Sunday, October 08, 2006

Networking Industrial Clusters: Global Clusters

The problems of a small entrepreneur

World over, small and medium scale enterprises are regarded as fountainheads of entrepreneurship, innovation, nimble - footed change, major employers in terms of absolute numbers and major contributors to society's economy. However, these small-scale manufacturers lose out on the strengths derived from size in terms of financial sustainability, depth and range of products, marketing clout, brand and bargaining power. These problems make the whole small-scale sector worldwide vulnerable to the global competitive environment after the WTO impact. The mere problem is not that a company will die but the magnitude is much bigger than one can expect. If this small-scale entrepreneur is not saved than we will probably loose the most innovative, creative and collaborative business system of our society. The threat is much bigger than one can really see. The problems mentioned above are all related to physical existence arising from the product impact, the price impact and the competition impact. But here one major factor is not seen and that is the information impact.

The Solution

Everywhere in the world many innovative ways have been practiced by small-scale units to ward off above disadvantages, one of the most successful innovations is the concept of industry clusters. In industry clusters, one can see that the town and its population whether young or old, rich or poor, are working like one big-networked company. Clusters like companies have their own lives: their own rise and fall but importantly they stay for longer period.

A simple definition of a cluster suggests that it is a network made for information and resource sharing between people. An old Indian proverb says that two hands together are better than one. The same is true for small entrepreneurs also. A single entrepreneur faces major problems mentioned above. And for solving the same there is a possibility that the entrepreneur may lose the focus of his business.

Cluster or network of companies has inherent advantages of both the large and small companies. Network is the company and company is the network. Network has no centralized control but a distributed control. Network retains the agility, inherent in a small company yet it has competitiveness as financial and infrastructural depth of a large company. Network style of functioning automatically forces an efficient interlocking and works as a fit between the mesh or web of small scale industries in the cluster. There is a palpable concept of one link in the chain being on the one hand, a customer for the preceding link and, on the other hand, vendor for the succeeding link. In fact, there are countless examples where large companies have tried to secure the advantages of networking concept by having various structures like SBUs (Strategic Business Units) and concepts like Internal Customer to bring about efficiencies and economies in all their processes, namely, marketing, customer communication, customer acquisition, production, procurement, packaging, delivery and after sales service.

The Way Out – Global Cluster

Across the world, there have been many initiatives (successful and unsuccessful) to develop and sustain regional and national level clusters. However, in today’s ever changing environment these attempts fall short as the competition within the marketplace is no more regional or national in nature. Therefore, in this era of mergers and acquisition, collaboration at local and national level is not sufficient. A very important point that local and national clusters both miss is the competitiveness.

A global cluster will change the threat of WTO for small-scale industries to an advantage. It is basically a cluster that is created between local clusters in different countries of the world. A global cluster nearly comes over the hurdles, which are faced by the local and national clusters. As it is a clusters made on a larger scale each cluster knows much more about the other clusters. It helps entrepreneurs in following manner.

  • Information sharing between the entrepreneurs
  • Competency understanding between the entrepreneurs
  • Work sharing between the entrepreneurs
  • Technology sharing between the entrepreneurs
  • Product sharing between the entrepreneurs
  • Market sharing between the entrepreneurs

The problem of getting the funds on a larger scale to improve on production and marketing as well research and development is always a problem for small entrepreneurs. With the help of such global industry clusters the entrepreneurs can easily contact venture capitalists worldwide that can help in igniting the business process. Easy contact with venture capitalists and other funding institutions will lead an entrepreneur towards hassle free financing that will make him more focused on the business as a whole rather than just the money part of it.

With the use of the clusters, the entrepreneur can also know what the customer in the world market needs, and what he should produce. This helps the entrepreneurs in generating long-term business. The clusters also provide all the product related changes. With the help of this the entrepreneurs can change or modify the current product sold by them and get an added advantage of not spending on R & D and still can earn more recognition and profits.

