Strategic management 2010 prashant

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  • These are four planning activities that all corporate headquarters must undertake: 1. Defining the corporate mission 2. Establishing strategic business units (SBUs) 3. Assigning resources to each SBU 4. Planning new businesses
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Transcript

  • 1. PROF. DR. LÜTFİHAK ALPKAN Gebze Yüksek Teknoloji Enstitüsü İşletme Fakültesi Strategic Management
  • 2. Course Outline Part 1 Introduction to Competitive Analysis Chapter 1 Planning & Measuring for Competitive Advantage Part 2 SWOT Analysis Chapter 2 External Analysis of Opportunities and Threats Chapter 3 Internal Analysis of Strenghts and Weaknesses Part 3 Choice of Strategy Chapter 4 Grand Strategies Chapter 5 Strategic Business Unit (SBU) Level Strategies Part 4 Global Competition Chapter 6 National Sources of Global Competitive Power
  • 3. WEEK DATE TEACHING PLAN 1 15. 09 INTRODUCTION 2 22. 09 Ch. 1: Planning & Measuring for Competitive Advantage 3 29. 09 Ch. 1: con’t. (Comparison of Competitiveness) 4 06.10 Ch. 2: External Analysis of Opportunities and Threats 5 13. 10 Ch. 2: con’t. (RBV & Value Chain Analysis) 6 20. 10 QUIZ 1 7 27. 10 Ch. 3: Internal Analysis of Strengths and Weaknesses 8 03. 11 MIDTERM EXAM 1 9 10. 12 Ch. 4: Grand Strategies (Growth Strategies) 10 24. 12 Ch. 4: con’t. (Cooperation & Downscoping Strategies) 1 1 01. 12 Ch . 5: Strategic Business Unit (SBU) Level Strategies 12 08. 12 QUIZ 2 13 15. 12 Ch . 6 : National Sources of Global Competitive Power 14 22.12 MIDTERM EXAM 2 15 29.12 OVERVIEW
  • 4. Planning & Measuring for Competitive Advantage Part 1 Introduction to Competitive Analysis Chapter 1
  • 5. LEARNING OBJECTIVES
    • STRATEGIC MANAGEMENT CONCEPTS
    • LEVELS OF STRATEGY
    • BENEFITS AND RISKS OF STRATEGIC MANAGEMENT
    • STRATEGIC INTENTS
    • STRATEGIC PERFORMANCE CRITERIA
  • 6. Strategic Management
    • Analysis
      • Strategic goals (vision, mission, strategic objectives)
      • Internal and external environment of the firm
    • Strategic decisions
      • What industries should we compete in?
      • How should we compete in those industries?
    • Actions
      • Allocate necessary resources
      • Design the organization to bring intended strategies to reality
  • 7. Strategic Management
    • Strategic management is the study of why some firms outperform others
      • How to compete in order to create competitive advantages in the marketplace
      • How to create competitive advantages in the market place
        • Unique and valuable
        • Difficult for competitors to copy or substitute
  • 8. Strategic Management Concepts
    • Definition: Strategic management consists of the analysis, decisions, and actions an organization undertakes in order to create and sustain competitive advantages.
    • Key attributes of strategic management
      • Directs the organization toward overall goals and objectives.
      • Includes multiple stakeholders in decision making
      • Needs to incorporate short-term and long-term perspectives
      • Recognizes trade-offs between efficiency and effectiveness
  • 9. Three levels of Strategy
    • Corporate Level Strategies
      • by CEO and Board of Directors
      • Horizon: long term
      • Focus on domain selection:
        • What business sectors to enter/invest ?
        • How should the resources be allocated across the businesses ?
    Functional Business Corporate
  • 10.
    • Business Level Strategies
      • by Business Managers
      • Horizon: Medium
      • Focus on competitive tactics:
        • How to compete in this business sector ?
        • What markets to concentrate on ?
    Three levels of Strategy Functional Business Corporate
  • 11.
    • Functional Level Strategies
      • By functional managers, e.g. marketing manager
      • Short Term
      • Focus on functional efficiency
        • Annual objectives & d ecisions within functional areas
        • Improving efficiency within functional areas
    Three levels of Strategy Functional Business Corporate
  • 12. Benefits of strategic m anagement
      • Adaptability : Proactively monitor the environment
      • Motivation : Involvement of employees in decision making increases their motivation
      • Acceptance : Reduces employees resistance to changes
      • Future Orientation : Forces the company to think strategically about its actions
  • 13. Risks o f S trategic M anagement
      • Underestimation of today :
      • Time spent may have a negative impact on operational responsibilities
      • Conflict between planners and doers :
      • Strategy Formulators may not be involved in the implementation process
  • 14. Strategic Intent s Vision Winning competitive battles through deciding how to leverage resources, capabilities, and core competencies. Mission An application of strategic intent in terms of products to be offered and markets to be served.
  • 15. What an organization should look like once its has successfully implemented its strategies and achieved its full potential. WHAT IS A VISION ?
  • 16. Corporate Vision Statements
    • Medtronic
    • Restoring patients to full life
    • Wells Fargo
    • We want to satisfy all of our customers’ financial needs and help them succeed financially .
    • McDonald’s
    • Our vision is to be the world’s best quick service restaurant .
    • Disney
    • To be the happiest place on earth
  • 17. A declaration of organizational purpose provid ing the social justification for its existence. WHAT IS A MISSION?
  • 18. WHY Stating the Corporate Mission ?
    • A mission statement provides employees of the organization with a shared sense of purpose, direction, and opportunity.
    • and guides geographically dispersed employees to work independently and yet collectively toward realizing the organization’s goals.
  • 19. 9 Components of a Mission Statement
    • Customers
    • Products or Services
    • Markets
    • Technology
    • Concern for Survival, Growth, & Profitability
    • Philosophy
    • Self-Concept
    • Concern for Public Image
    • Concern for Employees
  • 20. 9 Phrases of “Our Mission is...
    • ...to serve consumers, industry and government with high quality ...
    • ...our refreshment products include soft drinks, fruit juices,...
    • ...our m arkets served include restaurants, hotels,...
    • ...we apply electreonics t echnology in the production of hardware...
    • ...to achieve sufficient profit to finance our growth and survival...
  • 21. 9 Phrases of “Our Mission is...
    • ...we emphasize the meeting of the needs of our stakeholders.
    • ...we have a results-oriented and entrepreneurial corporate culture.
    • ...we are sensitive to our image with our customers and community.
