The 4 C’s Model Analysis

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The 4 C’s Model is a useful tool to assess the actual and emerging trends and can help in determining the extent to which an industry is moving (or has moved) towards globalisation or localisation. Here we do an analysis using the 4 C’s model. The model deals with the four C’s i.e. customers, competitors, capacity and cost. We analyse the model keeping in mind that the target country that we have decided to enter is Chile.

Customers: This deals with questions that answer what do the customers want and need, how will you satisfy those needs, what is most important to the customers, and how much will they pay for it. First, to answer what the customers need we see that fro toothpastes customers have various requirements, such as, depending on demographics, customers may want economic offerings, families with children often focus on decay prevention; young singles are typically more interested in whiteness; those in middle age are concerned with tartar and gingivitis; and children find taste of the toothpaste to be a primary feature. So, need varies. If we consider the Latin American market, the maximum demand for toothpaste is in Brazil, then Mexico and then Argentina. Those needs may be satisfied by offering different SKUs for different toothpastes. As Allsmile is a new entrant in the Latin American market, hence, they will initially focus on selling four SKUs as they have traditionally done in other international markets so that they can attain standardization in the company’s globalization process. The most important factor for customers purchasing toothpaste in Latin America is which is economy and brand. Prices will depend on the prices of the competition, and present cost structure of per unit cost. They will pay a price of $2.64.

Competition: In case of analysing the company’s competition, we first have to answer the question what are the competitors doing. Well they already have entered the Latin American market and have some of them have over 20 percent market share in some countries like Brazil and Argentina. The strengths of the competitors are that they are early entrants in the market and have already established themselves. Competitors like Caremore, Driscol, and B & B have a substantial market share in Brazil, Mexico and Argentina. In Chile the competitors that are present are only B&B and other local and regional players.

Capacity: Here we analyse the company’s strengths and weaknesses in terms of their financial, organizational, production and marketing capacity. Allsmile is a strong brand with an international market share of 13 percent. It has a new organization structure which supports its status as a global company. It has product based divisions. Each division are responsible to look after their product category internationally. Production may be done either in the US or in the country where they are entering. Producing in the host country will cost lesser than producing in the US. But producing in US will be a quicker option. Marketing has to be strong to create brand awareness among consumers. As the market targets are families, we have to use a promotion that is targeted towards families opting for a product due to its economy benefit. As Allsmile has already established advertising for this kind of products it has to be aired in the regional language, i.e. either Portuguese or Spanish.

Cost: The cost structure will depend on the production decision. We have decided to a production unit in Chile for high volume. This will give us low cost. Further the case suggests that opening a production unit may be time consuming, but this option works for us as we have decided to penetrate the whole of the Latin American market. Chile gives the advantage of producing at a low cost, marketing at a low cost and distribution at a low cost. This gives us cost advantage over our competitors.

From the above analysis we find that Allsmile’s Latin American strategy is more of a localisation strategy rather than globalization strategy. This is so because Latin American culture and demographics is completely different and is driven by different values than that of Europe or the US. So a standardized model cannot be applied. Moreover it has been suggested by Yip Coundouriotis that “Industry globalization potential, that is, the likelihood that a global strategy will be effective, depends on a combination of four sets of con ditions: market, cost, governrnent regulation, and competition“(1991: 5). As we have seen that the target market in Chile is much differnt than that of US and the government regulations and the cost structure too are differnt. For in a globalization strategy, Allsmile would have stuck to producing in the US and had taken in channel partners who would have been responsible for distribution of the products. But Allsmile decided upon a strategy wherein they will physically enter the market and take care of the other functionalities. The decision is off course based on greater cost advantage that they will get in localization than globalization. Further the company’s structure is also aligned toward a globally localised strategy as there are category managers as well as country managers who take care of the products in different regions. “Global strategy is a process of worldwide integration of strategy formulation and implementation. In contrast, a multi-domestic approach allows the independent development of strategy by country or regional units.” (Yip and Coundouriotis 1991: 6).

