Week 3 Assignment 1: Case: 3M Taiwan Read 3M Taiwan: Product Innovation in the Subsidiary case in your course pack. What are pros and cons of Chung (the l

Week 3 Assignment 1: Case: 3M Taiwan Read 3M Taiwan: Product Innovation in the Subsidiary case in your course pack.

What are pros and cons of Chung (the local team) proceeding with the Acne dressing project? Use the readings for this week and your analysis of the case to write a one page brief to this question. You are restricted to a 1 page (1½ -spaced) response. Use 12 point Times Roman font size with one inch margins all around.
In answering this question be sure to consider the following questions.
What are the challenges facing Chung’s team?
What options does Chung have regarding developing the Acne Dressing?, e.g., should he collaborate with other subsidiaries
What resources (if any) should Chung seek from headquarters and/or other subsidiaries?

Submit your assignment to the Turnitin dropbox located in the assignments area.

REFERENCES ARE KEY AND NEEDS TO BE INCLUDED 2/26/2019
Infosys BrandVoice: Filling “Institutional Voids” in Emerging Markets
30,696 views | Sep 20, 2011, 06:41am
Filling “Institutional Voids” in
Emerging Markets
Anand Prasad Arkalgud Brand Contributor
Infosys BRANDVOICE
An emerging market is one that isn’t quite
there yet, but is on its way. Or, it can be poor
with potential or already fast growing, but
none of these is much of a detailed definition.
Harvard Business School Professors Tarun
Khanna and Krishna Palepu have studied
emerging markets for the past 15 years. They
coined the term “institutional voids” to help
explain the market ecosystem that companies
are dependent on, and the fact that the
institutions that make up this market ecosystem are either missing or not
functioning as expected in emerging economies. They are referring to labor
markets, product markets and capital markets in general.
Take, for example, physical infrastructure. Many companies including auto
manufacturers are impacted by the quality and connectivity of roads and
highways. India is on its way to transforming this infrastructure, but companies
operating in India will agree that there is some way to go, in essence creating an
institutional void that impacts growth.
Tata Motors provides an appropriate story of how to innovate when you
encounter an institutional void. Tata traditionally dominated commercial vehicle
sales in India, with about 60 percent of the market share. Then it began getting
squeezed by Volvo, which was going after the high-end truck market, and the
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Japanese car companies that crept into the car market. Tata realized that in order
to compete, they had to innovate and design a new truck that could take
advantage of the poor downtown infrastructure, with cramped narrow streets that
are hard to reach with large trucks. Previously, the downtown markets were
served by open two- and three-wheeled vehicles that were dangerous, polluting
vehicles. So Tata designed a mini-truck that was safe, environmentally sound,
could make U-turns on the tight streets, and carry loads that suit the needs of
local commerce.
When Coca Cola found that their beverages were being sold “warm” in many
locations in India, they immediately realized that they had to do something to
bring the chill back into the bottle so that consumers would buy more. The
challenge was that while there were coolers in these locations or outlets,
electricity supply was patchy and the bottles would stay warm – especially on hot
summer days when power cuts were more common in these places. They
responded by building a solar powered cooler by working with a local
refrigeration company that could help keep the cost low. Even if these coolers
don’t chill the bottles, they can do a pretty decent job of lowering the temperature
to a few degrees below ambient temperature – that would be much better than
drinking a warm coke! I am not familiar with the results of this experiment, but it
seems like a very good way to deal with yet another institutional void.
These stories all illustrate creative solutions driven by the vagaries of individual
markets – and have happy endings, as well.
Anand Prasad Arkalgud Brand Contributor
Expert on emerging themes that have a profound in?uence on Building Tomorrow’s
Enterprise. A keen proponent of innovation co-creation and the need to expand the
innovation ecosystem to achieve competitive advantage. I lead a group of experts at Infosys
that endeavors to pa… Read More
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Is your emerging-market strategy local enough? | McKinsey
?