    • ...we create a sense of mutual trust with our members.”
  • 22. Corporate Mission Statements
    • Federal Express
    • To produce superior financial returns for our shareholders as we serve our customers with the highest quality transportation, logistics, and e-commerce.
  • 23.
    • Brinker International
    • To be the very best in the business. Our game plan is status go…we are constantly looking ahead, building on our strengths, and reaching for new goals.
    • In our quest of these goals, we look at the three stars of the Brinker logo and are reminded of the basic values that are the strength of this company… People, Quality and Profitability . Everything we do at Brinker must support these core values.
    • We also look at the eight golden flames depicted in our logo , and are reminded of the fire that ignites our mission and makes up the heart and soul of this incredible company.
    • These flames are: Customers, Food, Team, Concepts, Culture, Partners, Community and Shareholders. As keeper of these flames, we will continue to build on our strengths and work together to be the best in the business.
    Corporate Mission Statements
  • 24. SOME SAMPLE STRATEGIC INTENT S
    • FORD Motor Company
    • Our Vision : to become the world's leading company for automotive products and services.
    • Our Mission : we are a global, diverse family with a proud heritage, passionately committed to providing outstanding products and services.
    • Our Values : We do the right thing for our people, our environment and our society, but above all for our customers.
  • 25. SOME SAMPLE STRATEGIC INTENT S
    • FORD OTOSAN AŞ.
    • Vizyon Otomotiv ürün ve hizmetlerinde Türkiye'nin lider tüketici odaklı şirketi olmak.
    • Misyon Müşteri ihtiyaç ve beklentilerine en uygun otomotiv ürün ve hizmetlerini sunarak Türkiye otomotiv pazarının lideri olmak. Ford Avrupa'nın ticari araç üretim ve geliştirme merkezi olmak.
  • 26. SOME SAMPLE STRATEGIC INTENT S
    • TOYOTA MOTOR Corporation
    • Slogan: Toyota will continue to innovate relentlessly to ensure further growth.
    • Mission : Toyota seeks to create a more prosperous society through automotive manufacturing.
    • Vision : Toyota aims to achieve long-term, stable growth in harmony with the environment, the global economy, the local communities it serves, and its stakeholders.
  • 27. SOME SAMPLE STRATEGIC INTENT S
    • HONDA MOTOR Co mpany
    • Let’s go! We have dreams to pursue!
    • Since our foundation, Honda has been powered by dreams. Our initial and ongoing dream is to provide genuine satisfaction to people everywhere. Providing products of the highest quality at a reasonable price, we are realizing that dream one step at a time.
    • Our mission: is to offer products, technologies and services that contribute to society and make people’s lives better. That’s why we’re always ahead of the curve, coming up with technologies that make mobility safer and more environmentally sustainable. We see challenges ahead and are facing them squarely, determined to build a brighter future.
  • 28. 8 Dimensions of Strategic Goals
    • Profitability
    • Productivity
    • Physical & Financial Resources
    • Managerial Performance & Development
    • Worker Performance & Attitude
    • Innovation
    • Market Standing
    • Social Responsibility
  • 29. Some Strategic Objectives: F inancial Goals
    • Proctor and Gamble
    • Increase sales growth 6% to 8% and accelerate core net earnings growth to 13% to 15% per share in each of the next five years.
    • Automation
    • Generate Internet-related revenue of $1.5 billion
    • Wells Fargo
    • Increase the contribution of Banking Group earnings from investments, brokerage, and insurance from 16% to 25%
  • 30. Some Strategic Objectives: Nonfinancial Goals
    • Federal Express
    • Capitalize on e-commerce
    • Wells Fargo
    • We want a majority of our customers, when surveyed, to say they consider Wells Fargo the best financial institution in the community.
    • Walgreen’s
    • We want to operate 6,000 stores by 2010-up from 3000 in the year 2000.
    • BP Amoco
    • Reduce greenhouse gases by 10% (from a 1990 base) by 2010.
  • 31. 5 Characteristics of Strategic Goals
    • S pecific
    • M easurable
    • A ttainable
    • R ealistic
    • T imely
    5 Dimensions of Operational Strategi es
    • Flexibility
    • Innovation
    • Speed
    • Cost
    • Quality
  • 32. C omparisons of Competitiveness
    • Comparison with past performance
      • Trend analysis – Where are you relative to the past.
      • Stages of Industry Evolution
        • Emergence, Growth, Maturity and Decline
        • Strengths or competencies needed at each stage are different
      • Benchmarking with the competitors
        • Key competitors
        • Best practices irrespective of industry
  • 33. Competing for Superior Performance
    • Business firms as a ssociations of productive assets try to outperform their rivals in the game of trying to make assets available better and before them
    • If actual value ( AV ) < expected value ( EV ) , productive assets shift to more profitable firms.
  • 34. Actual Value (AV) vs. Expected Value (EV)
  • 35. Measuring Firm Performance
    • Survival as a Measure
    • Accounting Measures
    • Tobin’s q
  • 36. Survival as a Performance Measure
    • Firm survival over an extended period indicates that it is generating at least normal economic returns.
    • Strength: Easy to Use.
    • Weaknesses:
      • When does survival end -- after a takeover, bankruptcy, or changes in businesses?
      • Death can occur slowly
      • Death or just a setback?
      • Tells nothing about above normal performance
  • 37. Accounting Measures: Categories
    • Profitability Ratios (e.g. ROA , ROE, ROS)
      • Profit relative to size
    • Liquidity Ratios (e.g. Current Ratio)
      • Meeting short-term financial obligations
    • Leverage Ratios (e.g. Debts / Assets, Debts / Equity)
      • Indebtedness / Capital Structure
    • Activity Effectiveness Ratios (e.g. Sales / Assets)
      • Level of activity in a business
  • 38. Limitations of Accounting Measures
    • Managerial discretion over accounting methods.
    • Incentives to distort: Bonuses, violations of debt covenants, antitrust issues, etc.
    • Many intangibles not recognized.
