When global strategies go wrong (NTT DoCoMo Inc)

When global strategies go wrong

From: www.bain.com/bainweb/ and also The Asian Wall Street Journal (04/04/02)

Japan's leading mobile operator, NTT DoCoMo Inc., announced last week it would write down the reduced value of its investment in AT&T Wireless Services Inc., a move expected to contribute to an extraordinary loss of about one trillion yen ($7.53 billion) for the current fiscal year. And when the full extent of the write-downs of all its recent European, U.S. and Asian investments are totaled, the bill for the ambitious globalization strategy pursued by Japan's - and Asia's - most valuable company over the past few years could exceed $10 billion.

NTT DoCoMo clearly has the cash flow from its domestic business to avoid by a long way the high profile fate of now bankrupt Swissair. However, the two companies' approaches to global strategy provide interesting parallels and lessons for other international players in all industries.

NTT DoCoMo and the former Swiss flag carrier enjoyed strong economic success built around a former monopoly and a highly protected incumbent positions in their home markets. NTT DoCoMo is the clear leader in the Japanese mobile market with a 60% market share that drives an annual operating cash flow of more than $10 billion. Swissair's dominant carrier position delivered financial performance that was similarly blue chip.

But a strong domestic market position and excess cash flow do not guarantee success abroad. In fact, without a quite sophisticated understanding of the uniqueness of its domestic situation, a strong domestic position could conceal some of the risks of a global strategy.

That means the first lesson is to start with the microeconomics: Understand what drives superior economic performance in your business and don't take your domestic success for granted. Both the airline and the telecoms businesses are highly regulated, technology driven and capital-intensive industries with high fixed and very low marginal costs (per airline seat or per mobile call minute). Rapid changes in regulation and technology are changing some of the rules of the game, but not the basic economics of either of these businesses.

In the airline industry, cost advantages are driven by an airline's dominance in airport hubs and on specific routes. The airline with the most flights in and out of a specific airport generates lower unit costs per flight and per passenger than competitors. The airline with the highest market share and flight frequency on a given route typically has lower costs per seat, higher utilization and superior pricing power. In the mobile industry, the significant fixed-cost components of the business (networks, product development, and brand advertising and promotion) provide unit cost advantages to the national market leader compared with its followers.

The second lesson from NTT DoCoMo and Swissair's experience is to have a clear view of the real economic boundaries of your business - is it a global business or rather a multi-local or regional one? Sitting on increasing cash balances, both DoCoMo and Swissair saw a high volume of merger and acquisition activity. They apparently concluded a wave of "globalization" was underway in their industries and they could not afford to be left out. They developed growth aspirations beyond their national boundaries.

While regulatory changes allowing increased foreign shareholdings in telcos and airlines have opened up new international investment opportunities, they have not changed the laws of economics. And it is ultimately economics that must drive strategy, not aspirations.

Despite regulatory changes, the economics of the mobile industry remain primarily national in nature. That is, it is clearly better to be a market leader in one country than a follower in two countries. There are obvious trends suggesting that broader geographic scope adds value in mobile. Increased subscriber roaming and higher mobile penetration rates are shifting an increasing portion of cross-border traffic from fixed to mobile networks.

Both trends favor a mobile operator with domestic leadership positions in a number of major city markets within a continental regional market such as Europe or North America. Value has been created by such "regional" consolidators. Vodafone accomplished this in Europe, now owning the No. 1 or No. 2 mobile operator in most major national markets - D2 in Germany, Vodafone in the U.K., Omnitel in Italy and Airtel in Spain.

While regulatory changes in the traditional bilateral air transport agreements will shift barriers to entry and hence increase competition and reduce pricing power in the airline industry, they do not change its fundamental economics. All successful airline mergers have been driven around building or expanding hub or route dominance, not around building sheer absolute scale either in terms of aircraft or destinations served.

