Competitive Strategy: AAA Framework Essay

Question:

Discuss about the Competitive Strategy for AAA Framework.

Answer:

Introduction

The business environment is experiencing changes brought about the globalization trend. The forces of globalization have brought organization, people, and economies and from different regions together to take full advantages of the opportunities across the world. However, while there have been positive aspects of the forces, there are also adverse effects such as the unforeseen challenges that were not there before. Therefore, companies are compelled to come up with strategies, and this necessitated for the formation of the global framework to aid the companies with the tools that can help them address these challenges and gain a competitive advantage in the international environment (Bond & J. O'Byrne, 2014). As such, Ghemawat formulated a theory known as triangle theory for the companies to successfully manage the problem through adaptation, aggregation, and arbitrage. The report explores how the beverage and pharmaceutical industries firms have responded to the globalization forces through AAA framework (Ghemawat & Hout, 2014).

Pankaj Ghemawat’s AAA Framework

The volatile nature of various factors such as economic and market dynamics has led to the designing of the global strategy to address the issues in the business environment. Many firms focused on formulating a strategy to deal with the uncertainties in the new markets. For the reason of many managers trying to devise the right global strategy, Pankaj Ghemawat formulated a framework to solve global challenges faced by these organizations. The AAA framework identified the approaches to business by international organizations namely Adaptation, Aggregation, and Arbitrage (Ghemawat, 2013).

Adaptation is a global strategy used by the firms in the international environment where the entry strategies and the operations empathize on delivering a product or a service that has customized features preferred by the local population. An aggregation is an approach used by the organization by capitalizing on the advantages of the economies of scale. This is done by trying to replicate the achievements of the same its product and service in the home country. The management tries to market the product as a standardized product offering in the foreign country in the expectation that it will achieve the same market receptions. The third strategy in the framework is Arbitrage, and this is where the company employs a global strategy while still trying to distribute the production facilities in different locations across the globe. However, this relies on the competitive advantage that is unique to each location (Ghemawat, 2013).

In general, many huge multinational corporations such as Coca-Cola that have a presence in many nations uses a combination of the above three strategies. What is important is the understanding of the three strategies and using them effectively depending on the situations (Krzywoszynska, 2015). However, many corporations face significant problem such as lack of capability to use the strategy simultaneously and delivering satisfactory results. Some of the challenges experienced include conflicts and inconsistency due to a different culture which the company has to deal with in the global business environment leading to difficulties in integration (Ghemawat, 2015; Krzywoszynska, 2015).

AAA Framework for Global Strategy

This section explores how companies from food and beverage and pharmaceutical apply the AAA framework in their global strategy. The primary focus is how the company has used the aspects of adaptation, aggregation, and arbitration in their global mission. Food and beverages enterprises and pharmaceuticals organization are some of the industries that have responded with the global forces of globalizations and has expanded in different regions to take full advantage of the opportunities in the markets (Morschett, et al., 2015). Besides, the sectors are very relevant in nations’ and global economies because they create many job opportunities irrespective of their level of development. To make their expansion strategies across different countries sustainable, these sectors have resorted to adopting the framework to achieve their growth strategy and strengthen their competitive advantage (Peng, 2013).

For instance, the changes in the global environment have resulted for the companies to take various measures that use adaptation. For example, when venturing in the international context, the companies readjust their products and services and the management operations to make them conform to the local markets situations (Morschett, et al., 2015). For example, when Coca-Cola invest in African countries, their beverages follows to the choices, and the preferences of the local people based the culture. Besides, pharmaceutical and beverages industries in the world are creating the economies of scales across regions by establishing regional hubs and administrative centers while still using marketing strategies that apply to the regions through aggregation (Krzywoszynska, 2015).