  • 39. Tobin’s q
    • Firm’s market value = market value of its present assets
    • Limitation : it is difficult to determine the r eplacement cost of a firm’s assets
    • q = 1 Normal Performance
    • q > 1 Above normal performance
    • q < 1 Below normal performance
    q = a firm’s market value a firm’s replacement cost
  • 40. Chapter 2 External Analysis of Opportunities and Threats Part 2 SWOT Analysis
  • 41. LEARNING OBJECTIVES
    • INDUSTRIAL ORGANIZATION MODEL
    • GENERAL & TASK ENVIRONMENT ANALYSIS
    • INDUSTRY STRUCTURE ANALYSIS
    • MODEL OF INDUSTRY COMPETITION ANALYSIS
    • STRATEGIC GROUPS ANALYSIS
    • COMPETITORS’ ANALYSIS
  • 42. I/O Model of Superior Returns The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm. The I/O model largely focuses on industry structure or attractiveness of the external environment rather than internal characteristics of the firm.
  • 43. I/O Assumptions
    • Environment determines strategy
    • Firms possess similar resources and thus pursue similar strategies.
    • Resources are mobile
    • Decision-makers – rational & act in the best interests of the firm.
  • 44. Action required: External Environment General Environment Industry Environment Competitive Environment Study the external environment, especially the industry environment . I/O Model of Superior Returns
  • 45. An Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Action required: Locate an industry with high potential for above-average returns. I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment
  • 46. Action required: Identify strategy called for by the industry to earn above-average returns. I/O Model of Superior Returns Selection of a strategy linked with above-average returns in a particular industry Strategy Formulation External Environment General Environment Industry Environment Competitive Environment Attractive Industry An industry whose structural characteristics suggest above-average returns are possible
  • 47. Action required: Develop or acquire assets and skills needed to implement the strategy. Assets and Skills Assets and skills required to implement a chosen strategy I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry
  • 48. Strategy Implementation Selection of strategic actions linked with effective implementation of the chosen strategy I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry Assets and Skills Assets and skills required to implement a chosen strategy Action required: Use the firm’s strengths (its assets or skills) to implement the strategy.
  • 49. Action required: Maintain selected strategy in order to outperform industry rivals. I/O Model of Superior Returns External Environment General Environment Industry Environment Competitive Environment Attractive Industry An industry whose structural characteristics suggest above-average returns are possible Strategy Formulation Selection of a strategy linked with above-average returns in a particular industry Assets and Skills Assets and skills required to implement a chosen strategy Strategy Implementation Selection of strategic actions linked with effective implementation of the chosen strategy Superior Returns Earning of above-average returns
  • 50. The General Environment Analysis
    • General environmental trends and events
      • Little ability to predict them
      • Even less ability to control them
      • Can vary across industries
    Demographic Sociocultural Political/Legal Technological Economic Global General Environment
  • 51. The Competitive Environment Analysis
    • Sometimes called the task or industry environment
    • Includes
      • Competitors (existing and potential)
      • Customers
      • Suppliers
    • Porter’s five-forces model
    Competitors Customers Suppliers Competitive Environment
  • 52. The Industry Structure Anaysis
    • Level of Concentration
      • % of market share held by top 4 firms - Concentration ratio
    • Level of Economies of scale
      • Cost linked to volume
      • Determine s the intensity of competition
    • Level of Product Differentiation
      • Differences in product features
      • Brand positioning
  • 53. The Model of Industry Competition Threat of new entrants Bargaining power of buyers Bargaining power of suppliers Threat of Substitute products and services Adapted from Exhibit 2.2 Porter’s Five Forces Model of Industry Competition Porter’s Five Forces Model of Industry Competition
  • 54. The Threat of New Entrants
    • Profits of established firms in the industry may be eroded by new competitors
    • High entry barriers lead to low threat of new entries
      • Economies of scale
      • Product differentiation
      • Capital requirements
      • Switching costs
      • Access to distribution channels
      • Cost disadvantages independent of scale
  • 55. The Bargaining Power of Buyers
    • Buyers threaten an industry
      • Force down prices
      • Bargain for higher quality or more services
      • Play competitors against each other
  • 56. The Bargaining Power of Buyers
    • A buyer group is powerful when
      • It is concentrated or purchases large volumes relative to seller sales
      • The products it purchases from the industry are standard or undifferentiated
      • The buyer faces few switching costs
      • It earns low profits
      • The buyers pose a credible threat of backward integration
      • The industry’s product is unimportant to the quality of the buyer’s products or services
  • 57. The Bargaining Power of Suppliers
    • Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services
  • 58. The Bargaining Power of Suppliers
    • A supplier group will be powerful when
      • The supplier group is dominated by a few companies and is more concentrated than the industry it sells to
      • The supplier group is not obliged to contend with substitute products for sale to the industry
      • The industry is not an important customer of the supplier group
  • 59. The Bargaining Power of Suppliers
    • A supplier group will be powerful when
      • The supplier’s product is an important input to the buyer’s business
      • The supplier group’s products are differentiated or it has built up switching costs for the buyer
      • The supplier group poses a credible threat of forward integration
  • 60. The Threat of Substitute Products and Services
    • Substitutes limit the potential returns of an industry
      • Ceiling on the prices that firms in that industry can profitably charge
      • Price/performance ratio
  • 61. The Intensity of Rivalry among Competitors in an Industry
    • Jockeying for position
    • Price competition
    • Advertising battles
    • Product introductions
    • Increased customer service or warranties
  • 62. The Intensity of Rivalry among Competitors in an Industry
    • Interacting factors lead to intense rivalry
      • Numerous or equally balanced competitors
      • Slow industry growth
      • High fixed or storage costs
      • Lack of differentiation or switching costs
      • Capacity augmented in large increments
      • High exit barriers
  • 63. The Strategic Groups Analysis
    • Two unassailable assumptions in industry analysis
      • No two firms are totally different
      • No two firms are exactly the same
    • Strategic groups within the same Industr y
      • Cluster of firms that share similar strategies
        • Breadth of product and geographic scope
        • Price/quality
        • Degree of vertical integration
        • Type of distribution system
  • 64. Strategic Groups within Industries
        • Industries not completely homogeneous
        • Factors differentiate across an industry
          • Scope of operations
          • Type of customers
          • Extent of vertical integration
        • Strategic groups are useful for
          • Identify the closest competitors
          • Close substitutes
          • Overall variability in performance
  • 65. Value of strategic groups as an analytical tool
      • Identify barriers to mobility that protect a group from attacks by other groups
      • Identify groups whose competitive position may be marginal or tenuous
      • Chart the future direction of firms’ strategies
      • Thinking through the implications of each industry trend for the strategic group as a whole
  • 66. The World Automobile Industry: Strategic Groups Adapted from Exhibit 2.8 The World Automobile Industry: Strategic Groups
  • 67. The Competitors ’ Analy sis
    • Analyzing key competitors allows an entrepreneur to:
      • avoid surprises from existing competitors’ new strategies and tactics.
