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Global Business Strategies

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  • 18
  • 21
  • 24
  • Most direct form of competition
  • A less direct form of competition Involves products than can be substituted for one another e.g. business documents can be sent via FedEx, Fax, or E-mail
  • The least direct form of competition Occurs in the sense that all firms compete for the buyers’ purchases e.g. A new set of tires for your car competes with a new printer for your computer and a new suit for work
  • At the most fundamental level, Porter argues, companies must choose whether they will compete on the basis of offering their customers lower cost than their competitors can or will, or whether they will deliver some form of value that their competitors just cannot offer (I.e., differentiation). Let’s be a little careful here. A competitor might argue that one of the benefits of its differentiated product is that it will save the customer money over the longer run (for example, by reducing life cycle cost or by reducing other costs in the customer’s value chain). But in return for those ultimate cost reductions, the competitor charges the customer more up front. That competitor must convince the customer of the value of its higher-priced offering. In this sense, the competitor is competing on value. The competitor competing on cost has no such burden. Let’s examine these two competitive strategies in more detail: what are their distinct attributes, what are their advantages and disadvantages, and when should you use them or avoid them?
  • One thing I should emphasize is that cost leadership does not mean “cheap.” The essence of cost leadership is to find and eliminate attributes of the product that add cost without adding corresponding value. What can or will customers do without in return for a lower price? Soutwest Airlines seems to have found that travelers are willing to do without seat assignments and various on-board amenities such as first class, and they are willing to travel to out-of-the-way airports and to change planes (vs. flying nonstop) in exchange for lower fares. But the essential elements of service – safety, reliability, and on-time performance – are not compromised.
  • As these examples illustrate, technology is not the only source of differentiation, and in fact is rarely sustainable even with aggressive pursuit of legal IP protection mechanisms (patents, trade secrets, etc.) This will be addressed in the next lecture. As a general proposition, technological leadership alone is not the basis of a sustainable strategy. A note on ubiquity: In markets where ubiquity actually matters , such as the network markets shown above, massive entry scales are required of new entrants to compete with incumbents.
  • I hesitated on suggesting that @RISK is targeted at Excel, since @RISK is an Excel add-in, but @RISK is a good example of a specialized approach that would simply not make sense for Microsoft to build into every copy of Excel it ships, and yet it adds value to a small community of users.
  • Note on Laker Airways: Originally organized as a single-route airline (NY-London) with rock-bottom prices, Laker attracted the “backpacker” crowd that was willing to use London as a jumping-off point to the rest or Europe. Based on its stunning initial success, Laker decided to expand its route structure and add “business class” to attract business travelers. Laker had walked right into the midst of one of the most competitive markets in the industry (business travel to Europe). The major carriers met its low fares until ultimately Laker was driven out of business.
  • Beyond The Four Quadrants: Competitive Positioning Beyond The Four Quadrants: Competitive Positioning Cost Position Cost Position Market Market Share Share Broad Broad Narrow Narrow Low Low High High Low Cost Low Cost Position Position Differentiation Differentiation Cost Cost Focus Focus Differentiation Differentiation Focus Focus Competitive Competitive Positioning Positioning Is it possible for more than one firm to occupy one of Porter’s four quadrants? Porter’s answer is absolutely yes! ( Porter, Michael E., "What is Strategy?" Harvard Business Review , Nov.-Dec.,1996.) The reason is that there is not a single best way to serve a customer or design, build, and market a product. Rather, each firm evolves its own configuration of activities around its core competencies and the customer groups it has chosen to serve. The distinctive way a firm chooses to compete within one of the four quadrants, is what Porter calls its competitive positioning. The term “positioning” emphasizes the differences, rather than the similarities among competitors: it implies that only one firm can occupy a position in a particular market at a particular time. So several firms may coexist in the cost focuser quadrant, for example. But within that quadrant, if two or more firms compete for the same position , only one will prevail.
  • Beyond The Four Quadrants: Competitive Positioning Beyond The Four Quadrants: Competitive Positioning Cost Position Cost Position Market Market Share Share Broad Broad Narrow Narrow Low Low High High Low Cost Low Cost Position Position Differentiation Differentiation Cost Cost Focus Focus Differentiation Differentiation Focus Focus Competitive Competitive Positioning Positioning Is it possible for more than one firm to occupy one of Porter’s four quadrants? Porter’s answer is absolutely yes! ( Porter, Michael E., "What is Strategy?" Harvard Business Review , Nov.-Dec.,1996.) The reason is that there is not a single best way to serve a customer or design, build, and market a product. Rather, each firm evolves its own configuration of activities around its core competencies and the customer groups it has chosen to serve. The distinctive way a firm chooses to compete within one of the four quadrants, is what Porter calls its competitive positioning. The term “positioning” emphasizes the differences, rather than the similarities among competitors: it implies that only one firm can occupy a position in a particular market at a particular time. So several firms may coexist in the cost focuser quadrant, for example. But within that quadrant, if two or more firms compete for the same position , only one will prevail.