When both NTT DoCoMo and Swissair convinced themselves they needed to expand beyond domestic boundaries to survive, the race to fulfil their global aspirations seems to have resulted in a set of investments more focused on the number of flags on a boardroom map rather than on these basic economics driving superior profitability in their industries. The risks of these two aggressive expansion strategies were further compounded by not having control over most of their international investments.

That means the third lesson from the two companies' problems is to move to management control if you are serious about capturing acquisition synergies. During the mid to late 1990's Swissair kept its investment bankers busy with a non-stop string of deals. It adopted an explicit "Hunter Strategy" which led to acquisitions of non-controlling minority stakes in a string of strategically challenged non-incumbent carriers - German charter carrier LTU, the French airlines AOM/Air Liberte and Air Littoral, and Italy's Volare Airlines and Air Europe. In addition, Swissair acquired stakes in Polish flag carrier LOT, Belgium's Sabena and South African Airways.

Without majority control, there was very limited scope for Swissair management to drive the economic benefits from these airline shareholdings through route consolidation, aircraft fleet rationalization and purchasing benefits. In addition, there was no ability to take corrective action when operational or financial performance deteriorated.

Similarly, in short order DoCoMo accumulated direct or indirect stakes in nine mobile operators - most for cash, at the peak of the telecom bubble. But this acquisition spree resulted in equity stakes in only two market leaders and these were in relatively minor geographic markets - KPN Mobile domestically in the Netherlands and Hutchison in Hong Kong. All the others were lesser players. DoCoMo acquired stakes in the No. 3 U.S. player AT&T Wireless, Taiwan's No. 4 player KG Telecom, U.K. No. 5 player Hutchison U.K., and distant followers KPN Orange in Belgium and E-Plus in Germany. Worse still, all these investments were minority stakes and so would appear to give DoCoMo limited ability to exert control over critical strategic and operational issues at these operators.

In fairness, DoCoMo has argued that its global strategy is less driven by footprint than by the two other objectives - to generate royalties from its i-Mode business model for mobile Internet services in joint ventures with its newly acquired mobile partners and to drive adoption of DoCoMo's third generation mobile technology standard. Time will tell how this plays out, whether it is accomplishable with minority stakes and whether it counterbalances the anticipated write-offs at the end of this fiscal year.

In contrast, Singapore Telecom appears to be pursuing a more focused strategy. Withdrawing from an early set of unfocused European investments, SingTel has focused more recently on mobile operators in South Asia. It now has stakes in the No. 1 or the strong No. 2 mobile operator in Singapore, Thailand, Indonesia, the Philippines and Australia.

Successful global growth cases are rare, even though the economics seems relatively straightforward. The problem is that global aspirations often cause managers to ignore the disciplined application of an industry's basic economics and the importance of exercising control over your investments. Then bankruptcy or a forced withdrawal often waits in the wings - and shareholders are left carrying the high cost of these failed global strategies.

The Shifting Calories Theory...

The Shifting Calories Theory...
Your metabolism doesn't know how much food you'll eat tomorrow or the next day because those days have not happened yet. Therefore, your metabolism always burns calories based on your eating habits during the past few days -- because it assumes that you'll continue to eat in the same general way.
Guess what? You're about to shock your metabolism by doing something you've never tried before -- you're going to do the OPPOSITE of what it expects you to do. You're going to NOT continue eating the same types of calories and meals for more than a couple days at a time, and you're going to lose a lot of weight by doing this.

What's Behind Weight Loss Facts??

Weight Loss Facts:

Low Fat Foods DON'T WORK.

• You cannot lose weight using Low Fat Diets. Low fat foods have been popular for more than 15 years, but yet our society is getting more overweight as each year passes. This fact alone should tell you that eating a purely low fat menu is not the answer to losing weight.

Low Calorie Diets DON'T WORK.

• You won't lose weight using a Low Calorie Dieting Plan either. In fact, eating low calories is the worst thing that you can do to your body, since that will only slow down your body's fat burning engine and ruin all chances of losing weight (low calorie diets may allow a few pounds of weight loss for the first few days, but then after that all weight loss comes to a halt --- known as a dieting plateau). You can never get slim by starving yourself.

