As a long term resident of Singapore I’ve been a champion of western companies, mainly Canadian, making the strategic choice to capitalize on trade and investment opportunities in the ASEAN region.

The combination of U.S.-China trade frictions, and the recent outbreak of the Coronavirus and subsequent disruption to the Chinese economy and global supply chain give cause to more deeply evaluate Asia market entry and development strategies.

At the time of the first severe infectious disease to emerge in the 21st century, the SARS outbreak in 2003, the Chinese economy looked like this:

• Economy $1,670b
• Trade $851b
• Exports $438b
• Imports $413b
• Balance + $70b
• Inward FDI $53b

Nearly two decades later the numbers had grown to:

• Economy $13,608b
• Trade $5,084b
• Exports $2,494b
• Imports $2,135b
• Balance + $179b
• Inward FDI was $203b

Over the past 17 years, China has soared as Asia’s primary investment, trade and development target. It has rapidly evolved from the low cost, low value global factory floor to a value-added manufacturing nation and primary supply partner of intermediary, consumer and capital goods to many companies across a wide range of global vertical markets.

The COVID-19 outbreak of 2020 should be a red flag of vulnerability to companies that may have an over-concentration and over-dependence on China as a market to sell goods and services and as a single source supply partner.

Regional and global disruption

The COVID-19 virus will adversely affect small to midsize businesses to fortune 200 multinationals alike without prejudice and discretion. SMEs make up more than 90% of the registered companies in China, and most expect to face a cash crisis in three months should the virus continue to choke the Chinese economy.

Apple recently reported it would fail to meet first quarter earning guidance due to “supply constraints” and the dramatic drop in Chinese shoppers during the virus crises. Analysts have estimated Chinese demand for smartphones may drop by half during the first quarter of 2020.

The domestic and global car and equipment industry is another sector that has been affected by disruption to its supply chain. Last week, the heavy equipment manufacturer JCB said it was cutting production in the UK because of a shortage of components from China.

Luxury brands which have previously shown great immunity against financial and economic shocks are also affected.  Forty-five percent of Burberry revenue comes from Chinese consumers and 40% of its retail outlets are closed due to the virus.

Retail big box and modern trade companies are particularly vulnerable to a prolonged supply disruption. Walmart, for example, sources 70% of its merchandise from China. Global stock exchanges are tumbling, countries are adjusting their economic forecasts, and publicly traded companies are revising their first quarter earnings guidance.

The domestic, regional and global impact of the COVID-19 remains uncertain. However, the head of the International Monetary Fund, Kristalina Georgieva, has said

“there could be a cut of about 0.1-0.2 percentage points to global growth”, but stressed there was “much uncertainty about the virus’s economic impact”.

The call to diversify risk, ASEAN trade, development and investment opportunity

Considering U.S.-China trade tensions, the directional uncertainty of tariffs, and the compounding effect of the COVID-19 virus – is it time to pivot to the ASEAN region to diversify manufacturing and develop as an export market.

Although South East Asia accounts for only 10% of global trade, the ASEAN region is emerging as the global growth engine of the next decade and gateway into new intraregional and interregional markets. Trade agreements will more deeply interconnect the ASEAN region with global markets such as:

• ASEAN Member States (AFTA)
• ASEAN Economic Community (AEC)
• ASEAN-Australia-New Zealand FTA (AANZFTA)
• ASEAN-China FTA (ACFTA)
• ASEAN-India FTA (AIFTA)
• ASEAN-Korea FTA (AKFTA)
• ASEAN-Japan Comprehensive Economic Partnership (AJCEP)
• Vietnam-EU (EVFTA)
• Upcoming Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTTP)
• Proposed Regional Comprehensive Economic Partnership (RCEP)

As geopolitical shifting continues to transform global markets, the ASEAN region is emerging as the main recipient for Asia inward Foreign Direct Investment (FDI), attracting a record ~$151b in 2018 and exceeding China’s ~$139b.