McKinsey Quarterly
Is your emerging-market strategy
local enough?
April 2011 | Article
By Yuval Atsmon, Ari Kertesz, and Ireena Vittal
The diversity and dynamism of China, India, and Brazil defy any one-size?ts-all approach.
C
reating a powerful emerging-market strategy has moved to the top of the growth
agendas of many multinational companies, and for good reason: in 15 years’ time, 57
percent of the nearly one billion households with earnings greater than $20,000[ 1 ] a year will
live in the developing world. Seven emerging economies—China, India, Brazil, Mexico, Russia,
Turkey, and Indonesia—are expected to contribute about 45 percent of global GDP growth in
the coming decade. Emerging markets will represent an even larger share of the growth in
product categories, such as automobiles, that are highly mature in developed economies.
Figures like these create a real sense of urgency among many multinationals, which recognize
that they aren’t currently tapping into those growth opportunities with suf?cient speed or
scale. Even China, forecast to create over half of all GDP growth in those seven developing
economies, remains a relatively small market for most multinational corporations—5 to 10
percent of global sales; often less in pro?ts.
To accelerate growth in China, India, Brazil, and other large emerging markets, it isn’t enough,
as many multinationals do, to develop a country-level strategy. Opportunities in these markets
are also rapidly moving beyond the largest cities, often the focus of many of these companies.
For sure, the top cities are important: by 2030, Mumbai’s economy, for example, is expected
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to be larger than Malaysia’s is today. Even so, Mumbai would in that year represent only 5
percent of India’s economy and the country’s 14 largest cities, 24 percent. China has roughly
150 cities with at least one million inhabitants. Their population and income characteristics are
so different and changing so rapidly that our forecasts for their consumption of a given
product category, over the next ?ve to ten years, can range from a drop in sales to growth ?ve
times the national average.
Understanding such variability can help companies invest more shrewdly and ahead of the
competition rather than following others into the ?ercest battle?elds. Consider Brazil’s São
Paulo state, where the economy is larger than all of Argentina’s, competitive intensity is high,
and retail prices are lower than elsewhere in the country. By contrast, in Brazil’s northeast—
the populous but historically poorest part of the country—the economy is growing much
faster, competition is lighter, and prices are higher. Multinationals short on granular insights
and capabilities tended to ?ock to São Paulo and to miss the opportunities in the northeast.
It’s only recently that they’ve started investing heavily there—trying to catch up with regional
companies in what is often described as Brazil’s “new growth frontier.”
As developing economies become increasingly diverse and competitive, multinationals will
need strategic approaches to understand such variance within countries and to concentrate
resources on the most promising submarkets—perhaps 20, 30, or 40 different ones within a
country. Of course, most leading corporations have learned to address different markets in
Europe and the United States. But in the emerging world, there is a compelling case for
learning the ropes much faster than most companies feel comfortable doing.
The appropriate strategic approach will depend on the characteristics of a national market
(including its stage of urbanization), as well as a company’s size, position, and aspirations in it.
In this article, we explore in detail a “city cluster” approach, which targets groups of relatively
homogenous, fast-growing cities in China. In India, where widespread urbanization is still
gaining steam, we brie?y look at similar ways of gaining substantial market coverage in a
cost-effective way. Finally, in Brazil we quickly describe how growth is becoming more
geographically dispersed and what that means for growth strategies.
Targeting the right city clusters in China
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By segmenting Chinese cities according to such factors as industry structure, demographics,
scale, geographic proximity, and consumer characteristics, we identi?ed 22 city clusters, each
homogenous enough to be considered one market for strategic decision making (Exhibit 1).
Prioritizing several clusters or sequencing the order in which they are targeted can help a
company boost the effectiveness of its distribution networks, supply chains, sales forces, and
media and marketing strategies.
Exhibit 1
A recent analysis of China revealed 22 distinct urban
clusters.
