To expand into global markets, you must develop your competitive edge to create the differences that make all the difference, says Mona Pearl.
As competition continues to intensify both domestically and around the globe, so does the need to identify key competitive advantages and focus on core competencies. Quality products offered at competitive prices, although important, will not guarantee long-term success. Rather, businesses must answer a critical question: “Who would and why should they buy my products/services as opposed to the competition, and what is my long-term plan to remain competitive and succeed in growing the business globally?” If this question cannot be answered with clarity, it is time to step back and identify a position from which your product can be distinguished from all the other competing products.
Developing the right competitive advantage will greatly improve your chances for success when launching into the global marketplace. Just remember that there is no one-size-fits-all strategy. Rather, the exact specifications of any strategy blend features from traditional models like cost leadership, differentiation, and focus to customize an approach suitable for the unique circumstances of your company, product, market, and culture of the target audience. Businesses with the skills to rapidly identify, innovate, and exploit new competitive advantages quickly and repeatedly will be formidable competitors both at home and abroad.
How can corporate leadership look into the global marketplace to discover and assess new opportunities and new avenues to generate future growth?
By definition, a competitive advantage refers to the manner in which a company distinguishes itself to gain market share and establish both a niche and a customer base. A competitive advantage is achieved when a business markets a product or service in a manner that allows it to truly connect with customers and outperform its competitors. Without a competitive advantage, businesses often resort to selling their products or services based solely on price.
Conversely, by identifying a particular attribute that could appeal specifically to a new market and then developing a strategic plan to promote that attribute, a company can gain a competitive advantage. Highlighting product differentiation, developing corporate recognition programs, and creating brand awareness are several methods that are tied directly to competitive advantages resulting in ongoing profitability. Fortunately, for globally minded US-based businesses, competitive advantages are unlimited and waiting to be discovered.
No discussion on strategy is complete without mentioning Professor Michael Porter’s pioneering work. In the 1980s, Porter proposed three generic strategies as uniquely different approaches for a business to achieve competitive advantage. These are cost leadership, differentiation, and focus. While each of these strategies has to be defined in terms of the industry context and the competitive forces that operate therein, each fulfills a core purpose. Cost leadership requires a firm to be the lowest-cost producer for a given level of quality. The differentiation strategy requires a product or service to have certain unique attributes that the competitors’ products lack. The focus strategy concentrates on a narrow market segment and, within that, achieves competitive superiority through either cost leadership or differentiation. While Porter’s approaches were not uniquely designed for today’s global marketplace, they are timeless, borderless, and still very relevant today.
In an effort to gain a competitive advantage, many companies strive to become the biggest and the best. While both represent worthwhile ambitions, neither is necessary for obtaining a true competitive advantage. “In an age of infinite choice, there's a better way to achieve competitive advantage. There is no best auto company, there is no best car," explains Michael E. Porter, Harvard Business School. “You're really competing to be unique.”
Another potential opportunity for developing an effective competitive advantage comes through collaboration and the forging of strategic alliances. Strategic alliances offer strong benefits in that they are, by definition, unique to each organization.
A third strategy for developing a competitive advantage may come from “green” initiatives. Some companies recognized early on the increasingly globally aware mindset of consumers and their demand for ethical, social and environmentally responsible corporate missions and visions. Even before the term sustainability was a way of life, the Centroflora Group, a manufacturer of botanical and fruit extracts, was on the scene. Since 1957, it has built its organization on cutting-edge ideas and innovative principles that challenge existing industry processes. This has given Centroflora an impenetrable competitive advantage.
Its vision has been to develop the best sustainable biodiversity products through science and technology by developing partnerships and promoting a better world to employees, clients, suppliers, shareholders, and local communities. To that end, Centroflora introduced new concepts such as a corporate code of conduct, social and environmental responsibility, human appreciation, and collaborative participation.
One program created by Centroflora Group integrates end consumers with the rural communities and small farmers. The program operates at a worldwide level, reaching thousands of consumers who purchase nontoxic and effective natural products, where production is safe for the environment, delivering a better quality of life to all. “The goal of our program is to develop a quality and reliable supply network while promoting sustainable agricultural and harvesting practices, improving incomes and social and economic well-being, as well as providing a model for vertical integration and transparency for our customers,” explain Hans Jorg Blaich and Raquel Silveira Capaz, who are team members of the Botanical and Sustainability Department at Centroflora Group. Today, Centroflora is the leader in the production and development of standard plant extracts for the drugs, cosmetics, and food industries in South America.
Consider The Body Shop. Once ridiculed for far-out corporate pledges to protect animals, save the planet and engage in fair trade, this organization managed to open over 2,000 stores in 50 countries and was purchased by L'Oréal for over one billion dollars. By recognizing the values held by their targeted audience, The Body Shop was able to develop a brilliant strategy to differentiate itself in the highly competitive retail cosmetic sector.