Arbitrage is another strategy that has been utilized for both food and beverage and pharmaceutical with international operations. The strategy is paramount as it enables the organization to take advantage of the price of products and the currency difference. This helps in making decisions what to do at a particular time to receive full benefits of the opportunity offered by the market (Steenkamp, 2017). For example, it helps in making a decision on the marketing activities to invest in and when to buy and sell to realize a profit. The AAA framework used by global companies is paramount in helping these organizations face the global business environment with certainty and confidence and successfully evaluate the demand and supply of their products and services and the prevailing market prices (Motohashi, 2015). In addition, it helps the industries understand the local markets and dominate others. However, the management must bear that each of the strategies will have a different scale of effectiveness and relevance and therefore upon an assessment of the market, there is a need for the organization in the industry to decide which strategy to use or ignore (Peng, 2016; Ghemawat & Hout, 2014).

Mini-Case Studies

Coca-Cola

Krzywoszynska argues that Coca-Cola in a multinational firm which has an extensive presence in the world with operations in more than 200 nations. As such, the organization cannot ignore adaptation approach in its global strategy to respond to different cultural and local aspects. Therefore the companies produce beverages that have different tastes in different cultures. Besides, it responds to the environmental factors and cultural factors through packaging and advertising of their products to capture the global markets by adapting to them (Krzywoszynska, 2015). For example in Shenzhen, the company has a range of carbonated drinks and water which do not have western aspects but uses the local tastes, values, and attitudes. This is an indication that the company has modified the tastes and preferences of the flavors to match that of the local culture and preferences and this is the same for their branding strategies (Wheeler, 2016).

The aggregation strategy has been used by the organization to expand its operation to many countries such as India. In some cases, the company has focused on acquiring the local favorite brands and in a bid to connect with the local consumers. For instance, the minute maid is one of the company’s brands which was acquired in the 1960s; three decades later is acquired the1ndian cola and other juice smoothies decades later. The arbitrage strategy is also used because instead of producing the products in the U.S.; it has other plants in different countries across the regions (Wheeler, 2016).

Nestl? Global

Nestl? is also a case study used to understand how companies have responded to globalization forces using adaptation, aggregation and arbitration strategies in the market. Nestle expansion strategy like that of Coca-Cola has responded to the policies of globalization by providing products and packaging strategies that confirm to the local population taste and preferences across different regions. This is evident in its products like Bottled Water, Breakfast Cereals, Coffee, Dairy Products, and Food such as Hert and Maggi includes. For example, the different brand in the various countries such as U.S, UK, and France have different tastes and are packaged differently and the market strategies used are different (Ghemawat, 2015; Fischer, 2016).

On the other hand, the company has successfully managed to globalize through the acquisition of local brands in the country which aimed at controlling domestic brands in the international markets. The marketing strategy adopted b these different countries are integrated into a marketing strategy which covers the generic brands. This is an indication of the aggregation strategy used by the company to have a presence in many countries leading to joint ventures and alliances with companies such as froneri and partnership between Nestl? and Guthy-Renker. This makes the company has many central hubs in countries and regions to reduce the cost of production, and distributing the products to the market. The company also benefits from arbitrage strategy as it establishes many firms through the regions to avoid paying massive taxes and also benefits from countries subsidies (Black, 2016).

Sun Pharmaceutical

The other case study is Sun Pharmaceutical based in India and one of the biggest company in the world regarding pharmaceutical product production and distribution. The company also uses the adaptation, aggregation and arbitrage strategies in their global framework. To avail its products in other countries and establish a presence the company uses a range of changes that suits the local situations and the needs of the conditions and this has been the same for their chemical formula (Busfield, 2015). Besides, the competitive strategies and packaging are adapted to the local market and population needs and wants. The aggregation strategies have made them focus on the acquisition of other local facilities across the Asian countries. On the other hand, the arbitration strategy has been used by the organization effectively to set installations in the Asian countries to reduce the cost of operation and distribution. For example, the group has established many research and production facilities, and this has enabled it to reduce the cost of distribution and production in these regions (Ghemawat, 2015; Sahu, 2014).