In the local and national clusters sharing of information, skill or knowledge most times is informal. Information regarding the latest development and competency understanding is much less. Work sharing is not observed in the local and national clusters, as it is a fight in-between for the same customer and in the same market. Even though the product and technology used by the entrepreneurs are similar; the tendency to share is found to be below the critical limit among the cluster participants. And as most clusters are made for production related issues like, procurement of raw material, maintenance and corrective actions etc. the marketing related issues are never dealt with. The marketing related issues are the real differentiators between a multinational company and the small-scale industry entrepreneurs. With the creation of local and national clusters the small-scale industry entrepreneurs can fight with the multinational company on the issues of quality and other production aspects. But when it comes to market the multinational companies are ahead a million times than the small-scale entrepreneurs. With the marketing muscle the multinational companies take away the market share from the hands of the small-scale entrepreneurs.

If we look into the above problems, it can easily be understood that local and national clusters don’t really serve the purpose of clusters and of what they are meant for. The local and national clusters nearly miss the vital factor of knowledge sharing between elements of cluster. As cluster’s definition say they are meant for sharing of information but the non-sharing between the elements of local and national clusters create a situation wherein the cluster’s real impact is lost.

Global clusters can help in changing the situation. As a global cluster is an international phenomenon entrepreneurs are very keen about what is happening. As the entrepreneurs are more interested in the information about what is happening between the clusters all over the world, the information sharing is much higher than normal. Due to more information sharing the local clusters’ entrepreneurs understand other entrepreneurs’ competencies in a better way which in turn leads them to work sharing between them.

Due to global cluster the small-scale industry entrepreneurs can fight with the multinational companies in a better way with the work sharing comes into existence. It is said that now the world has become one marketplace. Any entrepreneur who has an added advantage over others can sell easily anywhere in the world. The Asian countries have the easy and cheap labour advantage over the others. They can use this advantage to reduce the prices and sell more of the product and generate more profits. This in turn creates more revenues for the government that also enhances the image of the country in the world marketplace, which in turn helps other entrepreneurs from the same country to sell the product in the other country. The whole economy prospers.

For example, company X which is in USA floats an inquiry for their product, company Y which is a part of the cluster in India gets the order but due to some legal constraints they are not able to supply to company X. At this point of time global cluster comes to rescue, due to work sharing and technology sharing between Indian and Korean clusters, company Z that is in Korea executes the order at the same price. The product is very similar as far as technology and competence is concerned. So, company X gets the product, company Y retains the order and company Z gets a new client.

There would be a win-all situation. The entrepreneurs at Rajkot can have an access to the latest technology. They also can get the innovative products made by the Korean entrepreneurs. With the same the Korean manufacturers can get the wide experience, which the entrepreneurs at Rajkot possess about the market and the strategies adopted by them.

If this kind of networking global cluster can be made between two countries, they can give a good fight to the competitor. And as Kautilya, the master strategist from India in Middle Ages states, collaborate with the enemy’s enemy and you can be stronger can be applied by the entrepreneurs at global scale.

Local Cluster

  • State government's support
  • Most entrepreneurs are of same locality or the same cast
  • Similar business style
  • Knowledge about each other and less about competencies
  • Similar competitive advantage

National Cluster

  • Central Government support
  • Most entrepreneurs are of same community
  • Business style nearly similar
  • Less knowledge about each other and little knowledge about competencies
  • Similar competitive advantage

Global Cluster

  • No support and pure competition - cluster supporting itself
  • Community alliances are not there
  • Business style changes drastically
  • Only competence based knowledge
  • Different competitive advantage

Why Global Cluster
Global cluster is a concept which will change the threat of WTO for small scale industries to an advantage

How does it do it?

  • Information sharing between the entrepreneurs
  • Competency understanding between the entrepreneurs
  • Work sharing between the entrepreneurs
  • Technology sharing between the entrepreneurs
  • Product sharing between the entrepreneurs

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© 2006 All Rights Reserved.

Principle of Possibility: Managing Customer Expectations

It would be difficult today to find a company that does not proudly claim to be a customer-oriented, customer-focused, or even customer-driven enterprise. But when we look little closer at how these companies put their assertions into practice, and often we discover an array of notions and assumptions that range from superficial and incomplete to misguided.