Today, many businesses are attempting to "outgreen" the competition as an effective competitive advantage. "The old strategies for success — outmining, outdrilling, outconsuming, outperforming and outspending — no longer offer a sustainable competitive advantage in our hyper-transparent, connected and environmentally distressed world," explains Dov Siedman, columnist for Business Week. But, to truly gain a competitive advantage through this strategy, it is important for companies to integrate green principles into their culture and create a mindset that lives, breathes and embodies green principles as an overall corporate strategy.
In his poem, "The Road Not Taken", Robert Frost writes "Two roads diverged in a wood, and I took the one less traveled, and that has made all the difference." The global marketplace is literally a maze of untraveled roads and the "difference" can be unparalleled growth if the approach to selecting the right market is carefully executed with commitment, purpose and direction. However, taking the road less traveled requires commitment and a long-term strategy to define a product's uniqueness and present that to a marketplace in a manner that truly distinguishes itself.
Developing a successful strategy requires due-diligence and careful introspection to answer questions such as:
- Where in the world can your existing product or service appeal? Or another approach could be to identify growth markets and see if and how your product/service can be modified to fit their needs.
- What is the expected demand in those other markets? (China? Africa? Europe? Consider tastes, buying habits and financial abilities which vary widely by region.)
- How much will the modifications cost? Is it within budgetary constraints, and how much can be invested to create a sustainable competitive edge?
- What is the best case/worse case return on investment? How will companies measure potential and actual success?
- What opportunities will justify the investment and create the best ROI with consideration of both risk and proposed time frames?
- What legal issues must be addressed?
Selecting an effective competitive strategy requires an organization to bring unsurpassed value to a targeted audience. Hence, it is vital to understand the concept of value from the perspective of the targeted marketplace both in terms of cultural and life style values. After all, "value" is an exceedingly relative term, especially across borders. With absolute certainty, a company must be equipped to understand what each target market wants and needs, or better yet, be able to forecast what that market may want and need in the future. Only then can the company begin to evaluate both the options and feasibility of aligning its expansion strategy with the needs and desires of any particular region or market.
Still, the road to global expansion can be perilous and warrants close examination of common challenges faced by many businesses that have led the way internationally. Oftentimes, the challenges result from unclear strategic direction, inaccurate assessment of risk and inconsistent alignment between vision, mission, resources, strategy and operations. Consequently, companies need to continually monitor internal structure, national operations and align them with global strategies. Another common stumbling block is cultural ignorance. It’s critical to know the customer! Do consumers in a particular culture eat out or in, walk or drive, are the women at home or working, do they discard or repair, do they shop online or in stores, are they brand loyal or not and who in the family makes purchasing decisions?
Lastly, assess risk but focus on opportunities. Part of assessing risk is to understand the region's legal environment. For example, across the US, Lands’ End possesses a strong competitive advantage through its pledge to stand behind quality, offering a life-time guarantee on every item it manufactures and sells. However, when it attempted to duplicate that strategy in Germany, it was quickly rebuked by the German courts. Such a guarantee violated German law which prohibits companies from offering incentives with purchases that can cause unfair competition. Fortunately, in this instance, Lands’ End was able to turn the incident into an international marketing campaign. But, the company is still prevented from telling consumers about the life-time guarantee unless directly asked. This example represents an important lesson when it comes to understanding and assessing risk.
Ultimately, a successful global expansion is dependent on a company’s ability to view the world in a new way. In this increasingly complex and competitive global environment exceptional skill is then needed to evaluate the options, manage the risks and execute a winning expansion strategy. Winners will reap the benefits, while expanding and executing growth strategies more quickly and more effectively than their competitors. What was won’t return, and there are new players, new rules and it is a global economy.
Be fast, flexible, innovative, motivated and enjoy the adventure! It’s a big world out there with lots of potential for businesses with a keen entrepreneurial spirit.
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Mona Pearl is a global strategic business development expert as well as the founder and COO of Beyond A Strategy, Inc., a company providing expertise to plan and implement cost effective and sustainable global growth that improves a company’s bottom line and helps realize seamless international operations. Past clients include Deutsche Telekom, Michelin, American Airlines, Philip Morris and Bacardi. She is also the author of Grow Globally: Opportunities for Your Middle-Market Company Around the World, from which this article includes excerpts (reprinted with permission of John Wiley & Sons, Inc.) www.monapearl.com- www.beyondastrategy.com.
How To Hit A Moving Target, Business Week, August 21, 2006
Outgreening Delivers Sustainable Competitive Advantage, Business Week, December 5, 2008