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Global Firm Success Strategies
Welcome friends, to the class of International Business. In the last lecture we had starteddiscussing about the impact of marketing on international business. That means, wediscussed about how global firms create a marketing strategy to enter into differentcountries and expand their business.We also discussed how they segment the market and how they target the market, on whatbasis do they do it right and finally, how do they position themselves, what a productofferings do they give right to the various market and on what factors; what factorsdecide the different product offerings right. So, there were few things that we arediscussed as the part of the marketing related to international business.So, today we will talk about how Global Firms create Successful Strategies right. Whysome firms globally have been so successful and on the contrary others have in the samesituation have not been successful right. Let us see some successful strategies that globalfirms had adopted; so let us start discussing about it.Some of the points which I thought is very important for global firms like; for example,IBM, A bit, Hindustan, sorry Unilever, Johnson and Johnson, Gillette for example, orKomatsu, Kia motors, whatever you can think of right. So, how did how do these firmsNetflix, Amazon Prime, how do these firms become so successful right.So, the first point that came to my mind is partnering with a local brand with a strongname as a method of entry.(Refer Slide Time: 01:59)So, it is very important that when firms enter into a new market they would not beaccepted on the very first instance so they have to create brand image in the market. Andyes luckily nowadays it is an internet world and that to world of television and alsopeople are aware the awareness levels are high; but still, when it when you partner with alocal brand it becomes quite simple to understand the local markets culture behaviourand feelings right.So, partnering with a local brand with a good strong name is a very good method of entrywhich global firms have been doing it in the recent past. Adapting a meaningful andeasily recognizable local name; sometimes there is a lot a lot of you know interestinghumor humorous case cases in at least the field of international marketing; wherecompanies have been you know into a fixed or a difficult situation just because theirnames were not palatable or the names were not easy to pronounce by the local people ina new country.Hiring local leadership; now that is also a very important thing, so you cannot expect youknow outside experts to come and run the local you know business. So, local leadershiphiring is also an important part of global successful firms. Then, launching a separateservice based locally; now if you see many of the Chinese firms were not successful inIndia because they did not have a good service facility right.So, now, how what should firms do? Many of the Indian the foreign firms the globallysuccessful firms when they came to India they first looked for a franchisee offeringservices to the local the customer’s right. So, that was the first important thing because ifyou do not provide a maintenance or a service, then customers might not be very happyand that might affect your business image and brand image.And finally, good firms successful firms have always you know done one thing that theygave the local operations autonomy to build their own business model and operate itindependently and not depend on the headquarters all the time right.These are some of the strategies and there are many more for example, successfulcompanies have been able to understand the impact of the currency evaluation andtransactions right; currency valuation and transactions right. So, these are very importantfactors that they have been able to understand and impact of culture also.But if you see global firms successful firms have been able to do something different, butothers have not been able to do. So, today what I will do is we will start with discussing acase which is a recently a company which has become very popular and it has achievedtremendous success and the company is; Netflix.(Refer Slide Time: 04:54)I think everybody today is aware of Netflix; either they must be a subscriber or not as asubscriber at least a viewer or at least they must be aware of the brand.Now, this is a case I have brought from HBR, October 2018 right. Now, conceived in1997 by Reed Hastings who is the current CEO and Marc Randolph Netflix dot comstarted life as a DVD rental service in 1998 ok; around 2000 Netflix introduced thesubscription model. So, till you know up to 2000 until 2000 Netflix did not have thissubscription model which they are doing.So moving away from a single DVD rental Netflix algorithm was introduced and whatdid this algorithm do? This algorithm was introduced to find out the utilizers user ratingsthe users you know used to give ratings right. And they used to utilize these ratings andunderstand the behaviour of the users; to select films that might appeal to any givensubscriber.Now, Blockbuster offering to buy the Blockbuster is a firm at that time offered you knowto buy a Netflix for 50 million dollars in 2001 this is a very interesting case ah. When thedot com bubble