The COVID-19 has accelerated the shifting of manufacturing, and Vietnam and Thailand are the most likely beneficiary countries. Samsung shifted production from China to Vietnam in 2019 and now employs 200k Vietnamese workers and production is at full capacity. Samsung moved their production to Vietnam well before the COVID-19 outbreak for two key reasons, the U.S.-China trade war and declining Chinese market share.

Western companies entering the Asia region need to be cognizant to the fact that social and consumer behaviors are shifting in China.

China’s mass urbanized middle-class consumers and 400 million millennials have become less attracted to western brands in favor of local or Asian brands.

China is ASEAN’s main trading partner and the economic impact of the health crisis is cascading into the region. Malaysia, Singapore and Thailand have downgraded their 2020 economic forecasts. However, growth is still projected in several ASEAN countries due to robust intraregional demand and the continuing U.S.-China trade tensions.

New entrants need to look beyond the immediate crises and envision the region as a market opportunity to sell their products and services, investment opportunity to establish local manufacturing and a future export platform.

By the end of the decade ASEAN’s population is projected to grow from 647 to 710 million with a median age of 33. Household earnings for 125 million people in the region will reach 7,000 US$, and about 30% or 40 million will earn between 18,000 to 68,000 US$.

Over the next decade this growing middle class will spur the need for a wide range of consumer goods and services, creating the next Asia growth wave and new opportunities for multinationals.

The more open and democratic economies will compete to attract new FDI and increase the level of foreign ownership in lucrative sectors such as construction, manufacturing, real estate, finance, and retail. The trade bloc’s geographic location in the confluence of major trade routes will enable companies to utilize their ASEAN-based manufacturing as an export platform to supply new interregional and global consumers as globalization and interconnectivity progress.

This region is the new growth opportunity for many western companies wanting to expand and sell their products and services internationally. However, new entrants must take the time to complete their due diligence to make strategic choices on where and how to compete, and more importantly, how to win based on a pragmatic thought process.

The timeline of a development strategy should factor a mid to longer term three stage hierarchical approach:

• First stage: establishing an export business and distribution partners
• Second stage: investing in regional commercial resources and distribution services to scale-up the business
• Third stage: regional manufacturing investment to sustain competitiveness and scale, maximize profitability, and better serve new ASEAN customers

Pre-development and investment macro analysis has become critically important given the backdrop of the COVID-19 outbreak and disruption to regional and global economies.

Within the context of strategic marketing, companies need to look well beyond basic statistical GDP data and generalized knowledge gained from limited exposure to the region.

The Inclusive Development Index (IDI) has become a far more useful and relevant tool to measure a country’s economic progress in addition to GDP. Other sources of reliable and accurate market intelligence should be analyzed and combined to produce a market specific social, legal, economic, political, and technological analysis (SLEPT Analysis).

Social factors

In general social factors evidence an emerging ASEAN middle class, high population growth rate, favorably changing demographics, increased access to education and a more health and environmentally conscience society.

Legal factors

Country specific legal factors are establishing better regulatory mechanisms, improving intellectual property protection, and gender inclusiveness.

Economic factors

Evident in terms of growth, moreover the ASEAN region is financially integrated globally, credit is accessible, and monetary policies are growth focused.

Political factors

Economic policies influence business decisions, and most economies in the ASEAN region are highly favorable to open regionalism, globalization and FDI that creates employment and contributes to society betterment and economic development. In the context of this article governments need to have transparency and responsiveness contingencies to health crises’ such as the COVID-19, climatic disruptions such as the Australian forest fires of 2019 (arguable dependent on personal perspective), and natural disasters such as the Fukushima earthquake in 2013, and tsunami that hit the coasts of several countries of South and Southeast Asia in December 2004.

Technological factors

The ASEAN region’s rapid infrastructure development, fast-paced adaptation to AI and automation, communications and Fintech example technology and innovation that is rapidly outpacing most western economies.

I’ve applied a simplified example of SLEPT analysis fundamentals, but need to emphasize that this is a crucial analytical process that must be qualitative and rated, completed in sufficient detail, be country specific and relevant to your business.

Moreover the SLEPT analysis is only one part of the strategic marketing process, it must be integrated with country specific micro-environmental analysis, business alignment analysis, risk analysis, and other tools to establish the factual basis from which to decide go / no go / how to go / and if you go, how to succeed.