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For additional detail from the authors about this exhibit, see “ A Better Approach to China’s
Markets ,” from the March 2010 issue of the Harvard Business Review.
More speci?cally, this approach can help companies to address opportunities in attractive
smaller cities cost effectively and to spot opportunities for, among other things, expanding
within rather than across clusters (Exhibit 2)—a strategy that requires a less complex supply
chain and fewer partners. Companies that nonetheless want to expand across clusters may
?nd it easier to target 50 to 100 similar cities within four or ?ve big clusters than cities that
theoretically offer the same market opportunity but are dispersed widely across the country.
Exhibit 2
Clusters vary considerably in their share of urban GDP
and in the relative importance of their hub cities.
Another major bene?t of concentrating resources on certain clusters is the opportunity to
exploit scale and network effects that stimulate faster, more pro?table growth. Because most
brands still have a relatively short history in China, for example, word of mouth plays a much
greater role there than it does in developed economies. By focusing on attaining substantial
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market share in a cluster, a brand can unleash a virtuous cycle: once it reaches a tipping point
there—usually at least a 10 to 15 percent market share—its reputation is quickly boosted by
word of mouth from additional users, helping it to win yet more market share without
necessarily spending more on marketing.
Here are four important tips to keep in mind when designing a city cluster strategy for China.
Focus on cluster size, not city size
It’s easy to be dazzled by the size of the biggest cities, but trying to cover all of them is less
effective for the simple reason that they can be very far from one another. Although Chengdu,
Xi’an, and Wuhan, for example, are among the ten largest cities in China, each of them is
about 1,000 kilometers away from any of the others. In Shandong province, the biggest city is
Jinan, which is barely in the top 20. Yet Shandong has 21 cities among China’s 150 largest,
which makes the area one of the ?ve most attractive city clusters. Its GDP is about four times
bigger than that of the cluster of cities around and including Xi’an, as well as three times
bigger than the cluster of cities surrounding Chengdu.
Look beyond historical growth rates
The growth of incomes and product categories is another variable that must be treated in
granular fashion. Extrapolating future trends from historical patterns is particularly suspect—
however detailed that history may be—because consumer spending habits change so rapidly
once wealth rises.
In some clusters, many people are starting to buy their ?rst low-end domestic cars; in others,
they are upgrading to imports or even to luxury brands. We expect sales of SUVs to increase
at a 20 percent compound annual growth rate nationwide in the next four years, for example,
but to grow as quickly as 50 percent in several cities and, potentially, even to decline in some
where penetration is already deep. Similar or even sharper variance held true in almost every
service or product category we analyzed, from face moisturizers to chicken burgers to ?atscreen TVs. Yogurt sales in some cities are growing eight times faster than the national
average.
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The Shenzhen cluster has the highest share (90 percent) of middle class households—those
earning over $9,000 a year. In other clusters, such as Nanchang and Changchun–Harbin,
more than half of all households are still poor. As a result, people in the Shenzhen cluster are
already active consumers of many categories, and the potential for growth is fairly limited. In
the poorer clusters, many categories are just emerging, as larger numbers of people pass the
threshold at which more goods become affordable. From a strategic viewpoint, the richer
cluster could still be a major growth market for premiumgoods but not for most mass-market
ones.
Don’t be fooled by generalities
Talking about Chinese consumers and how they shop is a bit like talking about European
consumers. While some generalizations may be fair, certain very strong differences, even
within regions, go well beyond the already signi?cant economic variance. Guangzhou and
Shenzhen, for example, are both tier-one cities, located in the same province and just two
hours apart. But Guangzhou’s people mainly speak Cantonese, are mostly locally born, and
like to spend time at home with family and friends. In contrast, more than 80 percent of
Shenzhen’s residents are young migrants, from all across the country, who mainly speak
Mandarin and spend most of their time away from their homes. To be effective, marketers will
probably have to differentiate their campaigns and emphasize different channels when
reaching out to the people in these two cities. That’s why we suggest managing them in
different clusters, despite their proximity.