      • identify potential new competitors and the threats they pose.
      • improve reaction time to competitors’ actions.
      • anticipate rivals’ next strategic moves.
  • 68.
    • Ethical Techniques to Analyze Competitors
      • Monitor industry and trade publications.
      • Talk to customers and suppliers.
      • Listen to employees, especially sales representatives
      • and purchasing agents .
      • Attend trade shows and conferences.
  • 69.
    • Ethical Techniques to Analyze Competitors
      • B enchmark competitors’ products and services.
      • Get competitors’ credit reports.
      • Use the internet to learn more about competitors.
      • Visit competitors to observe their operations.
  • 70. Chapter 3 Internal Analysis of Strenghts and Weaknesses Part 2 SWOT Analysis
  • 71. LEARNING OBJECTIVES
    • THE ASSETS’ ANALYSIS
    • THE RESOURCE BASED VIEW
    • THE VALUE CHA I N ANALYS I S
  • 72. Why Do a Competitive Strength Assessment ?
    • Reveals firm’s competitive position
    • Pinpoints the company’s competitive strengths and weaknesses
    • Identifies competitive advantage, parity, or disadvantage
    • Identifies possible offensive attacks
    • Identifies possible defensive actions
  • 73. The Assets’ A nalysis
        • Tangible assets
          • Ford’s Cash Reserves
          • 3 M ’ s Patents
          • Coca’s cola’s formula
        • Intangible assets
          • Nike - Brand Name
          • Dell – Reputation
          • GE- Welch’s Leadership
        • Organizational capabilities
          • Dell’s C ustomer Service
          • Sony’s Product Development
          • 3 M ’ s Innovation
  • 74. Ratio of Market Value to Book Value for Selected Companies Annual Market Book Ratio of Sales Value Value Market to Company ($ billions) ($ billions) ($ billions) Book Value Exhibit 4.1 Ratio of Market Value to Book Value for Selected Companies eBay 1.2 30.8 3.9 7.9 Microsoft 28.4 254.1 58.3 4.4 Intel 26.8 142.1 35.4 4.0 General Motors Corp. 182.1 20.0 9.4 2.1 Nucor (Steel) 4.8 3.9 2.3 1.7 J. C. Penney 32.3 5.0 6.4 .78 Note: The data on market valuations are as of June 16, 2003. All other financial data is based on the most recently available balance sheets and income statements.
  • 75. The Central Role of Knowledge in Today’s Economy
    • Creation of wealth in a knowledge economy
      • Effective management of knowledge workers
      • Intellectual capital
      • Assets such as
        • Reputation
        • Employee loyalty and commitment
        • Customer relationships
        • Company values
        • Brand names
        • Experience and skills of employees
  • 76. The Central Role of Knowledge in Today’s Economy
    • Intellectual capital = Market value of the firm – Book value of the firm
    • How do companies create value in the knowledge-intensive economy?
      • Human capital (individual capabilities, knowledge, skills, and experience of the company’s employees and managers)
      • Social capital (the network of relationships that individuals have throughout the organization)
      • Knowledge
        • Explicit knowledge
        • Tacit knowledge
  • 77. Human Capital: The Foundation of Intellectual Capital Exhibit 4.2 Human Capital: Three Interdependent Activities
  • 78. Microsoft Employees Who Have Left the Company for Other Businesses Company What It Does Defectors from Microsoft Exhibit 4.4 Microsoft Employees Who Have Left the Company for Other Businesses Source: Reprinted by permission of the Wall Street Journal , Copyright ©2000 Dow Jones & Company, Inc. All Rights Reserved Worldwide. License number 397221136576. Crossgain Builds software around 23 of 60 employees XMl computer language ViAir Makes software for Company declines to wireless providers specify CheckSpace Builds online payment Company says “a good service for small businesses chunk” of its 30 employees digiMine Sells data mining service About 15% of 62 employees in addition to the 3 founders Avogadro Builds wireless notification 8 of 25 employees software Tellme Networks Offers information like stock About 40 of 250 employees; quotes and scores over the another 40 from the former phone Netscape
  • 79. The Resource Based View ’s Types of Strategic Resources
    • Competencies: Internal capabilities that a company performs better than other capabilities.
    • Core competencies: Competencies that are central, not peripheral, to a company’s strategy and operations.
    • Distinctive competencies: Competencies that are sources of sustainable competitive advantage.
    Firms are unique bundles of relatively immobile resources :
  • 80. Examples: Distinctive Competencies
    • Sharp Corporation
      • Competencies in flat-panel display technology
    • Toyota, Honda, Nissan
      • Low-cost, high-quality manufacturing capabilities and short design-to-market cycles
    • Intel
      • Capability to design and manufacture ever more powerful microprocessors for PCs
  • 81. Examples: Distinctive Competencies
    • Sony
      • Miniaturization
    • Honda
      • Motor Technology
    • Boeing
      • Large scale system integration, efficient design and manufacturing, and customer knowledge
  • 82. Characteristics of Strategic Resources
    • In Demand (valuable)
    • Scarce (rare)
    • Difficult & costly to imitate
    • Appropriability
    • Nonsubstitutable or durable
  • 83. Sample Strategic Resources
      • Competitively Superior Value
        • Walmart’s Logistics – Allowed better pricing
      • Resource Scarcity
        • OPEC’s Oil Reserves – Finite oil reserves
      • Appropriability
        • Who profits from a resource?
          • “ Mickey Mouse does not have an agent”
  • 84.
      • Inimitability
        • Priceline’s pricing for air tickets
        • Wendy’s Drive Through
          • Path dependency - Steinway with Pianos
          • Causal ambiguity – South West Airlines
          • Economic Deterrence
      • Durability
        • How long will the competitive advantage last?