Your level of regional knowledge and commercial expertise will make a difference. My advice if you have limited knowledge of the ASEAN region, is to find an expert who can help you expedite your entry and development.

The world will survive the COVID-19 epidemic as it did SARS in 2003 and H1N1 in 2009. Chinese factories will return to capacity, supply chains will be restored and markets and economies will recover. China will continue to be an important growth market especially for new technology and a key supply source to many companies across global verticals. As we near the end of the 2020 calendar quarter – companies will assess the quarter and estimate full year impact to their businesses. The perfect storm created by the U.S.-China trade war and compounding COVID-19 virus will effect current and future trade, development and FDI decisions. Your Asia development strategy should include the ASEAN region to capitalize on immediate and emerging growth opportunities and to diversify risk.

Data sources

The Future is Asian, Parag Khanna / Carnegie Endowment for International Peace / WITS / Trading Economics / OECD / Enterprise Singapore / Focus Economics

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In the past, the marketing mix was commonly made up of the 4 Ps: product, price, place and promotion. An alternative to the 4 Ps approach is gaining popularity due to the digital age and the changing ways that customers gather information and make purchasing decisions. These are the 4 E’s.

According to Brian Fetherstonhaugh of Ogilvy & Mather, the market is now an ecosystem with “billions of unstructured one-to-one and peer-to-peer conversations”.

Fetherstonhaugh advises marketers to stop thinking so much about their product and start thinking more about the customer experience. This new approach encourages organizations to engage and create a relationship with visitors, leads and customers.

Now that marketers have better tools at their disposal, they can take a more targeted approach to sharing and gathering information. Digital channels, such as email, social media and mobile messages, allow businesses to share tailored content with segmented, regional audiences.

1. Experience

Instead of a marketing strategy that is planned around the product or service, this method puts the customer experience at the centre of attention. An example of an organization that changed its focus from products to experience is Hershey. Rather than putting up a billboard ad in New York City’s Times Square, they created a brand experience by opening a store on Times Square that is playful, stimulates childhood memories, and allows parents and children to explore candies together.

A customer’s journey is their overall experience with an organization from the time they first encounter its name. For example, customers might typically encounter an organization’s product on social media for the first time and from there go to the organization’s website to find more information, followed by a trip to a retail outlet to purchase the product. At some point, customers might return to the organization’s website to learn about a different product.

The organization’s goal is to make the journey enjoyable and relevant for the customer.

For example, consider the Swedish Tourism Association’s “Call a Swede” campaign. When tourists call +46 771 793 336, they are forwarded to a Swedish resident (a Swede) who provides the caller with the desired local knowledge, such as recommending a good restaurant, a fruitful fishing hole or a place to take Swedish folk dancing lessons.

Mapping the customer’s journey or path enables marketers to pinpoint weaknesses in the customer experience and correct them. The mapping exercise also identifies the technologies used, the people and processes involved, and the emotions experienced by customers along the path. It can be difficult to map the path because the customer’s journey is often non-linear and more complex than it was in the pre-digital era. It would be valuable at this point to consider when and how to collect customer testimonials at different points in their journey.

To assist with the mapping activity, marketers use customer personas for businesses and/or consumers.

Some organizations have deepened their relationship with loyal customers by using them as product and service experts. Customers who have developed product and service expertise are asked to help other customers in return for rewards. Consider the case of giffgaff, a British mobile phone operator that relies on knowledgeable customers to help other customers and promote its brand. The company rewards these customers with points, which they can convert into cash.

2. Everyplace

Everyplace is so named because of how consumers can now access information about products and services from multiple sources in multiple locations. Instead of expecting customers to come to the seller, the seller now goes to customers. This new dynamic allows the organization to provide information about its mission and products and services whenever and wherever customers seek it. And they seek it in many places, including social media, retail outlets, online stores, websites, blogs and more. The goal is to make contact with customers when they are receptive to it. For example, Ogilvy & Mather’s Digital Innovation Lab in Singapore invented an app for its liquor brand with a virtual personal assistant who helps customers by advising them of upcoming entertainment promotions and then, if desired, gets them reservations and VIP access to these events.

