The Arbitrage - Adaptation and Aggregation Model

Question: Discuss about the Arbitrage, Adaptation and Aggregation Model. Answer: Introduction Companies use three main strategies namely; arbitrage, adaptation and aggregation to achieve market penetration and improve organizational success. As an adaptation strategy, most international companies exercise variations in prices, changes in products, focus in particular geographical areas in addition to being flexible in supply management (Adam, 2013). Such approaches play a crucial role in enabling an organization to adapt to the elements of the global market. Aggregation enhances reduction in operation costs and maximizes the return on investment. With this approach, companies centralize operations such as purchase of raw materials and production of the final goods. Arbitrage strategies involve taking advantage of the differences in market situations and the supply chain to make profits. Through this strategy, companies buy products at cheaper costs in areas where they are readily available and resell them for a profit in market environments where the demand is highly and the supply is diminished. The use of these strategies explains the global success and market stability gained by most international companies. In this paper, we focus on the AAA model and discuss how different companies have employed these strategies to maintain a competitive edge and hence remain successful in the global arena. The paper shall focus on the following companies; Unilever, Coca-Cola int., Samsung, Toyota, Apple Inc. and Microsoft International Corporation. Adaptation Food and Beverage Industry Coca-Cola and Unilever Companies can increase their market share as well as the revenue by adapting to specific business models which operate in conformation with the market preferences. This is one of the most common strategies used by Coca-Cola to enhance its competitive levels in the diverse market. The company has achieved this through variation in products as well as their prices. By carefully analyzing the market conditions, the companys management constantly reviews its policies on pricing, marketing and product distribution in order to ensure that the varying market needs are met (Anita, 2010). For instance, the company has introduced different modes of packaging like plastic bottles which are relatively portable. This enhances transport and sales while the clients can enjoy the luxury of carrying home the products. The company has also introduced variation in product sizes hence the availability of small sizes which fits well in market segments characterized by low scale earners. This strategy has made Coca-Cola products easily acceptable among the clients. At the same time, Unilever has achieved an effective grip of its market by producing a variety of products and distributing them according to preferences in various locations. For instance, being one of the leading producers and distributors of margarine, the company has enhanced its adaptation efforts by producing it in different flavors like vanilla and strawberry laced margarine. One major component of adaptation is focus on particular market segments, portions of the supply chains, products or geographical areas (Bruce, 1988). In a bid to increase its market share, Unilever which owns over four hundred brands has retained its focus on only 13 of these. This is because the key brands reward the company with sales of over 1 billion euros. Computer Industry Apple Inc. and Microsoft Corporation In order to adapt adequately to the market requirements, there is the vital need for a company to network. According to Carliss (2000), networking spreads an organizations market to wider margins. Through strategic alliances, The Apple Company has improved the popularity of its brand with a huge segment of its market in Europe, Asia and Africa. Through networking, the company has seen the establishment of various outlets in the United States and China hence achieving good sales of its key products due to the high demand in this region. The sale of iPhones, iPad tablet computers as well as mac personal computers has greatly improved over the years as a result of Apples successful adaptation strategies. As noted by Clemons (1996), companies in the computer industry experience stiff competition due to the increasing number of similar producers targeting the same market. Despite the challenges associated with such a competitive arena, Microsoft Company has maintained a firm grip on its clients through variation in products in addition to appropriate franchising and networking. Being the worlds leading producer of computer software and operating systems, the company depends on customer feedbacks on their products to manufacture enhanced products. For instance, after releasing windows 10 into the market, the package that followed contained more features and was accompanied by an equally speedy operating system to cater for the weight of the new system. This increases convenience and efficiency among users and in turn enhances customer loyalty to Microsofts products. Microsoft has also achieved adaptation through focusing on one area of product. Despite being producers of consumer electr onics, licenses and personal computers, the company focuses on the production and distribution of Microsoft windows and the related packages. The sales obtained from this point of focus constitute over 60% of Microsofts total return on investment. Heavy Equipment Manufacturing Industry Samsung and Toyota To penetrate the market for its products, Samsung employs the use of strategic alliances, as well as networking. By carefully analyzing the changing policies, the Samsung Company has constantly reviewed its operational policies in order to fit these variations. Through networking, the company has spread its wings and established outlets in several countries around the world (Dey, 2001). Apart from being a world producer of electronics, Samsung Engineering, one of the companys subsidiaries, is one of the worlds leading construction companies. To enhance good market returns, the subsidiary has installed refining plants in oil rich countries which enhances the proximity to raw materials hence low operation costs. The company has also diversified its market by constructing water treatment plants, power plants and steel making plants in line with the consumer needs in these areas. On the other hand, Toyota Motor Company largely depends on externalization as an adaptation strategy. The companys management is guided by a vision which is keen on enhancing adequate networking, user adaptation and franchising. For instance, the company has established links with different countries hence placing outlets in each of these market segments to enhance marketing and sales. The Toyota Company manufactures automobiles based on the changing consumer needs and preferences. For instance, in market segments characterized by inconsistent terrains and adverse weather conditions, the company distributes the 4W drive enhanced with additional components which makes the vehicles effective. Toyota also employs variation as an adaptation strategy. This can be emphasized by the rising popularity of hybrid electric vehicles which the company has introduced in a bid to replace the traditional