Strategic Challenges and Problems
M/s Pret A Manger Ltd. is one of the companies based in the UK and intends to open up operations in Turkey. Since its inception, it has grown leaps and bound and has acquired a name for producing quality natural foods though in the initial periods it had to face lot of difficulties to make an entry in the export sector. It has been more than 10 years, since this company was formed. The company started with a modest 50 million USD investment in 1999 and the year 2006 saw a growth of 17 % in business with earnings reaching up to 5 million USD.
Since then, slowly but steadily, it has gained a substantial amount of market share in the natural food segment and has been the market leader in this category. Companies that compete globally generally face two types of competitive pressures: pressures for cost reductions and pressures to be locally responsive. International companies must cope with pressures for cost reductions. This is more so for industries producing items for exports for which price is the main competitive weapon.
Pressures for cost reductions are also severe in industries in which the competitors are based in low-cost locations. Liberalization of the world trade environment is also expected to generally increase cost pressures because of greater international competition. Countering pressures for cost reductions requires that a company minimize its unit costs. To attain this goal, the company has to base its value creating activities at the most favorable low-cost location anywhere in the world and offer a standardized product globally in order to ride down the experience curve as quickly as possible.
In contrast, responding to pressures to be locally responsive requires that a company differentiate or customize its product offering and marketing strategy from country to country in an effort to cater to the different consumers’ tastes and preferences, business practices, distribution channels, competitive conditions, and governmental policies. Since differentiation across countries involve significant duplication and a lack of product standardization, it raises costs.
Dealing with these conflicting and contradictory pressures is a difficult challenge for the company, mainly because being locally responsive tends to raise costs. RESPONSIVENESS TO LOCAL NEEDS Pressures for local responsiveness crop up due to differences in consumers’ tastes and preferences, differences in infrastructure, differences in distribution channels, and the demands of the host government. Consumers’ tastes and preferences differ significantly between countries due to historic or cultural reasons.
This typically required entrusting the production and marketing decisions to local subsidiaries. Pressures for local responsiveness also cropped up due to differences in infrastructure and traditional practices among countries, creating a need to customize products suitably. This again required the delegation of manufacturing and production functions to local subsidiaries. Differences in distribution channels among countries required adopting different strategies. This necessitated the delegation of marketing functions to national subsidiaries.
Finally, economic and political demands imposed by host governments necessitated a degree of local responsiveness. Generally, threats of protectionism, economic nationalism, and local content rules all dictate that international businesses manufacture locally. Pressures for local responsiveness restrict a firm from realizing full benefits from experience-curve effects and location advantages. In addition, pressures for local responsiveness imply that it may not be possible to transfer from one nation to another the skills and products associated with a company’s distinctive competencies.