Want to learn more about international marketing? Check out the FITTskills International Sales & Marketing online course!

3. Exchange

In the 4 Es approach, the focus has moved from the exchange of money for a product or service to the value of the relationship and long-term loyalty customers develop with the organization. Using the exchange approach requires each party to offer something of value to the other party. For example, many organization websites offer expertise and products for free. Marketers use the exchanges to establish credibility, create goodwill and build a relationship of trust. What organizations offer customers in the exchange hopefully results in long-term relationships and ultimately brand loyalty and revenue.

4. Evangelism

Evangelism involves creating a brand experience for customers that inspires them to engage with the organization and tell their friends about the experience. Ogilvy & Mather recommends starting with an organization’s key strengths and connecting them to an important cultural truth or trend to generate energy and passion.

Take for example, Dove’s Campaign for Real Beauty. Dove’s stand on the beauty of real woman of various shapes, sizes and colours resonated with women. The inspiration for the program was a study of more than 3,000 women from 10 different countries. Results showed that only 2% of the respondents considered themselves beautiful.

The Dove Campaign for Real Beauty was based on the idea that the world would be a better place if women felt good about themselves. Missions such as these can inspire employees as well as customers.

The Campaign for Real Beauty started with a website and a public relations campaign. Women were invited to join the debate, and millions did. The campaign’s Evolution has been seen by an estimated 500 million viewers. All this was achieved through consumer sharing and free media support.

Dove’s most recent research showed that the percentage of women who consider themselves beautiful has increased from 2 to 4%, although the brand recognizes that this increase cannot be attributed to Dove alone. The campaign’s impact on perceptions of beauty is hard to quantify, but it has helped drive Dove sales to record levels. Dove’s sales increased from USD 2.5 billion in 2004, the first year of the Campaign for Real Beauty, to USD 4 billion in 2014.

Another example of marketers who are good at finding the energy and passion in what they sell is Coca-Cola. The company ran a global campaign in 2009 called Open Happiness. As a localized campaign activity, the marketing team in Singapore installed a Coke machine on a university campus with “Hug Me” written on it. Whenever someone hugged the machine, they were rewarded with a free Coke. The marketing teams in Pakistan and India came up with a different interpretation of the campaign. In their regions, whenever someone in India put their hand on a Coke machine at the same time as someone in Pakistan, both machines dispensed a free Coke.

Evangelism also involves creating products and services that are so good and providing experiences that are so intriguing that customers want to let other people know about them. Apple is an example of a company that has achieved an image with which people want to be associated.

Has your business followed the 4 E’s model? How do you think it stacks up to the traditional 4 P’s of marketing?

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Innovation has become a necessity for all firms wishing to continue their survival in this disruptive and competitive environment. But the process of innovation is much more easily conceived of than completed. So what is innovation, and how can a business set out to truly innovate?

Profits can poison the porridge

For some companies constant modernization and advancement just seems natural. In these companies and new innovations are developed regularly, while others are confined to riding the wave of the last innovation by making small product adaptations or branding.

What sets these companies apart, though? What is the “stuff” that exists in one but not the other?

The start of a new product is always an idea, but where do ideas come from? In the new season of ‘F is for Family‘ on Netflix, there is a scene in the boardroom of a Tupperware company which is facing a loss of market share through increased competition, and needs a new product urgently.

An idea generation session is organised among the board members and the result are ideas which are totally disconnected from the company’s target consumers. The discussion of new products in this scenario started from the need to make up lost ground in market share and revenue. One can’t help but compare this backwards approach to innovation to companies who failed in their quest to stay relevant (Blockbuster video comes to mind) by missing the opportunity to create something new.

In his TEDx talk, ‘The Art of Innovation’ Guy Kawasaki, Chief Evangelist of Canva suggests that the focus should never start with money, but rather meaning. The money will come after, once you understand what you want to achieve. He cites the examples of tech companies like Apple, which tried to bring computers to everyone, and Google, which tried to make information available to everyone. It is this vision of democratization which drove them. These are now two of the most profitable companies on the planet. But if profits were the only goal from the beginning, they may not exist as they are today.