          • Patentable products – longer durability
    Sample Strategic Resources
  • 85. R esources’ Characteristics and Implications * AIR = Average Industry Returns valuable? rare? difficult or costly to imitate? Non - substitutable? Consequences Performance Implications No No No No Competitive Disadvantage Below AIR * Yes No No Yes/No Competitive Parity AIR Yes Yes No Yes/No Temporary Advantage AIR to Above AIR Yes Yes Yes Yes Sustainable Competitive Advantage Above AIR
  • 86. Assessing a Company’s Competitive Strength vs. Key Rivals
    • 1. List industry key success factors and other relevant measures of competitive strength
    • 2. Rate firm and key rivals on each factor using rating scale of 1 - 10 (1 = weak; 10 = strong)
    • 3. Decide whether to use a weighted or unweighted rating system
    • 4. Sum individual ratings to get overall measure of competitive strength for each rival
    • 5. Determine whether the firm enjoys a competitive advantage or suffers from competitive disadvantage
  • 87. An Unweighted Competitive Strength Assessment KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Technological skills Dealer network/distribution New product innovation Financial resources Relative cost position Customer service capability Overall strength rating ABC Co. Rival 1 Rival 2 8 5 10 8 7 10 2 10 4 10 1 7 9 4 10 9 4 10 5 10 7 5 10 3 5 7 10 61 58 71 Rival 3 1 1 5 3 5 5 3 1 1 25 Rival 4 6 6 1 8 1 1 1 4 4 32 Rating Scale: 1 = Very weak; 10 = Very strong
  • 88. A Weighted Competitive Strength Assessment KSF/Strength Measure Quality/product performance Reputation/image Manufacturing capability Technological skills Dealer network/distribution New product innovation Financial resources Relative cost position Customer service capability Rival 1 Rival 2 5/0.50 10/1.00 7/0.70 10/1.00 10/1.00 4/0.40 1/0.05 7/0.35 4/0.20 10/0.50 4/0.20 10/0.50 10/1.00 7/0.70 10/3.50 3/1.05 7/1.05 10/1.50 ABC Co. 8 / 0.80 8/0.80 2/0.20 10/0.50 9/0.45 9/0.45 5/0.50 5/1.75 5/0.75 Rival 3 1/0.10 1/0.10 5/0.50 3/0.15 5/0.25 5/0.25 3/0.30 1/0.35 1/0.15 Rival 4 6/0.60 6/0.60 1/0.10 8/0.40 1/0.05 1/0.05 1/0.10 4/1.40 4/1.60 Weight 0.10 0.10 0.10 0.05 0.05 0.05 0.10 0.35 0.15 Rating Scale: 1 = Very weak; 10 = Very strong Sum of weights 1.00 Overall strength rating 6.20 8.20 7.00 2.10 2.90
  • 89. Risk of Core Rigidities
    • When firms excel at an activity, they can become over committed to it and rigid.
      • Incentives and culture may reward current competencies while thwarting development of new competencies.
      • Dynamic capabilities are competencies that enable the firm to quickly respond to change, emerging markets and major technological discontinuities
      • firm may develop a set of abilities that enable it to rapidly deploy new product development teams for a new opportunity ,
      • firm may develop competency in working with alliance partners to gain needed resources quickly.
  • 90. Risk of Core Rigidities
    • To develop dynamic competencies , a firm:
      • Invests heavily in research areas likely to provide scientific breakthroughs
      • Develops pilot plants to experiment with new products and production processes
      • Manages its relationships with alliance partners as an integrative and flexible system of capabilities that extend the firms boundaries not as individual relationships focused on particular projects
  • 91. The Value Chain Analysis
    • Disaggregates a business into sets of activities
      • Primary Activities – Inbound logistics --- Operations ----Outbound logistics ---- marketing and Sales and service
      • Support activities – General Administration, HRM, R&D, Systems Development
    • How to do a VCA
      • Identify key activities
      • Allocate costs to each activity
      • Identify the activities that differentiate the firm
      • Examine the Value Chain
        • Different activities may be important – industry and strategy
        • Importance of activities can vary based on a company position in a larger scheme of activities
  • 92. Support Activities Primary Activities Value Chain Analysis Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service helps to identify which resources and capabilities can add value MARGIN MARGIN
  • 93. The Value Chain System Upstream Value Chains A Company’s Own Value Chain Downstream Value Chains Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners Activities, Costs, & Margins of Suppliers Buyer/User Value Chains
  • 94. Grand Strategies Chapter 4 Part 3 Choice of Strategy
  • 95. LEARNING OBJECTIVES
    • LONG TERM OBJECTIVES
    • S I NGLE BUS I NESS GROWTH STRATEGIES
    • MULTI BUS I NESS GROWTH STRATEGIES
    • COOPERATIVE GROWTH STRATEGIES
    • DOWNSCOPING STRATEGIES
  • 96. L ong T erm Objectives & Grand Strategies
    • Companies have to make many fundamental decisions about their path to future success
        • Single Business vs. Multiple business
        • Growth vs. Downscoping of business
        • Profit vs. Revenue increase
        • Economic viability, Public Responsibility
        • Technological leader vs. Follower
    • Decisions depend on
        • Industry attractiveness
        • CEO’s disposition
        • Company’s availability of funds and ability to borrow
        • Competitors ’ actions
  • 97. Types of LONG TERM OBJECTIVES
    • Business Oriented –
      • Profitability, return on equity
      • competitive position, market share
      • technological leadership , innovation rate
      • Employee Oriented –
      • Employee Development, inventory of workers’ skill
      • Employee Relations, job satisfaction & loyality levels
      • Productivity , rate of decrease in customer complaints and defective items
  • 98. List of GRAND STRATEGIES
    • GROWTH
      • Single business growth strategies
        • Concentration
        • Market Di versification / Development
        • Product Differentiation / Development
        • Radical Innovation ( Product Diversification )
        • Horizontal integration
        • Vertical integration
      • Multi business growth strategies
        • Concentric Diversification
        • Conglomerate Diversification
    • DOWNSCOPING
        • Turnaround
        • Divestiture
        • Liquidation
      • Cooperative growth strategies
        • Joint ventures
        • Strategic alliances
        • Consortia
  • 99. Concentration
    • Focus on a single product in a single market
      • Policy Options:
        • increasing present customers’ rate of use
        • attracting competitors’ customers
        • attracting non-users
      • Successful when
        • Products are distinctive
        • Markets are stable
        • Company has a high market share
  • 100. Market Diversification
    • Exploiting product knowledge in multiple markets
      • Attracting other segments within the same market by using
          • other channels of distribution
          • other media for advertisement
      • Opening additional geographic markets (geographic expansion)
  • 101. Product Development
    • Developing new products for present markets
      • Developing related products by adapting present products to the changing needs of the customers
        • by changing the shape, appearance, size, ingredients, intensity, etc. of the products
      • Developing quality variations
      • Developing additional models and sizes (product proliferation)
  • 102. Radical Innovation
      • Spend resources on R&D for technological patents
      • Stay technologically ahead of competition
      • Take advantage of specialized knowledge by charging a premium on the products
      • Reinvest profits in R&D
  • 103. Integration
    • Growth by acquisitions and mergers
    • Horizontal Integration
      • Acquisition of firms that operate in similar industries to develop market share
    • Vertical Integration
      • Acquisition of firms that supply raw materials - Backward integration
      • Acquisition of firms that provide distribution and marketing facilities - Forward integration
  • 104. Multi Business Growth Strategies
    • Concentric Diversification
      • Businesses are related on the basis of similar product technology, market knowledge or production technology
      • Focus on synergy
      • Examples - Honda, Eastman Kodak , Philip Morris
    • Conglomerate Diversification
      • Companies use internal capital to expand to businesses that are attractive and offer great opportunities to grow
      • Focus on profits
      • Examples- ITT, General Electric, Westinghouse
  • 105. Cooperation strategies
    • Why should companies cooperate with other s
      • Reduce r isk and uncertainty
      • Shar e different and scare resources
      • Learn know-how and market knowledge
      • Share the benefits of c omplementary assets
    • Types of strategies for cooperation
        • Joint ventures
        • Strategic alliances
        • Consortia
  • 106.
