Global Strategic Analyses:Frameworks and Approaches

How do firms identify their core competencies and competitive

advantages?

“With whom and how does our company compete?”

In an older era, a company’s competition was relatively easy to define: firms with similar performance and capabilities at a national level.

Now, with technological innovations in the way of transportation and communications, competitive environments have expanded greatly.

Our challenge will be developing processes to identify global competitors and to be prudent in keeping up with the times

Keep you thumb on the pulse of your industry

Seven Theoretical Perspectives

• Resource Based View• Core Competence• Competitive Advantage of Nations• Strategic Groups (I-O Economics)• Cognitive Communities• Network Approaches• Competing for the Future

Resource Based View

Resources as building blocks

“Dominant Logic”Gr

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Str

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• RBV (resource based view) comes from Michael Porter’s five forces model– The firm is a collection of capabilities– Based on the idea of economic rent– Economic rent, or Economic Value Added (EVA), is

what companies earn over and above the company’s cost of capital• In other words, it’s the company’s competitive

advantage

What makes a core competency?

• Provides access to a wide variety of markets.• Contributes to perceived customer benefits of

the end product.• Difficult for competitors to imitate.

Real Life Examples of Core Competencies

• Walmart• Southwest Airlines• Google• Others?

Determinants of National Advantage

• 1. Factor Conditions• 2. Demand Conditions• 3. Related and Supporting Industries• 4. Firm Strategy, Structure, and Rivalry

Factor Conditions

• What is a nation’s quantity and quality of production factors?

• -Human resources• -Physical resources• -Advanced factors (knowledge, capital,

infrastructure)

Demand Conditions

• -Demand for products greater than in other countries.

• -Domestic firms can benefit from the presence of demanding customers.

• -Needs of domestic buyers anticipate the needs of foreign buyers.

Related and Supporting Industries

• Presence of supporting industries allows organizations to coordinate a strategy.

• What are some examples?

Firm Strategy, Structure, and Rivalry

• National performance correlates with strategies and structure of firms in a particular segment.

• Domestic competition is usually more intense and has more effect than foreign competition.

Domestic Competition

Can it lead to competitive advantage??

•Rivals push for innovation•Improve quality and characteristics of their products•Firms expand into foreign market•Lobby their govt. to take actions that benefit the industry as a whole

- Open foreign markets- Subsidies, tax breaks, direct investment

Competition and Strategic Groups •Similar firms, same industry – similar competitive strategies•Similar performance levels->>Structure of industry -> strategic behavior of firms -> performanceExample: Automotive industry study by Norhia and Garcia-Pont

- 11 strategic groups based on 6 factors : size, market share, product line, technological sophistication, organizational capability and labor costs

- Major US (Ford , GM), Sec. (Chrysler), Major Japanese (Toyota , Nissan) Secondary US( Honda, Mitsubishi)

- Small (Hyundai, Daewoo ); Sports (Ferrari , Lambor-ghini) etc

Competition and Strategic Groups •Findings

- US and Japanese medium and large groups compete in some but not all markets

- Sports cars -> carved a niche and do not face competition from outside their strategic group.

Strategic Groups are useful for determining relative performance and appropriateness of a firm’s strategy!!

Competition and Strategic Groups Another approach to indentify groups• Psychology and focuses on cognitive processes of

managers - Their thought regarding firms capabilities

• Managers develop a mental map of firms position through – trial and error, observation and interaction with others in industry

- This common set of belief about the nature of industry results in ‘Cognitive community’

Example – Scottish knitwear industry• Border towns of Galashiels and Hawick produce

high quality by combining yarns of different colors on knitting machine

• Opposite to the cut-and-sew technique used elsewhere, though cheaper, lacks in quality

Competition and Strategic Groups •Scottish knitwear industry competitors groups based on - financial and economic assets, public or private, output volume- Also based on network of relationships with other firms and managers social networks

Each of these perspectives provide a different view of the strategic dynamics within the Scottish knitwear industry

Strategic Groups & Cognitive approach • Strategic group approach – begins at industry level and work downwards and groups together the firms that appears similar using a set of criteria•Cognitive approach – begins at firm level and moves upwards using managers mental models to identify firms whose managers have similar thoughts regarding industry structure and rivalries

Challenge-• Managers are not likely to discuss openly with competitors regarding market competitive dynamics •Lack statistical modeling skills Solution - Board meetings, conferences, trade association meetings

Interorganizational Networks in Cooperation and Competition

•Difficult for a single firm to succeed alone•Global Firms are creating alliance and joint ventures•Often created with current and potential competition•Gaining of Knowledge•Compete more effectively

Network Approaches to Studying

• The idea of asking who competes with whom and how, recently new idea• Managers can build a more accurate picture of the competition• At the same time can build upon the idea of how companies within a industry

can collaborate• Network strategy is used in the forming of alliances, join ventures, equity

sharing, collaborative research pacts• Allow the forming of new skills, leverage, or to compensate for weaknesses

Strategic networks can include•Suppliers, Competitors, and Customers•Gaining of new markets, new technology, or benefitsfrom economies of scale•Sharing of Risk•While keeping certain resources separate and secret

Examples of Cooperation

Industries includeAuto, Movie, Textile, Biotechnology, Mining, Energy

Firms frequently share parts, product designs, and production facilities•Mitsubishi Eclipse and Plymouth Laser •Dodge Viper and Mitsubishi 30000GT

Chryser and Mitsubishi; Ford and Mazda; GM, Isuzu, and Suzuki

Cooperation in Pharmaceuticals

Biotech start-ups and Major Pharmaceuticals•Gain access to capital, production, distribution•Gain access to new technologies and innovation

Different Competencies

Merck and Johnson & Johnson Alliance

R&D and OTC Marketing•Pepcid to OTC

Possible Limitations to Networks

•Constraints if Environment suddenly Changes•Alliance can lead to not being able to adapt•Significant Cost•One partner may take advantage of the other

However•The correct alliance should outweigh these costs•Partners can provide clues about the competition and their intent

Competing in the Future

Firms Successful in the Future

•Compete for the opportunity to define the structure•In Nascent Markets (New Markets) must competefor opportunity share and not simply market share•A single firm is unlikely to succeed alone•Coalitions and Joint Ventures must be created

10 to 15 Years

•Time develop Leadership in new industry

Competition in New Markets

Develops in three stages

First Stage•Identify the opportunities available

Second Stage•Firms compete to shape the direction of industry development•Accumlatoin of necessary competencies•Testing of product and services•Attracting partners

Final Stage•Firms will compete for market position and market share•Questions of technology platforms, products, and distributionchannels have been resolved

Weaknesses to Developing new Markets

•Can shift attention away from existing markets•Time Lag• Risk of focusing large amounts of time10 to 15 years to dominate new market•Can miss what opportunities exist in currentdeveloped market

Dominating a new market can have an enormous payoff, but there are risk

“Each perspective contains elements of the other, and all must be considered in order to respond effectively to the demands of the globally competitive environment”