Generic Strategy for Global Value Creation Innovation

Question:

Discuss about the Generic Strategy for Global Value Creation Innovation.

Answer:

Introduction:

In order to be successful in the market, every company has to keep track of the needs of their customers as well as the dynamics of the industry. In this context, the video suggest that business model innovation is the key to be successful (Schaltegger et al. 2012). In the today’s business environment, the cycle of innovation is spinning faster than it ever has across all the industries; and successful companies are taking necessary measures to stay ahead in the innovation curve in their respective industries. Innovation helps an organization in two ways – increases the customer value and/or lowers product cost, thereby, creating market differentiation and provides competitive advantage. Although the importance of innovation is undisputed, there are many misconceptions that do not allow companies to take the initiative to be innovative. Some of these include – innovation requires unique ideas that no one has ever thought of, requires huge investments and innovation breakthrough are always based on fascinating technologies (Massa and Tucci 2013). However, the truth is that successful companies learn and recombine their knowledge and come up with innovative products, services or ideas whereas as once pioneer in the industry lags behind. A business model innovation helps the company to get answer to these four questions – who is your target customer? What do you offer to the customer? How do you create the value proposition? And how do you generate revenue? Moreover, a business model innovation changes at least two of the above four dimensions (Gobble 2014).  Innovative business model does not necessarily require novel ideas or new business model patterns; it can be achieved through some adaptation, refining or combination of these patterns. Most innovative companies often employ creative imitation. Moreover, these imitations are not necessarily from the same industries, successful companies look for ideas from other industries that has revolutionised that industry and incorporate such ideas in their own business to gain competitive advantage. Therefore, in order to implement innovative business models, companies are required to follow these four steps – initiation, ideation, integration and implementation (Amit and Zott 2012). Once the appropriate innovative model has been formulated, it is important to implement that strategy in iterative cycles in small measures. Moreover, it is also important to communicate the need of new business model to the employees and top management should be adequately involved in all the phase of change management (Casadesus and Zhu 2013).

Application of business model innovation:

The business model innovation is an iterative process and it allows the company to stay ahead in competition. There are plenty of innovative models such as Cheap chic, Razor and blade pattern, Bricks and click, Anticipated upsell, Loss leaders, collective, servitization of products, Hotel California model and so on. One such innovative business model, Nickel and dime can be applied by Qantas Airlines. It involves pricing the most cost sensitive items as low as possible and charging for everything a little extra. This enables the company to attract most customers as they provide the air travel solution at the lowest cost. Further, as the customers asks for related products or services,  it can be sold on a little higher prices that covers the cost of cheap air travel and enables the company to earn more revenues from items that are ignored by the marketers of other companies. This strategy provides competitive advantage to the company and increases the brand equity in the market (Amit and Zott 2012).

CAGE framework to evaluate international trade opportunities

Key Points:

The video discusses the CAGE framework. CAGE is an acronym where C stands for cultural, A for administrative/ political, G for geographic and E is for economic factors. CAGE framework is used determine how much two countries trade with each other. According to this framework, how much trade happens between two countries depends on the whether they are similar or different along the above stated dimensions (Ghemawat 2013). The interactions between two countries including the trade relations is usually enhanced by the similarities along these dimensions and usually gets dampened by the differences along these dimensions. Moreover, the effect of these dimensions on trading is huge (Ghemawat 2015). The merchandise trade between two countries having similar CAGE dimensions are expected to be at least 10 to 15 times higher than between countries having similar sizes but huge differences along the CAGE dimensions. Therefore, CAGE framework gives a metric to understand what factors determines the trade between two countries based on these dimensions (Hasan et al. 2016).

Application of CAGE framework:

CAGE framework helps business companies while formulating international business strategies. As CAGE framework helps to identify cultural, administrative, geographic and economic differences between countries that can be used to understand the long-term compatibility and sustainability of the doing business (Zhou and Guillén 2015). If there are greater differences along the four CAGE dimensions between the countries, the business is less likely to flourish as the various underlining factors that helps and supports business would be less. Therefore, international business relations are more stable between companies having greater commonalities than differences. CAGE analysis also provides a middle path between one mass productions and mass customizations extremes that represent most global market strategies and product development efforts. Moreover, CAGE analysis, are also used by business companies to assess the potential size of the market, risks and barriers related to different international markets (Beugelsdijk and Mudambi 2013). Therefore, it helps in eliminating the scope of guesswork in selecting countries for international trade. According to this framework, two countries are most likely to undertake successful and long-term trade relations with minimum cultural, social, geographical, and economic distance. In other words, the more commonly aligned two countries with respect to each other (along the CAGE dimensions), the greater would be the probability of success in a given foreign market. CAGE framework can be utilized by companies to identify where to invest. This can be understood with the help of below matrix 

 

Cultural

Administrative

Geographical

Economic

 

 

Factors

·         Language

·         Ethnicity and social structure

·         Religion and values

·         Political and economic ties

·         Government policies

·         Infrastructural support

·         Physical accessibility

·         Shared border

·         Transportation and communication facilities

·         Climate

·         GDP

·         Consumer income

·         Economic size

·         Differences in cost and quantity of resources

(Source: Ghemawat 2013)

The greater the commonality between the host country and investing country, the greater would be the chances of stable and sustained business development and vice-versa.

References

Amit, R. and Zott, C., 2012. Creating value through business model innovation. MIT Sloan Management Review, 53(3), p.41.

Beugelsdijk, S. and Mudambi, R., 2013. MNEs as border-crossing multi-location enterprises: The role of discontinuities in geographic space. Journal of International Business Studies, 44(5), pp.413-426.

Casadesus‐Masanell, R. and Zhu, F., 2013. Business model innovation and competitive imitation: The case of sponsor‐based business models.Strategic management journal, 34(4), pp.464-482.

Ghemawat, P., 2013. Redefining global strategy: Crossing borders in a world where differences still matter. Harvard Business Press.

Ghemawat, P., 2015. From International Business to Intranational Business. In Emerging Economies and Multinational Enterprises (pp. 5-28). Emerald Group Publishing Limited.

Gobble, M.M., 2014. Business model innovation. Research-Technology Management, 57(6), pp.58-61.

Hasan, M.M., Ibrahim, Y. and Uddin, M.M., 2016. Institutional distance factors influencing firm performance: A hypothetical framework from cross-border mergers and acquisitions. The Journal of Developing Areas, 50(6), pp.377-386.

Massa, L. and Tucci, C.L., 2013. Business model innovation. The Oxford Handbook of Innovafion Management, pp.420-441.

Schaltegger, S., Lüdeke-Freund, F. and Hansen, E.G., 2012. Business cases for sustainability: the role of business model innovation for corporate sustainability. International Journal of Innovation and Sustainable Development, 6(2), pp.95-119.

Zhou, N. and Guillén, M.F., 2015. From home country to home base: A dynamic approach to the liability of foreignness. Strategic management journal, 36(6), pp.907-917.

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