , and 38 staff members spent an entire year in the Indonesian capital of studying how operated in another Asian country . Next , the Indian executives embarked on research and development ( After awhile , they hit on a veggie burger with a name Indians could understand the ( an aloo is a cheap potato cake locals buy from roadside vendors ) The lesson in the India case local input matters . Today , 70 of the menu is designed to suit Indians the Paneer Salsa Wrap , the Chicken Maharaja Mac , the Veg Pan . The , by far the product , also is being shipped to in the Middle East , where potato dishes are popular . And in India , it does double duty it not only appeals to the masses it is also a hit with the country 200 million vegetarians . Another lesson learned from the case vegetarian items should not come into contact with products or ingredients . Walk into any Indian and you will find half of the employees wearing green aprons and the other half in red . Those in green handle vegetarian orders . The ones serve . It is a separation that extends throughout the restaurant and its supply chain . Each restaurant grills , refrigerators , and storage areas are designated as veg or At the Vista Processed Foods plant , at every turn , managers stressed the side was in one part of the facility , and the vegetarian only section was in another . Today , after many missteps , one can truly imagine the ghost of Ray asking Indians one of the greatest questions of all one that translates into so many cultures You want fries with that ?

Yes , Ray , they do . Aggregation Aggregation is about creating economies of scale or scope as a way of dealing with differences ( see Figure Strategies and Their Variants ) The objective is to exploit similarities among rather URL books 56 than adapting to differences but stopping short of complete standardization , which would destroy concurrent adaptation approaches . The key is to identify ways of introducing economies of scale and scope into the global business model without compromising local responsiveness . Adopting a regional approach to the business has so effectively probably the most widely used aggregation strategy . As discussed in the previous chapter , regionalization or applies to many aspects of globalization , from investment and communication patterns to trade . And even when companies do have a presence in more than one region , competitive interactions are often regionally focused . Examples of different geographic aggregation approaches are not hard to find . Xerox centralized its purchasing , first regionally , later globally , to create a substantial cost advantage . Dutch electronics giant Philips created a global competitive advantage for its shaver product line by centralizing global production in a few strategically located plants . And the increased use of global ( corporate ) branding over product branding is a powerful example of creating economies of scale and scope . As these examples show , geographic aggregation strategies have potential application to every major business model component . Geographic aggregation is not the only avenue for generating economies of scale or scope . The other , dimensions of the CAGE framework introduced in Chapter Competing in a Global World , administrative , geographic , and lend themselves to aggregation strategies . Major book publishers , for example , publish their best sellers in but a few languages , counting on the fact that readers are willing to accept a book in their second language ( cultural aggregation ) Pharmaceutical companies seeking to market new drugs in Europe must satisfy the regulatory requirements of a few selected countries to qualify for a license to distribute throughout the EU ( administrative aggregation ) As for economic aggregation , the most obvious examples are provided by companies that distinguish between developed and emerging markets and , at the extreme , focus on just one or the other . Globalization at Whirlpool Corporation URL books 57

The history of globalization at the Whirlpool leading company in the global the multitude of challenges associated with a business model . Whirlpool manufactures appliances across all major fabric care , cooking , refrigeration , dishwashing , countertop appliances , garage organization , and water has a market presence in every major country in the world . It markets some of the worlds most recognized appliance brands , including Whirlpool , and Consul . Of these , the Whirlpool brand is the worlds global appliance brand and ranks among the worlds most valuable brands . In 2008 , Whirlpool realized annual sales of approximately 19 billion , had employees , and maintained 67 manufacturing and technology research centers around the world . In the late , Whirlpool Corporation set out on a course of growth that would eventually transform the company into the leading global manufacturer of major home appliances , with operations based in every region of the world . At the time , Dave , Whirlpool chairman and CEO , had recognized the need to look for growth beyond the mature and highly competitive market . Under leadership , Whirlpool began a series of acquisitions that would give the company the scale and resources to participate in global markets . In the process , Whirlpool would establish new relationships with millions of customers in countries and cultures far removed from the market and the roots in rural Benton Harbor , Michigan . Whirlpool global initiative focused on establishing or expanding its presence in North America , Latin America , Europe , and Asia . In 1989 , Whirlpool acquired the appliance business of Philips Electronics , which immediately gave the company a solid European operations base . In the western hemisphere , Whirlpool expanded its longtime involvement in the Latin America market and established a presence in Mexico as an appliance partner . By the , Whirlpool had strengthened its position in Latin America and Europe and was building a solid manufacturing and marketing base in Asia . In 2006 , Whirlpool acquired Corporation , resulting in an aligned organization able to offer more to consumers in the increasingly competitive global marketplace . The transaction created additional economies of scale . At the same time , it expanded Whirlpool portfolio of innovative , branded products and services to consumers . URL books 58