Apply Porter’s National Diamond model (Porter M.E.1990) the Competitive Advantage of Nations) to the analysis of ALLSMILES home country (the United States of America). To what extent does this analysis further inform the rationale behind the organisations current and proposed internationalisation strategies? Briefly outline the limitations of this analysis.

Now we do a Diamond Analysis as suggested by Michael Potter which will help to understand the global competitive position of the nation in a global scenario. The model as presented by Potter discusses four broad attributes of a nation, attributes that individually and as a system constitute the diamond of national advantage, the playing field that each nation establishes and operates for its industries. These attributes are:

Factor Condition: The nation’s position in factors of production, such as skilled labor or infrastructure, necessary to compete in a given industry. In the toothpaste industry the US is equipped with labour and technology for production. Further for toothpaste production, the United States offers reliable productive capacity and a historically stable currency. Further US has a looming shortage and high cost of labour.
Demand Conditions: The nature of home-market demand for the industry’s product or service. The demand for the product is huge in the US market. It has a low inflation and the US currency has been historically stable. But the problem that the company foresees is the aging population and a low mortality rate. This shows that the company needs to look for new countries which are nascent where they can establish their markets. Further due an aging population, the range of products that the company offers will get stocked. So they have to be sold in other markets so that the brands can still live healthily.
Related and Supporting Industries: The presence or absence in the nation of supplier-industries and other related industries that are internationally competitive. Toothpaste production needs support from are all available in the US market. But the cost of production in the US is higher than that in other developed countries.
Firm Strategy, Structure, and Rivalry: The conditions in the nation governing how companies are created, organized, and managed, as well as the nature of domestic rivalry. These determinants create the national environment in which companies are born and learn how to compete. The strategy that the firm takes is localizing in a global environment. So it has decided to act as a global player but with local characters. The structure of the company is product category based wherein the category managers are responsible for their categories for national or global operations and there are country managers who support their operations. The main competitors of Allsmile are Britesmile, Clean & White, Dentacare, and Eversmile. Allsmile ranks third in global market share. All these brands have global presence and have already entered the Latin American market.

This analysis shows that though US is a lucrative market for Allsmile, its growth will get stagnated as the demographics and the demand structure is changing. This analysis further shows that the competitors are have already entered the market the company is yet to enter. Moreover, Allsmile lags behind in global market share as it has not entered the other emerging markets and stuck to the conventional and home market. so the present strategy to enter the Latin American countries to boost the sales figures is a positive decision on part of the company.

This model, though helpful in doing a nation analysis, lacks in certain areas. They are:

Porter developed this paper based on case studies and these tend to only apply to developed economies. So in case of analysing the US economy, it fails to see any shortcomings for it does not deal with the elements that paralyse a developed nation.
Porter argues that only outward FDI is valuable in creating competitive advantage, and inbound FDI does not increase domestic competition significantly because the domestic firms lack the capability to defend their own markets and face a process of market-share erosion and decline. However, there exists no or little empirical evidence to support that claim.
The Porter model does not adequately address the role of MNCs. There seems to be ample evidence that the diamond is influenced by factors outside the home country.

The country we have chosen to enter is Chile. This is because our analysis shows that though in that Chile has the lowest cost structure for production and distribution. A country analysis of Chile showed that it has a decent real GDP growth of 4 percent and favourable external conditions. Inflation has not exceeded 5% since 1998. Chile registered an inflation rate of 3.2% in 2006. The Chilean peso’s rapid appreciation against the U.S. dollar in recent years has helped dampen inflation. Further, Total foreign direct investment (FDI) was only $3.4 billion in 2006, up 52% from a poor performance in 2005. Chile is only the second U.S. FTA partner ever to be placed on the Priority Watch List. Moreover in terms of market demographics, Chile per capita sales of tooth paste of 5.16. No other foreign toothpaste brand other than B&B has entered the market. So there is a huge un-captured market. The cost of production in a plant established in Chile is 0.06 million USD. There is a huge unemployed pool of labour in Chile, so labour costs are not too high.