  • The strength of a competitive position is also determined by what the firm has chosen not to do, the tradeoffs it makes. Southwest Airlines and Jiffy Lube chose not to offer many services that are considered standard in their respective industries in order to optimize what they have chosen to do. The company that tries to emulate such a strategy in one segment while keeping to its traditional strategy elsewhere (the straddle) is doomed because it has refused to make tradeoffs between inherently contradictory strategies. Straddlers seek to have it both ways. Continental Airlines offered Continental Lite, a Southwest Airlines-like service on routes competing with Southwest, along with its regular full service, with all its built-in overhead on other routes. Continental Lite was abandoned, the company lost hundreds of millions of dollars, and the CEO lost his job(Porter, 1996, 56-59). That is why a well-defined competitive position is so hard to for others to emulate; they have their own history, their own configuration of activities, their own “baggage” that they simply cannot afford to jettison.

Transcript

  • 1. Global Business Strategy: Design & Implementation GEB 6365 - INTERNATIONAL BUSINESS EXECUTIVE MBA November 03, 2006
  • 2. What is strategy?
    • A Creative thought, an idea, a concept, or a plan that uses the natural laws to its advantage to turn a potential loss into victory . It is a plan or a series of maneuvers for obtaining a specific goal or result.
  • 3.
    • IT HAS ALWAYS BEEN VIRGIN’S
    • POLICY TO ENCOURAGE YOU
    • TO FLY TO LONDON FOR
    • AS LITTLE AS POSSIBLE.
    • SO ON JUNE 10
    • WE ENCOURAGE YOU TO FLY
    • BRITISH AIRWAYS
    • As for the rest of the year, we look forward to seeing you aboard Virgin Atlantic.
    • For the best service possible. For the lowest possible fare.
  • 4. Sun Tzu: The Art of War --- 500 B.C.
    • Consists of 13 short chapters with titles such as “estimates,” “terrain,” “offensive strategy,” “employment of secret agents.”
    • Written in form of short stories or verses averaging 30-40 per chapter
    • Example:
      • Victory is the main object in war…
      • We have not yet seen a clever operation that was prolonged…for there has never been a protracted war from which a country has benefited.
  • 5.
    • Art of Offensive Strategy
      • When ten to the enemy’s one, surround him…
      • When five times his strength, attack him…
      • If double his strength, then divide him…
      • If equally matched, you may engage him…
      • If weaker numerically, be capable of withdrawing…
      • And if in all respects unequal, be capable of eluding him…
  • 6.
      • To foresee a victory which the ordinary man can foresee is not the acme of skill…
      • The skillful commander takes up a position in which he cannot be defeated and misses no opportunity to master his enemy…
      • Thus a victorious army wins its victories before seeking battle: an army destined to defeat, fights in the hope of winning
  • 7. Who are Strategists?
    • People who understand the natural laws and the outcomes they govern, and can creatively use the same in their favor.
  • 8. What has History Taught Us?
    • Strategy is about seeking an “unfair” advantage in situations where it is the outcome and not the game that counts.
    • Formulating strategy requires that you know the laws that govern the outcomes of the particular competition.
  • 9. What has History Taught Us?
    • Specific knowledge of the competitors and the situation are needed to produce real, implementable strategies.
    • Creating strategies that win is a skill that can be learned.
  • 10. Importance of Competition
    • Strategy cannot be formulated in vacuum.
    • Competition determines the appropriateness of a firm’s strategic actions, and hence, is at the core of the success or failure of firms.
  • 11. Competition, Competitive Strategy, and Competitive Advantage
    • A firm’s strategy cannot be formulated in vacuum
    • Competition is at the core of the success or failure of firms
    • Competition determines the appropriateness of a firm’s activities that contributes to its performance
    • Competitive strategy is the search for a favorable competitive position in an industry.
  • 12. Competitive Advantage The set of unique features of a company and its products that are perceived by the target market as significant and superior to the competition.