Executives knew that the company new scale , or global platform , that emerged from the acquisitions offered a competitive advantage , but only if the individual operations and resources were working in concert with each other . In other words , the challenge is not in buying the individual real challenge is to effectively integrate all the businesses together in a meaningful way that creates the leverage and competitive advantage . Some of the advantages were easily identified . By linking the regional organizations through Whirlpool common systems and global processes , the company could speed product development , make purchasing increasingly more efficient and , and improve manufacturing utilization through the use of common platforms and exports . Whirlpool successfully refocused a number of its key functions to its global approach . Procurement was the first function to go global , followed by technology and product development . The two functions shared much in common and have already led to significant savings from . More important , the global focus has helped reduce the number of regional manufacturing platforms worldwide . The work of these two functions , combined with the company manufacturing footprints in each region , has led to the development of truly global that share common parts and technologies but offer unique and innovative features and designs that appeal to regional consumer preferences . Global branding was next . Today , Whirlpool portfolio ranges from global brands to regional and brands of appliances . In North America , key brands include Whirlpool , Roper by Whirlpool Corporation , and Estate . Acquired with the company 2002 purchase of , brands and are leading names in Mexico domestic market . In addition , Whirlpool is a major supplier for the Sears , Roebuck and brand . In Europe , the company key brands are Whirlpool and . Polar , the latest addition to Europe portfolio , is the leading brand in Poland . In Latin America , the brands include and Consul . Whirlpool Latin American operations include Embrace , the world leading compressor manufacturer . In Asia , Whirlpool is the company primary brand and the refrigerator and washer manufacturer in India . Arbitrage URL books 59

A third generic strategy for creating a global advantage is arbitrage ( see Figure Strategies and Their Variants ) Arbitrage is a way of exploiting differences , rather than adapting to them or bridging them , and the original global strategy buy low in one market and sell high in another . Outsourcing and are modern day equivalents . saves billions of dollars a year by buying goods from China . Less visible but equally important absolute economies are created by greater differentiation with customers and partners , improved corporate bargaining power with suppliers or local authorities , reduced supply chain and other market and nonmarket risks , and through the local creation and sharing of knowledge . Since arbitrage focuses on exploiting differences between regions , the CAGE framework described in Chapter Competing in a Global World is of particular relevance and helps a set of for this generic approach to global value creation . Favorable effects related to country or place of origin have long supplied a basis for cultural arbitrage . For example , an association with French culture has long been an international success factor for fashion items , perfumes , wines , and foods . Similarly , products and restaurants are mainly associated with culture . Another example of cultural or provided by of Tokyo , the Japanese Although heavily company has only one outlet in Japan out of more than serves up a theatrical version of cooking that the company describes as Japanese and Legal , institutional , and political differences between countries or regions create opportunities for administrative arbitrage . cites the actions taken by Rupert Murdoch News Corporation in the . By placing its acquisitions into holding companies in the Cayman Islands , the company could deduct interest payments on the debt used to finance the deals against the profits generated by its newspaper operations in Britain . Through this and other similar actions , it successfully lowered its tax liabilities to an average rate of less than 10 , rather than the statutory 30 to 36 of the three main countries in which it operated Britain , the United States , and Australia . By comparison , major competitors such as Disney were paying close to the official rates . URL books