Low Carb Plans DON'T WORK.

• You'll probably find it extremely difficult to get slim using a Low Carb Dieting Plan. Low carb diets have recently become popular over the last couple years, but the problem with low carb menus is that they are too strict and TOO HARD TO FOLLOWfor average people. Low carb menus tend to rob your body of too much energy (carbohydrates) and make it nearly impossible to remain on the program for very long. This is why so many dieters find it difficult to follow a strict low carbohydrate menu.

What about Weight Watchers and Jenny Craig Dieting Plans?

• Weight loss programs such as Weight Watchers (and Jenny Craig) usually involve slower dieting progress over a longer period of time, since such programs generally promise only 2-3 pounds of weight loss per week. Also, programs such as Jenny Craig usually involve buying special meals and/or dietary supplements during the initial phases of the program. While some people may like these types of dietary programs, we prefer a dieting plan which focuses on faster weight loss, such as the Accelerated Fat Burning Program shown below...

Why Are you Overweight?

• You are overweight for the most simple of reasons -- because you're eating the wrong foods, the wrong types of calories per meal, and you're also eating meals in the wrong patterns each day.Think closely about what we're about to tell you, since it's going to change the way you think about dieting...FOOD is more powerful than any prescription weight loss pills, because the FOOD that you eat can either make you THIN or FAT. You don't get fat because of a lack of exercising, that's a myth. You get fat because you don't eat the right foods at the right intervals each day.Also, the pattern that you choose to eat your meals each day is more powerful than any prescription weight loss pills. This is true because your body is like an "engine" and it only needs certain foods at certain intervals each day, and if you don't eat the right foods at the right times then it won't burn those calories -- and you'll wind up storing those calories as fat tissue. (Hint: You need to eat more than 3 times per day to lose weight, but we'll show you the details later).You have gotten overweight by eating the wrong foods, that much is a fact. And guess what? You can get SLIM by eating the RIGHT FOODS at the RIGHT INTERVALS each day. It's not really any more complicated than that, and the way to start losing weight has nothing to do with starving yourself or jogging.

Low Calorie Diets DON'T WORK.

The reason you cannot lose weight by starving yourself (using a low calorie diet) is because your metabolism will detect any major drop in calories and it will then ADJUST ITSELF by burning fewer calories each day.
For example:
If you begin eating 2,500 calories per day then your metabolism will adjust itself so that your body begins burning 2,500 calories per day. If you try to starve yourself by suddenly eating 1,000 calories per day then your metabolism will again ADJUST ITSELF so that your body begins to burn only 1,000 calories per day. That's why you have failed in your past dieting attempts, that's why you always seem to fail when you try and starve yourself.
Now you know the reason why you can eat 1,000 calories per day and not lose any weight while your friends can eat 2,500 calories per day and not gain any weight.

Low Fat Foods DON'T WORK.

Also, virtually every person in today's society is buying mostly "low fat" or "non fat" food at the grocery store, everybody is conscious of the "fat grams" inside the food they buy. However, people are getting fatter than ever by doing this and people are not losing weight by switching to the "low fat lifestyle".

Low CARBS DietS Make You MISERABLE

Those ridiculous "low carb" diets have certainly become popular in recent years, but of course those are just thinly disguised starvation diets. If you don't think so then check out these facts below about Atkins.... The Atkins Diet limits your carb intake to ONLY 20 grams of "net carbs" per day during the first phase of the diet.......which means that you cannot even eat a single large apple during the first phase of the Atkins Diet (since even a large apple has more than 20 grams of net carbs)....And if you want to continue through all of the phases of the Atkins Diet, then it will take another 4 MONTHS (16 weeks) before you'll be allowed to eat just 400 carb calories per day -- and any typical restaurant meal has more carbs than that. So this is really just another form of starving yourself (and making yourself MISERABLE), which is not the answer.

