Professor Ruth V. Aguilera Top 10 Non!inancial TNCs "ro# De$eloping Econo#ies ran%e& by "oreign assets '(S)bn*+ ,00- Co#pany Co.ntry In&.stry !oreign Assets Total Assets 1. Hutchison Whampoa HK, China Diversified !. "#.$ $. Petronas %ala&sia 'il e(pl)ref)dist $$. $.* +. ,ingtel -td ,.P /elecommunications 1". $1. #. ,amsung 0lectronics , Korea 0lectronics 1#. .! 1. C2/2C .roup China Diversified 1#.1 "#.! . Ceme( ,.A. %e(ico Cement 1+.+ 1!.$ !. -. 0lectronics , Korea 0lectronics 13.# $".* ". China 'cean ,hipping China ,hipping *.3 11.3 *. Petr4leos De Vene5uela Vene56a 'il e(pl)ref)dist ".* 11.# 13. 7ardine %atheson HK, China Diversified !.1 13. ,ource8 9:C/AD, $33 T/e E$ol.tion o" Ce#e0 1985 2005 CAGR Sales (US$ billions) 0.276 15.5 22% EBITDA 0.084 3.6 21% e!i"o 100% 33% To#al Asse#s 0.7$1 26.5 1$% a%&e# 'a(i#ali)a#ion 0.103 1$.0 30% Ins#alle* 'a(a"i#+ (, #ons) 10.7 $7 12% E,(lo+ees 6-358 52-741 11% 'o.n#%ies 1 50 T/e Global Ce#ent Ma1ors Capacity E2ITDA CAGR 3404E CAGR 5404E Margin 604E R7CE 60- Holci# 89 1-9 ,49 3:39 ;a"arge 39 1-9 ,19 3:59 Ce#e0 1,9 ,19 ,<9 1,:49 Hei&elberg 39 149 139 <:09 Italce#enti 89 1<9 ,-9 5:<9 !re=.ency Distrib.tion o" International Ce#ent !ir#s> Mar%et Entries /0+ #0is #%en*1 To&ay>s Class What is the glo;al potential for these t<o industries= What accounts for Ceme( and Hiaer 6s success to date= What e(plains the se>uence in <hich Ceme( and Haier entered foreign mar?ets= Ho< far can Ceme( @ Haier 6s competitive advantage travel= 1. What are the global potential of the cement and white goods industries?
Global In&.stry Analysis Mar%et Dri$ers Co#petiti$e Dri$ers Go$ern#ent Dri$ers Cost Dri$ers A E0istence o" tra&e barriers A Si#ilarity o" tec/nical stan&ar&s A Si#ilarity o" reg.lations A Di""erences in ta0es A Si#ilarity o" c.sto#er nee&s & tastes A E0istence o" global c.sto#ers A Si#ilarity o" &istrib.tion c/annels A Trans"erability o" #ar%eting %no?/o? A Globali@ation o" co#petitors A In&.stry concentration A Di""erences in in&.stry concentration across co.ntries A !easibility o" protecting intangibles A Di""erences in cost across co.ntries A Aotential "or econo#ies o" scaleBscope A Aotential "or learning A Transportation costs !orces "a$oring global integrationB local responsi$eness Adapted from: G. S. Yip, Global Strategy in a World of Nations? Sloan Management Review 3!" !#all $%$", pp. &$'(. Global In&.stry Concentration 'late 1550s+ ,000* Industry Top 5 share of global production En#e%#ain,en# 71% 'a%bona#e* So2# D%in&s 70% 3i40# B.lbs 68% 'o,(.#e% So2#5a%e 5$% 'o,(.#e% 6a%*5a%e 5$% Ae%os(a"e7 De2ense 55% A.#o,obiles 53% Se,i"on*."#o%s 40% 'e,en# 1$% ,ource8 .hema<at and .hadar, $33, p. 33 A Cost e"ono,ies o2 s"ale a%e no# #0a# i,(o%#an# on 4lobal s"ale8 s,all *i9e%en"es in "os#s a"%oss "o.n#%ies : 0i40 #%ans(o%#a#ion "os#s8 no (%o*."#7 (%o"ess inno;a#ions in 20 +ea%s. A !ar"et 0o,o4eno.s (%o*."# b.# ,os# ".s#o,e%s a%e lo"al8 #%ans2e%able ,a%&e#in4 (e.4. b%an*in4) o2 li,i#e* i,(o%#an"e. A Go#ern$ent (%o#e"#ionis, is a 2a"#o% (e.4. US)8 "on"e%ns abo.