Class #1 : Powerpoint slides shown in class (Value Chain Analysis)

International DevelopmentStrategy2009-10

9 sessions * 2 hours
Language : english

Contact : luc.beal@idraclyon.com
Documents availableat : http://www.slideshare.net/atala67/

Syllabus of course

Analyzing company activities :

(1) Industry analysis
(2) Specialization of company in industry
(3) Company Value chain
 Improving performance :
(1) repositioning within industry
(2) outsourcing
(3) National and international Partnerships :
- production
- marketing
- technology

« International Development Strategy »:
Definition :
“decision process leading a firm to internationalize some parts of its activities, resulting in some competitive advantage ”.
Requirements :

Understand activities : VALUE CHAIN ANALYSIS
Evaluate activities contribution to competitiveness

-Assess environment : markets, competitors

Critical Elements in Porter’s Frameworks

VALUE CHAIN ANALYSIS : … is a map of the firm’s activities ;
Goal :

to add as much value as possible as cheaply as possible, and to capture the value.
to identify areas where the firm has potential to create and capture value, relatively to competitors’ capabilities.

the firm = chain of value-creating activities. Goal : analyze the specific activities through which firms can create a competitive advantage.
Michael Porter (1985) identified a set of interrelated generic activities common to a wide range of firms. The resulting model is known as the value chain :

Any or all of these primary activities may be vital in developing a competitive advantage. For example, logistics activities are critical for a provider of distribution services, and service activities may be the key focus for a firm offering on-site maintenance contracts for office equipment.
These five categories are generic and portrayed here in a general manner. Each generic activity includes specific activities that vary by industry.

The primary value chain activities described above are facilitated by support activities. Porter identified four generic categories of support activities, the details of which are industry-specific. Support activities often are viewed as "overhead", but some firms successfully have used them to develop a competitive advantage, for example, to develop a cost advantage through innovative management of information systems.
Procurement : purchasing the raw materials and other inputs
Technology Development: R&D, process automation & other technology development
HR Management: activities associated with recruiting, development, & compensation of employees.
Firm Infrastructure : includes activities such as finance, legal, quality management, etc.

Value Chain analysis
Activities’ contribution to
Competitiveness
(1) Activities give distinct advantage on competitors (better, cheaper…)
(2) Activitiesgiveadvantage but toocostly
(3) Activitiesgive no advantage
Advantage
Each Activity’s evaluation =
Cost

Value Chain analysis
Valuable ?
Rare?
Activity x
Costly to Imitate?

VALUE CHAIN ANALYSIS  COMPETITIVE ADVANTAGE
Sometimes even : No innovation, only reconfiguration of activities
Example 1 :Fedex changes nature or delivery business by simply reconfiguratingoutbound logistics & HR to originate overnight delivery business
Example 2 : fashion clothing startup shortens operation by manufacturing to order, suppressing inventory of finished products.

How the Internet revolutionizes VALUE CHAIN ANALYSIS
Infrastructures: Web-based and distributed financial an d ERP systems
HR mngt: Self-service HR and benefits admin. ; web-based training ; time and expense reporting
Technology dvl: collaborative product design across locations ;
Procurement : Internet-enabled demand planning ; linkage with suppliers ( purchase, inventory and forecasting systems) ; direct and indirect procurement via marketplace (Alibaba, B2B platforms…)

Inbound logistics : real-time integrated scheduling, shipping, warehouse mngt &planning across company and suppliers
Operations : Integrated information exchange, scheduling &decision making in in-house plants, contract assemblers, and component suppliers ;
Outbound logistics : real-time transaction of orders (initiated by end customer, sales person or a channel partner) ; automated customer-specific terms,
Marketing & Sales : Online sales channels, real-time access to customer information (CRM), dynamic pricing, product availability and order entry ; online product configurators, push advertising ; real-time customer feedback (surveys…)
(eBay / Skype),
After Sales Services :online support (eBay / Skype), customer self service

Why international development?
production (competitiveness)
marketing
resources:
(a) Raw materials
(b) Technology / Innovation
(c) Finance

Why international development?
Tax: vat
SiliconValley
SiliconValley(V.C.)
FMCG : Nestlé, Philip Morris
Market : end of life cycle
Trend :
multiplication of technology centres.

Internationalization of production.
 Question: does it equal outsourcing?

Internationalization of production.
Outsourcing : the purchase of value-creating activity from external supplier. The trend continues rapidly, more in some industries than others.
Why is outsourcing effective ?
- comparative advantage (cheaper labor, fewer regulations)
- efficiency : economies of scale (FABs for Microchips)
FABs for Microchips
… outsourcing is therefore a normal consequence of specialization, where companies focus on their strengths.

1980 : IBM, the missed outsourcing opportunity :

(3) Company Value-chain
No outsourcing (‘integral structure’)

More outsourcing  more dependence?
Less outsourcing  more independence?