MANAGEMENT SPECIAL .......................THE RIGHT FIT

THE RIGHT FIT The challenges a multinational faces when entering a new market are just like being a start-up says Harvard's Stephen Bradley Stephen Bradley, Professor, Author, Strategist When online retailer eBay decided to enter China in 2002, it acquired Eachnet.com, a home grown C2C company with a 75% market share in the country. It was a solid business, run by local management who'd studied at Harvard Business School and was all set to get bigger. Five years on, the picture was completely different with Alibaba having almost driven eBay out of the country. What went wrong? “eBay failed in China because they were unable to customise their strategy for the local market. They were so convinced that they had to follow the same business model that had worked for them in the US that they couldn't be there for the long haul,“ says Stephen Bradley, the William Ziegler Professor of Business Administration Emeritus at Harvard Business School. Bradley is also the faculty chair of two executive programmes on strategy at Harvard. Ebay insisted on imposing a charge on every transaction and listing because that's how it operated in the US. Meanwhile, Alibaba decided to make transactions free on Taobao, their C2C portal, to protect their B2B business from eBay. “Had eBay also kept its service free initially, waiting a few years to monetise their business, they'd have a strong position in what is a huge market today,“ says Bradley. According to him, it's a clear case of a company not getting its competitive advantage right when entering a new market. “The challenges a company faces when entering a new market are not very different from those faced by a start-up. You need to understand local market needs and idiosyncrasies and tailor your product to meet these needs,“ he says. You have to recruit a team that understands the organization's global strategy and at the same time has experience in the local market which is crucial to building the brand. These are the basic challenges a start-up faces, and these aren't very different for an established corporation venturing into a new geography. The key thing is getting your value proposition or competitive advantage right. Understanding the transition from designing strategy to actually executing it, especially the problems that come during implementation, is at the heart of the Aligning Strategy and Execution programme he chairs along with Bruce Harreld, the former head of strategy at IBM. Having studied companies in the US, India and China like Alibaba's Taobao, Schindler India and Apple among others on how they executed their global strategy, Bradley says that the key to getting your strategy right in a new market is to be clear as to what your competitive advantage is. Whether it's a lower cost structure or a form of sustainable differentiation, a competitive advantage is essential. If you go into a market imitating what someone else is already doing, you are unlikely to be successful. “You need a unique value proposition or a really good cost structure to serve that local market. If you don't, then you are likely to have a difficult time. Several com panies go into markets without having clearly figured out what is really going to make them win there. The may grow revenues but often end up with profitless growth,“ says Bradley. At the same time, companies must realise that a blanket global strategy doesn't work. He uses the example of elevator company Schindler. The company studied the Indian market and realised that a me-too strategy wouldn't deliver a competitive advantage. The market was ripe for a standardised offering in elevators and escalators and they tailored their products for India and brought in one of their best global leaders to head operations. The rest of the team was from India which brought in a strong local perspective. “The company understood what kind of a competitive advantage they'd have to create in terms of positioning their product and services to do well here,“ says Bradley. While the country of origin of the company does impact how exactly it needs to tailor its strategy, the broader issues of establishing a competitive advantage remain the same. For instance for a company looking at setting up shop in India has to contend with a multiple level approval process and working with slow response times which can be daunting to someone unfamiliar with the region. Similarly, while low level bribery to get things moving is almost a part of the eastern culture, it's something that companies from the US and EU are particularly uncomfortable with. For Indian companies, the challenge can often be understanding the new market and gaining access. Bradley points out Tata Consultancy Services (TCS) as an example of how Indian companies can do well globally. Similarly, IBM in India is another great example of a company having to tailor its competitive advantage to be successful in a new environment. “The company was lagging behind TCS and it tailored its cost structure and offerings to serve local clients in India, but did so within the framework of its broader global strategy,“ he says. As a final word of caution, Bradley points out that for some companies there will always be a temptation to change their positioning and key value proposition when entering a new market. However, while it's important to tailor competitive advantage to meet local needs, it's equally important that it fit within the broader set of your core competencies for it to remain a competitive advantage. by Priyanka SanganiCD