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Global Enterprise and Competition66.511.202Fall 2007
Ashwin Mehta, Visiting Faculty
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Approach to Global Enterprise
Global Strategy
Business Strategy
International Strategy
Differences arise from Business to International strategy (market variations, cultures differences, etc.)
Global strategy must address these variations and create a strategy to eliminate/minimize differences
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International Strategy,Structure &Integration
Corporate/GlobalStrategy
CorporateStructure &Integration
Business Strategy
BusinessStructure &Integration
Strategy --- Global to Regional/Local
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EnvironmentalAssessment-Macro Trends-Industry Analysis-Completion
-Internal Analysis(Resource, Capabilities, etc.
Mission/Vision
Objectives/Goals
Strategy Options
Strategy Selection-Corporate-Business-International
Implementation-Structure-Leadership-Staffing-Incentives-Evaluation-Control
Strategy Process
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Strategy - Results from
Industry Analysis
Competitor Analysis
Development of resources and capabilities
Situation Analysis
External Analysis
Internal Analysis
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IndustryEnvironment
Competitive ForcesCompetitive Environment
Technological
Political/Legal
Demographic
Economic
Socio Cultural
Global
The External Environment
TheFirm
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KEY QUESTION TO ASK
•What macro environmental conditions will have a material effect on our ability to implement our strategy successfully?
•How stable are these characteristics?
•What is our firm’s industry?
•What are the characteristics of the industry?
•What is our strategic group?
•Who are key competitors?
•And, many more
These questions must be asked at national and Global levels
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UNDERSTANDING THE MACRO ENVIRONMENT
– How stable is the political environment?
– Tax policies
– Etc.
– Projected interest rates?
– Inflation?
– Etc.
– Lifestyle trends?
– Demographic changes?
– Etc.
– Level of government research funding?
– How mature is technology?
– Etc.
•Political
•Economic
•Socio-cultural
•Technological
– Is intellectual property protected?
– Relevant consumer laws?
– Etc.•Legal
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PRESSURES FAVORING INDUSTRY GLOBALIZATION
– Interdependent countries
– Homogeneous customer needs
– Favorable trade policies
– Large scale and scope economies
– Global competitors
– Global customer needs
– Common technological standards
– Learning and experience
– Global channels – Common manufacturing and marketing regulations
– Sourcing efficiencies
•Competition•Markets •Governments•Costs
– Favorable logistics
– Arbitrage opportunities
– High R&D costs
– Transferable marketing approaches
Source: Adapted from M.E. Porter, Competition in Global industries (Boston: Harvard Business School Press, 1986); G. Yip, “Global Strategy in a World of Nations, “ Sloan Management review 31:1 (1989), 29-40
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2. Major Environmental Trends Describe major (between 5 and 10) environmental trends affecting Your Company and its industry. These trends can be related to economic (such as GDP, interest rates, unemployment, taxes, etc.), governmental (e.g. regulation, trade laws, etc.), technological (e.g. new technologies, R&D spending, etc.), socio-cultural (e.g. demographics, Trend Assessment* 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. *: Scale: 1=very negative impact; 5=very positive impact
Group Project - Template
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Industry Analysis
Porter’s Model:Porter’s Model:
Assess the six forces --• Threat of new entrants• Rivalry among existing firms• Threat of substitute products • Bargaining power of buyers• Bargaining power of suppliers• Relative power of other stakeholders
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ANALYSIS OF COMPETITIVE FORCES
To identify
Main SOURCES of competitive forces and
STRENGTH of these pressures
ObjectiveCOMPETITIVE FORCES MATTER BECAUSE:
To be successful, strategy must be designed
to cope effectively with competitive pressures -
objective must be to build a strong, market
position based on competitive advantage!
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COMPETITIVE FORCE OF POTENTIAL ENTRY
New entrants boost competitive pressures
By bringing new production capacity into play
Through actions to build market share
Seriousness of threat of entry depends on
BARRIERS to entry
Expected REACTION of existing firms to entry
Barriers to entry exist WHEN
It is difficult for newcomers to enter market
A new entrant’s small sales volume puts it a price/cost
disadvantage
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Threat of New Entrants --Threat of New Entrants --
Barriers to entry:• Economies of Scale (Intel in microprocessors)• Product Differentiation (hi advertising in consumer
goods)• Capital Requirements (airplane mfg)• Switching Costs (Windows to Linux)• Access to Distribution Channels (store shelf space)• Cost Disadvantages Independent of Size (V high mkt
share)• Government Policy (oil drilling)
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Competitive threat of outsiders entering
a market is stronger when
Entry barriers are low
Incumbent firms do not vigorously fight newcomer
Newcomer can expect to earn attractive profits
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KEY SUCCESS FACTORS AS BARRIERS TO ENTRY
•Key asset or requisite skill that all firms in an industry must possess in order to be a viable competitor
•Key success factor (KSF)
Ability to meet competitive pricing
Extensive distribution
Ability to raise consumer awareness
Broad product mix
Global presence
Well positioned bottlers and bottling capacity
•KSFs:
•SOFT DRINK EXAMPLE
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Bargaining Power of Suppliers --Bargaining Power of Suppliers --
Supplier is powerful when:• Supplier industry is dominated by a few companies but
sells to many• Its product is unique and/or has high switching costs• Substitutes are not readily available• Suppliers are able to integrate forward and compete
directly with present customers• Purchasing industry buys only a small portion of the
supplier’s goods.
