Some mid-market segments are becoming crowded, forcing developed-market companies to target the lower-end segment in addition to the higher end that they are used to serving.
The international expansion of Asian companies in some market segments has had a dramatic impact on competition.
In telecom, for example, the Chinese handset manufacturer Huawei has hollowed out the middle of the market, causing competitors like Ericsson to reconsider the segments in which they play.
Other companies targeting the mid-market, such as the Chinese medical devices manufacturer Mindray International, are successfully combining low cost and innovation to provide a compelling proposition to both domestic and international customers.
Increasingly, as the mid-market tier gets crowded, developed-market companies are targeting the lower end of the market, in addition to the higher end that they are used to serving and to which their operations are better suited.
Access the right cost structures and operating models (e.g., an alliance or partnership)
Consider segmenting your supply chain differently for high- and low-end products
Getting around this challenge requires developed-market companies to access the right cost structures and operating models. Companies can do this through an alliance, partnership or acquisition, or by careful localization of products and services.
Another effective way to address this challenge is to consider segmenting the supply chain. Higher-value products could have more sophisticated supply chains that allow more customization and responsiveness, whereas lower-value products may get by with more standardization and less responsiveness.
“The driving force behind segmentation is to deliver products more efficiently and effectively as well as optimizing your cost structure,” says Kevin Price, a partner in the Business Risk Services practice of Ernst & Young in the US.
“Companies are starting to recognize that a one-size-fits-all model is no longer appropriate, and that they need to tailor their supply chains to meet the different needs of highly diverse customer groups.”
Siemens Building Technologies, a division of the German industrial group Siemens, is one example of a company that has managed to move into a lower price segment in China. The challenge was to find the correct balance for product development, service, sales, branding, pricing and, most important, cost structure.
Cutting the cost base entailed decisions on localization to realize the necessary cost reductions. The company later found that it could successfully replicate its growth strategy in China in other fast-growing economies, such as Vietnam, Indonesia and Brazil.1
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