Post on 09-Apr-2018
8/7/2019 JOHANSSON - chap (2)
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8/7/2019 JOHANSSON - chap (2)
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Theoretical Foundations
C h
a p
t e r
2
© 2006 The McGraw-Hill Com anies Inc. All ri hts reserveMcGraw-Hill Irwin
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Outline
The Strategic role of Competitive Advantages
Country- vs Firm-specific advantages
The sources of Country-specific advantages
The sources of Firm-specific advantagesResource-based vs Market-based Strategies
Competitive strategies
First-Mover Advantage and Global competition
Takeaways.
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• The fundamental aim of business strategy is to create and
sustain competitive advantage
• When doing competitive analysis in the global context it is
important to identify whether a company’s strength is firm-
specific or country-specific
• If the company’s strength is not firm-specific, the competitive
advantage is usually less sustainable since the companycannot prevent imitation
ountry and Firm Specific Advantages
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COUNTRY (CSA’s) Comparative advantages;Location-specific advantages
FIRM (FSA’s) Differential advantages; ownership-
specific advantages
Level Synonym
ountry and Firm Specific Advantages
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Country Specific Advantages(CSAs)
Comparative and Absolute AdvantagesProvides the fundamental rationale for the existence of
international trade
Free trade between two countries yields economic payoffs tothe countries (in terms of higher welfare)
provided the countries have different COMPARATIVEadvantages
It is not important if one country is better than another inproducing all kinds of products, i.e. has an ABSOLUTE
advantage.It is necessary that trade be free
In the absence of free trade, each country has to be moreself-sufficient, and less specialization is possible
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CSAs: The International ProductCycle
The CSAs change over time:The IPC demonstrates how the manufacturing of new products has shifted
over time to new locations overseas
The IPC Stages
Stage 1 – the innovator produces and markets the product at home
Stage 2 –the firm exports and markets to other developed countriesStage 3 – the firm exports from these countries to third-world markets
Stage 4 – the third-world markets develop their own manufacturingcapability
Stage 5 – third-world market exports back to the original country’smarket
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ExportsImports
Q u
a n
t i t y
Time5 10 151
New
Product
Maturing
Product
Standardized
Product
Stages of production development
Production Consumption
The IPC: Advanced Countries
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Exports
Imports
Q
u a n
t i t y
Time5 10 151
New
Product
Maturing
Product
Standardized
Product
Stages of production development
Production Consumption
The IPC: Developing Countries
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CSAs: Porter’s NationalAdvantages
Four factors determine the competitive advantage of a country
Factor Conditions
The nation’s position in factors of production, such asskilled labor or infrastructure, necessary to compete
Demand ConditionsThe nature of the home demand for the industry’s product
or service
Related and Supporting Industries
The presence or absence in the nation of supplier industries
and related industries that are internationally competitiveFirm Strategy, Structure, and Rivalry
The conditions governing how companies are created,organized, and managed, and the nature of domestic rivalry
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Firm strategy,
structure and rivalry
Related and
supporting industries
Demand
conditions
Factor
conditions
Porter’s National Diamond
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CSAs: Country-of-Origin
Country-of-Origin Effects
The effect refers to the impact on customers of a
product’s “made-in” label or the home country of a
brand. Products or services from countries with a positive
image tend to be favorably evaluated
Products from less positively perceived countries
tend to be downgraded
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Firm-Specific Advantages (FSAs)
Firm-specific advantages refer to those competitive advantages
which are controlled by the individual firm alone.
Firm-specific advantages may be of several kinds
Examples include a patent, trademark, or brand name or the
control of raw materials required for the manufacturing of the
product.
From a marketing perspective
It is important to recognize that the source of a firm-specificadvantage can depend on specific market know-how
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1. BRAND – Coca Cola, Mercedes Benz, Sony
2. TECHNOLOGY – Ericsson, BMW, Canon
3. ADVERTISING – Marlboro, Unilever, Absolut
Vodka
4. DISTRIBUTION – Kodak, Panasonic, Gillette
5. VALUE – Toyota, IKEA, Compaq
FSAs in Marketing
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FSAs and Marketing Strategy
A clear understanding of the FSAs is a key to the
formulation of a successful marketing strategy in a
country
Differing levels of market acceptance of the firm-specificadvantages limits the degree to which a company can be
successful abroad
The level of acceptance also limits the degree to
which the marketing effort can be standardized Not all FSAs can be transferred to foreign markets.
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FSAs and Transferability
Various factors can make the application of marketing
FSAs difficult in other countries
These include limits on TV advertising and in-store
promotion.There are also limits on what distribution channels are
available.
In services, a major difficulty in transferring marketing
skills abroad is that service skills often representintangibles, not skills “embodied” in the product
itself (as technology typically is).
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FSAs and Mode of Entry
There are several ways in which a company can enter a given countrymarket:
Straight exporting
The product is exported to a distributor in the market country
Licensing and Alliances
Ownership advantages are transferred via a contractual agreementto an enterprise in the market country
Foreign Direct Investment (FDI)
The company invests money and people in subsidiary operations.