The idea of Principle of Possibility (POP) originates with the understanding of customer expectations management which is still an untapped platform of understanding customers’ needs, wants and desires. The idea extends the various customer orientations approaches towards a new paradigm of discovering and delivering the known and unknown customer expectations. It relies on four different applications or process innovations which have been named as; predicting the imminent, customers, economics and alignment.

The companies which follow the Principle of Possibility (POP) start by addressing that expectations gap. They become expert at revealing and articulating those mismatches, and they fashion comprehensive solutions to fix them. The Principle of Possibilities (POP) lies in a simple strategic word: Anticipation. And it is all about being proactive, watching things before others do and making things happen. Principle of Possibility (POP) stands on four key elements; Predicting the Imminent, Customers, Economics and Alignment. Herein the goal is not to just predict what is going to occur in the market but it is more about identifying and understanding potential opportunity which starts with a customers’ expectation, known or unknown. In the Wall street driven market if a company needs to survive it has to predict the imminent and the need would be to see the world through their customers' point of view. If the company can identify and develop the profile of the product user who is perceived by the customers to be an expert buyer in that product category and involve that product user in not only product but process development the company would be able to achieve economic balance of resources. This product user would also assist the company in word of mouth advertising which is one of most reliable and fastest growing domain of communication in e-era. Aligning these different viewpoints with company’s present and future potential resources will help a company to understand the customer expectations and produce products and services by which they will be able to manage the present and future customer expectations.

Research has also shown that most companies perform parts of the above stated process. However, more than two-thirds of them fail to satisfy customer expectations. The need of the hour is to integrate and implement the complete process and Principle of Possibility (POP) can help them do that. Principle of Possibility (POP) is more than being customer - driven and sensitive to customers' every expectation. It is about those companies which seek solutions that exceed the customers’ expectations. They open commercial opportunities for their customers and for themselves by actualizing unrealized potential and forestalling problems. They push the traditional boundaries until they find and deliver the best total solution for each and every client.

The application of the concept starts with proactive research of understanding customer expectations, which is still largely a domain controlled by some MNCs. The research is than applied to create a customer’s profile that for a specific product category can be determined as a ‘group influencer’. For example, if a customer is planning to buy a washing machine there are more likely chances that s/he will ask a friend who would be an technical expert and a user of a product instead a non-technical person. The same customer when buying apparel or some other trendy product or service is not likely to ask a technical expert friend but more likely to ask a friend who is fashion conscious. If proper profiling is done with the product or services under review and if those ‘group influencers’ are used in the process of product and process development there are higher chances of product or service being successful in the market. Another advantage of doing the same is that this ‘group influencers’ can become a powerful word-of-mouth communicators. So an organization by just using Principle of Possibility (POP) can have multi pronged advantage in customer involvement, profiling, product and process innovation, communications, as well as strategic planning and implementation.

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© 2006 All Rights Reserved.

Senior Marketing: An untapped opportunity

Currently most western countries are undergoing a profound shift in their population distribution. The world’s population is forecasted to age faster over the next half century than ever before and this will affect mostly the high-income countries. According to a United Nations Population Division’s study published last year, in 2000 the median age in the west was 37.3; by 2050 this is expected to increase to 45.2 and in some countries with lower fertility like Japan, Italy and Spain will be over 50.

The effects of aging will be less severe in the United Kingdom, partly because its birthrate is higher in comparison to most other European countries. However, the share of over-65 households will also increase slowly, from 26 percent in 2003 to 29 percent by 2025.

Alongside their relative growth in numbers, the senior consumers wield considerable economic power in the UK. According to published data over 45’s have nearly 80% of all financial wealth, and are responsible for about 30% of consumer spending. There is little doubt, if any at all, that as years go by the western societies will age and amongst these senior consumers will possess the largest disposable income.