# 2o%ei4n o5ne%s0i( (e.4. In*onesia- <ene).ela). A Co$petition in*.s#%+ be"o,in4 ,o%e 4loball+ "on"en#%a#e* (si! 4lobal ,a=o%s> s0a%e o2 5o%l* ,a%&e# in"%ease* 2%o, 12% in 1$88 #o 25% in 2000) b.# ,os# "o,(e#i#ion is s#ill lo"al8 ,a=o% *i9e%en"es in "on"en#%a#ion a"%oss "o.n#%ies8 li,i#e* %ole 2o% s#an*a%* in#an4ibles (a*;e%#isin47 ?:D) 5i#0 "e,en# "lose #o #0e bo##o, *e"ile o2 ,an.2a"#.%in4 in*.s#%ies on bo#0 ?:D an* a*;e%#isin4 in#ensi#+. Global Aotential o" t/e Ce#ent In&.stry A(CC;E ,o <hat is the rationale for glo;al e(pansion in a multidomestic industr&= D/at is t/e rationale be/in& Ce#e0>s global strategyE .ro<th= .eographic diversification= .lo;al competitive advantage= %atching competitors= 0mpireB;uilding= Does Ce#e0 /a$e a global co#petiti$e a&$antageE ,ource8 Case, 0(hi;it # Holder bank Lafarge Cemex Heidel berger Italce menti Blue Circle )*+,-A margin &3.(. &3.&. 37.1% %./. &(.0. $.1. )*+,-A2 ton sold &3.$ 3%.1 45.8 &3.1 &&.& n.a. 2. What accounts for Cemexs success to date? D/at acco.nts "or Ce#e0>s s.ccess to &ateE '<nership8 it has succeeded in creating intangi;les that are different from the traditional ones CR@D) mar?etingD, <hich create a rationale for its glo;al strateg& -ocation8 given high transportation costs, it has to ;e present in different locations to e(ploit these advantagesE that presence also allo<s it to ar;itrage differences in financing costs across countries 2nternali5ation8 almost impossi;le to e(ploit its advantages, especiall& ' advantages, through arm6s length contracts 3. What explains the sequence in which Cemex entered foreign markets? Se=.ence o" Mar%et Entry Di#ensions o" Aro0i#ity 'or Distance* C.lt.ral A&#inistrati$e Geograp/ic Econo#ic 9,A F F FF ,pain FF F F Cari;;ean FF F FF F -atin America FF F FF F Philippines F F 2ndonesia F 0g&pt F Se=.ence o" Mar%et Entry 9ntil the late 1**3s, largel& e(plica;le using the CA.0 frame<or?8 Cultural Clanguage, religionD Administrative Ccolonial ties, trade areasD .eographic C9,, Cari;;ean, -. AmericaD 0conomic Cmostl& developing countriesD Fut 2ndonesia and 0g&pt <ere more GdistantH And loo?ing at countries that are more GdistantH still Which ;egs an important >uestionI . !ow far can Cemexs competiti"e ad"antage tra"el? Ce#e0>s global strategy Ceme( has increased the upside for a glo;al strateg& Developed intangi;les that appl& across countries and create rationale for its glo;al strateg& Ce.g., managerial processes and innovationD Ceme( has limited the do<nside for a glo;al strateg& 0ntered more similar countries first CCA.0D, lo<ering the ris?s created ;& differences across countries Ho? "ar can Ce#e0>s co#petiti$e a&$antage tra$elE Has Ceme( s&stemati5ed and standardi5ed <hat it has learned to a sufficient degree to go ;e&ond its CA.0 region= /o other developing countries= Are all developing countries sufficientl& ali?e= What advantage does Ceme( have in 2ndia, China, Russia, etc= And even to developed countries= Recent Ac=.isitions by Ce#e0 A 2000 a"@.i%e* So.