happened and Netflix was making losses. So, there was a companycalled Blockbuster who offered you know 50 million to buy takeover a Netflix, butsomehow Netflix did not go for it and the condition was that in 2013 Blockbuster itselfshut down completely right.Today it is only in the US before 2000 you know 2010 it was there in the US, but by2015 Netflix you know managed to enter into 50 countries. So, you see in a matter of 5years so they entered into 50 countries. And by 2017 this number went up to 190countries ok. Interestingly more than 60 percent of it is total 182.86 million subscribersare from outside the US now that is a very interesting figure.So; that means, almost 100 million subscribers are from outside US; that means, thiscompany which started from US today has become extremely popular everywherearound the world.(Refer Slide Time: 07:15)Number 2, what are the challenges for Netflix, was the journey so, smooth? No, soNetflix had some challenges. For example, secure content deals region by region so thecontents have to they had to develop according to the region the countries and they facethey had to face a diverse set of national regulatory restrictions. For example; therestrictions depends on the culture of the country.For in India what you define it as adult or what you would define it for you knowuniversally for everybody is different from for what it is in Europe right. So, therestrictions the you know sensor boards you know effect is much larger. So, regulatoryregularly restrictions regulatory restrictions were one thing, largely internationalsubscribers, right. Many of whom are not fluent in English, so Netflix as it started fromUS.Obviously, the most important language was English and all the products that they hadthe movies or serials that they used to make well largely in English, but now they had tochange from to a local dialect. So, whichever country they went in they wanted to makea according to the local language, so that was another challenge. And another interestingproblem was that many potential subscribers were accustomed to free content.Now, in India also it was for a very long time and they were hesitant to pay for streamingthe services of Netflix right. In addition to all these there was competition right. So,competition was growing in for example, there is Amazon, there is Hotstar there aremany more streaming companies which are coming in. In spite of all these you seeNetflix with its global reach has more subscribers worldwide than all other purestreaming services almost right.How did this happen? What did Netflix do to be successful in its business? So, this is abrilliant case of international business right; how does this company management?Others were in the same condition and there were large players like Amazon, Hotstar andall, but they could not such be so successful as Netflix was. So, what happened? So, athree stage expansion process was taken up by Netflix into new markets.(Refer Slide Time: 09:25)So, first what was it? In the first stage it carefully selected it is initial adjacent markets interms of geography and psychic distance; psychic distance means the mental distance.Some people feel that we are close to some countries or the people in some countriesrather than the neighbour. So, this is a not as a physical distance, but it is mentaldistance. For example, it is earliest international expansion in 2010 was to Canada whichis geographically close and shares many similarities with the United States.Now, whatever learning they got from Canada, then they use to move further. So, Netflixwas thus able to develop its internationalization capabilities in locations where thechallenges of foreignness were less acute. Obviously, because they were getting into themarkets which was very adjacent and close to them and people were accepting them.So, there was no issue of foreignness or not accepting them. In doing so the companylearned how to expand and enhance it is core capabilities beyond it is home market right.Now, what did they do in the second stage?(Refer Slide Time: 10:36)So, in the second stage the choice of those markets was influenced by the degree ofattractiveness such as; from shared similarities the presence of affluent rich consumersand availability of broadband good broadband internet broadband.In this second phase it helped Netflix to continue learning about internationalization andpartnering with the local stakeholders. So, during this stage they started partnering withthe local stakeholders while also growing its revenue. So, they help the localstakeholders who could not expand their business and they helped them to you know selltheir stuff products in the international market also though they have supported the localstakeholders also.Since this phase involved expanding into more distant markets it was supported byinvestments in content geared towards the preferences of those geographies. Now,suppose you they went to let us say Malaysia; so they developed it according to thepreferences of the Malaysian people right, they came to India they developed itaccording the local content that means the content was localized right. As well astechnological investments in big data and analytics was highly done to understand thebehaviour of the consumer.So what was the consumer doing? How what was he