Almost everybody in the marketing profession seem to appreciate that seniors represent an excellent marketing opportunity which no company can afford to ignore or worse alienate this group. However, this is not the case when it comes to marketing campaigns by most companies. One of the easiest examples we can refer to is the Television advertising. In the TV advertising, there is a domination of young people and a much rare appearances of seniors. Furthermore, their appearance often is shown in a negative demeaning way. While marketers increasingly acknowledge the importance of the “senior” market and more companies are being founded to serve this segment, especially in the medical and tourism industry, advertising in most industries still remains youth orientated and age-biased.

In comparison to the available products and services for the senior market the advertising business seem to be less open-minded and not willing to associate with the so-called “silver market” in fear of risking its youth image. It seems contradictory that although companies increasingly recognize the importance of the older consumer; advertising, which is one of the major vehicles that carry their communications strategy does not seem to adjust itself into the new reality. A research conducted in Netherlands analyzing more than 1000 commercials showed that in only 3% of these advertisements older consumers were shown.

People tend to collectively call the elders as the third age. However, it is evident from the current research that the senior market is not homogeneous and it must not be treated as one. Many marketers have found themselves trapped by treating them as one. According to the center of mature consumer studies at Georgia State University, the senior market should be segmented into four different groups and the main criterion is that of health. The four groups are “healthy indulgers”, “ailing outgoers”, “the healthy hermits” and “frail recluses”.

Several researchers have attempted to segment this senior market according to stages in their lives considering for example the time when they become empty-nesters or grandparents. The senior market has been segmented by these researchers on two decisive factors: children and work. Some research have adopted a conservative approach of defining them through their age as a segmentation criteria such the “young old” (55-64), the “mature old” (65-74) and the “old old” (75+). Different names also have been coined for this age related segmentation such as the “prime lifers” (50-65), the “recently retireds” (65-75) and the 75+ or “the masters” (50-59), “the liberated” (60-74), “the peaceful” (75-84) and “the elderly” (85+).

Segmenting this market purely on the basis of age may be an over simplified approach and other factors, like income level and state of health, should be also taken into account. Even so, the 50-65 segment seems to be the more “privileged” one. Research has shown that they (the 50-65’s) spend the most money, approximately 5 per cent more than the national average. A study by the Henley Center revealed that the 55-64 age group is responsible for about 30% of consumer spending thanks to their higher levels of home ownership and possession of private or occupational pensions. It has also been seen that on average the mortgage and other loans are paid by the age of 49 and the children leave home when the father is 54 and the mother is 52, leaving their parents with the biggest disposable income they have ever had in their lives.

Having all of the above in mind I firmly believe that marketers in UK seriously need to look at the relationship between their present marketing campaign and the senior market. There exists a huge opportunity for the small and medium scale companies to understand, identify and act on this untapped opportunity soon before multinational companies take control of it and it vanishes before their eyes.

esbn ESBN 81595-060305-733086-52

Permission Marketing

We are facing a paradigm shift in global marketing due to the advent or Internet and its reach to the final customer. Youth of today is techno-savvy. White fighting for a brand, market, mind and heart share every company in the global economy faces new expectations and attitudes related to its own product or service. The reality is such that the expectations and attitudes from the customers towards the same product or service are also changing day by day. In such a market targeting and reaching the right customer is becoming tougher everyday. And the appropriateness of the target market can make or break a company. My co-author Prof. Keyoor Purani and I ventured into the issue of permission marketing, which can be used as a tool to understand the expectations and attitudes of the market using which the company can devise a strategy that can serve the goal of survival.

Developed and popularized by Seth Godin(1999), the concept of permission marketing is the opposite of the traditional interruption marketing. Permission marketing is about building an ongoing relationship of increasing depth with customers. In the words of Seth Godin, "turning strangers into friends, and friends into customers." Permission marketing has been hailed as a way for marketers to succeed in a world increasingly cluttered with marketing messages.

Permission marketing (also called invitational marketing) envisions every customer shaping the targeting behavior of marketers (Godin, 1999). Consumers empower a marketer to send them promotional messages in certain interest categories. Typically, this is done by asking the consumer to fill out a survey indicating interests when registering for a service. The marketer then matches advertising messages with the interests of consumers.