With steep drops in transportation and communication costs in the last 25 years , the scope for geographic leveraging of geographic been diminished but not fully eliminated . Consider what is happening in medicine , for example . It is quite common today for doctors in the United States to take during the day , send them electronically to in India for interpretation overnight , and for the report to be available the next morning in the United States . In fact , reduced transportation costs sometimes create new opportunities for geographic arbitrage . Every day , for instance , at the international market in , the Netherlands , more than 20 million and million plants are auctioned off and to customers in the United States . As notes , in a sense , all arbitrage strategies that add value are Here , the term economic arbitrage is used to describe strategies that do not directly exploit cultural , administrative , or geographic . Rather , they are focused on leveraging differences in the costs of labor and capital , as well as variations in more inputs ( such as knowledge ) or in the availability of complementary products . Exploiting differences in labor outsourcing and probably the most common form of economic arbitrage . This strategy is widely used in ( garments ) as well as technology ( industries . Economic arbitrage is not limited to leveraging differences in labor costs alone , however . Capital cost differentials can be an equally rich source of opportunity . Indian Companies Investing in Latin America ?

To Serve Customers ?

51 Indian investment in Latin America is relatively small but growing quickly . Indian have invested about billion in the region over the last decade , according to figures released by the Latin American division of India Ministry of External Affairs in New Delhi . The report projects that this amount will easily double in the next few years . As India has become a magnet for foreign investment , Indian companies themselves are looking abroad for opportunities , motivated by declining global trade barriers and fierce competition at home . Their current focus is on Latin America , where and currency devaluation no longer dominate headlines . URL books 61

Like China , India is trying to lock up supplies of energy and minerals to feed its rapidly growing economy . Indian have stakes in oil and natural gas ventures in Colombia , Venezuela , and Cuba . In 2006 , Bolivia signed a deal with New Steel and Power , which plans to invest billion to extract iron ore and to build a steel mill in that South American nation . At the same time , Indian information technology companies are setting up outsourcing facilities to be closer to their customers in the West . Tata Consultancy Services is the leader , employing tech workers in more than a dozen Latin American countries . Indian manufacturing , accustomed to catering to consumers at home , are finding Latin America a natural market . Tata Motors , has formed a joint venture with Italy Fiat to produce small pickup trucks in Argentina . Generic drug makers , such as Reddy , are offering cost alternatives in a region where and European multinationals have long dominated . The Indian government has carefully positioned India as a partner , rather than a rival out to steal the regions resources and jobs , a common worry about China . Mexico has been particularly by China rise . The Asian nations export of textiles , shoes , electronics , and other consumer goods has cost Mexico tens of thousands of manufacturing jobs , displaced it as the trading partner with the United States , and its domestic market with imported merchandise . In 2006 , Mexico trade with China was a record billion , but China has invested less than 100 million in the country since 1994 , according to the Bank of Mexico . Mexico trading relationship with India , albeit small , is much more balanced . Mexico trade with India was just under half a billion dollars in , and Indian companies have invested billion here since about 17 times more than to Mexico central bank . Some of that investment is in basic industries and traditional factories making goods for export . For example , Mexico biggest steel plant is owned by . Indian pharmaceutical companies , too , are Latin America to be attractive for expansion . Firms including Laboratories , Pharma , and Pharmaceuticals , have sales or manufacturing operations in the region . URL books 62

Mucha and ( 2007 , April 30 ) chap . chap . 2007 , June ) URL books 63 Which A Strategy Should a Company Use ?