The need to localize marketing activities also results from the limited reach of national media.
China has over 3,000 TV channels, but just a few are available across the country. In some
areas, only around 5 percent of consumers watch national television. Other media, such as
newspapers and radio (and of course billboards), are even more local.
Very few companies can craft their entire strategy at the level of a cluster—those that do are
usually its regional champions. But with differences such as the following common, some
tailoring is critical:
Every second consumer in Shandong believes that well-known brands are always of
higher quality, and 30 percent are willing to stretch their budgets to pay a premium for
the better product. In south Jiangsu, only a quarter of consumers preferred the well-
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known brands, and only 16 percent were willing to pay a premium for them.
In the Shenzhen cluster, 38 percent of food and beverage shoppers found suggestions
from in-store promoters to be a credible source of information, compared with only 12
percent in Nanjing.
In Shanghai, 58 percent of residents shop for apparel in department stores, compared
with only 27 percent of Beijing residents.
With such diversity common, even merely ?ne-tuning the marketing mix and channel focus by
cluster can pay enormous dividends.
Allow your clusters to be ?exible
Some companies may want to merge or divide clusters for strategic-management purposes.
A company could, for instance, merge geographically nearby clusters, such as Guangzhou
and Shenzhen or Chengdu and Chongqing, if its supply chain was well positioned to manage
these proximate clusters as one. Other companies, highly driven by the media market, would
?nd it sensible to split the Shanghai cluster into subclusters, because some markets within it
are still quite different in their TV habits and other choices. By contrast, people in certain
clusters, such as Chengdu or Guangzhou, watch similar TV shows across the entire cluster, so
intracluster expansion allows companies to make more effective use of the media spending
needed to attract consumers in the big cities.
The actual number of submarkets a company opts for will depend in practice on its needs.
That number should be manageable—most likely, 20 to 40. Fewer wouldn’t be likely to
produce the required degree of granularity, though a company might have logistical reasons
for taking this approach. More would probably be too many to run effectively.
Cost-e?ective market coverage in India
Often, the challenges of accessing consumption growth cost effectively are even greater in
India than in China because India is less urbanized and at an earlier stage of its economic
development. Companies would need to reach up to 3,500 towns and 334,000 villages, for
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example, to pursue opportunities in the 10 (of 28) Indian states that by 2030 will account for
73 percent of the country’s GDP and 62 percent of the urban population.
To allocate ?nancial and human resources smartly and make things more manageable,
companies need to walk away from averages and adopt more granular approaches. Some
companies will be well served by focusing on 12 clusters around India’s 14 largest cities.
Those clusters will provide access to as much as 60 percent of the country’s urban GDP by
2030, when the 14 largest cities are likely to account for 24 percent of GDP.
True, India’s major clusters won’t cover as much of the economy as those in China, where they
will encompass 92 percent of urban GDP by 2015. Yet a hub-and-spoke approach in India
should provide similar opportunities to optimize supply chains, as well as sales and marketing
networks. An established technology player formerly operated in 120 cities all over India, for
example. Recently, it shifted to focusing on eight clusters with a total of 67 cities, which still
gave it access to 70 percent of its potential market. One bene?t: customer service costs fell
from a rapidly growing 9 to 10 percent of sales to a more acceptable 5 percent (Exhibit 3).
Exhibit 3
In India, focusing on city clusters helped one
technology company reduce its customer service costs
dramatically.
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Alternatively, a company might improve the economics of its Indian business by focusing on a
handful of states, an approach recently adopted by a retailer that had previously been
pursuing a national footprint. Another company, this one in the consumer goods sector,
recently decided to pursue opportunities in eight cities where consumers earn over $2,500 a
year—more than twice the average for India—and the retail infrastructure suits its products
nicely. Without this more granular analysis, the multinational would have stayed on the
sidelines in the mistaken belief that Indian con…
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