Global Enterprise and Competition

66.511.202
Fall 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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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 Implementation
Assessment Objectives/Goals -Structure
-Macro Trends -Leadership
-Industry Analysis Strategy Options -Staffing
-Completion -Incentives
Strategy Selection -Evaluation
-Internal Analysis -Corporate -Control
(Resource, -Business
Capabilities, etc. -International

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Strategy - Results from

Industry Analysis

Competitor Analysis

Development of resources and capabilities

External Analysis
Situation Analysis
Internal Analysis

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The External Environment
Economic

Demographic Industry Socio Cultural

Environment

The
Firm
Competitive Forces
Competitive
Political/Legal Environment Global

Technological

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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?

•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 – Large scale and – Favorable trade – Interdependent

customer needs scope economies policies countries

– Global customer – Learning and – Common – Global

needs experience technological competitors
standards

– Global channels – Sourcing – Common

efficiencies manufacturing
and marketing
regulations

– Transferable – Favorable
marketing logistics
approaches
– 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
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 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

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 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

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 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!

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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 --

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

•SOFT DRINK EXAMPLE

•Key success factor (KSF) •KSFs:

•Key asset or requisite  Ability to meet competitive pricing
skill that all firms in an
industry must possess  Extensive distribution
in order to be a viable
competitor  Ability to raise consumer
awareness

 Broad product mix

 Global presence

 Well positioned bottlers and

bottling capacity
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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 --

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/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 Movie rentals

Block buster

Coke Pepsi

Hollywood video
Bottled water

Cable TV
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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
Complementor:
OF COMPLEMENTOR
Three
Examples
Any factor that makes it more
Hot dogs
attractive for suppliers to supply an
industry on favorable terms or that + More sales
makes it more attractive for buyers
to purchase products or services Buns
from an industry at prices higher
than it would pay absent the Music
complementor + More attractive offering

MP3 player

Microsoft

+
Market dominance/standard
Intel

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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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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
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Relative Power of other Stakeholders

Government
Communities
Creditors
Trade Associations
Unions
Complementors
(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
Market Size

Time

Embryonic Growing Mature In Decline

Niche market – Market expands Proliferation of Product/market

selected products for beyond niche products and markets contraction
selected markets served

Participants More competitors Market volatility and Further consolidation

emphasize problem enter beginnings of industry and industry
solving – product as consolidation regeneration
“solution”

Technological Customers become Aggressive customers

uncertainty better informed

Source: Adapted from K. Rangan and G. Bowman, “Beating the Commodity Magnet,” Industrial Marketing Management 21 (1992), 215-224; P.
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Kotler, “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)

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Group Project - Template

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 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 _____

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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 Description Assessment*

Force
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 Rating WxR

(W) (R)
Industry Size
Industry Growth
Industry profitability
Competitiveness
Entry barriers
Regulations
Total 100

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 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 Description

Factors

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 Group Project - Template

11. Company’s competitive position:

Critical success factors Weight Rating WxR

Total 100

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 Group Project - Template

12. Market Share

Competitors Home Country Market Comments

Share%
Your Company
Competitor 1
Competitor 2
Competitor 3
Competitor 4
Competitor 5
Competitor 6

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 Group Project - Template

13. Competitive Analysis

CSF Your Competitor1 Competitor2 Competitor3

Company
1.

2.

3.

4.

5.

6.

Provide weighting of each CSF for your company’s competitors.

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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

ROA
•Semiconductor Global Auto ROS

Grocery Store

How do
such differences in
profitability
materialize?

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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
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 RESOURCES AND CAPABILITIES:
BUILDING BLOCKS OF STRATEGY

Strategy

lities
Resour Capabi cies)
ce ten
s (compe

•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
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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 competitor
Cross docking
Investments in interlocking support systems
Transportation system
Managerial controls
Human 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

Upstream Company’s Downstream

Value Chain Value Chain Value Chain

Forward
Buyer/User
Suppliers Company
Channels Value Chain

Internally Distributors, retail

Performed Functions etc.

Activities, Costs, Margins

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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
Firm Financing, legal support,
Infrastructure accounting

Support Human Recruiting, training, incentive system, employee

Activities Resources feedback
Technology Inventory Site Pick & pack Site look & feel Return
Development system software procedures Customer researchprocedures

Procurement CDs Computers Shipping Media

Shipping Telecom lines services
Inbound Server Picking and Pricing Returned items
shipment operations shipment of top Promotions
of top titles titles from Customer
Billing warehouse Advertising feedback
Warehousing
Product
Collections Shipment of information and
other titles from reviews
third- party Affiliations with
distributors other websites

Inbound Operations Outbound Marketing After-Sales

Logistics Logistics & Sales Service

Primary Activities

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 USING VALUE CHAINS TO GAIN COMPETITIVE ADVANTAGE

Identical Differentiated
Find a different
Longer-lasting
way to perform
advantage
activities

Shorter-term
Find a better way
advantage
to perform the
(competitors
same activities
catch up)

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 TRADE OFF PROTECTION YOUR RIVALS CHOOSE NOT TO COPY YOU

Selected difference between Southwest and large Airlines

Southwest Major Airlines

Technology • Single aircraft • Multiple types of

and design aircrafts Southwest
made choices
Operations • Short segment flights • Hub and spoke so that
• Smaller markets and secondary system competitors did
airports in major markets • Meals not copy -
• No baggage transfers to others • Seat assignments because
airlines • Multiple classes of copying would
• No meals service require them to
• Single class of service • Baggage transfer to abandon
other airlines activities
• No seat assignments
essential to
their strategies
Marketing • Limited use of travel agents • Extensive use of
• Word of mouth travel agents

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INNOVATION AND INTEGRATION OF THE

VALUE CHAIN Area of innovation
As
So se De
u rc m l iv e
e bl
e r
IKEA Transferred assembly and
delivery to the consumer

Dell Choose an entirely direct distribution

model (rather than through retailers) and
outsourced component manufacturing

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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

Decide how to use other

resources and capabilities,
configure their firm’s value-
Senior 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 Opportunities
External factors Threats
Situation Analysis
Internal factors
Strengths
Weaknesses

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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 Environmental (Macro) Trends
Economic
Technological Opportunities
Political -
Socio-Cultural -
-
External Analysis
Threats
-
Industry Trends -
Industry Evolution -
Competitive Forces

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 Resources
Financial
Physical
Human Strengths
Management -
Organization -
Culture
Tangibles -
Intangibles

Internal Analysis Weaknesses

-
-
Value Chain -
In-house activities
Suppliers
Partners
Distributors
Customers

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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/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

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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*
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

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*: 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

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*: Global Cosmopolitans, Rosabeth Moss Kanter, Strategy+Business