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Going Global

Going Global

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Published by Anshul Bhatia

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Categories:Types, Business/Law
Published by: Anshul Bhatia on Aug 20, 2010
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01/26/2011

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Going Global
Lessons
from Late Movers
132
HARVARD BUSINESS REVIEW March-April 2000
 
Contrary to popular wisdomj companies from the fringes of the world economycan hecome glohal players. What they need is organizational cofifidence, a clearstrategy, a passion for learning, and the leadership to bring these factors together.
^ V
by Christopher A. Bartlettand Sumantra Ghoshal
I
N HIS AUTOBIOGRAPHY, former
South African president Nelson, Mandela recalls his dismaywhen he boarded an airplane andfound that the pilot was African.With shock, he realized his reactionwas exactly what he had been fight-ing against all his life. Mandela wasdiscussing racism, but the same in-voluntary reactions surface in com-merce. Consider labels such as"Made in Brazil" and "Made inThailand." Someday they may besymbols of high quality and value,but today many consumers expectproducts from those countries to beinferior. Unfortunately, that percep-tion is often shared by managers oftbe local companies that are strivingto become global players.
133
 
Going Global; Lessons from Late Movers
That's just one reason why companies from pe-ripheral countries find it so difficult to competeagainst established global giants from Europe,Japan, and the United States-the triad that domi-nates global commerce. And when they do com-pete, the experience of emerging multinationals of-ten reinforces their self-doubt. Consider ArvindMills, an Indian garment manufacturer that in themid-1990s found a niche supplying denim to lead-ing Western apparel companies. As Arvind's over-seas sales grew, its stock soared on the BombayStock Exchange, and the company's CEO confi-dently declared that the company was well on itsway to becoming a powerful global player. Butwithin a couple of years, Arvind had become a vic-tim of the fickle demands of the fashion businessand the cutthroat competition among offshore ap-parel makers battling for the shrinking U.S. jeansmarket.Stories such as Arvind's are told and retold inmanagement circles. The moral is consistently neg-ative. Companies from developing countries haveentered the game too late. They don't have the re-sources. They can't hope to compete against giants.Yet despite the plausibility of such stories, we be-lieve they are condescending and represent thecounsel of despair. Indeed, there is plenty of evi-dence of an altogether different story. After all,companies like Sony, Toyota, and NEC trans-formed the cheap, low-quality image of Japaneseproducts in little more than
a
decade. Is that type ofturnaround still possible? To
 find
 out, we looked atcompanies that, unlike Arvind, have successfullybuilt a lasting and profitable international businessfrom home countries far from the heart of the globaleconomy.
We
studied 12 emerging multinationals in depth.They operate in
a
wide range of businesses, but theyare all based in countries that have not producedmany successful multinationals-from large emerg-ing markets like Brazil to relatively more prosper-ous yet still peripheral nations such as Australia tosmall developing countries like the Philippines.And while these companies are distinguished bystrategic, organizational, and management diver-sity, they share some common traits. Most notably,each used foreign ventures in order
to
build capabil-
Cbristopber A. Bartlett is the Daewoo Professor of Busi-ness Administration at Harvard Business School inBoston. Sumantra Ghoshal is the Robert
P.
Bauman Pro-fessor of Strategic Leadership at London BusinessSchool.
To
discuss this article, join HBR's authors and readers inthe HBR Forum at www.hbr.org/forum.
ities to compete in more-profitable segments oftheir industry.The evolution into more-profitable product seg-ments can be clearly tracked on what we call thevalue curve. All industries can be seen as a collec-tion of product market segments; the value curve isa tool used to differentiate the various segments.
(For
an example, see the exhibit "The Pharmaceuti-cal Industry's Value Curve.") The more profitable asegment, tbe more sophisticated are the capabili-ties needed to compete in it-in RfiJD, distribution,or marketing. The problem for most aspiring multi-nationals from peripheral countries is that they typ-ically enter the global marketplace at the bottom
of
the value curve-and they stay there. This is true
even
when
a
company's internal capabilities exceedthe demands of a particular segment. Arvind Mills,for example, expanded abroad with commodity-like products even though it competed successfullyin higher-value segments at home. And it's not thatcompanies don't see the profitability of value-addedproducts; the performance of companies abovethem on the value curve is usually quite evident.Basically, their failure is due to a paralysis of will.Managers either lack confidence in their organiza-tion's ability to climb the value curve or they lackthe courage to commit resources to mounting thatchallenge. Often, as Nelson Mandela's memoirillus-trates, they are crippled by
a
vision of themselves assecond-class citizens.
A Model of Success
The Indian pharmaceutical company Ranbaxy isone of the success stories. For 18 years after itlaunched its export business in 197s, Ranbaxy wastrapped at the bottom of the pharmaceutical valuecurve. Even though it had developed advancedproduct and process capabilities in its home mar-ket, when Ranbaxy decided to go overseas it optedto produce and sell bulk substances and intermedi-ates in relatively unsophisticated markets. Becausegross margins were between 5% and 10%, the addi-tional revenue generated by the foreign businessdid not even offset the added costs of internationalsales and distribution. Management justified thenegative returns by celebrating the prestige associ-ated with being a multinational and making vaguepromises about using overseas contacts and experi-ence to upgrade the business.In 1993, Ranbaxy's approach to internationaliza-tion changed fundamentally. Parvinder Singh, thechairman and CEO from then until his death in1999, challenged the top management team withhis dream of transforming Ranbaxy into "an inter-
134
HARVARD BUSINESS REVIEW March-April 2000

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