The AAA framework
Discuss about the Competitive Strategy Challenges of Globalization.
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Globalization is an era that is gaining importance where countries come closer by sharing various business opportunities. Globalization had positive impact on lives of many people all over the country. Many people benefited from the era of globalization. Globalization has also increased challenges for business organizations. Hence, it is necessary for the organizations to formulate a global framework to effectively management the challenges of globalization in order to create globally competitive advantage (Madsen 2016).
Pankaj Ghemawat has developed a theory named “AAA” framework in order to manage the challenges and complexities of globalization faced by the global economies. The three A’s in AAA framework stands for Adaptation, Aggregation, and Arbitrage (Jha et al. 2014).
Adaptation refers to adoption of necessary measures by the companies so that it is able to meet the demands of people and provide the products. The organization adjusts its policies so that it is able to deliver the operations according to the demand of local market. Aggregation is a step that is used by the organizations to create economies of scale for global expansion and along with meeting the local demands. Arbitrage is a stage where the companies take decisions regarding buying and selling of products to make profit through the proper use of differences in currencies, price and cost and taking new business ventures. These strategies helps the companies expand its business in global market along with fighting with its competitor and catering to the needs of local market as well. The business environment gets smoothened with the use of these strategies so that the companies are able to integrate business and emerge as a market leader (Ghemawat 2013).
- Pharmaceutical industry: Sun Pharmaceutical industries and Pfizer Inc.
- Retail industry: Tesco and Wal-Mart.
Both the industries have their global expansion in various countries. Both the industries are an important part of the economy that provides great employment opportunities. In order to remove complexities of globalization these industries have used AAA framework so that they are able to achieve competitive advantage (Morgan and Strong 2015).
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Due to the advancement of technologies, the pharmaceutical industries are growing rapidly which are enabling them to come up with new drugs. The cost of producing new drugs is very costly as there are various steps involved before the final product can reach to the customers. The pharmaceuticals products have to go through various processes of testing, patenting, safety, efficacy and marketing. Hence, it is essential for the industry to ensure that the products reach to customers in different parts of the world.
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Sun Pharmaceutical industries
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Pfizer Inc.
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Adaptation
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Sun pharmaceutical industry is the fifth largest pharmaceutical company in the world. It is an Indian based company that has its global presence all over the world.
In order to have its presence globally the organization has to make changes by catering to the needs of the country.
Sun pharmaceutical company adopted various strategies that were suitable for people of that country such as adoption of change in chemical formulae, ingredients and packaging.
The company has been able to gain competitive advantage by developing strong research strategy and a country specific implementation strategy.
The company has been able to introduce cheaper and high quality generic products to capture major market share over last ten years by consistently being successful in challenging patents of several high values products produced by US Pharmacy (Berry and Kaul 2015).
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Modification is necessary for selling the products in different and new places. It is an American global Pharmaceutical company and is among world’s largest pharmaceutical industry. It was essential for Pfizer to adapt sales strategy in Latin America. The company had two alternative ways to be successful in Latin America. The two ways of increasing the sale in Latin America were:
· Building an extensive brand through community outreach programs.
· Developing and using useful and devoted resources to work with pharmacists who are able to help the patients choose with right medications (Desai 2015).
It was essential for the two alternative ways to take into account the cultural, economic and regulatory differences so that marketing products is easy.
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Aggregation
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Sun pharmaceutical industry realized the importance of globalization. For its growth, the company focused on expanding its business globally. Hence, the company successfully acquired expanded its business in various countries and geographies that were competing in nature (Gugler et al. 2015).
The company has been able to make nineteen global acquisitions so that it could increase its reach to the customers in various countries.
The acquisition of Ranbaxy in 2014 made the company as the fifth largest Indian Pharmacy company in United States and largest company in India. The manufacturing of the products of the company is across twenty-six locations. The company has its plants located in US, Canada, Brazil, Mexico and Israel.
The growth of Sun pharmacy is complemented with the selection of acquisition and expanding globally.
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Pfizer inc. in an example of administrative aggregation. It is essential for the organization to meet the regulatory needs and requirements in order to sell and market its drugs in other countries. For example, Europe has special requirement for the expansion of pharmaceutical companies and selling drugs, which the company has to fulfill.
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Arbitrage
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The product of Sun pharmaceutical industry is available at cheaper price because the company has established its research capabilities in developing countries so that it is able to reduce the cost. This has led not only the prices of products available at cheap prices but has also increased its capabilities.
