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AAA Theory Assignment
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Introduction
Pankaj Ghemawat gave a framework for the global strategy which is known as the AAA theory or strategy i.e. Adaptation, Aggregation, and Arbitrage strategies. These are the generic approaches that enable the companies in creating a global value. The theory of adaptation says that when the company changes its few elements and meets the requirements of the people in the market, then it is able to create a global value for itself (Ghemawat, 2013). Most of the companies use this global strategy for creating value as they earn more profits and acquire greater market share. Adaptation strategies are of five types: focus, variation, design, innovation and externalization strategies. The theory of aggregation says that when the companies exploit the geographical similarities, and they do not adapt to the differences, they create global value for themselves by achieving economies of scale and economies of scope. But in these strategies, the local responsiveness is not compromised (Ghemawat, 2013). Unlike aggregation, the arbitrage theory says that when the companies exploit the differences, they create global value. In this, the companies do not adapt to the differences, but they exploit them. Arbitrage can be cultural, administrative, geographic or economic.
In this report, the strategies related to adaptation, aggregation, and arbitrage will be used to explain how the different companies i.e. Coca-Cola Amatil and Haigh’s Chocolates from Food and Beverage Industry and Technology One and Iress from Computer Software industry use this theory for the pursuit of their business.
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AAA Model
Industry 1: Food and Beverage
Company A: Coca-Cola Amatil
Adaptation: The company sells its products in many countries apart from Australia like Europe, USA, etc. But it tastes different in different countries. The taste of this drink is different in Europe and the USA. The quality and the sugar that is being added are as per the preferences and liking of the people in these countries. This means that the company has produced the product as per the local preferences of the people in these countries. It has used the variation adaptation strategy as it has made changes in the product as per the markers of the countries in which it serves (Metzger, 2014). This made the company acquire the market share many countries and them company is also earning huge amount of money in terms of revenues.
Aggregation: The company has not used this strategy as such, but it has tried to exploit the similarity among regions in the way that all the people in all the regions like to drink some soft drink (Bender, 2014). So, the company has delivered the best that it could to these regions. By selling in large quantities and serving to all the sections of the society in different regions, the company is able to make use of similarities of the customers in terms of their preference for the soft drinks, and thus, they created economies of scale. But, the company has used arbitrage in a much better way than the aggregation strategy.
Arbitrage: The company exploited the differences in the taste of people in different areas. There are places where the water quality is different, and the people like to have a different amount of sugar. So, the company respected these differences, and it made the product as per the differences among the regions. If in some country, the people preferred to intake less sugar, then the company modified the product accordingly (Setyawati, 2016), even if the taste of the product got changed. So, in a way the company made use of the cultural arbitrage. This enabled the company to expand its business to many of the foreign markets.
Company B: Haigh’s Chocolates
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Adaptation: The chocolates were sold in the country for consumption, but they could not be gifted because the packaging and the price were such that the people did not find it worth gifting to their friends or the loved ones. So, Haigh’s introduced the hand-made chocolates for the young people and the couples for both purposes i.e. gifting and consumption. The chocolates had the premium price that met the gifting requirements of the people (Chan, 2012). So, the company adapted to the local gifting requirements of the people and hence its sales increased in the market. Since them the market for these chocolates in Australia is unbeatable and it is sold everywhere that shows that the company has acquired a major share of the market.
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Aggregation: The products of this company are present in many regions like South Australia, New South Wales, and Victoria. The company has standardized its products, and it serves many regional markets. Thus, it has exploited the similarities among the people in different markets rather than adapting to the differences of the market. The company has many varieties in its products and the products i.e. the chocolates are also sold in the attractive packages, but they are similar across the regions (Birchall, 2013). Thus, by producing in bulk, and by selling in various regions, the company is able to achieve economies of scale as well as economies of scope.
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Arbitrage: The company has not used this theory as such because the products that it sells indifferent regions are similar to each other. They tastes, packaging, etc., are all similar and hence the company did not identify the differences in the taste and preferences of the people. It has not exploited the difference (Birchall, 2013). Thus, the company did not use any of the arbitrage strategies in this case. It was able to create the global value only by using the adaptation strategy and the aggregation strategy. It had the opportunity to create economic arbitrage by outsourcing the processes, but the company did not do this. It manufactured all the products at one place but sold them in different areas.
Industry 2: Computer Software
Company A: Technology One
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Adaptation: This company has a diversified range of software services. There are almost 800 customers of this company. The company gives the services to the customers as per their requirements and preferences. By using the services of the company, its customers are able to transform their businesses, and they achieve success. Basically, the company provides enterprise software to its clients and makes the life of its customers easy. Thus, the company has adapted its service delivery as per the needs of its customers. By adapting to the requirements of the clients, the company is able to empower almost 1000 departments of the government, statutory authorities and leading corporations by its software (Davenport, 2013). Thus, the company has acquired market share and has also earned large profits too.