Put the chef hats on the right people

The next question is – who should be involved in innovation? Are the board members the right people, or should this job reside in an R&D department? Forbes contributor Glen Llopis suggested that,

Innovation is not dependent on the participation of high-ranking executives, but on any employee that is a student of the business, knows their consumers and their specific need.

This makes sense because the employees are the ones engaged in production and sales and interacting with the customers. In many cases they are customers themselves. Llopis goes on to quote a Wall Street Journal article titled “Together We Innovate” which stated that most companies continue to assume innovation comes from the resident genius or small sequestered teams who retreat to a think tank and return with big ideas.

The article argues instead that “most innovations are created through networks – groups of people working in concert.” Chances are that a diverse group of people are more likely to generate unique ideas than a homogeneous group populated with people from similar backgrounds, education and life experiences.

Innovation does, however, require a certain type of person. Llopis describes them as courageous enough to take a leap of faith and follow it all the way through. Kawasaki supports this, adding that in the product development cycle there is a period when innovators need to shut out the naysayers, but as soon as the product is shipped they need to start listening to people and keep evolving the product.

Ideas and innovations can thus originate from anyone in the company who knows the business and consumer needs, but they must be courageous in seeing their ideas through. This also means that the leadership of the company needs to have some degree of trust in their employees. Llopis describes these leaders as ‘courageous enablers’ who take charge and embrace the role of a change agent in support of constructive disruption.

Finding clear blue water

The dream of most companies is to develop that product or service which has its own market space, often referred to the “clear blue water” around them. These products and services generate their own demand and have no close competitors. Companies may think that the only way to achieve this is through invention – developing something totally new. However, Llopis defines innovation as an idea that represents a communal adaptation or application used and embraced by the masses.

Oftentimes what is required for successful market entry is a public embrace of the benefits derived from products, rather than what they do.

If Uber saw itself as a taxi service it would be still be utilising licensed taxi drivers. Instead it saw itself as a transport company, and was thus able to introduce something new – ride share services. The real innovation was a mobile application connecting passengers to drivers for hire, resulting in a sharing economy which set the foundation for other companies like Airbnb, Kickstarter and Craigslist.

So, what is the “stuff” required for new product development or innovation? It would have to be the courage among leaders to trust and enable employees, and the courage among employees to see their ideas through to implementation. And it has to start with a good understanding of what the business means to people.

The post What’s the difference between Apple and Blockbuster? The secret ingredients of innovation appeared first on Trade Ready.

Any business that sells goods or services online, can call itself an e-commerce business.

Over the past few decades, a number of businesses have risen from very humble beginnings and adapted their existing strategies to become titans of the e-commerce world, worth billions of dollars.

Ebay, Apple, Walmart, and Amazon are all companies that perfectly exemplify this shift. Here is a closer look at these companies, and four lessons you can learn from them to boost your own business’s growth.

1. eBay: Swift payments are key

Founded in 1995 by Pierre Omidyar, eBay is an international auction website where people sell a wide variety of items. In just over two decades, eBay went from a small startup in San Jose, California, to a global e-commerce powerhouse. In 2016 alone, eBay generated a colossal $8.9 billion in revenue, making it a true giant in the industry.

Due to the extremely high volumes of transactions that eBay experiences every day (currently over 2 billion), the company needed to make its payment methods as swift as possible.

To optimize online payments, eBay purchased and developed its own online payment system called Billpoint. However, Billpoint failed to outcompete PayPal in the online payments space. So, eBay simply acquired PayPal for $1.5 billion in 2002.

Since this acquisition, PayPal has been fully integrated into eBay’s system, and this swift payment option continues to help eBay process incredibly high volumes of transactions every day.

2. Apple: Pivoting to respond to market needs can expand profits exponentially

Apple was founded in 1976 in a garage in Los Altos, California. In roughly four decades since Steve Jobs and Steve Wozniak first started assembling computers together, Apple has grown into one of the largest companies in the world.