  • 13. Sustainable Competitive Advantage An advantage that cannot be copied by the competition.
  • 14. Industry Structure Analysis
    • The essence of formulating a CS is relating the firm to its environment
    • The key aspect of a firm’s environment is the industry in which it competes
  • 15. Industry Structure Analysis The five competitive forces Industry competitors Rivalry among existing firms Potential entrants Substitutes Suppliers Buyers Bargaining power of suppliers Bargaining power of Buyers Threat of new entrants Threat of substitute products or services
  • 16. Barriers to Entry
    • Economies of scale
    • Product differentiation
    • Capital requirements
    • Switching costs
    • Access to distribution channels
    • Other advantages
      • Patents
      • Government subsidies
  • 17. Continuum of competition
    • Number of sellers
    • Product differences
    • Importance of market mix
    • Large number of sellers
    • Similar products
    • Distribution is important
    • Large number of sellers
    • Unique but substitutable
    • Pricing is important
    • A few large competitors
    • Similar products
    • Promotion is key to achieve perceived product differences
    • Single producer
    • Unique and unsubstitutable
    • Unimportant
    BASIS OF COMPARISON PURE COMPETITION MONOPOLISTIC COMPETITION OLIGOPOLY MONOPOLY Number of sellers Many One
  • 18. Number of Sellers and Differentiation Low High Low High Number of sellers Differentiation Pure monopoly Oligopoly Pure competition Monopolistic competition
  • 19. Types of Competition Direct © PhotoDisc
    • Nike Vs Reebok Vs Adidas
  • 20. Types of Competition Direct Indirect © PhotoDisc McDonalds vs. Pizza Hut vs. Arby’s vs. Chinese takeout
  • 21. Types of Competition Direct Indirect General (Budget) © PhotoDisc Competing for the same dollars
  • 22. Levels of Competition Share of the Mind Share of the Wallet Generic Competition Product Category Product Form Direct to Indirect
  • 23. Defining the Competitive Set
    • Levels of Marketing Competition
      • Product Form based competition – Diet Colas
      • Product Category based competition – Soft Drinks
      • Generic or “need-based” perspective - Beverages
      • Rivalry or “Budget-based” competition – Food, Entertainment, etc.
  • 24. Defining the Competitive Set
    • Identifying Competitors
      • SIC categories
      • Substitutability
      • Managerial Judgment
      • Customer Purchase based measures
        • Brand Switching Data
        • Cross-Elasticity of Demand
      • Customer Judgment based measures
  • 25. Basic Competitive Strategies
    • Cost Leadership
    • Differentiation
    • Focus (Niche)
  • 26. How will you compete?
    • On Cost
    • (lowest cost supplier)
    On Value (Differentiation) Cost Position Low High
  • 27. Cost Leadership
    • Objectives -
      • Lowest cost and price across the industry
      • Profitability through volume and market share
    • Advantage - Cost leaders are survivors. Profitable under a wide range of conditions
      • industry price wars
      • economic downturns
    • Disadvantages -
      • Costly - takes a long time to achieve
      • Tends to be unstable (not sustainable) - can be emulated (low er cost producers)
  • 28. Sources of Cost Leadership
    • Minimized Service
      • Southwest Airlines
      • Wal-Mart
    • Scale Economies
      • McDonald's
      • Henry Ford
    • Technology
      • Dell (business model)
    Cost leadership is not the same as “cheap!”
  • 29. Value/Differentiation
    • Objectives -
      • Unique ability to satisfy a consumer want across an industry
      • High perceived value relative to cost
      • Profitability through price premium, volume, and share
    • Advantage - Highly profitable
    • Disadvantages -
      • Hard to sustain
      • Vulnerable to competitive emulation.
      • Market drives out non-essential differentiation over life cycle
  • 30. Sources of Differentiation
    • Service, Support
      • IBM
      • Caterpillar
    • Unique Technology
      • Apple (pre-Windows)
      • Palm
    • Ubiquity
      • Hertz
      • AT&T
    Technological leadership alone is not the basis of a sustainable strategy!
  • 31. Four Generic Competitive Strategies … Cost, Differentiation, Focus Focus strategies - flanking attacks - guerrilla tactics Broadly targeted strategies (frontal assault) Cost Position Market Share Broad Narrow Low High Low Cost Position Differentiation Cost Focus Differentiation Focus
  • 32. Focus Strategies
    • Objectives - Find a limited segment where you can compete on either cost leadership or differentiation and ignore the rest.