We conducted a study with an objective to understand that how the youth reacts to the concept of permission marketing.

The initial findings provide several interesting insights:

  • If the permission marketing email contains information or is related to information there are higher chances that it will be accepted. The next level of acceptance is seen towards the emails, which provides knowledge. The lowest level of acceptance is seen for the emails related to greetings.
  • Ninety-two (92) percent of respondents read the promotional emails, while eight (8) percent of them do not read the emails after subscribing. However, it became very clear that nearly one forth (27%) of the respondents only checked this promotional emails pertaining to their field of interest daily.
  • Sixty-nine (69) percent of the respondent were satisfied with the emails they received from marketers after accepting the permission marketing mailer.
  • With all these positive results there were also several alarming results such as seventy (70) percent of the respondents also unsubscribed the emails within a short period of time.
  • Promotional emails which are perceived as lengthy (more than two screen sizes) deter the respondents from reading the same and does not make any impact.
  • About newer subscription for the promotional emails only thirty-three (33) percent of the respondents said that they will subscribe more promotional emails, while sixty-seven (67) percent said they will not subscribe or stop the existing promotional emails.

Above discussions and findings reveal the expectations and attitude of youth towards the new practice of permission marketing. As seen above, while many customers/prospects invite marketing communications from companies under permission marketing practice, quite a few unsubscribe and withdraw very quickly. Understanding the attitude and the expectations of the youth can help fine tune the practice of permission marketing in order to achieve higher efficiencies and effectiveness. The findings also indicate for what product categories such practice is received favorably or unfavorably helping decide if the company in a particular kind of business can benefit from such practice. The findings also raise several issues related to implementing permission marketing which can be examined by companies keeping their individual model of operations, business type and the product category.

esbn ESBN 22301-060305-140144-92

Customer is Queen

The Customer is the Queen. Two decades after the globalization of emerging economies began, the marketplace has, suddenly, become frighteningly competitive in each of the emerging markets, be it, India, China, Brazil, Russia or any other emerging market. Not only have new players, including a host of powerful multi-nationals, stormed into these countries, there are more brands available than ever before in every segment of every market for the consumers. Moreover, with the first flush of euphoric post-liberalization, growth rates are tumbling. Virtually every home grown business finds itself struggling for survival today.

Befittingly, for the first time in the history, delivering the final verdict will be the customer. A customer who is already finicky about what she wants. A customer who will buy, in future, only that which meets her every desire. Smart companies across the world are no longer talking about product or service quality; that is only the basic foundation on which they must stand and fight. What they are trying to do is to diligently build relationships with - and delight - their customers.

To every company in the market place changing customer expectations are really posing a major challenge. That's because expectations are wondrous creatures: They grow, they shrink, they change shape, and they change direction. They shift constantly, and they shift easily. And how satisfied (or dissatisfied) your customers are is determined by these expectations and your performance in meeting them. And the real challenge in measuring the satisfaction (or dissatisfaction) is that it just can’t be measured by taking into consideration performance and expectation. The whole measurement is a very complex process.

Because how company perceives its performance may differ from how its customers perceive it. In fact, discrepancies between company’s perceptions and customers would not be at all unusual; a company routinely encounters such discrepancies when interviewing its service staff as well as its customers. So, even if the company is working itself to the proverbial bone, if customers view it as unresponsive, then it is unresponsive — in their eyes.

The reverse is also true: If the company is really unresponsive, but customers perceive it to be delivering superior service, then the company will do (in their eyes). This view is not advocating bumble headed service, of course, but merely emphasizing that customer satisfaction is driven by customer perceptions, not companies. The customer perceptions are their reality, and any overlap between their view of the world and company’s own may be simply one of those delightful coincidences.

The companies in emerging markets will have to learn the language of customer perceptions and expectations and that too faster than their western counterparts. Because, on the chessboard of the marketplace, customer is the queen. There is a dire need to invest in understanding and managing customer expectations because that is what matters.

Next month I will discuss the issue of how to ‘manage the expectations of the customers’.

esn 28267-060506-199806-98

© 2006 All Rights Reserved.