A company financial statements can be a useful guide for signaling which of the A strategies will have the greatest potential to create global value . Firms that heavily rely on branding and that do a lot of advertising , such as food companies , often need to engage in considerable adaptation to local markets . Those that do a lot of pharmaceutical want to aggregate to improve economies of scale , since many are fixed costs . For firms whose operations are labor intensive , such as apparel manufacturers , arbitrage will be of particular concern because labor costs vary greatly from country to country . Which A strategy a company emphasizes also depends on its globalization history . Companies that start on the path of globalization on the supply side of their business model , that is , that seek to lower cost or to access new knowledge , typically focus on aggregation and arbitrage approaches to creating global value , whereas companies that start their globalization history by taking their value propositions to foreign markets are immediately faced with adaptation challenges . Regardless of their starting point , most companies will need to consider all A strategies at different points in their global evolution , sequentially or , sometimes , simultaneously . globalization path , for example , started with the company making small , related acquisitions outside its domestic market , and the company therefore had early exposure to adaptation challenges . For most of their history , IBM also pursued an adaptation strategy , serving overseas markets by setting up a in each target country . Every one of these companies operated a largely local business model that allowed it to adapt to local differences as necessary . Inevitably , in the and , dissatisfaction with the extent to which adaptation curtailed opportunities to gain international scale economies led to the overlay of a regional structure on the . IBM the countries into regions in order to improve coordination and thus generate more scale economies at the regional and global levels . More recently , however , IBM has also begun to exploit differences across countries ( arbitrage ) For example , it has increased its work force in India while reducing its headcount in the United States . URL books 64

Gamble ( early history parallels that of IBM , with the establishment of in local markets , but it has evolved differently . Today , the company global business units now sell through market development organizations that are up to the regional level . has successfully evolved into a company that uses all three A strategies in a coordinated manner . It adapts its value proposition to important markets but ultimately global branding , and the basis of aggregation . Arbitrage , while through outsourcing activities that are invisible to the less important to global competitive advantage because of its relentless customer focus . URL books 65

From A to AA to Although most companies will focus on just one A at any given time , such as General Electric ( GE ) IBM , and , to name a embarked on implementing two , or even all three of the A . Doing so presents special challenges because there are inherent tensions between all three foci . As a result , the pursuit of AA strategies , or even an approach , requires considerable organizational and managerial . Pursuing Adaptation and Aggregation started out with a focus on adaptation . Attempts to superimpose aggregation across Europe first proved and , in particular , led to the installation of a matrix structure throughout the , but the matrix proved unwieldy . So , in 1999 , the then CEO , ager , announced another reorganization whereby global business units ( retained ultimate profit responsibility but were complemented by geographic market development organizations ( that actually managed the sales force as a shared resource across . The result was disastrous . arose everywhere , especially at the key interfaces . The upshot ager departed after less than a year in office . Under his successor , has enjoyed much more success , with an approach that strikes a better balance between adaptation and aggregation and that makes allowances for differences across general business units and markets . For example , the pharmaceuticals division , with distinct distribution channels , has been left out of the structure . Another example in emerging markets , where market development challenges are huge , responsibility continues to rest with country managers . Aggregation and Arbitrage , founded in 2002 with only in capital by entrepreneur William Wang to create high quality , panel televisions at affordable prices , has surpassed established industry giants Sony Corporation and Electronics Company to become the top high television ( brand sold in North America . To get there , developed a business model that effectively combines elements of aggregation and arbitrage strategies . contract manufacturing model is based on aggressive procurement sourcing , management , economies of scale in distribution . URL books as

