how should indian firms go global

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HOW SHOULD INDIAN FIRMS GO GLOBAL? Can they exploit the ‘Value Curve’ Strategy?

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Post on 03-Aug-2015

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1. HOW SHOULD INDIAN FIRMS GO GLOBAL? Can they exploit the Value Curve Strategy? 2. Aspiration to Go Global Export to emerging markets & eventually capture such markets Create assets in rich / large (high demand) foreign markets Develop global brand(s) 3. Can This Aspiration Be Achieved? Do Indian firms have powerful brands / proprietary technology? Do they have the size / resources? Can they compete against experienced competitors in mature, consolidating, advanced & globalized markets? What happened to Arvind Mills? 4. Some Specific Limiting Factors Indian products / firms are associated with low cost, low price & low margins Low margins means low investment in new competencies resulting in reduced competitiveness (Japanese also faced it) Liability of Indian-ness locks firms in the lower decks of international business But desire is to become full fledged MNCs 5. The Concept of Value Curve High Low Low Average Good Attractive Superlative 6. Concept of Value Curve Low margin at the lower end and high margin at the upper end characterizes VC Existing business at the lower end need to fund businesses at the higher end of the VC For this to happen the existing businesses have to be very successful 7. Concept of Value Curve A trade off is required between present low-end low margin businesses and future upper-end high margin ones The fundamental drivers of success are different for businesses at various levels of the VC. This requires new management team for the new business model 8. Concept of Value Curve This makes the journey up the Value Curve not- so-easy. Firms (chasing the higher-end business) end up sacrificing the present without which there can be no much future 9. Concept of Value Curve Or they trade-off the future for the present and get locked into an ever-tightening negative spiral of defending their share of a shrinking pie of the current business Solution lies in creating independent competent management teams for each business on a global scale 10. The Pharmaceutical Value Curve High Low 2-12 12-22 22-35 35-55 55-100 11. Value Curve in the Pharma Industry Indian firms began international debut at the bottom of the VC producing & marketing intermediates & bulk substances Margins were low & cost of marketing high Benefits included EOS and some glory Few firms moved up the VC to market commodity & branded generics 12. Value Curve in the Pharma Industry Competition here shifted to customer relationship, channel building & brand image Ranbaxy has succeeded internationally because of the return it has received from investments made in developing these resources It intends to be a research-based pharma firm and play in the highest margin most competitive arena 13. Value Curve in the Pharma Industry It has been investing 4-6 % of revenue on R&D. It will reap the benefits of the high-end cycle eventually. (Therefore t/o by Daiichi) High margins from new products will allow high investments in R&D, which in turn will lead to further new products. The challenge for Indian firms is to move up the VC successfully. 14. Textile Industry Value Curve 15. Managing the Journey up the Value Curve HI LO Resources and Competencies Business scope (Diversity of activities) NARROW BROAD AB C D Focus Build Leverage LBS Prof. John Stopford proposed this Model 16. Managing the Journey up the Value Curve The process should be to focus then build and finally leverage Focus requires reducing diversity. Building may involve buying a company abroad and Leveraging has to do with moving into multiple geographical markets, segments and even businesses. There is a temptation to jump from A to D but this does not usually work 17. Tata Steel, Tata Motors, M&M ...are examples of Indian firms moving up the VC This process is true for a diversified group as well i.e. at the level of each business the focus-build-leverage sequence is the way to develop sustainable positions in international markets. Managing the Journey up the Value Curve 18. HIT Like buttonSHARE