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Bargaining Power of Buyers --Bargaining Power of Buyers --
Buyer is powerful when:• Buyer purchases large proportion of seller’s products• Buyer has the potential to integrate backward• Alternative suppliers are plentiful• Changing suppliers costs very little• Purchased product represents a high percentage of a buyer’s costs• Buyer earns low profits• Purchased product is unimportant to the final quality or price of a
buyer’s products
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Threat of Substitute Products/ServicesThreat of Substitute Products/Services
Substitute Products:Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry.
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THREAT OF SUBSTITUTES Soft drinks
Coke Pepsi
Movie rentals
Block buster
Hollywood video
Bo
ttle
d w
ater
Cab
le T
V
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PRINCIPLE OF COMPETITIVE MARKETS
Competitive threat of substitute
products is strong when
Prices of substitutes are viewed attractive by buyers
Buyers’ costs of switching to substitutes are low
Buyers view substitutes as having equal or better performance features
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IMPACT OF COMPLEMENTORAny factor that makes it more attractive for suppliers to supply an industry on favorable terms or that makes it more attractive for buyers to purchase products or services from an industry at prices higher than it would pay absent the complementor
Complementor:
Hot dogs
+
Buns
More sales
Three Examples
Music
+
MP3 player
More attractive offering
Microsoft
+
Intel
Market dominance/standard
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Rivalry Among Existing Firms --Rivalry Among Existing Firms --
Intense rivalry related to:• Number of competitors• Rate of Industry Growth• Product or Service Characteristics• Amount of Fixed Costs• Capacity• Height of Exit Barriers• Diversity of Rivals
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Usually the MOST POWERFUL of the competitive forces
Weapons of COMPETITIVE RIVALRY
Price
Quality
Performance features offered
Customer service
Warranties and guarantees
Advertising & special promotions
Dealer networks
Product innovation
Rivalry Among Existing Firms --Rivalry Among Existing Firms --
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Relative Power of other Stakeholders
GovernmentCommunitiesCreditorsTrade AssociationsUnionsComplementors
(Intel and Microsoft)
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Competitive environment is unattractive when:
Rivalry is very strong
Entry barriers are low
Competition from substitutes is strong
Suppliers & customers have considerable bargaining power
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Competitive environment is ideal when:
Rivalry is only moderate
Entry barriers are relatively high
There are no good substitutes
Suppliers & customers are in a weak bargaining position
The weaker the competitive forces, the GREATER
an industry’s PROFITS!
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COPING WITH THE COMPETITIVE FORCES
Objective is to craft a strategy that will
Insulate company from competitive forces
Influence industry’s competitive rules in company’s favor
Provide a strong position from which “to play the game”
of competition
Help create sustainable competitive advantage
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INDUSTRY LIFE CYCLE
Source: Adapted from K. Rangan and G. Bowman, “Beating the Commodity Magnet,” Industrial Marketing Management 21 (1992), 215-224; P. Kotler, “Managing Products through their Product Life Cycle,” in Marketing Management: Planning, Implementation, and Control, 7th ed (Upper Saddle River, NJ: Prentice Hall, 1991)
Mar
ket
Siz
e
Time
Embryonic
Technological uncertainty
Niche market – selected products for selected markets
Participants emphasize problem solving – product as “solution”
Growing
Customers become better informed
Market expands beyond niche
More competitors enter
Mature
Aggressive customers
Proliferation of products and markets served
Market volatility and beginnings of industry consolidation
In Decline
Product/market contraction
Further consolidation and industry regeneration
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Strategic Groups
Attribute A (e.g. price)
Attribute B(Quality, Perf, etc.)
Strategic group 1
Competitor ACompetitor BCompetitor C .....
Strategic group 2
Competitor XCompetitor YCompetitor Z .....