The basic question of choice of entry mode is how the company can get a
reasonable payoff or return on its firm-specific advantages
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Technology
(e.g. patents)
Service
(e.g. “soft” skills or
people skills)
HIGH
LOW
Types of FSA
Exports,
licensing,
alliances
Send managers
or instructors,
FDI
Transferability Mode of Entry
Transferability and Mode of Entry
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FSAs in the Value Chain
The value chain concept
Suggests that the firm’s activities in transforming raw
materials and other inputs to final goods can be viewed as a
collection of complementary and sequential tasks each adding
value to the productThe value chain is the “internalized” sequence of
operations undertaken by the firm.
Outsourcing means the value added activity is performed
by an independent supplier.
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Panasonic Radio Shack
Components Assembly Marketing, sales, and
distribution
Retailing
Two Competitor’s Value Chains
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FSAs: Internalization
A company that internalizes its FSAs decides to exploit theadvantages under its own control.
In global marketing, this typically means either a whollyowned subsidiary abroad, or exporting of the finished
product.Licensing and alliances involve “externalizing,” that is, an
independent contractor in the foreign country agrees to carryout some of the value added activities.
There is always a risk of “dissipation” of the FSAs inexternalizing, since the foreign firm needs to be shown a
blueprint of how to perform the activities.
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Resource-Based Strategy vs Market-based strategy
A resource-based strategy defines the firm not in terms
of the products or services it markets, or in terms of the needs it
seeks to satisfy, but in terms of what it is capable of. A market-based strategy focuses on competitive
advantages in the marketplace, the resources perspective fosters
a view of the company as a leveraging force for its resources.
Knowledge-Based FSAs
Knowledge is today recognized as one of the key
resources of the firm.
FSAs and Resource-based Strategy
C titi t t E t di
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Competitive strategy: Extendingthe “Five Forces” Model
Porter has identified five sources of competitive pressures on thefirm:
Rivalry
Intensity of rivalry between firms competing directly in acountry market
In global marketing the rivalry is particularly strong withother global competitors.
New Entrants
Threat of new entrants applies to potential entrants in a
foreign market
E t di P t ’ “Fi F ”
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Extending Porter’s “Five Forces”Model
SubstitutesIn new markets where conditions are very different from the
home market and consumer preferences differ the product or
service can face new varieties of substitutesBuyer PowerWhere buyers are strong they have the power to counter a
seller’s attempts to raise prices
Supplier PowerIf suppliers are large or there are few supply alternative the
seller will be forced to pay higher prices for inputs thanotherwise, squeezing profit margins
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Threat of Substitute
Products/Services
Industry
Competitors
Substitutes
Potential
Entrants
BuyersSuppliers
Bargaining
Power of
Suppliers
Threat of New
Entrants
Bargaining
Power of
Buyers
Rivalry
among
Existing
Firms
Porter’s “Five Forces” Model
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FIRST MOVER ADVANTAGES (FMAs)
1. Set standards
2. Tie up suppliers and distributors
3. Create brand loyalty
4. Capitalize on others’ advertising
FIRST MOVER DISADVANTAGES
1. Higher risk
2. More upfront spending on educating buyers,
developing infrastructure, promoting generically
First-Mover Advantages (FMAs)
Ri alr Bet een Global
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Rivalry Between GlobalCompetitors
Competitive Strength
Global competitors tend to possess greater financial resources
than other companies
Primarily because their presence in many countries makes it easier
to raise funds in the most favorable locations
This is usually where the company has high market share
and little competition, using their brands as cash generators
Competitive Repertoire
The competitive repertoire of the global competitor includes
The capability of attacking a competitor in several markets and the
capability of defending a market by countering elsewhere
Rivalry Between Global
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Rivalry Between GlobalCompetitors
Global Rivalry
The increased strength and widened repertoire of the global
competitor
Means that the scope of marketing competition is enlarged
Global competitors can elect in which markets to battle a
competitor
Hypercompetition
The basic notion underlying hypercompetitionSince advantages erode, the firm has to compete by continuously
moving to new ground – even, if necessary, in the process possibly
replacing its own market leader!
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Combine a:
Marketing-oriented perspective
with a:
when developing a global marketing strategy.
Resource-based perspective
Takeaway
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Separate a firm’s:
Country Specific advantages
from its:
when formulating a competitive marketing strategy.
Firm Specific advantages
Takeaway
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A firm must make sure that its competitive advantages are
TRANSFERABLE to the new country market.
Country Specific advantages are usually non-transferable,
and are usually not under the firm’s control.
Takeaway
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Porter’s five-forces model must be extended by:
• evaluating the split between DOMESTIC & FOREIGNcompetitors
• evaluating the effect of trade barriers or regional
treaties
Takeaway
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Global competitors tend to have a wider repertoire &greater financial clout which generates intense rivalry
& hyper-competition.
Takeaway