The company has been successful in expansion of lower cost manufacturing units and facilities in many Asian countries. It was also successful in developing and manufacturing products at lower prices that could be exported to developed countries at higher prices.
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Pfizer inc. in a good example of TAX arbitrage. This means relocating to different place or country for cutting down the taxes and making a higher profit.
AstraZeneca that is a company of United Kingdom was taken over by Pfizer inc. This strategy or move of the company was beneficial because of the following reasons:
· The companies of United Kingdom do not have to pay taxes on overseas earnings and hence Pfizer by taking over AstraZeneca did not have to pay oversea taxes.
· Tax rate in UK is lower.
· Tax rate on UK patented product is also less.
· This helps the company in making more profit (Zhang et al. 2015).
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Pharmaceutical industry
The competition is rising which is increasing the need for expansion of industries. T manage the expansion global strategy is essential.
Table: AAA framework for retail industries
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Tesco
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Wal-Mart
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Adaptation
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The expansion of Tesco to United states is mainly based on market and innovation to achieve higher profit margin and growth.
It is essential to boost the local production in order to increase its sales and market share globally.
Tesco had adopted international strategy for Fresh and Easy stores and innovation, which is similar to Tesco express approach in UK. The strategy focuses on fresh produce of various products with minimal adaptation to the US consumer requirement.
Adoption of this strategy will be slower as compares to other global retailers. However, it will provide a grater learning effect and increase the knowledge base for the company (Brannen et al. 2013).
The adaptation is related to stores in accordance to consumer preferences. Everyday low prices help in providing the products at cheaper prices. The existence of fresh and easy in Tesco has increased consumer awareness for suitable location in order to compete (Martínez-Ruiz et al. 2016).
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Wal-Mart is one of the market leaders in retailing industry. The growth of Wal-Mart is recorded at 11.2%. The strategy used by Wal-Mart is extraordinary that has helped the organization is expanding for thousand one hundred and fifty retailing facilities globally.
The value chain analysis helps in providing products at cheaper price than its competitors provide (Baroto et al. 2012).
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Aggregation
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Tesco uses one brand name in terms of aggregation for its global expansion. The brand fits all the strategies. The customer’s perception was created with the brand name that affected the sales and performance. Since the company uses one brand name for all its strategies this strategy will not work in expansion of store in United States. In US, customers have strong perception on brands (Smit and Trigeorgis 2012). In order to enter a market through joint venture or acquisition Tesco should maintain its existing strategy with an existing player in the market as it is observed as an effective manner for expansion.
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Aggregation strategies help in achieving economies of scale in order to create global efficiencies. This includes creation of value proposition or providing the products oat cheaper prices. Cultural, geographic, administrative, geographic and economic factors play an essential role. The marketing strategy used Wal-Mart helps it differentiating its products and retailing indsurry from the others. The organization sells products under its own legal brand names (Donald 2013).
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Arbitrage
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The price revolution at Tesco is beneficial for the global expansion. Tesco has been investing in new areas that are overseas. The company has its expansion in fourteen countries that has four thousand three hundred and thirty one stores around the globe (Morschett et al. 2015).
Retail Arbitrage works in UK by properly scrutinizing the business environment of that place and then expanding it.
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Arbitrage strategies are creation of valuation by exploiting differences between the markets in order to increase its supply chain by managing profit. The company can reap the benefit of expansion by properly scrutinizing the country and its environment. Wal-Mart use to sell products worldwide which have been bought from China and earn from the differences in the prices (Menon and Yao 2014).
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Conclusion
This paper focuses on growth of two major industries using AAA framework. AAA framework helps in mitigating the challenges and complexities that the organizations while its global expansion. Globalization increases the level of competition and hence if any organization wants to expand its business in other countries it is essential for them to achieve economies of scale and formulate strategies to gain competitive advantage. The two major factors that contributed towards globalization are technology and relaxed trade policies. The choice of strategy that the organization should use depends on two factors that are globalization history and financial statement. The process of globalization is not simple and is a complex process.
The organizations are aiming to capture the major market share by expanding its competitive business in the global world. The competition is rising and hence it is becoming essential for the industries to adopt strategies in order to smoothly manage the operations. AAA framework as presented by Pankaj Ghemawat helps the organization manage its global expansion and mitigate the challenges. The three A’s are Adaptation, Aggregation and Arbitrage. The company can adopt all the three strategies together but it is beneficial if the company will focus on one strategy. The pharmaceutical industries and retail industries has its global presence all over the world. Pharmaceutical industry is one of the fastest growing industries that need strategies to improve its expansion process.
References
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