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Group Project - Template
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6. Industry Evolution
6.1 Industry life cycle stage: (check one) Emerging ___
Growth ___ Consolidation ___ Mature ___ Declining ___
6.2 Industry Globalization Stage (Check one) Domestic _____ Multi-Domestic _____ Global _____
Group Project - Template
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7. Industry Profitability* 0 – 5% ___ 5.1-10% ___ 10.1-15% ___ 15.1-20% ___ Over 20% ___ (*: take top 5 to 10 companies to calculate average profitability) 8. Industry driving forces:
List key 5 to 7 forces that impact the company’s industry most (example: foreign competition, change in technology, consolidation, shifting user demands, etc.). Briefly describe each force and its impact on the company
Industry Driving Force
Description Assessment*
1. 2. 3. 4. 5. 6. 7. *: use a scale of 1 (=highly negative impact) to 10 (=very positive impact)
Group Project - Template
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9. Industry Attractiveness Matrix Factor Weight
(W) Rating (R)
WxR
Industry Size Industry Growth Industry profitability Competitiveness Entry barriers Regulations
Total 100
Group Project - Template
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10. Industry Critical Success factors List and briefly describe 5 to 8 industry success factors, such as distribution channels, price, supply chain management, information technology, etc.
Critical Success Factors
Description
Group Project - Template
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11. Company’s competitive position: Critical success factors Weight Rating WxR
Total 100
Group Project - Template
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Group Project - Template
12. Market Share
Competitors Home Country Market Share%
Comments
Your Company Competitor 1 Competitor 2 Competitor 3 Competitor 4 Competitor 5 Competitor 6
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13. Competitive Analysis
CSF Your Company
Competitor1 Competitor2 Competitor3
1.
2.
3.
4.
5.
6.
Provide weighting of each CSF for your company’s competitors.
Group Project - Template
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Group Project - Template
14. Additional Competitive Data and Analysis You can add any other information that you may have collected, such as competitors’ strategies, differentiators, anticipated strategic moves in future, etc.
Competitor Additional Comments
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COMPARATIVE INDUSTRY REFORMANCE
How dosuch differences in profitability materialize?
ROAROS
Grocery Store
Global Auto•Semiconductor
Session 3
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TWO THEORIES FOR HOW AND WHY SOME FIRMS PERFORM BETTER THAN OTHERS
•A firm’s resources and capabilities determine performance
•Success issues from fundamental differences in what firms own and what they can do
•A firm’s activities determine performance
•Success is driven by a firm’svalue chain activities:How it configures these activities to add more valuethan competitors
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RESOURCES AND CAPABILITIES:BUILDING BLOCKS OF STRATEGY
•The inputs that firms use to create goods and services
• Undifferentiated or firms-specific
• Tangible or intangible
• Easy to acquire or difficult
A firm’s skill in using its resources to create goods and services. The combination of procedures and expertise that the firm relies
on to engage in distinct activities in the process of producing goods and services
Capabilities
(competencie
s)
Resources
Strategy
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TYPES OF CORE COMPETENCIES
Superior skills in producing high quality product
Superior system for delivering customer orders accurately & swiftly
Better after-sale service capability
More skill in achieving low operating costs
Unique formula for selecting good retail locations
Unusual innovativeness in developing new products
Better merchandising & product display skills
Superior mastery of an important technology
Unusually effective sales force
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What made Wal-Mart a BIG Success?*
Why is Wal-Mart able to justify bigger stores?
Why Wal-Mart alone have cost structure low?
Capabilities-based competitorCross dockingInvestments in interlocking support systemsTransportation systemManagerial controlsHuman resources system
*: Competing on Capabilities, Stalk, Evans; Shulman
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Value Chain – another strategy development factor
Linked set of value-creating activities
THE VALUE CHAIN CONCEPT
A VALUE CHAIN identifies:
Activities, functions, & business processes that have to be performed in -
Designing, producing, marketing, delivering, & supporting a product or service
Industry Value Chain and Firm Value Chain
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Industry Value Chain
UpstreamValue Chain
Company’sValue Chain
DownstreamValue Chain
Buyer/UserValue Chain
Activities, Costs, Margins
Suppliers
Internally Performed Functions
Distributors, retailetc.