fuel consuming autos. The products have been readily accepted in selected market areas especiall y in the US due to their convenience and effectiveness. Aggregation Strategies Food and Beverage Industry Coca-Cola and Unilever This strategy emphasizes on the need to reduce production cost through assemblage of production and resources (Eric, 2005). Through these approaches, companies can easily achieve the economies of scale and hence remain competitive. The Coca-Cola Company has gradually reduced the costs of production by operating hand in hand with other companies. For instance, the company majorly produces the concentrate which is then sold to the bottling company. The Coca-Cola bottler is a licensed subsidiary which assists the company in the final packaging and distribution of products. It also plays a crucial role in enhancing the popularity of the brand through extensive marketing and sensitization. The aggregation strategy is used by Unilever which works together with TV stations to advertise its products which in turn increases the depth of their global market. In addition, Unilever works on the basis of dual company listing which comprises Unilever N.V and Unilever plc. Despite their different l ocations, the two companies work as one hence enabling assemblage of processes (Gajos, 2001). Computer Industry Microsoft and Apple The Microsoft Company has achieved a global acceptance of its products and services through aggregation by operating in a similar platform with other companies. For instance, being the world leading producer of computer software and online products, the company works together with other search companies like Google and Bing. This enhances a ready market for their products in addition to minimizing the production cost since responsibilities are shared (Howard, 1997). On the other hand, Apple Inc. has maintained close ties with other companies operating along the same line through the strategy of geographic aggregation. For instance to cater for the high demand for energy and fuel the company introduced a subsidiary in California known as the Apple Energy LLC which sells solar energy. The company also intends to use the methane emissions to generate electric energy. When an alternative use for the raw materials is established, the operational costs are lowered which in turn enables the company to achieve economies of scale. Heavy Equipment Manufacturing Industry Samsung and Toyota One of Samsungs key strength is the depth with which the company has explored its market through the introduction of numerous subsidiaries. Apart from production of electronics, Samsung also runs engineering, insurance as well as heavy industries (Yang, 2011). Through geographical and economic aggregation, the company has achieved adequate penetration into the market. After identifying the suitability of a location Samsung collaborates with most local companies in the United States, Asia and Africa to serve as co-producers and product marketers. This strategy plays a crucial role in widening the companys global efficiencies. The Toyota Company has extensively achieved its economies of scale by applying approaches such as economic and geographical aggregation. To assist in the sales and marketing of products, Apple Company works together with the Prius Family which assists in the sales of the hybrid nameplate, one of Toyotas products. According to Yang (2011), by 30th April 2016, Toyo ta had sold over 5.7 million units; a feat which could be associated to the companys advanced aggregation strategies. Arbitrage Food and Beverage Industry Coca-Cola and Unilever The Coca-Cola Company has continuously employed the use of arbitrage strategies in a bid to create its global value. The company achieves this by exploiting and noting the differences in the global market (King, 1987). It then takes advantage of this opportunity by producing and distributing the products to areas with high reception rates. For instance, the company has a wide market for its cold drinks and beverage in the hot and semi-arid areas. This is due to the high consumption rates propelled by the weather conditions. The same strategy is used by Unilever. One of its successful subdivisions is the area of beverages and ice-cream whose consumption rates may be affected by changing weather conditions in addition to other cultural preferences (Schoenberg, 1988). As a result, Unilever takes advantage of the rich market areas by distributing foods and beverages in areas where it has established the popularity of the products and services among the consumers. With research facilities situated in various countries like the UK, US and China, Unilever has adequately studied the differences in its market levels and hence distributed products depending on the requirements in an approach which increases sales. Computer Industry Microsoft and Apple Despite the fact that the Microsoft products enjoy a worldwide market audience, it is a fact worth noting that some of the regions are relatively richer market areas compared to others. For instance the Microsoft Company exports most of its products to China due to the high demand for technological appliances in the country (William, 1999). The Microsoft Windows and Microsoft Operating Systems are some of the products mostly consumed locally. On the other hand, the Apple Company has attained effective market reliability through arbitrage strategies. While most of its products are consumed locally, the Apple branded iPad tablets, mac personal computer, and smart media player have since gained popularity in diverse market areas in Asia and Africa. To take advantage of these market differences, the apple company relies on networking before organizing supplies to areas famous for these products (Johansson and Winograd, 2001). Heavy Equipment Manufacturing Industry Samsung and Toyota Being one of the leading heavy industries, Samsung embraces arbitrage strategies in order to reduce on operation costs and maximize on revenue. For instance the oil refineries and petroleum industries are installed in areas where the consumption of the products and by products is advanced. As an arbitrage strategy, Samsung obtains the location from the local authorities at a relatively cheaper cost (Winterfield and Edwards, 1986). The products and services emanating from these industries are then sold to consumers at higher prices which enhances the companys return on investment. At the same time, the Toyota Company distributes vehicles to the consumers depending on the local preferences, terrain, economic level and government policies. For instance, the company uses the Toyota Daihatsu subsidiary to produce brands which are sold in the growing south eastern Asian countries. In Africa and Europe, the Isuzu brand is famous among the users hence the company takes advantage of this mark et difference to increase sales and achieve organizational success (Pankaj, 2011). Conclusion The dynamic global market is characterized by constant variations in a number of elements including consumer preferences, tastes, cultures and needs. In order to counter these transitions, there is an inevitable need for companies linked to various industries to establish and implement appropriate strategies. 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