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Aggregation: The company develops the software for the business- to- business model and for the various industries like education, health, government companies, utilities, etc. But, the company cannot exploit the similarities due to differences in the requirements of different companies in different regions. Thus, a company did not use this strategy.
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Arbitrage: The company utilized the economic arbitrage by making the products as per the different requirements of the clients. The company exploited the differences; they created global value. Since the customers of the company are spread in six different locations, so this means that the company has also utilized the geographical arbitrage. Apart from providing the software development solutions (Mayer, 2012), the company also gave other services to the clients like the support and the consulting services. Thus, arbitrage was created by the company as it met the different requirements of the clients and the differences were exploited in the correct manner.
Company B: Iress
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Adaptation: The companies were finding it difficult to manage their wealth, and the financial markets were also not able to work properly because they did not have a proper software system in place to solve their problems of doing business. So, Iress helped the companies as well as the financial markets in fulfilling their demands by providing them the services related to research analytics, developing the software systems, services related to wealth management, etc. (Efrat, 2014). Thus, the company was able to meet the local demand of the people. The people accepted the software systems and the services of the company and thus the company was able to generate huge revenues for itself and acquire the market share.
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Aggregation: Since every company and the customers in the IT industry has different requirements for their business problems, so Iress could not use the similarities across regions. It had to serve the customers and the companies in different ways that suited their requirements. Thus, the company has to make the product as per the needs of its clients. So, aggregation theory is not used by Iress. The company’s business is not such that it can exploit the similarities among various regions. Though, some of its products are standardized to solve the specific problems of the customers but majorly, the products are tailor-made to suit the requirements of the clients in various regions.
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Arbitrage: The companies and the customers in the IT industry have different requirements for their business problems, so Iress exploited the differences across regions. It had to serve the customers and the companies in different ways that suited their requirements. Thus, the company has to make the product as per the needs of its clients. So, arbitrage theory is used by Iress (Mayne, 2013). The company’s business is not such that it can exploit the similarities among various regions. The products are different, and the company uses cultural, economic arbitrage for carrying out its business and for creating a global value for itself.
Conclusion
From the above discussion it can be said that the strategies related to adaptation, aggregation and arbitrage have been used to explain that how the different companies i.e. Coca-Cola Amatil and Haigh’s Chocolates from Food and Beverage Industry and Technology One and Iress from Computer Software industry use this theory for the pursuit of their business. All the companies from different industries have made use of theirs theories for creating global value for themselves and to a great extent, they have been successful in doing that. The company, Haigh's chocolate, has utilized adaptation and aggregation in a very effective manner, but it has not been able to use the theory of arbitrage as such because of the products that it sells indifferent regions are similar to each other. They tastes, packaging, etc., are all similar and hence the company did not identify the differences in the taste and preferences of the people. The Company Coca-Cola Amatil has used all the three theories very nicely, but it has particularly used the adaptation theory and the arbitrage theory in the very effective manner as it has modified the product as per the preferences of people in different regions. The company Technology One has used adaptation and arbitrage but not aggregation because the company cannot exploit the similarities due to differences in the requirements of different companies in different regions. The company Iress has also used adaptation and arbitrage but not aggregation because the company's business is not such that it can exploit the similarities among various regions. Though, some of its products are standardized to solve the specific problems of the customers but majorly, the products are tailor-made to suit the requirements of the clients in various regions.
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Bender, A., 2014. Taking matters into their own hands. CIO, (Summer 2014), p.32.
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Birchall, A., 2013. Niche was working a treat. Management Today, (July 2013), p.30.
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Chan, E.K., Quach, J., Mensah, F.K., Sung, V., Cheung, M. and Wake, M., 2012. Dark chocolate for children's blood pressure: randomised trial.Archives of disease in childhood, 97(7), pp.637-640.
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Davenport, T.H., 2013. Process innovation: reengineering work through information technology. Harvard Business Press.
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Ghemawat, P., 2013. Redefining global strategy: Crossing borders in a world where differences still matter. Harvard Business Press.
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Efrat, Z., 2014. Testing the need for change. Governance Directions, 66(11), p.660.
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Mayer, J.R. and Mitchell, J.C., 2012, May. Third-party web tracking: Policy and technology. In 2012 IEEE Symposium on Security and Privacy (pp. 413-427). IEEE.
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Mayne, S. and Currie, C., 2013. Policy paper open for internal submissions.Equity, 27(5), p.16.
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Metzger, K., 2014. The Import of Culture? The Coca Cola Company in America and Australia.
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Setyawati, D.R. and Santoso, I., 2016. Value Chain Analysis on the Logistics Management as the Basis for Strategy Formulation to Increase Customer Satisfaction (Case Study in PT. Coca-Cola Amatil Indonesia-Plant East Java). AGROINDUSTRIAL JOURNAL, 1(1).
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