ForwardChannels
Company
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Value Chain System
Cost competitiveness depends on
Costs of internally performed activities
Costs of value chains of suppliers and forward channel allies
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The Value Chain System
SUPPLIERS value chain matter- suppliers incur costs in creating and delivering inputs used in Firms’ value chain
- cost and quality of inputs influence Firm’s cost &/or differentiation capabilities
FORWARD CHANNEL value chain matter- costs and margins of downstream firms are part of price paid by ultimate end user
- activities Channel allies perform affect satisfaction of end user
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Firm Value Chain
Inbound shipment of top titles
Warehousing
Server operations
Billing
Collections
Picking and shipment of top titles from warehouse
Shipment of other titles from third- party distributors
Pricing
Promotions
Advertising
Product information and reviews
Affiliations with other websites
Returned items
Customer feedback
CDsShipping
ComputersTelecom lines
Shipping services
Media
Inventory system
Site software
Pick & pack procedures
Site look & feelCustomer research
Return procedures
Financing, legal support, accounting
Recruiting, training, incentive system, employee feedback
Procurement
TechnologyDevelopment
HumanResources
FirmInfrastructure
SupportActivities
InboundLogistics
Operations OutboundLogistics
Marketing& Sales
After-Sales Service
Primary Activities
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USING VALUE CHAINS TO GAIN COMPETITIVE ADVANTAGE
Identical DifferentiatedFind a different way to perform activities
Find a better way to perform the same activities
Longer-lasting advantage
Shorter-term advantage (competitors catch up)
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TRADE OFF PROTECTION YOUR RIVALS CHOOSE NOT TO COPY YOU
Selected difference between Southwest and large Airlines
Southwest made choices so that competitors did not copy - because copying would require them to abandon activities essential to their strategies
Technologyand design
Operations
Marketing
Southwest
• Single aircraft
• Short segment flights
• Smaller markets and secondaryairports in major markets
• No baggage transfers to others airlines
• No meals
• Single class of service
• No seat assignments
• Limited use of travel agents • Word of mouth
Major Airlines
• Multiple types of aircrafts
• Hub and spoke system
• Meals
• Seat assignments
• Multiple classes of service
• Baggage transfer to other airlines
• Extensive use of travel agents
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INNOVATION AND INTEGRATION OF THE VALUE CHAIN
Transferred assembly and delivery to the consumer
Choose an entirely direct distribution model (rather than through retailers) and outsourced component manufacturing
IKEA
Dell
Source
Assemble
Deliver
Area of innovation
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STRATEGIC LEADERSHIP
“Companies that overlook the role of leadership in the early phases of strategic planning often find themselves scrambling when it’s time to execute. No matter how thorough the plan, with-out the right leaders it is unlikely to succeed”
– McKinsey & Company
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SENIOR VS. MIDDLE MANAGERS
Senior
Middle
Decide how to use other resources and capabilities, configure their firm’s value-chain activities, and set the context which determines how front-line and middle managers can add value
Are better positioned than senior managers to contribute to competitive advantage and firm success in four areas• Entrepreneurship• Communications• Psychoanalyst• Tightrope walker
Source: Quy Nguyen Huy
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SWOT Analysis OpportunitiesThreats
StrengthsWeaknesses
Situation AnalysisExternal factors
Internal factors
Widely used tool
Detailed analysis of the environment
Manageable list
Prioritized list
Inclusive of ALL factors
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Situational Analysis:
Process of finding a strategic fit between external opportunities and internal strengths while working around external threats and internal weaknesses.
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External Analysis
Environmental (Macro) TrendsEconomicTechnologicalPoliticalSocio-Cultural
Industry TrendsIndustry EvolutionCompetitive Forces
Opportunities---
Threats---
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Internal Analysis
Resources
Value Chain
FinancialPhysicalHumanManagementOrganizationCultureTangiblesIntangibles
In-house activitiesSuppliersPartnersDistributorsCustomers
Strengths---
Weaknesses---
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Business Acumen*
linking insightful assessment of external environment with keen awareness of how money can be made … most important management skill
Changes: complex; linear/continuous or exponential/abruptInformation Technology industry…mainframe/mini to PC and
Internet
Qualitative Vs Quantitative assessment
Questions:What is happening in the World today?What does it mean to others?What does it mean to us?What would have to happen first (for the results we want to occur)?What do we have to do to play a role?What do we do next?
*: Sharpening Your Business Acumen, Ram Charan
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Competitive Forces --- Exercises and Questions
1: Discuss Porter’s Competitive Forces in the Budget Airline Industry (Budget Airline industry consists of players such as SouthWest, JetBlue, etc.)
2: Discuss Porter’s Competitive Forces in the PC Industry
3: Discuss different Strategic Groups in the PC industry and name a few players in each group
4: What competitive conditions will create an ideal industry scenario?
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Push for Cosmopolitanism: The Gillette Case*
*: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business
World class company – cosmopolitan mindset that demands global culture of management
Cosmopolitans Globalization
Gillette
Markets in 200 countries and Territories58 facilities in 28 countries75% of employees outside the US70% of revenues from outside the USClassic International/Global company
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Push for Cosmopolitanism: The Gillette Case*
Pre 1980’s – “Stone Age” Theory of marketingslow spread from home to hinterlands
Sophisticated and more informed consumers required a global approach
Retail trade getting more advanced --- retails chains (e.g. Wal-Mart) and Internet
Evolved from International to global
Global strategy --- 50 states to 500 states
ImperativesInnovationOrganizationsStandardizationWorld SourcingLeadershipCoordination
*: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business
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