    • Advantages -
      • Less costly - don't need a competitive advantage across the industry
      • Unattractive target
      • Less competition
    • Disadvantages -
      • Could become "too successful" and attract broadly targeted firms
      • Highly dependent on health of industry, economy
  • 33. Examples of Cost Focusers
  • 34. Examples of Differentiation Focusers
  • 35. Worst possible position . . . Cost Position Market Share Broad Narrow Low High Low Cost Position Differentiation Cost Focus Differentiation Focus Cost, Differentiation, Focus Broadly targeted strategies (frontal assault) Stuck in the Middle Focus strategies - flanking attacks - guerrilla tactics
  • 36. Stuck In The Middle . .
        • NEITHER COST NOR DIFFERENTIATION LEADERSHIP
        • ALL THINGS TO ALL PEOPLE
        • LOW PROFIT MARGINS
        • DECLINING SHARE
  • 37. Can two or more players occupy the same space at the same time? Cost Position Scope (Market Share) Broad Narrow Low High
  • 38. Can two or more players occupy the same space at the same time? Cost Position Scope (Market Share) Broad Narrow Low High
  • 39. Strategy is….
    • making tradeoffs in competing ... choosing what not to do”
    Southwest Airlines Continental Lite
  • 40. Industry Analysis
    • Can help reveal
      • industry structure& competitive strategies
      • firm’s strategic challenges
      • market opportunities
    • But, firm’s ability to create world-wide advantage will be greatly influenced and constrained by
      • existing asset configurations
      • its historical definition of management responsibilities
      • ingrained organizational norms
  • 41. Administrative Heritage
    • A firm’s organizational history,
    • the values, norms and practices of its management, &
    • its management culture
    • It can be, at the same time
      • the firm’s greatest assets -- the underlying source of its key competencies
      • and also a significant liability, since it resists change and thereby prevents realignment or broadening of strategic capabilities
  • 42. Factors Governing Global Competition
    • Country-Specific Advantages
    • Government Policies
    • Industry Structure
    • Organizational Structure & Strategic Attributes of the Firms
  • 43. Management Orientation
    • Ethnocentric
    • Polycentric
    • Geocentric
    • Regiocentric
  • 44. What are You…. International, Multinational, Global or Transnational?
    • International
      • Strategy is to transfer skills and products (derived from core competencies) to markets where indigenous competitors lack those skills and products.
    • Multinational
      • Strategy is to target independent markets and to maximize local responsiveness
  • 45.
    • Global
      • Strategy is to target the global market place, thereby achieving cost reductions that come from experience curve and economies of scale.
  • 46.
    • Forces Driving Global integration
      • Manufacturing Efficiency
      • Scale Economies
      • Cross Subsidization
      • Synergistic benefits
    • Forces Driving National Responsiveness
      • Consumer Tastes and Preferences
      • Local Competitors
      • Host Government Policies
      • Market Infrastructure
  • 47. Industry Globalization Drivers
    • Market Drivers
      • Common Customer Needs
      • Global Customers & Channels
      • Transferable Marketing Mix
      • Lead Countries
    • Cost Drivers
      • Global Economies of Scale & Scope
      • Steep Learning & Experience Curve Effects
      • Favorable Logistics
      • Shortening PLC, Rising R&D & Development Costs
      • Fast Changing Technology
  • 48. Industry Globalization Drivers
    • Government Drivers
      • Favorable Trade Policies
      • Compatible Technical Standards
      • Common Marketing Regulations
      • Government as a Customer & Competitor
    • Competitive Drivers
      • Presence of Global Competitors
      • Presence of Strong Local Competitors
      • Competitive Interdependence across markets
  • 49. International Marketing Decisions
    • Global Product Strategies
    • Standardization versus Customization
    • Multinational Diffusion
    • Global Communications
    • Differences in Distribution Systems
  • 50. International Product Strategy
    • Factors Encouraging Standardization
      • Economies of scale
      • Increasing size of homogenous segment
      • Consistent image
      • Time to Market
      • Modular Vs. Core Product Approach
  • 51.
    • Factors Encouraging Adaptation/Customization
      • Mandatory adaptation
      • Discretionary adaptation
      • Environmental Differences
      • Meeting Consumer Needs
  • 52. Multinational Diffusion
    • How do consumers in different countries react to a new product/service?
    • What role does culture play in influencing consumers’ reactions to new product introductions?
