Global Enterprise and Competition
66.511.202
Fall 2007
Ashwin Mehta, Visiting Faculty
1
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
2
Strategy --- Global to Regional/Local
Corporate/
Global
Strategy
Corporate
Structure &
Integration
Business Strategy
Business
Structure &
Integration
International Strategy,
Structure &
Integration
3
Strategy Process
Mission/Vision
Environmental
Assessment
-Macro Trends
-Industry Analysis
-Completion
-Internal Analysis
(Resource,
Capabilities, etc.
Objectives/Goals
Strategy Options
Strategy Selection
-Corporate
-Business
-International
Implementation
-Structure
-Leadership
-Staffing
-Incentives
-Evaluation
-Control
4
Strategy - Results from
Industry Analysis
Competitor Analysis
Development of resources and capabilities
External Analysis
Situation Analysis
Internal Analysis
5
The External Environment
Economic
Demographic
Industry
Environment
Socio Cultural
The
Firm
Political/Legal
Competitive Forces
Competitive
Environment
Global
Technological
6
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
7
UNDERSTANDING THE MACRO ENVIRONMENT
– How stable is the political environment?
•Political
– Tax policies
– Etc.
– Projected interest rates?
•Economic
– Inflation?
– Etc.
– Lifestyle trends?
•Socio-cultural
– Demographic changes?
– Etc.
– Level of government research funding?
•Technological
– How mature is technology?
– Etc.
– Is intellectual property protected?
•Legal
– Relevant consumer laws?
– Etc.
8
PRESSURES FAVORING INDUSTRY GLOBALIZATION
•Markets
•Costs
•Governments
•Competition
– Homogeneous
customer needs
– Large scale and
scope economies
– Favorable trade
policies
– Interdependent
countries
– Global customer
needs
– Learning and
experience
– Common
technological
standards
– Global
competitors
– Global channels
– Sourcing
efficiencies
– Common
manufacturing
and marketing
regulations
– Transferable
marketing
approaches
– Favorable
logistics
– Arbitrage
opportunities
– High R&D costs
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
9
Group Project - Template
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
10
Industry Analysis
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
11
ANALYSIS OF COMPETITIVE FORCES
To identify
Main SOURCES of competitive forces and
STRENGTH of these pressures
Objective
COMPETITIVE 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!
12
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
13
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)
14
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
15
KEY SUCCESS FACTORS AS BARRIERS TO ENTRY
•SOFT DRINK EXAMPLE
•Key success factor (KSF) •KSFs:
•Key asset or requisite
skill that all firms in an
industry must possess
in order to be a viable
competitor
 Ability to meet competitive pricing
 Extensive distribution
 Ability to raise consumer
awareness
 Broad product mix
 Global presence
 Well positioned bottlers and
bottling capacity
16
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.
17
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
18
Threat 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.
19
THREAT OF SUBSTITUTES
Soft drinks
Movie rentals
Block buster
Coke
Pepsi
Cable TV
Bottled water
Hollywood video
20
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
21
IMPACT
OF
COMPLEMENTOR
Complementor:
Three
Any 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
Examples
Hot dogs
+
More sales
Buns
Music
+
More attractive offering
MP3 player
Microsoft
+
Market dominance/standard
Intel
22
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
23
Rivalry Among Existing Firms -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
24
Relative Power of other Stakeholders
Government
Communities
Creditors
Trade Associations
Unions
Complementors
(Intel and Microsoft)
25
Competitive environment is unattractive when:
Rivalry is very strong
Entry barriers are low
Competition from substitutes is strong
Suppliers & customers have considerable bargaining power
26
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!
27
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
28
Market Size
INDUSTRY LIFE CYCLE
Time
Source:
Embryonic
Growing
Mature
In Decline
Niche market –
selected products for
selected markets
Market expands
beyond niche
Proliferation of
products and markets
served
Product/market
contraction
Participants
emphasize problem
solving – product as
“solution”
More competitors
enter
Market volatility and
beginnings of industry
consolidation
Further consolidation
and industry
regeneration
Technological
uncertainty
Customers become
better informed
Aggressive customers
Adapted from K. Rangan and G. Bowman, “Beating the Commodity Magnet,” Industrial Marketing Management 21 (1992), 215-224; P. Kotler,
29
“Managing Products through their Product Life Cycle,” in Marketing Management: Planning, Implementation, and Control, 7th ed (Upper Saddle
River, NJ: Prentice Hall, 1991)
Strategic Groups
Strategic group 1
Competitor A
Competitor B
Competitor C
.....
Attribute B
(Quality, Perf, etc.)
Strategic group 2
Competitor X
Competitor Y
Competitor Z
.....
Attribute A (e.g. price)
30
Group Project - Template
3. Industry: ___________________________ (name company’s industry)
4. Industry size: ______________ (in $M)
Domestic
_____________ (Your Company Home Country)
International _____________
5. Industry growth rate:
_____% (last few years)
_____% (next few years)
31
Group Project - Template
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
_____
_____
_____
32
Group Project - Template
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)
33
Group Project - Template
9. Industry Attractiveness Matrix
Factor
Weight
(W)
Rating
(R)
WxR
Industry Size
Industry Growth
Industry profitability
Competitiveness
Entry barriers
Regulations
Total
100
34
Group Project - Template
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
35
Group Project - Template
11. Company’s competitive position:
Critical success factors
Weight
Total
Rating
WxR
100
36
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
37
Group Project - Template
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.