PEPSICO’S BUSSINESS IN 3 SEGMENTS IN 1991

PEPSICO’S BUSINESSES IN 3 SEGMENTS IN 1991

PepsiCo terdiri dari 3 segmen yaitu soft drinks, snack food, dan restaurants.

1. Soft Drinks

• Soft drinks menyumbang 35 % dari penjualan PepsiCO dan 39 % dari operating profit pada 1991.
• Melalui 4 produknya yaitu Pepsi, Diet pepsi, Caffeine Free diet pepsi, dan mountain dew, perusahaan mencapai peringkat ketigfa di U.S dengan penghasilan $ 47 billion.
• Secara internasional, PepsiCo menguasai pasar sebesar 15% senilai $ 11 billion.
• Di bawah kepemimpinan Calloway, PepsiCo menghabiskan $4,6 billion untuk memperoleh franchised bottlers.
  PepsiCo juga memperoleh operasi internasional Seven-Up, perusahaan soft drinks terbesar ketiga di luar U.S sekitar $ 246 billion.
  

2. Snack Food

• Melalui penjualan produk dari Doritos, Lay’s, Fritos, dan Ruffles, Frito-Lay’s memperoleh setengah pasar snack chips di U.S senilai $ 10 billion, dan PepsiCo Foods International (PFI) memperoleh 25% market share snack chips international senilai $ 13 billion.
• Tahun 1989 membeli perusahaan snack U.K yaitu: Smith Crisps,Ltd dan Walker Crisps,Ltd sebesar $1,34 billion dan menjadi pemimpin pasar makanan ringan di Eropa.
• Selain itu, juga membeli 70% kepemilikan Empresas Gamesa yang merupakan perusahaan cookies terbesar di Mexico senilai $ 300 million.
• Pada tahun 1991, penjualan PepsiCo sebesar 29% dan 35 % operating profits didapat dari segmen snack foods.
  

3. Restaurants

• Tahun 1986, membeli Kentucky Fried Chicken.
  Kemudian membeli Pizza Hut dan Taco Bell.
  Pembelian di atas menjadikan PepsiCo pemimpin dalam banyaknya jumlah unit restaurant.
• Tahun 1991, segmen ini memberikan kontribusi penghasilan terbesar dengan tingkat penjualan dan operating profit masing-masing sebesar 36% dan 26%.
• Pada era 1990-an, Pizza Hut menguasai 25% kategori pizza di U.S dengan nilai penjualan 16 Billion, Taco Bell menguasai 70 %kategori quick service mexican style restaurant dengan penjualan sebesar $ 3,5 billion, dan kentucky Fried chicken menguasai 50% kategori quick service chicken restaurant dengan penjualan $ 6,5 billion.
• Selain kesuksesan, ternyata PepsiCo kesulitan dalam memperluas penjualan La Petite Boulangerie yang merupakan 3 unit bakery chain yang dibeli tahun 1982. Setelah berusaha memperluas pasar dengan menambah gerai penjualan, hal ini terhenti ketika gerai mencapai 150 unit sebab tingkat penjualan tidaklah mebaik sehingga La Petite Boulangerie dijual pada tahun 1987 dengan kerugian $13 million.
• Akhir 1980-an , coca-cola melakukan kampanye yang menyatakan bahwa restauran yang membeli sirup melalui pepsi-cola secara tidak langsung justru membantu pesaing mereka sendiri, dan hal ini berakibat terhjadap hilangnya konsumen besar seperti Burger King dan Wendy’s pada tahun 1991 dan setelah itu pertumbuhan penjualan softdrinks hanya memiliki porsi yang kecil dalam industri soft drink keseluruhan.

Wow,It's my first time to make a blog

I'm not to interest to make a blog, but when my lecturer told me a lot of advantages, I decided to start a new step. And I think I've already choosen the right way!! hehehehe I hope so....


Ferdinand Leonidas