In fact, the computer and electronics business is so successful that it saw over $215 billion in sales in 2016, more money than many governments spend in a year.

Apple began as a personal computer company. Its early models helped to revolutionize the personal computing industry and bring computers into homes all over the world.

However, sensing opportunities to fill market needs with other types of products, Apple transitioned from being just a computer company, to a much more diverse products and services retailer in the electronics space.

For example, a large portion of Apple’s profits now come from smartphones, tablets, watches, and even iTunes, its music platform. In fact, iTunes alone generated over $16 billion in 2013.

So, the lesson e-commerce companies can learn from Apple is to avoid being pigeonholed into one type of product if you know that your company can deliver a wider range, and you also know that the market is demanding them.

3. Walmart: Adapting to keeping up with the competition is crucial

Historically, Walmart was built on a retail model with shoppers flocking to its many brick and mortar stores. However, in the last decade, Walmart has been transitioning to accommodate a larger e-commerce segment of its business.

In an effort to grow its e-commerce business, Walmart has made a number of key moves. These include closing or planning to close hundreds of physical stores around the world, opening a large e-commerce fulfilment center in Georgia, and hiring many programmers and software engineers to optimize its e-commerce platforms and apps.

Walmart also created its own competing version of Amazon Prime called Shipping Pass. This service only costs $50 per year, roughly half the price of Amazon Prime, while offering many of the same benefits, such as expedited delivery.

All of the effort that Walmart has made in its e-commerce segment, including a 30% growth in Q4 2016 alone in U.S. e-commerce sales, have helped the company to generate over $478 billion in revenue in 2016.

Although Walmart has been a dominant retailer for many decades, it faced the threat of losing a large amount of their market share to tech-driven competitors such as Amazon and eBay if it could not modernize to keep up.

Recognizing the need to adapt to keep up with the modern economy, Walmart has aggressively pursued its e-commerce offerings. This is proving to be quite successful and in the coming years, Walmart is poised to battle with Amazon and a few other major corporations for control of the largest shares of the e-commerce market.

4. Amazon: The importance of vision should never be underestimated

Amazon, one of the world’s largest retailers, was also founded in a garage, just like Apple. Amazon was founded by a 30-year-old entrepreneur named Jeff Bezos in 1994. He saw and understood the retail opportunities that the internet would provide far earlier than most, and created Amazon to take advantage of these opportunities.

Within Amazon’s first 60 days in business, the company was already generating $20,000 a week in sales. In just over two decades, Amazon has become one of the most powerful and successful companies in the world, with $135 billion in revenue in 2016. The company has also become synonymous with efficiency, innovation, and reliability. Today it sells an extremely wide variety of products all over the world.

The concept of Amazon is relatively simple; take real-life products and sell them over the internet. Many people could have taken this idea and ran with it as Jeff Bezos did. However, Bezos had the vision first, and beat everyone to the punch. That is why he was able to establish Amazon as a major market force so early into the “dot-com” revolution.

Bezos’ vision, combined with his work ethic, and the constant innovation of his company has allowed him to reach the lofty heights of the third richest person in the world. Vision is largely what propelled both he and his company and onto incredible levels of success.

Have any other lessons or tips for budding e-commerce entrepreneurs? Share them in the comments below!

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Corporate mergers

Oftentimes, a corporate merger will be the largest event in a company’s history. They can be worth tens, or even hundreds of billions of dollars.

Because these events can make or break companies, it pays to know what has made some of the biggest mergers in history succeed or fail, so you can apply these lessons to your own business, whatever size it may be.

Here are some examples of major mergers, and why they resulted in success or failure:

1. Apple and NeXT

After Steve Jobs was forced out of Apple, the company he co-founded in 1985, he went on to start another computer company called NeXT.

While Jobs was building NeXT, Apple started to have problems upgrading its operating system for its Macintosh Computers.

NeXT had largely shifted from making hardware to making software, and created a successful operating system called NeXTstep.

Recognizing the need for a top-notch operating system for its computers, Apple acquired NeXT for $429 million in 1996.

This merger led to the complete invigoration of the Apple Macintosh computer line through the birth of the Mac OS X operating system, which was largely based on NeXT software.

