This chapter is purely an effort to transfer the acquired knowledge from the previous chapter, based on empirical evidence gathered specifically from the Indian domestic food processing
technology industry, to a broader spectrum. This is the authors‟ attempt to contribute to wider academia.
7.1.2.2 Description of synthetic model
During the course of this study the authors have recognized a need to propose a synthetic model that analyzes and combines a number of factors, which create value capable of enabling an MNC offering a premium product to compete successfully in an emerging market, on factors other than price. The synthetic model depicted in Figure 10 is the result of the authors‟ identification of a need to combine more than one model in order to construct a wholesome perspective on a firm‟s endeavor to create value. The models that greatly inspired the authors in the creation of their synthetic model were The value creation framework by Sharma et al. (2001) and The five major elements of strategy by Hambrick and Fredrickson (2001). Most of the authors‟ framework was derived and adapted from The value creation framework. The value creation framework, however good, is lacking the entire aspect of value commitment, and the pricing strategy is perceived as being misplaced. The five major elements of strategy model is seen as being a complete description of what comprises a successful corporate strategy and its comprehensiveness is seen as a necessity and provides the foundation for a firm‟s ability to perform well in all functions that create and deliver value to customers. Therefore, The five major elements of strategy has been selected over the management decision process found within The value creation model due to its inadequate description in the latter model of all aspects that are found to be needed in the management decision process from this study.
The synthetic model developed by the authors is based on the assumption that a company‟s success is dependent on its ability to plan and perform well within all aspects of value creation, and then manage to transfer the value to the targeted market. The adapted model is an attempt to capture a company‟s corporate strategy, innovation creation, business portfolio, value pricing, value commitment and finally, its value communication to a specific market in one framework. Corporate strategy (see 4.3) was purposely placed on top to serve as the origin for guiding a firm to successfully serving a defined market in stages via differentiators and specified vehicles by utilizing a specified economic logic. The five elements comprising a strategy are clearly depicted to stress the importance of including all features. The core of the synthetic model is composed of the five vital steps in the process of creating, delivering, communicating and committing to value. Each step is listed in the order of occurrence,
however; value communication has been deliberately placed in the tip of the arrow as an indication that all factors have to be leveraged in order to convince customers of the value in the company‟s offering. The first four, innovation creation, business portfolio, value pricing, and value commitment, should be applied or leveraged in a prioritized manner as depicted by their height within the model. For example, the empirical evidence of the study has determined that quality and payback or ROI, as a result of innovation and re-engineering are the most highly valued factors by customers and therefore its height reflects its importance over the others.
Innovation creation was included due to its ability to allow a company to differentiate its products from competitors, thereby enabling it to act with strategies other than sheer price permitting a company to leverage other factors of value. The business portfolio aspect, meaning the ratio of processes versus components a company chooses to prioritize within its portfolio has been emphasized in the model due to the incredible growth that emerging markets have been experiencing, thereby requiring total solutions. Total solutions are further regarded as effective means of competing due to their ability to establish entry barriers and the fact that they are difficult to duplicate. Once a company has differentiated its products by innovation creation and has a properly balanced business portfolio that caters to the demands of customers, a company is then able to utilized an appropriate value-based price method as a indicator of the sum of the values that the product or service provides as opposed to cost-based pricing which is utilized when all else is equal, which inevitably is known to lead to price wars. Value commitment appears next in the synthetic model which is stresses as an important differentiator particularly in industries where customers have difficulties in distinguishing suppliers‟ products apart from competitors. The strategic role of after-sales services as part of a companies‟ larger value commitment also presents a great opportunity for knowledge and information acquisition for new product development. Value commitment should therefore be viewed as a determinant for the success of a company‟s innovation capabilities. Value pricing has been assigned the lowest priority among these four factors as it is a function of the successful creation of the other three values. Basically, there must be values to leverage before a value-based pricing method can be applied. Efficient market communication is dependent on a company‟s ability to present its competencies and capabilities into customer arguments that are relevant and appreciated. In turn, buyers are less sensitive to prices, thereby allowing for a value-based pricing method. Leveraging the four
illustrated capabilities and competencies by properly communicating them to the market is also a means of avoiding price wars since it enables a firm to present customers with value propositions instead. The combination of these factors of value, guided by an all-encompassing corporate strategy has been identified by the authors as allowing an MNC in an emerging market not only to gain profit, but also to capture more market share, without competing on price. This desired state is depicted in the synthetic model by the company delivering relevant and appreciated factors of value (the prominent arrow) supported by a comprehensive corporate strategy subsequently followed by the market‟s response in the form of capitalizing profit and market share (the two arrows back).
Figure 10: The Indian recipe for success: Value delivery and return in an emerging market
Source: Authors‟ own adaptation, 2010
Innovation Creation Business Portfolio Value Pricing Value Commitment
Communicating Value
Arenas
Differentiators
Vehicles Staging
Profit Market share
Corporate Strategy
Market Economic logic
7.1.2.1.1 Strengths of the synthetic model
The synthetic model can be used by companies operating in industrial industries in emerging markets. The strength of this model lies in the fact that the empirical data behind this study has identified factors that industrial buyers actually value when making a purchasing decision and thus enable the firm to differentiate itself from its competitors. The synthetic model is based upon a stable and complete corporate strategy foundation, unlike other relevant models, which increases the likelihood of success. Also, the factors of value contained by the model are weighed according to their importance in order to guide and provide firms with insight when planning the staging portion of their strategy so that there is coherence within the organization concerning company priorities. Finally, the synthetic model emphasizes targeting a specific market to direct a company‟s resources for optimal performance.
7.1.2.1.2. Limitations of the synthetic model
Despite its strengths, the synthetic model does, however, have some limitations, as do all models. To begin with, value commitment is, in fact, created after the point of sale and therefore cannot be communicated directly. However, in order to counter-balance this limitation, it is possible for a company to leverage the fact that it has a differentiating competence within this area, for example by exploiting references. Also, this model does not take into consideration the sum of all the lesser factors of value, which do add up to be significant influences when industrial buyers make purchasing decisions.