largely watching? And what was hispattern? Was it watching full a full complete movie at one time or a documentary or akind of a kids section or was it more watching it in parts. So, what was he doing? Right.The third stage Netflix focused on adding more languages; so including subtitles. So,there are many movies and serials which are very famous, but their language might notbe in the one which you can understand. So, they added subtitles for almost all of themright.Optimizing it is personalization algorithms for a global library of content and expandingit support for a range of device; not only you know they added subtitles, but they made itso that it would support for a range of device like. And you know like; mobile, laptops,desktops, you can tablet’s anything right. And the operation and payment partnershipsalso they added that.So, by doing all these Netflix really got a good hold on the consumer right they werevery much satisfied with it.(Refer Slide Time: 13:02)Central to its success in the new format was the algorithm. What was the central youknow the main reason for the success? The algorithm which; helped him tracking thebehaviour of the user; that helped to steer users towards the content that they would mostenjoy. So, what are the consumers most enjoying; accordingly they would develop thecontent.Recognizing that in some parts of the world particularly emerging and developingeconomies mobile is the primary way of you know accessing the internet. Netflix beganplacing a greater emphasis on improving its mobile experience; including the signups,credentials and authentication, the user interface and streaming efficiency for cellularnetworks. It has been developing relationship with device manufacturers mobile and TVoperators and internet service providers as well.In some countries Netflix has come into an agreement with companies of TVmanufacturer and device manufacturers that one of the buttons they would keep forNetflix. So, if somebody presses the button; so he can watch a Netflix directly on the youknow TV or somewhere. So, that made it very convenient for consumers also to watchNetflix.(Refer Slide Time: 14:18)Now, all these led to you know huge acceptance of Netflix. The company partnered withkey local companies to forge win relationships. In some case it joined with the cell phoneand cable operators to make it content available as part of their existing video on demandofferings.For example when Vodafone launched a TV service for its customers in Ireland. So, thiswas the case I was talking about it included a dedicated Netflix button on it is remotecontrols. More recently Netflix announced deals with Telefonica in Spain and LatinAmerica and with KDDI in Japan. So, all these by partnering with all kinds of serviceproviders who were some other that were related to the streaming business Netflix madea big entry into the international business in different countries ok.One more thing Netflix did was another differentiator was in 2012, it brought in originalcontents. Now, they did not depend on only you know streaming of existing movies theybrought their own original content. Now, they started with a you know a web seriescalled Lilyhammer, but which was very popular, but then came you know the their ownseries which was House of Cards I think most of you must be knowing and Orange is theNew Black.Both launched in 2000 that gave a major uplift to Netflix demand and its subscriber baseok. Taken together Netflix expansion strategy constitute a new approach that can betermed exponential globalization. It is a carefully orchestrated style you know cycle ofexpansion executed at increasing speed to an increasing number of countries andcustomers.So, all these that Netflix did was very much well thought and well designed. So, that theyunderstood the you know they not only understood the consumer they also understoodthe requirements of the already existing local producers what they were making and howthey would also benefit out of it. So, understanding all this helped Netflix to become avery successful international player right.So, if you understand this case you can very clearly understand; when you whensomebody when some company wants to go international or becomes a global player, ithas to keep in mind several things. So, you know; besides the culture, besides the habits,besides their availability of infrastructure, and all they have to be as original as possibleand as close as to the local consumers right. Now, what are the major internationalstrategies do companies adopt? Right.