#0*o5n (US)- 2 n* la%4es# "e,en# ,an.2a"#.%e% in US- 2o% $2.$ billion A 2001 a"@.i%e* Sa%ab.%i 'e,en# (T0ailan*)- 2o% $73 ,illion A 2002 a"@.i%e* A.e%#o ?i"an 'e,en# 'o,(an+ 2o% $281 ,illion A 2004 a"@.i%e* ?' B%o.( (UC)- one o2 E.%o(e>s la%4es# "e,en# (%o*."e%s an* 5o%l*>s la%4es# s.((lie% o2 %ea*+D,i! "on"%e#e- 2o% $5.8 billion A 2006 sol* i#s 25.5% s#a&e in Se,en B%esi& (In*onesia) A 2006 a"@.i%e* ?in&e% B%o.( (A.s#%alia)- a ,a=o% selle% o2 "ons#%."#ion ,a#e%ials 5i#0 85% o2 i#s b.siness in #0e US- 2o% nea%l+ $12 billion (27% (%e,i.,) in la%4es# *eal e;e% "on"l.*e* in #0e "e,en# in*.s#%+ Can Ce#e0 a&& $al.e in &e$elope& co.ntriesE [Cemex] uses basic enterprise resource processing technology, but with rigour. It has process maps and imposes them on all its subsidiaries. It bought the UK building materials group RC !" months ago. RC was not as e##icient as Cemex. It had multiple systems running di##erent processes around the company. It was not the I$ department%s #ault. It was doing what it was told but it was not the way to run modern cement and it got bought.& %ar? Ras?ino, .artner .roup Can Ce#e0 a&& $al.e in &e$elope& co.ntriesE 'e#ore the ta(eo)er, RC%s #lagship plant at Rugby in the UK had been running at *! per cent capacity, and the central (iln had been stopped a mind+boggling ,,- times. .ust two months a#ter the ta(eo)er, capacity was up to almost -/ per cent, and production had risen #rom "0,111 tons to !12,111 tons a month.& Jinancial /imes, 'cto;er $33 ,ource8 Annual Report, $33 Ce#e0>s 7perating Margins+ ,008 7r is t/ere so#et/ing else going onE 3e had to become one o# the biggest global companies. I# we didn4t, someone undoubtedly would ha)e ac5uired us.& -oren5o Kam;rano, C0' of Ceme( ,ource8 Case, 0(hi;it # Is t/ere anot/er ga#e being playe&E %olderban " Ce$e& EBITDA ,a%4in 23.4% 37.1% EBITDA7 #on sol* (US$) 23.$ 45.8 Sales7 "o.n#%+ (US$,) 143.7 321.$ A;e%a4e (%i"e7 #on sol* (US$) 102.1 123.5 A;e%a4e "os#7 #on sol* (US$) 78.2 77.7 An& is it no? being playe& o.t on a global stageE Are the maLors pursuing a strateg& of multiBmar?et competition Cmatching each otherMs mar?etsD to gain ;etter control over price and >uantit& in the industr&= 2ncentives to maintain collusive prices in an& one mar?et are potentiall& greater given threat of retaliator& priceBcutting in multiple mar?ets 2f Ceme( doesn6t match the other maLors6 moves, does it ris? ;eing vulnera;le to their competitive moves= Ta%ea?ays A Designing a glo;al strateg& is not a mechanical e(ercise N it6s a creative response to the glo;al potential of industr&. A 2nnovative glo;al strategies, ;ased on novel o<nership and location advantages, can sometimes <or? in, and eventuall& transform, industries <ith apparentl& lo< glo;al potential. A GDistanceH matters in a variet& of <a&s CCA.0D in the design and e(ecution of glo;al strateg&. A Al<a&s anal&5e <hether and <h& particular glo;al strategies generate sustaina;le competitive advantage N the fact that companies pursue such strategies does not necessaril& mean the& do so.