| End of Corp Imperialism | |
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| Tweet Topic Started: Aug 1 2012, 07:21 PM (59 Views) | |
| bostonm | Aug 1 2012, 07:21 PM Post #1 |
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Article Review – by Matt Boston The End of Corporate Imperialism, by C.K. Prahalad and Kenneth Lieberthal The article’s main point is that corporate imperialism will end as MNCs properly adapt to and capitalize on the growing middle class in emergent economies. The authors loosely define corporate imperialism as a type of mindset and set of assumptions that western companies have regarding emerging markets that cause them to overlook the things that make that market unique. In practice, corporate imperialism results in companies outsourcing their western business models to emerging economies, which serves only a small segment of the population, typically representative of their home customer base. However, because the purchasing power of the “middle class” in emerging markets is different from the middle class in developed countries, MNCs end up inappropriately targeting customers in the upper echelon of the economy (about 1% of the buying power); even though their products may be better suited to serve the larger middle class like they do in the home country. The authors then list the things a company ought to keep in mind when targeting tier 2 and tier 3 customers (about 27% of the buying power). While I understand the importance of targeting a much larger market in the tier 2 and tier 3 customer base, I disagree that a MNC should jump in feet first in order to serve that market immediately because it runs the risk of competing directly with local players’ core offerings. Take Ford for example, as mentioned in the article, its compact Escort model, which is sold as an inexpensive car in the U.S., was selling for the same price in India, thereby putting it at a luxury price point. The authors argue that in order for Ford to be successful it ought to offer a “me too” brand at a price point under $10,000 like Fiat or Suzuki. But why even attempt to gain entrance into that particular smaller car market without first establishing the brand as niche product at a luxury price point? This is similar to what Fisker Automotive is doing in the USA. Fisker, a startup American Auto Manufacturer in California, has introduced the world’s first luxury 4-door plug in hybrid electric vehicle called the Karma at a price point of $100,000 - clearly a luxury good. However, it plans to expand its product line to include cars at lower price points of $35,000-40,000 in the next couple years after it has established its brand identity. Isn’t this the smart strategy for a new brand in a new market? Shouldn’t a company first establish dominance in a market niche in an area that is underserved, and then innovate upward and outward? Many other companies we have discussed recently have done this as well – Haier is a recent and accurate example. I also disagree that companies, in general, overestimate the effectiveness of their marketing models – in fact, I think some models are underestimated. Take Haier for example, its model was one of customer connectedness and responsiveness with regards to innovation and service – something that is clearly working well in its new market in the U.S. However, I do think that companies sometimes misinterpret what it is that has made them successful in the past. For example, If Haier had thought that its core value proposition was washing machines for clothes and potatoes, as it was for particular parts of China, it would not have done well in the U.S. In addition, Apple’s success was not that it had an exclusive contract with AT&T where customers could buy the iPhone for $200 with a 2-yr contract in the U.S., it was that they had the sleekest phone with the best vertically integrated software system – people in developing markets all over the world want this product assuming that cellular network coverage is well established, and they are even willing to pay $600-1200. Therefore, a marketing model that focuses on the mobile provider as distributor and subsidizer is not the key to its success, the product itself is. In both examples, a clear understanding of what it is that clearly differentiates the company and adds value is important for success in translating what that means in a new market. In conclusion, while it is important to customize offerings for emerging markets, I don’t think companies ought to lose their way and forget what it is that made them successful in the first place. Just because McDonalds offers veggie burgers in India doesn’t mean that it has gone through a complete change of its brand identity – instead, it saw its value proposition not as a place for people to have burgers, but as a place to get an inexpensive fast meal in a relatively nice, friendly, clean atmosphere. In the end, what’s most important is that companies interpret their value propositions through the lens of the customer base in the new market. |
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