The success was the springboard that would launch Apple into stratospheric heights with win after win, from the iPod to the iPad to the iPhone and more.

Essentially, by acquiring NeXT, Apple completed two major tasks which forged the path for success. First, they obtained a huge missing asset in their company: a premium operating system.

Second, they regained the visionary who helped inspire the company in the first place, and who would help carry the company into the future: Steve Jobs.

2. Anheuser Busch and InBev

In 2008, two of the largest alcoholic beverage companies, Anheuser Busch and InBev, merged to form a single massive beverage company, Anheuser Busch InBev.

The merging of Anheuser Busch, an American company, and InBev from Belgium proved to be enormously successful. In fact, today Anheuser Busch InBev is the biggest brewing company in the world.

Many of the most globally recognized beer brands are Anheuser Busch InBev products. These brands include Budweiser, Stella Artois, Corona, Beck’s, Hoegarden, and Leffe.

These brands helped the brewing giant to achieve a global revenue of roughly $47 billion in 2014. The company also experienced a five year sales growth of nearly 13 percent from 2009 to 2014.

In short, the merger between these two companies has been very successful. There are several reasons that may help to explain the success of the Anheuser Busch Merger.

First, both InBev and Anheuser Busch already had successful brands going into the merger. InBev’s Stella Artois and Anheuser Busch’s Budweiser, for example, were already profitable, well-known and easily marketable.

These brands turned out to be very compatible, and with the combined force of Anheuser Busch and InBev, they grew even stronger.

Second, instead of trying to dominate each other in their own respective markets, Anheuser Busch and InBev recognized that partnering with one another would help each company grow stronger.

In part, this happened because each company could save money that it might have otherwise used to compete with the other.

Each company could also help the other gain a stronger foothold in foreign markets by sharing information, distribution channels, and customer bases.

Rather than trying to compete for the same customers or market themselves in the same way, the new company continued to market and sell its individual beer brands to their desired market segment and therefore cover a wider range of the market overall.

All of these things added up to make the merger between these two companies a roaring success.

3. Quaker Oats and Snapple

The merger between Quaker Oats and Snapple is one of the most famous failed mergers of all time. In the early 90’s, Quaker Oats was having immense success with its Gatorade sports drink brand. Gatorade sales in 1992 were around $700 million.

These sales dramatically increased the revenue of Quaker Oats, so the company wanted to purchase a new similar company in order to repeat the success.

In 1994, Quaker Oats acquired the fruit drink company Snapple. The price tag to acquire Snapple was $1.7 billion, considered by many to be an astronomical sum.

Just a little over two years later, they sold Snapple for only $300 million dollars, essentially, taking a $1.4 billion loss on Snapple.

There are a number of reasons why this merger was such a failure. First, Quaker Oats tried to change the sales strategy for Snapple by using the relationships it had already developed with grocery stores to try to move more Snapple products.

However, a significant portion of Snapple sales came from convenience stores and gas stations, so Quaker Oats’ decision turned out to be a big strategic mistake.

Instead of building on what was working for Snapple, they took a risk on a new plan, which did not work out. Snapple sales decreased as a result.

Quaker Oats also failed to properly plan for future competition. Shortly after Quaker merged with Snapple, two of its major competitors, Pepsi and Coca Cola, begin to compete more heavily with Snapple, introducing new products of their own. This drove sales down even further.

Finally, perhaps the most important mistake that Quaker Oats made with this merger is that their valuation to acquire Snapple was way too high.

Considering the fact that a little over two years later, the company sold for only $300 million, a valuation almost six time that amount at $1.7 billion was a costly miscalculation.

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Apple, Adidas, Hewlett Packard and First Solar are among the many companies that have chosen to use third-party manufacturing companies to help fulfill the demand for their products. Shifting manufacturing operations to other countries can be a massive undertaking. There are several important factors to be considered in such a major decision….

The Pros of moving your manufacturing abroad

1. Using third party companies, such as Foxconn in China, can provide access to labour that is cheaper and more efficient.  