    • Joint venture (joint ownership)
    • A child company created and operated for the benefits of the co-owners (parent companies)
    • Advantages: easy access to capital, raw materials and foreign markets
    • Disadvantages: limited discretion, control, & profits
    • Parents: Samsung Electronics (Korean) & France Telecom (French); Child: Orange Mobile Phone Company (British)
    • Parents: Chrysler Corp. (US) & Mitsubishi (Japanese); Child: Diamond Star Company (US)
    Cooperation strategies
  • 107.
    • Strategic Alliances
    • Long term mutually beneficial cooperation beyond supplier-customer relationship, but without any kind of equity sharing
    • Licensing : transfer of some industrial property rights (patents, trademark, know-how, etc.) in return for a favor (royalty payment, or avoiding tariffs or quotas)
    • Subcontracting : manufacturing done by contractor having comparative advantages in factors (inputs) of production
    • Franchising : marketing done by franchisee having comparative advantages in local markets
    • Outsourcing : supporting activities done by different outer providers having comparative advantages in any one of them
    Cooperation strategies
  • 108.
    • Consortia (network)
    • A large scale cooperation among numerous local companies operating especially within the same industry (with or without equity sharing)
    • Keiretsu in Japanese
    • Up to 50 firms holding each others’ stocks, coordinated by a large company; ex: Mitsubishi
    • Or by a bank; ex: sank EGS Bank in Turkey
    Cooperation strategies
  • 109. Downscoping Strategies
    • Turnaround
    • A kind of crisis management when profits decline bec ause of :
    • Economic recessions in the general environment
    • Innovative breakthroughs in the task environment
    • Product inneficiencies in the internal environment
    • If strategists believe that stability and recovery are possible, they may follow either way:
    • Cost reduction by getting rid off some employees, promotional activities, and low-margin customers
    • Asset reduction by g etting rid of unproductive assets , i.e. some land, buildings, cars, equipment
  • 110. Downscoping Strategies
    • Divestiture
      • Selling off a business to another business in order to:
      • to reduce debts of a declining investment in our portfolio
      • to raise capital by sacrificing a successful investment for the sake of the total corporation
      • to improve the image of the corporation on the eyes of the governmental bodies regulating antitrust actions
      • Why to buy an unsuccessful investment of a nother firm ?
      • “ we have necessary skills and resources to recover”
      • or “we can create a synergy between this newly bought company and our present investments”
    • Liquidation : Firm sold in parts to raise funds
  • 111. Grand Strategy Selection Matrix Overcome Weakness Maximize Strengths External Focus Internal Focus Vertical Integration Coglomorate Diversification Horizontal Integration Concentric Diversification, Joint Ventures Turnaround Divestiture Liquidation Concentration Market / Product Development Innovation
  • 112. Chapter 5 Strategic Business Unit (SBU) Level Strategies Part 3 Choice of Straetgy
  • 113. LEARNING OBJECTIVES
    • COST LEADERSHIP STRATEGY
    • DIFFERENTIATION STRATEGY
    • FOCUS STRATEGY
    • COMBINED STRATEGY
    • STRATEGY CHOICE CONSIDERING INDUSTRY LIFE CYCLES
  • 114. Types of Competitive Advantage and Sustainability
    • Three generic strategies to overcome the five forces and achieve competitive advantage
      • Overall cost leadership
        • Low-cost-position relative to a firm’s peers
        • Manage relationships throughout the entire value chain
      • Differentiation
        • Create products and/or services that are unique and valued
        • Non-price attributes for which customers will pay a premium
      • Focus strategy
        • Narrow product lines, buyer segments, or targeted geographic markets
        • Attain advantages either through differentiation or cost leadership
  • 115. Three Generic Strategies Exhibit 5.1 Three Generic Strategies Source: Reprinted with permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. Competitive Advantage Uniqueness Perceived by the Customer Low Cost Position Strategic Target Particular Segment Only Industrywide
  • 116.
    • Performance
    Competitive Advantage Adapted from Exhibit 4.5 Issues to Consider in Creating Value through Human Capital, Social Capital, and Technology Source: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York: AMACON, 1999), pp. 63-64. Return on investment (%) 35.5 32.9 30.2 17.0 23.7 17.8 Sales Growth (%) 15.1 13.5 13.5 16.4 17.5 12.2 Gain in Market Share (%) 5.3 5.3 5.5 6.1 6.3 4.4 Sample Size 123 160 100 141 86 105 Differentiation and Cost Differentiation Cost Differentiation Focus Cost Focus Stuck in the Middle
  • 117. Overall Cost Leadership
    • Integrated tactics
      • Aggressive construction of efficient-scale facilities
      • Vigorous pursuit of cost reductions from experience
      • Tight cost and overhead control
      • Avoidance of marginal customer accounts
      • Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising
  • 118. Value-Chain Activities Exhibit 5.3 Value-Chain Activities: Examples of Overall Cost Leadership Source: Adapted with the permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter. Shared purchasing operations with other business units Effective policy guidelines to ensure low cost raw materials (with acceptable quality levels) Expertise in process engineering to reduce manufacturing costs Effective use of automated technology to reduce scrappage rates Effective orientation and training programs to maxi- mize employee productivity Minimize costs associated with employee turnover through effective policies Standardized account- ing practices to minimize personnel required Few management layers to reduce overhead costs Effective layout of receiving dock operation Effective use of quality control inspectors to minimize rework on the final product Effective utilization of delivery fleets Purchase of media in large blocks Sales force utilization is maximized by territory management Thorough service repair guidelines to minimize repeat maintenance calls Use of single type of repair vehicle to minimize costs Firm infrastructure Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service
  • 119. Overall Cost Leadership (Cont.)