38
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
39
COMPARATIVE INDUSTRY REFORMANCE
ROA
ROS
Global Auto
•Semiconductor
Grocery Store
How do
such differences in
profitability
materialize?
40
Session 3
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’s
value chain activities:
How it configures these
activities to add more value
than competitors
41
RESOURCES AND CAPABILITIES:
BUILDING BLOCKS OF STRATEGY
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
42
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
45
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 competitor
Cross docking
Investments in interlocking support systems
Transportation system
Managerial controls
Human resources system
*: Competing on Capabilities, Stalk, Evans; Shulman
46
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
48
Industry Value Chain
Upstream
Value Chain
Suppliers
Company’s
Value Chain
Downstream
Value Chain
Company
Forward
Channels
Buyer/User
Value Chain
Distributors, retail
Internally
Performed Functions etc.
Activities, Costs, Margins
49
Value Chain System
Cost competitiveness depends on
Costs of internally performed activities
Costs of value chains of suppliers and forward
channel allies
50
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
51
Firm Value Chain
Firm
Infrastructure
Support
Activities
Financing, legal support,
accounting
Human
Resources
Recruiting, training, incentive system, employee
feedback
Technology
Development
Inventory
system
Site
software
Procurement
CDs
Shipping
Computers
Telecom lines
Inbound
shipment
of top titles
Server
operations
Warehousing
Billing
Collections
Inbound
Logistics
Operations
Pick & pack
procedures
Shipping
services
Picking and
shipment of top
titles from
warehouse
Shipment of
other titles from
third- party
distributors
Site look & feel
Return
Customer researchprocedures
Media
Pricing
Promotions
Advertising
Returned items
Customer
feedback
Product
information and
reviews
Affiliations with
other websites
Outbound
Logistics
Marketing
& Sales
After-Sales
Service
Primary Activities
52
USING VALUE CHAINS TO GAIN COMPETITIVE ADVANTAGE
Identical
Differentiated
Find a different
way to perform
activities
Longer-lasting
advantage
Find a better way
to perform the
same activities
Shorter-term
advantage
(competitors
catch up)
53
TRADE OFF PROTECTION YOUR RIVALS CHOOSE NOT TO COPY YOU
Selected difference between Southwest and large Airlines
Southwest
Major Airlines
Technology
and design
• Single aircraft
• Multiple types of
aircrafts
Operations
• Short segment flights
• Smaller markets and secondary
airports in major markets
• No baggage transfers to others
airlines
• No meals
• Single class of service
Marketing
• Hub and spoke
system
• Meals
• Seat assignments
• Multiple classes of
service
• No seat assignments
• Baggage transfer to
other airlines
• Limited use of travel agents
• Word of mouth
• Extensive use of
travel agents
Southwest
made choices
so that
competitors did
not copy because
copying would
require them to
abandon
activities
essential to
their strategies
54
INNOVATION AND INTEGRATION OF THE
VALUE CHAIN
Area of innovation
IKEA Transferred assembly and
delivery to the consumer
Dell
Choose an entirely direct distribution
model (rather than through retailers) and
outsourced component manufacturing
55
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, without the right leaders it is unlikely to succeed”
– McKinsey & Company
56
SENIOR VS. MIDDLE MANAGERS
Decide how to use other
resources and capabilities,
configure their firm’s valueSenior 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
Middle firm success in four areas
• Entrepreneurship
• Communications
• Psychoanalyst
• Tightrope walker
Source: Quy Nguyen Huy
57
SWOT Analysis
External factors
Opportunities
Threats
Situation Analysis
Internal factors
Strengths
Weaknesses
Widely used tool
Detailed analysis of the environment
Manageable list
Prioritized list
Inclusive of ALL factors
58
Situational Analysis:
Process of finding a strategic fit between
external opportunities and internal
strengths while working around external
threats and internal weaknesses.
59
Environmental (Macro) Trends
Economic
Technological
Political
Socio-Cultural
Opportunities
-
External Analysis
Industry Trends
Industry Evolution
Competitive Forces
Threats
-
60
Resources
Financial
Physical
Human
Management
Organization
Culture
Tangibles
Intangibles
Internal Analysis
Value Chain
Strengths
-
Weaknesses
-
In-house activities
Suppliers
Partners
Distributors
Customers
61
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/abrupt
Information 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
62
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?
63
Push for Cosmopolitanism: The Gillette Case*
World class company – cosmopolitan mindset that demands global culture of
management
Cosmopolitans
Globalization
Gillette
Markets in 200 countries and Territories
58 facilities in 28 countries
75% of employees outside the US
70% of revenues from outside the US
Classic International/Global company
64
*: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business
Push for Cosmopolitanism: The Gillette Case*
Pre 1980’s – “Stone Age” Theory of marketing
slow 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
Imperatives
Innovation
Organizations
Standardization
World Sourcing
Leadership
Coordination
65
*: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business