In terms of FDI flow into the country, the present status of FDI in Chile shows only $3.4 billion in 2006, up 52% from a poor performance in 2005. However, 80% of FDI continues to go to only four sectors: electricity, gas, water and mining. Much of the jump in FDI in 2006 was also the result of acquisitions and mergers and has done little to create new employment in Chile. The Chilean government has tried to bring in FDI in other sectors as well. Beyond its general economic and political stability, the government also has encouraged the use of Chile as an “investment platform” for multinational corporations planning to operate in the region, but this will have limited value given the developing business climate in Chile itself. Chile’s approach to foreign direct investment is codified in the country’s Foreign Investment Law, which gives foreign investors the same treatment as Chileans. Registration is simple and transparent, and foreign investors are guaranteed access to the official foreign exchange market to repatriate their profits and capital. While Chile and the EU have signed a double taxation treaty, no such agreement exists between the U.S. and Chile.

Another factor in the favourable economic situation is the increase in foreign and national investment (24% of GDP for 2004 and a projected 25% for 2005), ranking third in Latin America. In 2004 Foreign Direct Investment (FDI)3 was concentrated in two sectors: mining (43%) and telecommunications (27% of FDI), followed by financial services and insurances (13%) and basic services (electricity, gas, water) with 5% of the total FDI. This is partly due to a friendly investment framework with reduced corporate rate taxes and nondiscriminatory treatment for foreign companies. The EU is the leading investor in Chile. In total, during 2005, approximately 30% of Chile’s FDI (amounting to a total of US$ 1.9 billion) came from Europe , underlining the impact of the AA. Within the EU, the top five investors have traditionally been Spain (22.7%), the UK (9.2%), the Netherlands (2.6%),Italy (2,5%) and France (2.2%). The European presence has been particularly significant in basic services (32%), telecommunications (17%) and mining (16%). So it is expected that the FDI will grow exponentially in the Chilean economy given the recent trends of recovery and open government policies. So we do a forecaste of the FDI of Chile for next 5 years.

Figure 1: Regional Focus Embracing Foreign Capital

Briefly advise the board on how the companies Human Resource Management (HRM) strategies should be developed to ensure that home country staff can be effectively deployed in the selected region.

For going global it is imperative fro any company to acclimatise its employees who will be deployed in other countries. First it is important that the employees chosen to be deployed should go through a training (or workshop) to teach them the culture and work environment in Chile. First they must be given training in the local language i.e. Spanish. Then they have to be made aware of the way the marketing and the other distribution channels work there. Further the plant managers must be made aware with the relevant labour laws which they need to know to manage workers. Then they have to make aware of the customs and culture that the country imposes on the organizational culture and how the working environment in the Chilean office will be shaped. Another problem that companies face with sending expatriates is who to send? This problem can be solved by asking fro volunteers for employees today are reluctant to go to a developing country. Further the salary has to be adjusted, where the company cannot reduce the base wage of the employee by calculating the salary in terms of Chilean standards. Rather the person has to paid more to motivate him to leave for Chile. The compensation must be adjusted to the host country standards along with other benefits added such as relocation cost, accommodation, transportation, etc. to entice the employee and give a salary higher than what they got in home country.

Reference

U.S. Department of States. Web.

European Union, COUNTRY STRATEGY PAPER 2007-2013. Web.

Yip, G.S. Coundouriotis, GA.. “Diagnosing global strategy potential: The World Chocolate Confectionery Industry” Strategy & Leadership, 1991.

Porter, Michael E. “The Competitive Advantage of Nations” The Competitive Advantage of Nations, Free Press, 1990.

“Latin American Consensus Forecast,” A Digest of Economic Forecast, 2007.

Whitlaa, Paul. Waltersb, Peter G.P. Davies, Howard “Global strategies in the international hotel industry” Hospitality Management 26, 2007, pp. 777–792.

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The 4 C’s Model Analysis

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