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Introduction

Global strategies are developed by the companies to manage the differences or the variations of the different market across the world. This report focuses on the AAA framework to understand how the global strategies follows the local market. AAA refers to Adaptation, Aggregation, and Arbitrage. Adaptation involve localization of the offered product with the view to improve the revenue and the market share of the offered product. Aggregation focuses more on the economies of scale that can be utilized while creation of the regional operations. Arbitrage is different from all three as it works in exploiting the differences in the local as well as the global market to increase the profit as well as the business share.

This paper focuses on the food and beverage industry and the pharmaceutical industry to understand the concept of the AAA framework with the examples.

Adaptation

As explained above, adaptation focuses on the localization of the product according to the area where the product is being targeted or marketed. This is essential for all the industry who are planning to penetrate an international market.

Food and Beverage Industry and Adaptation

The best example of F&B in terms of adaptation can be seen as McDonalds. McDonalds had been a well-known USA brand when it decided to enter the Indian market in 1991. But the biggest difficulty before the company was its product line. Hamburger was one of the featured products of the McDonald’s menu, but Indians considered cow as sacred, and there were many vegetarians there. Also, it was found out that since the population of the country was poorer, to reach the masses, lower prices were needed. That’s when the concept of McAaloo tikki burger came into picture. The Aaloo tikki is prepared from potatoes, and it is a very common roadside snack. Choosing McAaloo Tikki which was available at quite an affordable rate allowed the company to reach the masses at a comparatively lower price (Mucha & Scheffler, 2007).

Another example of localization can be seen in Coca Cola. The company has totally localized its marketing channels to reach the maximum number of potential customers. While the company earlier used the bigger stores as the product marketing area, in India the company adopted mom and pop stores to reach the maximum number of customers (Singh, 2016).

Pharmaceutical Companies and Adaptation

An example of Adaptation can be seen in the GlaxoSmithKline. GSK or GlaxoSmithKline is a Britain based pharmaceutical company. It is well-established. Now, in order to reach the African markets, the company altered its product price drastically. The general product price of the company’s drugs was found to be higher than what Africans can pay. To counter this, the company came up with the new prices for the African market with a view to increase the sales figure in the country (Kollewe, 2016).

Another example of adaptation can be seen in terms of the company Cipla in African market. Cipla is equal to make the profit almost in line with the big pharmaceutical companies despite the lower investment in terms of R&Ds, and the success for that can be attributed to their marketing strategy of adaptation. For Africa, the company has joined hands with disparate distribution channels of local distributors to reach the health care facilities and pharmacies in remote locations as well. It has entered into production and marketing partnership with the local companies like Medpro in South Africa and Quality Chemical Associates in Uganda to reach the wide number of people (Capron & Mitchell, 2012).

Aggregation

Aggregation is the technique through which the companies utilize the economies of scale to gain advantage.

Food and Beverage Industry

An example of aggregation is difficult to find in Food and Beverage industry, but still small amount of it can be seen in the industry. The first example of aggregation in the Food and Beverage industry is StarBucks which is a well known international brand of the coffee. The customers of this brands are known to belong to a higher value and higher class customer level, and this has allowed company to utilize existing flavors of coffee without customization. The country has more than 500 outlets in China which have been opened with this aggregation model itself. The company does the minor modification in terms of the taste and retains its original taste which helps them establish their brand name. This saves a lot of cost of Research and Development providing them with the aggregation benefits in the end. The company has also not adjusted its price to meet the coffee price in the regional areas and tries to maintain a niche in the coffee world through its aggregation technique (Llewellyn, 2012)

Another example of aggregation can be seen in the energy drink Red Bull. Red Bull is marketed with the same idea in the Asian and Arabian markets as well—the energy drink for the sportsmen and youth.  This common marketing message has allowed the company to reach the masses and to present their product to them. Mild customization with respect to the regulation has been made by the brand, but overall the product remains same throughout (Pandarkar & Aggarwal, 2013).