    • A firm following an overall cost leadership position
      • Must attain parity on the basis of differentiation relative to competitors
      • Parity on the basis of differentiation
        • Permits a cost leader to translate cost advantages directly into higher profits than competitors
        • Allows firm to earn above-average profits
  • 120. Overall Cost Leadership: Improving Competitive Position vis- à-vis the Five Forces
    • An overall low-cost position
      • Protects a firm against rivalry from competitors
      • Protects a firm against powerful buyers
      • Provides more flexibility to cope with demands from powerful suppliers for input cost increases
      • Provides substantial entry barriers from economies of scale and cost advantages
      • Puts the firm in a favorable position with respect to substitute products
  • 121. Pitfalls of Overall Cost Leadership Strategies
    • Too much focus on one or a few value-chain activities
    • All rivals share a common input or raw material
    • The strategy is initiated too easily
    • A lack of parity on differentiation
    • Erosion of cost advantages when the pricing information available to customers increases
  • 122. Differentiation
    • Differentiation can take many forms
      • Prestige or brand image
      • Technology
      • Innovation
      • Features
      • Customer service
      • Dealer network
  • 123. Value-Chain Activities: Examples of Differentiation Exhibit 5.5 Value-Chain Activities: Examples of Differentiation Source: Adapted with the permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter. Facilities that promote firm image Superior MIS—To integrate value-creating activities to improve quality Provide training and incentives to ensure a strong customer service orientation Programs to attract talented engineers and scientists Excellent applications engineering support Superior material handling and sorting technology Use of most prestigious outlets Purchase of high-quality components to enhance product image Superior material handling operations to minimize damage Quick transfer of inputs to manufactur- ing process Flexibility and speed in responding to changes in manu-facturing specs Low defect rates to improve quality Accurate and responsive order processing Effective product replenish-ment to reduce customer’s inventory Creative and innovative advertising programs Fostering of personal relation-ship with key customers Rapid response to customer service requests Complete inventory of replacement parts and supplies Widely respected CEO enhances firm reputation Firm infrastructure Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service
  • 124. Differentiation
    • Firms may differentiate along several dimensions at once
    • Firms achieve and sustain differentiation and above-average profits when price premiums exceed extra costs of being unique
    • Successful differentiation requires integration with all parts of a firm’s value chain
    • An important aspect of differentiation is speed or quick response
  • 125. Differentiation: Improving Competitive Position vis- à-vis the Five Forces
    • Differentiation
      • Creates higher entry barriers due to customer loyalty
      • Provides higher margins that enable the firm to deal with supplier power
      • Reduces buyer power because buyers lack suitable alternative
      • Reduces supplier power due to prestige associated with supplying to highly differentiated products
      • Establishes customer loyalty and hence less threat from substitutes
  • 126. Potential Pitfalls of Differentiation Strategies
    • Uniqueness that is not valuable
    • Too much differentiation
    • Too high a price premium
    • Differentiation that is easily imitated
    • Dilution of brand identification through product-line extensions
    • Perceptions of differentiation may vary between buyers and sellers
  • 127. Focus
    • Focus is based on the choice of a narrow competitive scope within an industry
      • Firm selects a segment or group of segments (niche) and tailors its strategy to serve them
      • Firm achieves competitive advantages by dedicating itself to these segments exclusively
    • Two variants
      • Cost focus
      • Differentiation focus
  • 128. Focus: Improving Competitive Position vis- à-vis the Five Forces
    • Advantages of Focus Strategies :
      • Creates barriers of either cost leadership or differentiation, or both
      • Also focus is used to select niches that are least vulnerable to substitutes or where competitors are weakest
    • Pitfalls of Focus Strategies :
    • Erosion of cost advantages within the narrow segment
    • Focused products and services still subject to competition from new entrants and from imitation
    • Focusers can become too focused to satisfy buyer needs
  • 129. Combination Strategies: Integrating Overall Low Cost and Differentiation
    • Primary benefit of successful integration of low-cost and differentiation strategies is difficulty it poses for competitors to duplicate or imitate strategy
    • Goal of combination strategy is to provide unique value in an efficient manner
  • 130. Three Combination Approaches
    • Automated and flexible manufacturing systems
    • Exploiting the profit pool concept for competitive advantage
    • Coordinating the “extended” value chain by way of information technology
  • 131. Combination Strategies: Improving Competitive Position vis- à-vis the Five Forces
    • Firms that successfully integrate differentiation and cost strategies obtain advantages of competition from both approaches
      • High entry barriers
      • Bargaining power over suppliers
      • Reduces power of buyers (fewer competitors)
      • Value position reduces threat from substitute products
      • Reduces the possibility of head-to-head rivalry
  • 132. Pitfalls of Combination Strategies
    • Firms that fail to attain both strategies may end up with neither and become “stuck in the middle”
    • Underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain
    • Miscalculating sources of revenue and profit pools in the firm’s industry
  • 133. Industry Life-Cycle States: Strategic Implications
    • Life cycle of an industry
      • Introduction
      • Growth
      • Maturity
      • Decline
    • Emphasis on strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle
  • 134. Stages of the Industry Life Cycle Adapted from Exhibit 5.8 Stages of the Industry Life Cycle
  • 135. Stages of the Industry Life Cycle Generic strategies Differentiation Differentiation Differentiation Overall cost Overall cost leadership leadership Focus Market growth rate Low Very large Low to Negative moderate Number of segments Very few Some Many Few Intensity of competition Low Increasing Very intense Changing Emphasis on product design Very high High Low to Low moderate Stage Introduction Growth Maturity Decline Factor
  • 136. Stages of the Industry Life Cycle Emphasis on process design Low Low to High Low moderate Major functional area(s) of concern Research and Sales and Production General Development marketing management and finance Overall objective Increase Create Defend Consolidate, market share consumer market share maintain, awareness demand and extend harvest, or product life exit cycles Stage Factor Introduction Growth Maturity Decline
  • 137. Strategies in the Introduction Stage
    • Products are unfamiliar to consumers
    • Market segments not well defined
    • Product features not clearly specified
    • Competition tends to be limited