    • Is it possible to forecast sales and the time it would take for a product to achieve a certain level of market penetration?
  • 53. Multinational Diffusion
    • The diffusion of a new product/service is a culture-specific phenomenon. Differences in the adoption process can be explained by country-specific factors.
      • ( Gatignon, Eliashberg, and Robertson (1989))
    • Differences in the rate of diffusion between high Vs. low context cultures
    • (Takada and Jain, 1991)
  • 54. Multinational Diffusion
    • Existence of a lead-lag effect in cross-national diffusion patterns, i.e., the later a product gets introduced in a country, the faster will be the adoption.
      • (Takada and Jain, 1991)
    • Rogers (1983) attributes of an innovation that can potentially accelerate adoption
      • relative advantage of the new product
      • compatibility with the needs of adopters
      • Complexity; Observability & Trialability
  • 55. Learning Effect - The Concept
    • When a new product/technology is introduced first in one country and with a time lag in subsequent countries, there exists an opportunity for consumers in the lag countries to learn from the experience of the lead country adopters. This Phenomenon is what is referred to as the “learning effect.”
      • (Ganesh &Kumar 1996).
    • Such a learning has the potential to reduce the risk associated with adopting the new product, thus contributing to an accelerated diffusion of the product in the lag countries.
  • 56. Learning Effect Between Lead & Lag Markets Geographical Proximity Cultural Similarity Economic Similarity Time Lag Type of Innovation Technical Standard Faster Adoption in Lag Markets Manufacturers’ Actions in Lag Markets
  • 57.
    • The smaller the geographical distance is between the lead and lag markets, the stronger will be the learning effect.
    • The more similar the lead and lag markets are culturally, the stronger will be the learning effect.
    • The more similar the lead and lag markets are economically, the stronger will be the learning effect.
  • 58.
    • The time lag between the introduction of an innovation in the lead and lag markets is positively related to the learning effect.
    • In the case of continuous innovations, the learning effect will be stronger when compared with discontinuous innovations.
    • The existence of an industry standard for the technology enhances the learning effect; conversely, a lack of a technical standard weakens the learning effect.
  • 59. Factors Influencing Intl. Advertising Strategy
    • Product-Market Conditions
    • Culture
    • Govt. Laws & Regulations
  • 60. Communication Objectives
    • Educate the Consumer?
    • Create Awareness?
    • Induce Trial?
    • Induce Loyalty Behavior?
  • 61. Product-Market Conditions
    • Economic Similarity
    • Stage in PLC
    • Competitive Intensity
    • Infrastructural Facilities
  • 62. Infrastructural Facilities
    • Media Availability & Usage
      • Outdoor ads. (Bolivia 48%)
      • Cinema ads. (common in Nigeria)
      • Radio (popular in Nepal & Mexico)
      • Print (Norway 97%; Oman 100%)
      • TV (Peru 88%; Costa Rica 78 %)
  • 63. Laws Affecting Promotions
      • Most controversial element of international marketing, advertising and sales promotion
      • Laws pertain to:
        • message
        • media
        • truthfulness
        • use of models
        • ban on certain sensitive products
  • 64. Govt. Laws & Regulations
    • Government Regulations governing Media & Message
      • Sweden - ban on TV ads
      • Germany - only 15-20 mins per day
      • France, Belgium etc. - ban on comparative advertisements
      • Saudi Arabia - ban use of women
      • U.S. - ban use of fortune tellers
      • Canada, Japan, France - ban use of cartoon characters in ads to children
  • 65.
    • Government Regulations on Certain Promotions
    • Government Regulations on Certain Products
      • Tobacco
      • Alcoholic beverages
      • Slimming products (Australia & France)
  • 66.
      • Toothpaste
      • Aspirin
      • Investments & savings
      • Contraceptives
      • Detergents
  • 67. Gray Market
    • Unauthorized middlemen who circumvent authorized marketing channels by buying in low-price markets and reselling in high-price markets
      • Cameras
      • Watches
      • Toothpaste
  • 68. Japan’s Distribution System
    • Multi-layered complex channels of distribution
    • special relationships between channel members - “Keiretsu”
    • Inefficient Distribution
    • Exclusionary business practices
    • Structural Impediments Initiative (SII)
  • 69. Keiretsu
    • alignments or combination of companies, more or less closely related & coordinated, that do business with one another on a regular and often quite intimate basis
    • Capital Keiretsu
    • Enterprise Keiretsu
    • Distribution Keiretsu