While a typical television includes thousands of parts , the bulk of the costs and ultimate performance are a function of two key components the panel and the . Together , these two main parts account for about 94 of the costs . business model therefore focuses on optimizing the cost structure for these component parts . The vast majority of panels and are supplied by a handful of partners . provides about 80 of procurement and assembly work , with the remaining 20 performed by other , including and Technology . One of the cornerstones of strategy is the decision to sell through wholesale clubs and discount retailers . Initially , William Wang was able to leverage his relationships at Costco from his years of selling computer monitors . early focus on wholesale stores also fit with the company value position and pricing strategy . By selling through wholesale clubs and discount stores , was able to keeps its prices low . For , there is a benefit the prices of its are comparatively lower than those from major manufacturers at electronics stores , and major manufacturers can not participate as fully as they would like to at places like Costco . has strong relationships with its retail partners and is honored to offer them only the most compelling and competitively priced consumer electronics products . products are available at valued partners including , Costco , Sam Club , Wholesale Club , Sears , Dell , and Target stores nationwide along with authorized online partners . has won numerous awards including a ranking in the 500 for Top Companies in Computers and Electronics , Good Housekeeping Best , Top 10 Holiday Gifts , and World Best Buy , among others . Arbitrage and Adaptation An example of a strategy that simultaneously emphasizes arbitrage and adaptation is investing heavily in a local presence in a key market to the point where a company can pass itself off as a local firm or A good example is provided by in China . The company , part of , has had an intermittent presence in China since the beginning of the century . A little more than 100 years later , in 2007 , it was one of the first foreign banks to incorporate locally in China . The decision to incorporate locally was motivated by the desire to increase status as an insider with local incorporation , URL books

the Chinese government allowed it to extend its reach , expand its product offerings , and become more closely engaged with its local customers in the country . China decision in 2001 to become a member of the World Trade Organization ( was a major factor in decision to make a greater commitment to the Chinese market . Prior to China joining the , the banking environment in China was fairly restrictive . Banks such as could only give loans to foreign multinationals and their partners in local currency , and money for domestic Chinese companies could only be raised in offshore markets . These restrictions made it difficult for foreign banks to gain a foothold in the Chinese business community . Once China agreed to abide by trading rules , however , banks such as had significantly greater opportunities they would be able to provide local currency loans to Chinese companies and would be free to raise funds for them in debt and equity markets within China . Other segments targeted by included retail credit cards and home mortgages . These were traditional areas of expertise globally , and a huge potential demand for these products was apparent . Significant challenges remained , however . Competing through organic growth with China vast network of domestic banks would be slow and difficult . Instead , in the next few years , it forged a number of strategic alliances designed to give it critical mass in key segments . The consisted of taking a stake in China bank , a move that allowed to launch a credit card that could be used to pay in in China and in foreign currencies abroad . In the following years , steadily increased its stake to the maximum 20 allowed under Chinese law and significantly expanded its product portfolio . In June 2007 , joined forces with . Insurance Company , to launch an investment insurance product . In July of 2008 , the company announced the launch of its first debit card . Simultaneously , it signed a deal with China only national association , which allowed debit to enjoy access to the associations vast network in China . The card would provide Chinese customers with access to over ATMs within China and ATMs in 45 countries overseas . Customers could also use their debit cards with over million merchants within China and in 27 other countries . Today , is one of the top foreign banks operating in China , with a URL books 68

diverse range of products , eight corporate and investment bank branches , and 25 consumer bank outlets . Developing an Strategy There are serious constraints on the ability of any one company to use all three A simultaneously with great effectiveness . Such attempts stretch a firm managerial bandwidth , force a company to operate with multiple corporate cultures , and can present competitors with opportunities to undercut a company overall competitiveness . Thus , to even contemplate an strategy , a company must be operating in an environment in which the tensions among adaptation , aggregation , and arbitrage are weak or can be overridden by economies or structural advantages , or in which competitors are otherwise constrained . cites the case of GE Healthcare ( The diagnostic imaging industry has been growing rapidly and has concentrated globally in the hands of three large firms , which together command an estimated 75 of revenues in the business worldwide , with 30 Medical Solutions ( with 25 and Philips Medical Systems ( with 20 . This high degree of concentration is related to the fact that the industry ranks in the percentile in terms of intensity . These statistics suggest that the challenge of building global scale has proven important in the industry in recent years . the largest of the three , has consistently been the most profitable , its success at aggregation through ( a ) economies of scale ( higher total spending than its competitors , but its ratio is lower ) acquisition ( has made nearly 100 acquisitions under Jeffrey before he became GE CEO ) and ( economies of scope the company strives to integrate its biochemistry skills with its traditional base of and engineering skills it finances equipment purchases through GE Capital ) has even more clearly outpaced its competitors through arbitrage . It has recently become a global company by rapidly migrating to production bases . By , was reportedly more than halfway to its goals of purchasing 50 of its materials directly from countries and locating 60 of its manufacturing in such countries . URL books 69

