Log in / Register
Home arrow Business & Finance arrow Global Business Strategy
< Prev   CONTENTS   Next >

9.5 Is the Premium Market a Volume Zone?

While companies from advanced countries may have high expectations for the premium markets in China and India, in which they do well, companies that have prioritized short-term profits must undertake an adaptation strategy for local markets by targeting the volume zone of the middle-class. Industries that easily fall prey to the innovator's dilemma because of a high rate of technological innovation cannot have any expectations of a premium market and must, instead, pursue the good enough market. Should a company prioritize the premium market, or should it take the low-price path to succeed in an emerging country? This question is important in determining a global strategy.

These strategy options can be summarized by customer needs in the target market and technology competition in the local market (Gadiesh et al. 2007). In terms of customer needs, companies must ascertain whether the demand for a product's performance or quality has risen or whether the specifications of high-end products are too high for the market to absorb. In case of growing demands to improve product performance, there may be room for differentiation with local products in terms of performance and quality by companies from advanced countries. However, if that is not the case, then lower costing local products are sufficient for the market. Therefore, there are no incentives to purchase high-cost, high-function products, and there is a high likelihood of becoming involved in a price war with local companies. In addition, in terms of technological competition, the strategies undertaken by companies from advanced countries will vary with the size of the gap separating them and local companies (Table 9.3).

First, we consider cases in which there exist customer requirements for product quality and functionality. Business-to-business (B2B) products such as highperformance materials used in automotive parts, industrial equipment, and construction equipment for the most part fit this category. Customers have an incentive to constantly improve productivity, thus creating high demands for performance and quality. In addition, durable consumer goods, such as cars and air conditioners, often fit this category. Because these products are often used over an extended

Table 9.3 Matrix analysis of customer needs and technology competitiveness

Technological competitiveness

Customer needs

Product performance < Customer needs

Enables the differentiation of performance and quality

Product performance > Customer needs

Does not enable the differentiation of performance and quality

Large gap with local companies

High-quality, high-cost strategy (expect expansion of premium market)

Good enough quality, low-cost strategy, partnerships with local companies

Local companies play catch up

Strategy of using R&D investment to slow down catch up

Acquisition of local companies, management localization

Source: Adapted from Gadiesh et al. (2007), p. 85

period, customers often demand energy-saving features and high quality. Cases in which there is a large technological gap between entering and local companies in terms of consumer durables, strategies that target premium markets with highquality, high-function products are reasonable. On the other hand, companies must plan to differentiate products that local companies can technologically catch up with, and those that are easily prone to price wars. Companies must plan to shift away from the stand-alone product model explained in Chap. 5 and move to a customer value model, thereby building an operating model that will make it difficult for local companies to catch up.

Next, companies must seriously consider a low price strategy for good enough markets in industries where they face difficult competition against cheap local products and where customer demands for product functionality and quality are fully satisfied. As seen in China's television market, electronics products fit this category because of their high rate of technological innovation. Even in this case, a company must respond differently depending on the size of the technological gap between it and local companies. If a company is technologically superior and cannot be easily imitated by local companies, it can, to a certain extent, differentiate its products from low price local products on functionality and quality. However, since companies must provide products at a lower price than markets in the home country, they must develop products for the local market that have only the functionality and level of quality that customers there need. In addition, it is necessary that companies make the value chain of suppliers, manufacturing processes, and distribution channels more efficient to cut costs, and realize a low-cost model that depends on alliances with local companies in many areas. On the other hand, companies find it difficult to respond to markets where customers' product needs are satisfied, and more so when those products are made by companies in emerging countries that are already technologically on par. Companies cannot differentiate their products on technology in such a case, and must instead compete directly in terms of price. Considering that the headquarters head the company from advanced nations, competing in terms of price with local companies will be difficult unless that company has a high level of productivity. Thus, companies may opt to acquire a local company and make the management more efficient, but they will need to create a management structure on the basis of local personnel to avoid the rising operating costs. Should companies in advanced countries opt for a low price strategy in good enough markets within emerging countries, they must be careful not to fall prey to cannibalization of their high-end products made for premium markets. Manufacturers such as Sony and Panasonic have a brand image that conveys quality and performance. They therefore need to make marketing plans for quality levels, prices, distribution channels, and other areas such that their brand value is not damaged when competing in terms of price. Shiseido ensures that cannibalization does not occur through brand management, using the global SHISEIDO brand made for premium markets and the Aupres brand for products in the Chinese market. This point should be noted by companies pursuing a low price strategy where they already have some history of selling to premium markets.

Found a mistake? Please highlight the word and press Shift + Enter  
< Prev   CONTENTS   Next >
Business & Finance
Computer Science
Language & Literature
Political science