Tonight I will be participating in a live broadcast hosted by Mr. Pan, sharing insights on going global and international expansion. While preparing the content, I also took a closer look at the "AAA" international strategy model.
The concept of "AAA" was first mentioned by Professor Gong during an internal sharing session. At that time, I wanted to learn more about it, but I never found the time to delve into it. This time, while preparing the content, I had the opportunity to systematically study it.
The "AAA" model was proposed by Professor Pankaj Ghemawat. Born in 1959, Ghemawat is an Indian-American economist and a professor at New York's Stern School of Business. His main research focus is globalization strategy. Ghemawat's views are in stark contrast to those of Thomas Friedman, author of "The World Is Flat." He uses the term "Globaloney" to describe the misconception that globalization is as widespread as people believe.
"AAA" is one of Ghemawat's most well-known theories. The three A's stand for Adaptation, Aggregation, and Arbitrage. Most European and American companies, and later Japanese and Korean enterprises, use the AAA strategy when expanding internationally (how to go global), which is a primary method of creating global value.
Adaptation - Adjusting the company’s business model to fit local conditions to increase revenue and market share.
Aggregation - Creating regional or global efficiencies to achieve scale and expand boundaries.
Arbitrage - Leveraging differences between national or regional markets by strategically placing supply chains in different locations to capture price differentials.
Examples respectively:
Adaptation - Coca-Cola tastes different in the U.S. compared to Europe due to variations in water quality and the amount/type of sugar added.
Aggregation - Whirlpool achieved global leadership in home appliances through a series of strategic operations: First, it acquired companies globally, established local operations in key countries, and formed joint ventures to apply its systems, platforms, and processes locally. Second, it implemented unified technology management and product development, reducing costs and increasing efficiency with many common components and technical platforms, while adding special and innovative features tailored to local users. Third, it built the Whirlpool global brand.
Arbitrage - Walmart saves billions of dollars annually by sourcing products from China.
Currently, most Chinese companies venturing overseas still treat foreign markets primarily as sales channels, and have not yet entered a deeper stage of globalization. This process resembles Japan's early efforts to go global. For example, in the 1970s, the consumer electronics industry in the U.S. once lagged behind Japan, allowing Sony, Panasonic, Hitachi, Mitsubishi, and other Japanese electronics giants to become world-class exporters. They reinvested profits into production while blocking American products from entering the Japanese market, sold their products at the lowest possible prices overseas, and subsidized them with domestic premium pricing. They also utilized the U.S.'s humanized sales system while keeping their own sales system opaque to the U.S. At that time, Japanese companies succeeded based on a simple fact - providing high-quality, affordable goods. Similarly, today's Chinese companies going global leverage China's supply chain advantages, engineering talent, and market dividends to accumulate product capabilities and export cost-effective, user-centric products to the world.