(Refer Slide Time: 16:54)For example, when you talk about international strategies so, companies have to look atthe some of the points for example, the global products now what products would sell inthe local markets? So, suppose today we are making some product x in country let us saya right; can I sell the same product to another market? No may not be right.So, what happened let us see this case Avon which is a you know largest one of thelargest cosmetic manufacturers in the world made a cream which had a you know whichhad a property of a moisturizer, sunscreen, plus insect repellent all the three in one for aBrazilian market right. Similarly then made a skin lightening cream for Asia because inAsia it is a very important point because although this is not a right thing to speak, butthe point is in Asia there is a pressure on the girl to be more fair right.Because in Asia it is generally people feel that fairer is more beautiful which is a wrongconcept, but it is there right. Long lasting citrus fragrances in the Mediterraneancountries. So, all these things the global products was made according to the marketsthey were getting in.Now, local R & D division would help them and then either they would develop itlocally or they would do it in a centralized the production they would do right. Buthaving putting emphasis or going you know deep into the global products was very veryimportant work is a very important work.Second thing is understanding the global branding right now as we understand brandingmeans a symbol sign something which people would easily recognize right. Now, howwould you brand your product? What would be the method of branding? So, uniformglobal quality image and saves costs by using uniform ingredients and packaging. So thecompany had have to if somebody is going international and has to be successful forexample, Unilever for example, Coca Cola, Pepsi.Now, these companies have a uniform image; that means, a bottle of Coca Colawherever it is it would be considered to be a premium right or a good product right. So,those kind of the ingredients the packaging and the quality that they are using has to bemore or less uniform.Now, print language is local or any other sometimes to take advantage of the country oforigin factor. So, even Avon took this advantage. So, what they did is in some of thecountries you know for example, let us say this country of origin factor becomes veryimportant when you come to international business. Now for example, let us see ifsomebody wants to purchase say engineering equipment. Now; the point is when youtalk about engineering equipments or missionaries the first thing that the first countrythat comes to your mind is Japan or Germany right.So, what kind of how do you manage this country of origin factor? And the printlanguage which is on the labeling sometimes companies instead of doing it in the locallanguage they deliberately keep it in the language of the country of origin and as well asthe at the local language. So, that is done in order to create a good image in the mind ofthe consumer. And more or less the third point is to improve the brand image companiesare showing the environmental concern and social responsibility.Now, I will give you several examples for example, Procter and Gamble is involved insocially social causes for example, educate a girl child right. And it says 1 rupee of it is a1 percent or 1 rupee I do not remember, but a small significant portion of its profit goesto the education for a of the girl child’s right. So, what is the consent for environment?So, as I said in one of the classes that apple you know uses a lot of recyclable material.So, that there is not much of pressure on the environment. So, companies are working onit to make to look more you know to create a good brand image and look more concernedfrom the environment and society right.(Refer Slide Time: 21:00)The other three factors part of the international business international strategy is theglobal pricing, promotion, distribution. So, when you talk about global pricing prices areset as per the local market conditions and strategic objectives, but this creates sometimesillicit selling across countries the contraband theory right.Now, different for example, as per the local market conditions when somebody makes aproduct suppose a product is priced X in country A and Y in country B and X is little lessand Y is more.Then automatically what will happen is Y in people from you know the marketers fromcountry Y or B will try to get the product from X if they are in the trade of they aremaking a profit right. So, it could be like a kind a illicit business smuggling kind ofactivity which might grow right. So, how, do you keep a price balance is also equallyimportant which marketers need to understand in international business.Again global promotion; it is not simple that you whatever you do you can just dispose itor sell it in the other markets. Even when you talk about promotion the promotiondepends promotion is to catch the customers attraction. Now, when you are selling a newproduct you want to accelerate the sales in the fast growing markets. So, in such acondition you have to look at the cost of promotion and the cultural differences right.And how do you promote them in the international arena?So, the promotion that you can think of doing it in the way you can do it in Europe, it isnot possible that the same would be accepted in maybe the Arabian nation’s right or theAfrican countries. So, that varies from people to people again tradition to tradition.And finally, when you talk about the global distribution strategy; the independentrepresentatives, the mail order business, direct sales, commission agents, supply chainissues infrastructure and logistical challenges. So, there are several issues as a part of theinternational strategy that a marketer or a firm has to look into to be successful in theinternational business.So, today I will wind up here. And we will continue in the next lecture we will continuethis in the next lecture right.So, thank you very much for today.