New Challenges for Old Multinationals INSEAD Alumni Forum

New Challenges for Old Multinationals
INSEAD Alumni Forum &
Reunion Asia 2010
Hellmut Schütte
13 November 2010
hellmut.schutte@insead.edu
Companies, not Countries compete
- Though Countries still Matter: Size and Openness
- In many Industries Asia represents 50% of the World
- China alone in several
- In many W. Companies Asia represents 30% of Sales
- China is the biggest single Market in several
- China makes up 50% of Sales in Asia in most Companies
- Large Size of Market and Openness
create an excellent breeding Ground for ‘New’ Competitors
- More serious than the ‘old’ ones from Japan and Korea
- Domestic
International
Global
#1 microwaves
#1 small electric motors
# 2 in Soda Ash
#1 steel
#2 automotive castings
#2 Tea products
#1 solar energy
#1 animal feed
#1 containers
# 1 Flour processing
#1 Polyester fibre
#1 batteries
# 1 Piano manufacturer
# 1 in baby strollers
Note: Estimated positions by revenue
3
Emerging MNCs
+
Lower Costs
Weak Brands/IP
Large Volume (Scale)
Management/HR Policies
Flexibility and Speed
Unpredictable soft
Infrastructure
Home Advantage
Financial Muscle
Late Mover Advantage
Political Linkages
Lack of International
Expertise/Experience
MNCs in Emerging Markets
They are:
- In Search of new Markets/Growth
- Hardened by tough Competition at Home
They bring:
- Powerful Brands, Marketing Expertise
- Good Technology, Strong Finance, Strong Management
They face:
- High Volatility and little Data
- Political/Legal (IP) Uncertainties and opaque Networks
- Cultural Sensitivities/Partnerships
- High Speed Requirements
- Lack of Talent
MNCs versus EMNCs: Battlefield (1)
High
MNC’s Phase 1
Industry
Specific
Competencies
Local Firms
Phase 1
Low
Low
High
Market Specific Competencies
Source: Ming Zeng and Williamson
MNC Profitability in China
The Past
The Present
Entry Problems
Experience Matters
Difficult Partnerships
Guanxi Built
Staffing (Local/Expats)
Better Human Resource
Over-Estimation of Market Potential
More HQ Attention
Under-Estimation of Competition
Critical Mass/Quality
Better Infrastructure
∑ Disappointing Results
∑ Mostly Good Results
Market Segmentation: Battlefield (2)
High-end
Mid-range
‘Owned’ by leading MNCs
High Quality, High Value/Performance, price-insensitive
‘Good-enough’ market, Value-for-Money
Segment with highest Growth,
Often already more than 50%
Low-end
‘Owned’ by smaller and bigger local firms,
Lower quality, low price, local distribution
Example: Applied Chemicals
Market
Compliance /
Gross Operating
Cost
Margin
High
High
Bus. Rules
Size
High
Low
MNC
Igniting Point
Local
Competition
Growth
High
Low
Low
Low
Earth Moving Equipment
Wheel Loaders
Global Market: 720,000 units
China Market: 120,000 Units
Production Capacity in China:
200,000 Units
Chinese Product
Caterpillar
Prices:
CAT, Volvo:
Komatsu:
Chinese Cos
120,000$
60,000 $
30,000 $
Chinese Co Exports:
2,000 units in 2004
3,500 units in 2005
25,000 units in 2008
Reliable-enough for low-enough price
E-(motor)bikes in China
Challenging the Old Multinationals
Defense
• Building up Volume + Experience
• Market Size matters!!!
th
ow
Gr
High
Value
• Outsourcing (OEM)
Entry
• Building up Market Presence and
Reputation (at home and abroad)
• Upgrading of Technologies and Quality
Low
High
Low
Cost
•‘Compressed’ Learning
• Acquisitions abroad
Average Price of Microwave Ovens (CNY/unit)
Aggressive Pricing and Capacity Expansion
From 1996 to 2003:
2600
2400
9 rounds of price cuts in micro-wave
ovens of 30% to 40% each, finally
becoming w/market leader.
2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
10
25
65
200
570
827
935 1056 1288 1574 1976 2113 2370 2503
Galanz Annual Production 1994-2007 (in 10,000 units)
Responding to New Competition
• Low-end market not wellunderstood
Defense
High
Value
Entry
• Low-end customers may have
very different needs, and/or
require different set of activities to
deliver products/services
• Competitors’ developments hard
to assess
Low
Low
High
Cost
• Internal barriers to changing
organization
Strategic Challenges
= The Growth Divide and Differences in Dynamics
You cannot be risk-averse,
thoroughly-analytical,
cost-conscious,
low-growth assuming,
high margin calculating….
…in a fast-moving, high-growth, low margin,
trial-and-error, highly competitive environment’
Responding to New Competition
Localisation and international Supply-Chain Optimisation
a.
Dramatic Cost Reduction
b.
Acquisition of local Firms
c.
2nd or multiple Brands
d.
Local/regional R & D
‘Frugal Innovation’
a.
Disruptive, radical, on-the-Ground
b.
De-engineering (Chinese Assets, Western Management)
c.
Costumer-focused, not State-of-the-Art
Similar to Blue Ocean Strategy
Tata Nano
China in the Global Context of Competition
‘…China is fast becoming the competitive
battlefield on which global winners are
determined’
True for Local Firms or MNC,
but not in every Industry
Source: McKinsey Quarterly, June 2010
Organisational Challenges: The Mind-set*
*As seen from Shanghai
HQ Environment
Emerging Market
Discipline
Reflective/reactive
Quiet
Slow
Aged
Wisdom
Power
Chaos
Active/testing
Noisy
Fast (very fast)
Young
Energy
‘Just do it’
Balanced Life
Weekends
Hobbies
Holidays
Social Security
Work Life
Family Obligations
Work
Breaks
No Security
Legacies
Superiority
Everything is New
Ambitiousness
Wealth Distribution
Wealth Creation
Organisational Challenges
• Past
- High Growth and same RoI Targets, less Capital, less Power
• Present
- The Comeback of the Country Manager as De-Fragmentiser
- Increasing Corporate Presence/Power in Regions
- Decline of Global Business Heads without Regional Structure
• Future
- Mature /Emerging Market Split
- More division HQs or decentralised HQs around the World
The End of the central, forward projecting Firm?
EXAMPLES OF INCREASING CORPORATE
PRESENCE
•Global Manufacturing
- Lots of Firms
•Global Procurement
- Wal-Mart, IBM, others
•Global R&D
- GE, Microsoft
•Global Business Unit HQs
- Philips, 3M, Rolls-Royce, GE
• CEO with immediate past A-P
Experience
- Emerson, McKinsey, Ogilvy & Mather,
BASF, Schindler, Unilever
• Global Top Managers to Asia
- Emerson, Cisco, Bosch, Schindler
• Global CEO to Asia
- HSBC, Irdeto, Iris
• Global Corp HQ to Asia
- Caltex, Halliburton, Cricinfo
Source: M.Enright + HS
Think about:
Forget about:
T-shirts
Toys
Sport shoes
Call centres
Bags
Bicycles
TVs
Hand phones
….
Cheap Labour
Routers
Software/Research
Electric cars/scooters
Trucks
Solar panels
Machinery
Investment banking
Telecom services
Hi speed trains
Nuclear power plants
Aircraft
….
Global Implications