Pfizer Pharmaceutical Company

Pfizer is another pharmaceutical company that uses aggregation, arbitration, and adaptation to expand to Latin America regions. The management of the company realized that to attract consumers from different countries, they must adapt to the local situations and this is evidence in their marketing strategy in the Latin America region. The company has analyzed and understood the local circumstances of the different countries such as socio-economic and regulatory environment to adapt to the marketing forces. Their strategy also has resulted to them using community programs to build their market to help people understand their health and respond to medical situations effectively (Busfield, 2015).

The aggregation strategy has been employed in European countries where it has established the administrative center and satisfied the requirement to do business there. Just like other companies, the companies also seek to maximize the opportunities in the global environment and mostly tax laws in the country. For example, the company has taken another UK company known as AstraZeneca to benefit from various tax reliefs. For example, companies established in the country benefits from tax shelters, low taxation, and patented products fetch lower prices in the county. This is an example of how the company has benefited from expanding to other regions in Europe (Pennie, et al., 2015).

Conclusion

The AAA framework formulated by Ghemawat was designed to respond to the changes in the global business environment and especially globalization forces. The framework encompasses the adoption, aggregation, and arbitration which help the respond to various. Some of the prominent issues explore local preferences and tastes, an extension of central hubs across different countries and taking advantages of tax regulation in the various countries. Many industries use these strategies and specifically in the pharmaceutical and food and beverage industries as explored in the case studies. For the strategies to be effective and fruitful, the management must learn to balance them in the application in the different markets across the world. The companies analyzed namely Coca-Cola, Sun Pharmaceuticals, and Pfizer have applied these strategies to help them manage differences in the countries as part of the globalization strategy. This is because the forces of globalization have brought about challenges in the supply chain management, information system and therefore companies have responded to maintain the competitive advantages of the countries.

References

Black, E., 2016. Globalization of the Food Industry: Transnational Food Corporations, the Spread of Processed Food, and Their Implications for Food Security and Nutrition. s.l.:s.n.

Bond, C. & J. O'Byrne, D., 2014. Challenges and conceptions of globalization: An investigation into models of global change and their relationship with business practice. Cross Cultural Management, 21(1), pp. 23-38.

Busfield, J., 2015. The globalization of the pharmaceutical industry. Globalisation And Health, Volume 10, pp. 127-138.

Fischer, J., 2016. Markets, religion, regulation: Kosher, halal and Hindu vegetarianism in global perspective. Geoforum, Volume 69, pp. 67-70.

Ghemawat, P., 2013. Redefining global strategy: Crossing borders in a world where differences still matter. s.l.:Harvard Business Press.

Ghemawat, P., 2015. From International Business to Intranational Business. In Emerging Economies and Multinational Enterprises (pp. 5-28). Bingley, West Yorkshire: Emerald Group Publishing Limited.

Ghemawat, P. & Hout, T., 2014. Globalization, Capabilities, and Distance: Theory and a Case Study (of China). Globalization.

Krzywoszynska, A., 2015. Wine is not Coca-Cola: marketization and taste in alternative food networks. Agriculture and human values, 32(3), pp. 491-503.

Morschett, D., Schramm-Klein, H. & Zentes, J., 2015. Strategic international management. London: Springer.

Motohashi, K., 2015. Management Strategies for Global Businesses. In Global Business Strategy (pp. 21-40). s.l.:Springer Japan.

Peng, M., 2013. Global strategy. s.l.:Cengage learning.

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Pennie, W., Pickett, S., Wang, J. & Wallace, O., 2015. An analysis of the attrition of drug candidates from four major pharmaceutical companies.. Nature reviews Drug discovery, 14(7), pp. 475-486.

Sahu, S., 2014. Globalization, WTO, and the Indian pharmaceutical industry. Asian Affairs: An American Review, 41(4), pp. 172-202.

Steenkamp, J., 2017. Global Brand Management. In Global Brand Strategy (pp. 181-208). s.l.:Palgrave Macmillan UK.

Wheeler, A., 2016. Designing brand identity. Hoboken, New Jersey: John Wiley & Sons.

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