    Strategies
      • Develop product and get users to try it
      • Generate exposure so product becomes “standard
  • 138. Strategies in the Growth Stage
    • Characterized by strong increases in sales
    • Attractive to potential competitors
    • Primary key to success is to build consumer preferences for specific brands
    Strategies
      • Brand recognition
      • Differentiated products
      • Financial resources to support value-chain activities
  • 139. Strategies in the Maturity Stage
    • Aggregate industry demand slows
    • Market becomes saturated, few new adopters
    • Direct competition becomes predominant
    • Marginal competitors begin to exit
    Strategies
      • Efficient manufacturing operations and process engineering
      • Low costs (customers become price sensitive)
  • 140. Strategies in the Decline Stage
    • Industry sales and profits begin to fall
    • Strategic options become dependent on the actions of rivals
    Strategies
      • Maintaining
      • Exiting the market
      • Harvesting
      • Consolidation
  • 141. DIVERSIFICATION
      • Portfolio Management
      • Allocate resources among business units
      • Expertise of corporate office in finding attractive firms to acquire
      • Provide financial resources to business units on favorable terms reflecting the corporation’s overall ability to raise funds
      • Provide high quality review and coaching for units
  • 142. GE Nine Cell Portfolio Matrix
    • Components of Industry attractiveness
      • Nature of rivalry
        • number, size & strength of competitors, price wars
      • Strength of buyers and sellers
      • Ease of New Entrants
      • Economic Factors
        • market saturation or growth, capital intensity, profitability
    • Components of Business strength
        • Cost advantage, quality image, manufacturing flexibility, delivery speed, liquidity, profitability, skillful personnel
  • 143. GE Nine Cell Matrix Industry Attractiveness Business Strength Based on the subjective assessments on the levels of market attractiveness and business strengths, each SBU falls in one of the NINE different cells of strategic option . High Medium Low High Invest and Grow Selective Growth Grow or Let Go Medium Selective Growth Grow or Let Go Harvest Low Grow or Let Go Harvest Divest
  • 144. Boston Consulting Group Matrix Portfolio of Strategic Business Units High Market Share Low Industry Growth Rate High Low $$$ 1 2 3 4
      • cash cow s
      • stars
      • question marks
      • dogs
  • 145.
    • 1. Stars. These are products that are in high growth markets with a relatively high share of that market. Stars tend to generate high amounts of income. Keep and build your stars.
    • 2. Question Marks ( Problem Children ) . These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share.
    Boston Consulting Group Matrix
  • 146.
    • 3. Cash Cows . These are products with a high share of a low growth market. Cash Cows generate more than is invested in them. So keep them in your portfolio of products for the time being.
    • 4. Dogs. These are products with a low share of a low growth market. They do not generate cash for the company, they tend to absorb it. Get rid of these products.
    Boston Consulting Group Matrix
  • 147. Boston Consulting Group Matrix Key Each circle represents one of the firm’s business units Size of circle represents the relative size of the business unit in terms of revenue $ $
  • 148. National Sources of International Competitive Power Chapter 6 Part 4 Global Competition
  • 149. LEARNING OBJECTIVES
    • FACTOR CONDITIONS
    • DEMAND CONDITIONS
    • RELATED AND SUPPORT I NG INDUSTR I ES
    • F I RM STRATEGY, STRUCTURE AND R I VALRY
    • GOVERNMENTAL REGULATIONS & CHANCE
  • 150. The Global Economy: A B rief Overview
    • Opportunities and risks when firms diversify abroad
      • Trade across nations will exceed trade within nations
      • Rise of market capitalism around the world
      • Transfer of money from rich to poor countries
        • Equity
        • Bond investments
        • Commercial loans
  • 151. The Global Economy: A B rief Overview
    • Opportunities and risks when firms diversify abroad
      • Economies of East Asia have grown rapidly, but little progress in the rest of the world
      • Poor education levels in many countries
      • Failure to manage broader economic factors in some countries
        • Interest rates
        • Inflation
        • Unemployment
  • 152. Factors Affecting a Nation’s Competitiveness
    • Factor conditions
      • Nation’s position in factors of production
        • Skilled labor
        • infrastructure
    • Demand conditions
      • Nature of home-market demand
        • Industry’s product
        • Industry’s service
    Factor conditions Demand conditions
  • 153. Factors Affecting a Nation’s Competitiveness
    • Related and supporting industries
      • Presence or absence in the nation of internationally competitive
        • Supplier industries
        • Other related industries
    Factor conditions Demand conditions Related and supporting industries
  • 154. Factors Affecting a Nation’s Competitiveness
    • Firm strategy, structure, and rivalry
      • Conditions in the nation governing how companies are
        • Created
        • Organized
        • Managed
      • Nature of domestic rivalry
    Factor conditions Demand conditions Related and supporting industries Firm strategy, structure, and rivalry
  • 155. Factor Conditions
    • To achieve competitive advantage, factors of production must be created
      • Industry specific
      • Firm specific
      • Pool of resources at a firm’s or country’s disposal is less important than the speed and efficiency with which the resources are deployed
  • 156. Demand Conditions
    • Demands that consumers place on an industry for goods and services
      • Demanding consumers push firms to move ahead of companies from other nations
      • Demanding consumers drive firms in a country to
        • Meet high standards
        • Upgrade existing products and services
        • Create innovative products and services
  • 157. Related and Supporting Industries
    • Related and supporting industries
      • Enable firms to manage inputs more effectively
        • Strong supplier base adds efficiency to downstream activities
        • Competitive supplier base lets a firm obtain inputs using cost-effective, timely methods
      • Allow joint efforts among firms
      • Create the probability that new entrants will enter the market
  • 158. Firm Strategy, Structure and Rivalry
    • Rivalry is intense in nations with conditions of
      • Strong consumer demand
      • Strong supplier bases
      • High new entrant potential from related industries
    • Competitive rivalry increases the efficiency with which firms develop, market, and distribute products and services within the home country
  • 159. Firm Strategy, Structure and Rivalry
    • Competitive rivalry increases the efficiency with which firms
      • Develop within the home country
      • Market within the home country
      • Distribute products and services within the home country
  • 160. Firm Strategy, Structure and Rivalry
    • Domestic rivalry provides a strong impetus for firms to
      • Innovate
      • Find new sources of competitive advantage
    • Domestic rivalry forces firms to look beyond national borders for new markets
  • 161. Porter’s Diamond of National Advantage: As Applied to India