Strategic Management

SGMA 655

Global Strategy Revisited

Part III
 Weak Signals

Not just what’ s on A1,

above the fold
The External
Environment
(industry-level)
Industry Analysis
Porter’s Five Forces Model

Entry

Buyers Industry
Rivalry
Focal
Firm

Threat
Suppliers Substitutes

Higher Threat Lower Average Profits

 General External Environment
Technological
Change
Specific Demographic
International Entry Trends
Events

Complementors Rivalry

Focal
Firm

Buyers Industry Substitutes

Legal/Political Suppliers Cultural

Conditions Trends
Economic
Climate
SWOT
The Internal Environment
Internal and External

Political
Economic

Social
THE
THE INDUSTRY
ORGANISATION Technological

Legal
Environmental
 What Does Internal
Analysis Tell Us?
Provides a comparative look at a firm’s
capabilities
• What are the firm’s
strengths?
• What are the firm’s
weaknesses?
• How do they compare to their competitors?
Does Internal Analysis Matt

ternal analysis helps a firm:

•
Determine if its resources and
capabilities are a
likely sources of competitive
• advantage.
Establish strategies that will
exploit any sources
of competitive advantage.
 The Resource-Based
View
Four Categories of Resources

nancial (cash, retained earnings)

ical (plant & equipment, geographic loc
n (skills & abilities of individuals)
izational (reporting structures, relatio
The Internal
Analysis Tool
The VRIO Framework
Four Important Questions:
•
Value
•
Rarity
•
Inimitability
•
Organization
The VRIO Framework
a firm has resources that are:
•
valuable,
•
rare, and
•
costly to imitate, and…
•
is organized to exploit these resourc

n the firm can expect to enjoy a sust

competitive advantage.
Applying the VRIO
Framework
Valuable and Rare
a firm’ s resourcesThe
are:
firm can expect:

Not Valuable Competitive Disadvantag

Valuable, but Not Rare Competitive Parity

Valuable and Rare Competitive Advantage

(at least temporarily)
The VRIO Framework
Costly toExploited by Competitive
Implications
Valuable? Rare? Imitate?Organization?

No No Disadvantage

Yes No Competitive Parit

Temporary
Yes Yes No Advantage

Yes Yes Yes Yes Sustained

Advantage
Global Strategies and
the Multinational Firm
Where to locate?
 INTERNATIONALIZATION

Why would a firm choose to expand internationally?

• Market seeking
• Efficiency seeking
• Natural resource seeking
• Strategic asset seeking

The internationalization motive determines the desired location

advantages of a geographic location
 LOCATION ADVANTAGES

• Entire set of strengths of a location

that is accessible by firms in that
location
• Should always be assessed relative to
the strengths of other locations
• Instrumental to developing
competitive advantages

International success depends on a firm’s ability to combine its

capabilities/resources with host country location advantages.
Distance
 THE CONCEPT OF DISTANCE
Theodore Levitt, HBR, 1983: “The globalization of
markets”
•
The world is becoming irrevocably homogenized
Pankaj Ghemawat, HBR, 2001: “Distance still matters”
•
Companies often overestimate the attractiveness of foreign markets
•
Focus on macro-level measures (market size, market growth)
•
Additional cost and risks arise from “distance”

4 dimensions of distance: CAGE

•
Cultural: differences in language, religion, social norms etc.
•
Administrative (institutional): differences in societal
institutions
•
Geographic: distance between countries (taking into account the
ease of transportation/communication infrastructure)
•
Economic: differences in consumer wealth, income
level/distribution, infrastructure, prevailing business
practices etc.
 Ghemawat’s CAGE framework:
Assessing country differences
Cultural Administrativ Geographical Economic
distance e and distance differences
Political
Distance
Distance Different Absence of Lack of common Different
languages, shared border, or con-sumer
between
ethnicities, political or transportation incomes
two religions, monetary or Differences
countrie social association communication in resources
s norms links
Political Different
increase Lack of hostility Physical Information
s connect-ing remoteness or
Weak legal and
with. ethnic/social financial knowledge
networks institutions
Industri Industries Industries Products with Products with
es most with high viewed by low value-to- income
linguistic government as weight elastic
affected content (TV, strategically (cement), demand
by publishing) important (e.g. fragile (luxuries).
source and cultural energy, (glass), Labor
of content defence, perishable intensive