In terms of adaptation , has invested heavily in marketing organizations . It also has increased customer appeal with its emphasis on providing services as well as example , by training and providing consulting advice on processing . Such customer intimacy obviously has to be tailored by country . And , recently , has cautiously engaged in some in China , for China manufacture of , cheaper equipment , aimed at increasing penetration there . This discussion draws on ( Chapter . Strategy in China ( 2009 ) URL books 70

Pitfalls and Lessons in Applying the Framework There are several factors that companies should consider in applying the A framework . Most companies would be wise to focus on one or two of the A it is possible to make progress on all three A , especially for a firm that is coming from behind , companies ( or , more often to the point , businesses or divisions ) usually have to focus on one or , at most , two A in trying to build competitive advantage . Companies should also make sure the new elements of a strategy are a good . If a strategy does embody substantially new elements , companies should pay particular attention to how well they work with other things the organization is doing . IBM has grown its staff in India much faster than other international competitors ( such as ) that have begun to emphasize arbitrage . But quickly molding this work force into an organization with high delivery standards and a sense of connection to the parent company is a critical challenge failure in this regard might even be fatal to the arbitrage initiative . Companies should also employ multiple integration mechanisms . Pursuit of more than one of the A requires creativity and breadth in thinking about integration mechanisms . Companies should also think about externalizing integration . Not all the integration that is required to add value across borders needs to occur within a single organization . IBM and other firms have shown that some externalization can be achieved in a number of ways joint ventures in advanced semiconductor research , development , and manufacturing links to , and support of , and other efforts at open innovation ( some ) outsourcing of hardware to contract manufacturers and services to business partners IBM relationship with in personal computers and customer relationships governed by memoranda of understanding rather than detailed contracts . Finally , companies should know when not to integrate . Some integration is always a good idea , but that is not to say that more integration is always better . URL books 71

Points to Remember . There are three generic strategies for creating value in a global context adaptation , aggregation , and arbitrage . Adaptation strategies seek to increase revenues and market share by tailoring one or more components of a company business model to suit local requirements or preferences . Aggregation strategies focus on achieving economies of scale or scope by creating regional or global efficiencies . These strategies typically involve a significant portion of the value proposition and grouping together development and production processes . Arbitrage is about exploiting economic or other differences between national or regional markets , usually by locating separate parts of the supply chain in different places . Adaptation strategies can be subdivided into five categories variation , focus , externalization , design , and innovation . Aggregation strategies revolve around generating economies of scale or scope . The other dimensions of the CAGE framework introduced in Chapter Competing in a Global World , administrative , geographic , and lend themselves to aggregation strategies . Since arbitrage focuses on exploiting differences between regions , the CAGE framework also defines a set of for this generic approach to global value creation . A company financial statements can be a useful guide for signaling which of the A strategies will have the greatest potential to create global value . Although most companies will focus on just one A at any given time , companies such as GE , IBM , and , to name a few , have embarked on implementing two , or even all three , of the A . There are serious constraints on the ability of any one company to simultaneously use all three A with great effectiveness . Such attempts stretch a firm managerial bandwidth , force a company to operate with multiple corporate cultures , and can present competitors with opportunities to undercut a company overall competitiveness . URL books 72

. Most companies would be wise to ( a ) focus on one or two of the A , make sure the new elements of a strategy are a good fit organizationally , employ multiple integration mechanisms , think about externalizing integration , and ( know when not to integrate . URL books , 73