Pharmaceutical Company and Aggregation Examples

In pharmaceutical companies, it is easier to find the examples of Aggregation. One example of Aggregation is the Sun Pharma. Sun Pharmaceuticals wanted to enter the European and American pharmaceutical industry. The company studied the market it wanted to enter, and in keeping up with the trend, it acquired many US based and European firms to meet the requirement of the markets. The company utilized the synergies formed by the product line of India and the assets that are present in the overseas market to gain the upper hand in terms of the competition (Kale, 2016).

Second example of aggregation can be seen in terms of Pfizer. The company’s annual report of 2015 also acknowledges this fact. The report informs that the company utilizes its 30 merged companies to get the best out of the global supply chain management. The manufacturing process of drugs like Prevenar are utilized globally by the company to allow them to achieve similar lines of the quality (Pfizer, 2015).

Both the above examples indicate that the pharmaceutical companies can utilize the aggregation model for different purposes—for the management of the global supply chain, for the management of quality of the products offered, for the management of the approvals and sales across the world etc. Aggregation model works perfectly for the pharmaceutical companies to some extent.

Arbitration

Arbitration refers to the strategy in which the companies utilize the advantage of market disparity to market and sell their product and increase their profits in the long run.

Arbitration and Examples from Food and Beverage Industry

The example of the arbitration can be seen in the cost of labour and land between USA and Mexico. There is a huge difference in the price of the labor in USA and Mexico. This has prompted many companies to settle their business in the latter region as it allows them to provide the products at the lower cost. The company of Pepsi has further announced another plant in the same area so as to meet the market growth need in Mexico at the most affordable cost. As per the news, the new plant was supposed to generate 4000 jobs in the country. This allowed the company to enjoy the cost benefits as well as to woo the customers by localization (PepsiCo, 2014).

Another example of the arbitration can be seen in terms of companies like KFC. The company noticed the lack of fast food joints in India, and decided to bank upon its name to market the product. A huge disparity existed in the country in terms of the presence of the fast food as the fast food was not really present in the market especially with respect to the non-vegetarian food products. The company grabbed the opportunity and utilized its brand name to develop the outlets in India. This allowed them to reach at the top in Indian food market (Friend, 2013).

Arbitration Strategy and Pharmaceutical Example

The arbitration refers to the gap in market. An example of it can be seen in terms of the Patent restrictions in India. For Novartis, Indian Supreme Court, the highest court in India, declined the appeal for patenting of cancer medication Gleevec. This case had been going for past seven years, and it presented a difficulty for the company. The company, therefore, decided to shift its research and development to more favorable avenues. The company announced that they would continue to develop the drugs for the country, but would use research facilities of the countries which are more favorable in terms of the patents. This deal indicates that the pharmaceutical company of Novartis is utilizing the market disparity in their favor. They plan to take research and development to the countries where laws are in the favor of patent, and yet plan to use the huge Indian market for the products marketing (Murali, 2013).

Another arbitration strategy that the pharmaceutical companies utilize is for the tax benefits. The example of this can be seen in terms of the Endo International which opened its new office in Dublin. The company hoped to invert the tax. United States has comparatively higher rates of tax with respect to other countries like Dublin and United Kingdom. That’s why many companies shift their base to these foreign locations as this allows them to save millions of rupees in terms of the tax. When the company shifted to Ireland, the tax rate in the country was 12.5%, which was comparatively lower than the United States. Also, the companies are able to save on the incentive cost they have to pay in the home country. Ireland also offers the added advantage of having similar legal structure and the presence of the other peers in the market. This indicate the usage of arbitration to reduce the tax being paid to the authorities, thereby increasing the overall profit of the company (Houlder, Boland, & Politi, 2014).

Conclusion

Thus it can be clearly seen that the food and beverage industry as well as the pharmaceutical industry uses the framework of AAA to increase their market share. It can also be seen that for the industries like food and beverage industry, adaptation play a stronger role as compared to the industry like pharmaceutical industry where the aggregation and arbitration play a bigger role. The kind of AAA model selected is dependent upon many factors for a company including the market as well as the objective of the company.

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