Ranked #1 in the World
By Nathan Washburn, Ph.D.
Replica watches, phones and cars aren’t the only knockoffs prevalent in China and other emerging markets, where imitation of the master often draws more praise than scorn. Opportunistic startups also clone corporate strategy from pioneering Western companies too busy growing at home to notice the threat.
The problem comes later, when these Western companies turn their attention to international expansion and find look-alike rivals already entrenched in every key market through a process I call “strategy commoditization.”
The concept is simple. Once a pioneering operation proves successful in one market, imitators around the world take it and adapt it to new environments.
U.S. companies such as Starbucks and Southwest Airlines already have faced the reality of strategy commoditization. Both companies gained an edge at home in the 1990s with innovative operations that larger players, encumbered by layers of bureaucracy and rigid corporate cultures, could not copy.
Outside the United States, however, more agile players watched and learned. Low-cost regional airlines proliferated throughout the globe, along with coffeehouse chains inspired by the U.S. models.
Strategy commoditization has forced companies such as Starbucks and Southwest Airlines to compete against their own business models in new markets. But even companies content with success at home pay a price when they ignore another risk associated with strategy commoditization.
Some companies in emerging markets do more than imitate a winning strategy. They take it and improve it. Fewer regulations and other restrictions in these markets create fertile ground for innovation.
The process comes full circle when companies in emerging markets bring their next-generation ideas to the home market of the original strategy innovator. When this happens, companies face enhanced versions of their own strategies — turned against them in their own backyards.
This will occur with increasing frequency in the coming years as emerging markets drive growth in the post-crisis global economy.
Pioneering companies that understand the implications of strategy commoditization must rethink their approach to international expansion. Instead of building momentum at home before venturing abroad, they must get an early foothold in key markets before the imitation begins.
Then they must gather intelligence in these markets and look for strategy innovation as it occurs. (For more on intelligence gathering in emerging markets, see “Time to rethink expatriate assignments,” published Oct. 15, 2010, in the Thunderbird Knowledge Network.)
Five phases of strategy commoditization
1. Innovation: A startup company develops a pioneering strategy that creates a competitive advantage in a crowded industry. Established players encumbered with layers of bureaucracy are too rigid to respond quickly.
2. Imitation: As the strategy proves successful, startups in other markets borrow and adapt the idea.
3. Competition: When the original strategy innovator expands into foreign markets, it encounters challenges from look-alike players not found at home.
4. Evolution: Companies based in emerging markets face fewer regulations and other restrictions, creating a fertile environment for commoditized strategy to evolve into next-generation innovation.
5. Intrusion: The process comes full circle when companies in emerging markets bring their next-generation ideas to the home market of the original strategy innovator.
Nathan T. Washburn, Ph.D., is an assistant professor of management at Thunderbird School of Global Management in Glendale, Arizona. He may be reached at nathan.washburn@thunderbird.edu.
| Commoditization of Strategy: Nathan Washburn, a professor at Thunderbird School of Global Management in Glendale, Arizona, talks about what happens when firms copy successful strategies from other countries. View the video on YouTube or on China’s www.tudou.com (3:32). |
January 10th, 2011 at 6:16 pm
Hello Prof. Washburn,
I read your article. Its really a nice article. I was wondering that is this “strategy commoditization” concept similar to the concept of blue ocean converting into the red ocean globally? Looking into the serious threat to the pioneer businesses, can business models be patented in future?
Thanks
January 16th, 2011 at 2:50 am
Thanks for the comment. You could definitely look at the issue from the Blue Ocean perspective. What I am trying to emphasize is the global threat. A successful strategy can erect barriers in the original market, but there are often many other locations in the world where there is no barrier and the strategy can be successfully copied. I have been in China for the past two weeks and what has struck me during this visit is the level of sophistication with which successful business models are being copied here. Wildly successful models are instantly copied – e.g., you can find hundreds of Groupon look-a-likes here in China (they have seen the potential of this business and want to be the Chinese version of this business). I am sure the same Groupon look-a-likes are popping up in India, Brazil, and many other high growth markets. And, given the scale that these markets bring, Groupon will probably one day (maybe soon) have to compete with one of these look-a-likes back in the US market.
January 28th, 2011 at 7:21 am
In a multinational company that I work for, our worst enemy is another big multinational company. This company takes our product, that is successful in many markets, and imitates the bottle, logo, advertising and even name and places this product in the few markets that we are not in. Are there any legal avenues to pursue and stop this?
January 28th, 2011 at 1:26 pm
Speaking of Groupon look-alikes in Asia … Thunderbird entrepreneur Suchi “Jerry” Kuo ’02 just sold his Taiwan-based company Atlaspost to Groupon. Using a cloned version of the Groupon strategy, Kuo and his brother built their website from zero to 1.5 million users in three years. At that point, Groupon had to acquire Atlaspost to gain entry in Taiwan.
January 28th, 2011 at 1:53 pm
This is very context and product specific. The challenge is, even if you have patents protecting the product, some markets do not have the institutional structures (laws, justice system, etc.) to enforce the law. If you are competing in multiple markets, you may be able to take legal action in a different country for patent infringement in a third country.
Legal action, however, can be very expensive and a huge drain on upper management’s time. You might be better off investing to expand your product to these markets before the competitor does!
January 28th, 2011 at 2:03 pm
Daryl – thanks for sharing this example! Groupon probably would not have had the skills to penetrate the Taiwan market on their own – so this is a win-win! Groupon has an aggressive acquisition strategy in non-US markets which is the right thing to do. The problem is when firms ignore growth in these markets (or when they are prevented from entering them). If the market is large enough to support the economies of scale required by the strategy, then the business can develop to the point where it becomes a threat back home.
February 3rd, 2011 at 8:30 am
Social media marketing is also a better way of doing online business. There are a varieties of social networking site connect with large group of customer and business. If you post any article on major sites then it may list on front page, it could generate many visitors to your sites. As your business launch any services or product then easily get the customers’ reviews. Business can also try to recover the services related problem if any change is required related to services. Blogs and forums are other type of social media sites. These sites provide additional content posted by business and users, which will help to increase traffic to your website, networking of site, brand equity, creating trust in brand and reputation management of business.
May 1st, 2013 at 11:19 pm
I don?t know if finest practices have emerged around things like that, but I’m positive that your job is clearly recognized as a good game. Each boys and girls really feel the impact of only a second’s pleasure, for the remainder of their lives.