There are a number of reasons why the labour is cheaper. China, for example, has a vast population, estimated to be at around 1.4 billion people, or approximately nineteen percent of the global population. The work force is therefore also enormous. This leads to competition for any available positions, and gives employers an advantage.

The combination of this competitive job market with a lower cost of living than many Western countries means many Chinese workers are willing to work for less, which presents an opportunity for global companies to save on labour costs.

It is not just the Chinese who are willing to work for less. In fact, companies often outsource to India, Southeast Asia, Mexico, and Central America because workers in these areas are willing to work for less as well.

Because wages are smaller, payroll taxes are also smaller. There are far fewer unions in these countries, so there is a reduced risk of workers going on strike as well. There are also less work regulations for companies in these areas, such as required increases for overtime pay rates, which can save time and money.

2. The quality of the labour is often still great, despite the reduced costs.

Most people who have ever used an Apple product, for example, can attest to the high quality. Apple is known throughout the world for its precision and impeccable design. The fact that Apple’s sophisticated products are manufactured by Chinese workers who often make less than seventeen dollars a day does not reduce quality at all. In fact, in the first day that pre-order sales went live for the IPhone 6 and the iPhone 6 Plus, 4 million phones were ordered.

There were some concerns about the iPhone 6 Plus bending, but that didn’t stop people all around the world from waiting in massive lines to get their hands on one of these new phones.

3. Moving manufacturing overseas can mean that companies can close plants in their own countries.

Shutting down these plants can save large amounts of money in real estate costs, as real estate is likely to be cheaper in the outsourcing country.

The Cons of moving your manufacturing abroad

1. Despite the fact that third party companies can often provide quality labour at a drastically reduced cost, there are sometimes moral issues that can accompany this type of labour.

For example, working conditions for employees in these companies can be extremely difficult.

To return to the example of Foxconn, the manufacturing company that makes products for Apple, Amazon, Hewlett Packard, and others, workers there often have to sleep in dormitories that have up to thirty people living in a three-bedroom flat. Workers also frequently have to work extremely long hours, to the tune of eighty hours per week. Furthermore, workers often have to stand, or are only allowed to use one third of a chair to sit on in order to keep them more focused.

Life at these types of companies can be very difficult for the workers, and it is definitely something to consider when it comes to making business decisions for major corporations.

Another key point to consider is that sometimes the factories and buildings in which these workers work often aren’t safe. These countries have fewer building regulations, and sometimes accidents happen.

For example, in April 2013, an eight storey commercial building in Bangladesh that housed a clothing manufacturing company collapsed after cracks appeared in the structure. Over one thousand people were killed in this accident.

2. Outsourcing your manufacturing or other aspects of a domestic business means transporting large amounts of jobs elsewhere.

Although this can increase a company’s bottom line, it can also require putting large numbers of domestic workers out of work, which can be hazardous to the company’s global brand management. In an age of increasing social responsibility, firing five thousand domestic workers is not exactly great for a brand’s image.

Displacing so many people from their jobs is a very significant decision. Also, the workers who are losing their jobs are often the people who have helped grow the company into what it is. So, transporting so many jobs can often create resentment from, and hard times for, domestic workers.

Between 2001 and 2011, around 2.7 million jobs were outsourced from the United States to China. A large percentage of those jobs were from the textile industry. While textile companies saved on their bottom lines by relocating operations to China, millions of workers lost their jobs in America. That is a heavy social cost to pay.

There are both pros and cons to outsourcing manufacturing. Ultimately, it is up to the individual company to decide whether or not using a third party company to meet its manufacturing needs is the right decision.

If a company can find a third party company which can provide cheaper labour, less regulation and fewer taxes, but also treats its workers fairly and provides them with a safe working environment and better quality of life, as many do, it can be an excellent option.

The negative brand implications for putting domestic workers out of the job, and the possibility of forcing foreign workers to work in what are sometimes harsh conditions, however, may lead other companies to continue their domestic manufacturing practices.

In an increasingly globalized world, opportunities for third party manufacturing will surely increase. The extent to which these opportunities will be taken advantage of is yet to be determined.

Have you made the decision to start outsourcing your manufacturing, and what have been the results?

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