2 2 3 routine decisions are not strategic can be replaced by policy or delegated Importance of making a decision Soccer analogy Road analogy Macro environment Stakeholders suppliers customers competitors Government Owners Employees
8 8 9
19 19 14
1 1 1
Examples: fax machines, dial-up Internet service
VHS vs. DVD Cell phones vs. landline phones Dial-up vs. high-speed Internet services Yellow pages vs. Internet-based local service
17 6 Dial-up vs. high-speed Internet services AOL, Nintendo (cartridge vs. DVD-based games)
1 1 1
16 16 15
1 1 1
MBA290: ADVANCED STRATEGICMANAGEMENT Professor Stanley HanCollege of Business Administration email@example.com 1
Course Overview: Objectives To acquire familiarity with the principal concepts, frameworks and techniques of strategic management. To gain expertise in applying these concepts, frameworks and techniques in order to - understand the reasons for good or bad performance by an enterprise, - generate strategy options for an enterprise, - assess available options under conditions of imperfect knowledge, - select the most appropriate strategy, - recommend the best means of implementing the chosen strategy. 2
Course Overview: Objectives (cont’d) To integrate the knowledge gained in previous courses. To develop your capacity as a general manager in terms of - an appreciation of the work of the general manager, - the ability to view business problems from a general management perspective, - the ability to develop original and innovative approaches to strategic problems, - developing business judgment. 3
THE CONCEPT OF THE CONCEPT OF STRATEGY STRATEGYThe Concept of Strategy and the Pursuit of Sustainable Above-Normal Profits
Domain of Strategy Domain of Strategy• strategic competitiveness and above normal returns• concerns managerial decisions and actions which materially affect the success and survival of business enterprises• involves the judgment necessary to strategically position a business and its resources so as to maximize long-term profits in the face of irreducible uncertainty and aggressive competition• strategy is the linkage between a business and its current and future environment
Definition Definition• The determination of the long run goals and objectives of an enterprise, the adoption of courses of action and the allocation of resources necessary for carrying out these goals Alfred Chandler, Strategy and Structure
Levels of StrategyCORPORATE CORPORATESTRATEGY HEAD OFFICEBUSINESSSTRATEGY Division A Division B R&D R&DFUNCTIONAL Personnel PersonnelSTRATEGIES Finance Finance Production Production Marketing/Sales Marketing/Sales
Levels of Strategy Levels of Strategy• Corporate strategy... defines the scope of the business in terms of the industries and markets in which it competes. • includes decisions about diversification, vertical integration, acquisitions, new ventures, divestments, allocation of scarce resources between business units• Business strategy... is concerned with how the firm competes within a particular industry or market... to win a business unit must adopt a strategy that establishes a competitive advantage over its rivals.• Functional strategy... the detailed deployment of resources at the operational level
Common Elements in Successful StrategyCommon Elements in Successful Strategy Successful Strategy EFFECTIVE IMPLEMENTATION Profound ObjectiveLong-term, simple understanding of appraisal ofand agreed upon the competitive resourcesobjectives environment $
Strategy as a Quest for Profit Strategy as a Quest for Profit• The stakeholder approach : The firm is a coalition of interest groups —it seeks to balance their different objectives The shareholder approach : The firm exists to maximize the wealth of its owners (= max. present value of profits over the life of the firm)For the purposes of strategy analysis we assume that the primary goal of the firm is profit maximization.Rationale:1) Boards of directors legally obliged to pursue shareholder interest2) To replace assets firm must earn return on capital > cost of capital (difficult when competition strong).3) Firms that do not max. stock-market value will be acquired Hence: Strategy analysis is concerned with identifying and accessingthe sources of profit available to the firm
From Profit Maximization to Value MaximizationFrom Profit Maximization to Value Maximization • Profit maximization an ambiguous goal – Total profit vs. Rate of profit – Over what time period? – What measure of profit? – Accounting profit versus economic profit (e.g. Economic Value Added: Post-tax operating profit less cost of capital Maximizing the value of the firm: Max. net present value of free cash flows: max. V = Σ t Ct (1 + r)t Where: V market value of the firm. Ct free cash flow in time t r weighted average cost of capital
The World’s Most Valuable Companies: The World’s Most Valuable Companies: Performance Under Different Profitability Measures Performance Under Different Profitability Measures COMPANY MARKET NET RETURN RETURN RETURN RETURN CAP. INCOME ON ON ON TO ($BN.) ($BN) SALES EQUITY ASSETS SHARE- (%) (%) (%) HOLDERS (%)Exxon Mobil 372 36.1 19.9 34.9 17.8 11.7General Electric 363 16.4 10.7 22.2 14.7 (1.5)Microsoft 281 12.3 40.3 30.0 18.8 (0.9)Citigroup 239 24.6 22.0 21.9 1.5 4.6BP 233 22.3 9.9 27.9 10.7 10.2Bank of America 212 16.5 27.0 14.1 1.2 2.4Royal Dutch Shell 211 25.3 14.7 26.7 11.6 11.8Wal-Mart 197 11.2 5.5 21.4 8.1 (10.3)Toyota Motor 197 12.1 10.7 13.0 4.8 (22.1)Gazprom 196 7.3 28.1 9.8 7.1 n.a.HSBC 190 15.9 23.0 16.3 1.0 (11.8)Procter & Gamble 190 8.7 17.3 13.7 6.4 7.2
Shareholder Value Maximization and Strategy Choice Shareholder Value Maximization and Strategy ChoiceThe Value Maximizing Approach to Strategy Formulation:• Identify strategy alternatives• Estimate cash flows associated with cash strategy• Estimate cost of capital for each strategy• Select the strategy which generates the highest NPVProblems:• Estimating cash flows beyond 2-3 years is difficult• Value of firm depends on option value as well as DCF valueImplications for strategy analysis:• Some simple financial guidelines for value maximization a) On existing assets—maximize after-tax rate of return b) On new investment—seek rate of return > cost of capital• Utilize qualitative strategy analysis to evaluate future profit potential
A Comprehensive Value Metrics Framework A Comprehensive Value Metrics Framework Shareholder Intrinsic Financial Value Value Value Indicators DriversMeasures: Sources: Measures: Measures:• Market value of the • Market share • Discounted cash • Return on Capital firm • Scale economies flows • Growth (of•Market value added • Innovation •Real option values revenues & operating (MVA) • Brands profits•Return to •Economic profit (EVA) shareholders
Sources of Superior Performance Sources of Superior Performance Above Normal Profits (in Excess of the Competitive Level) Avoid Be Better Than Competitors CompetitionAttractive Attractive AttractiveIndustry Strategic Niche Cost Differentiation Group Advantage Advantage Entry Mobility Isolating Barriers Barriers Mechanisms
Sources of Competitive Advantage Sources of Competitive Advantage COST COST t ro duc ADVANTAGE ADVANTAGE rp t mil a cos Si er at lowCOMPETITIVECOMPETITIVEADVANTAGE ADVANTAGE Pri fro ce m pre un mi iqu um ep rod DIFFERENTIATION DIFFERENTIATION uc t ADVANTAGE ADVANTAGE
The Experience Curve The Experience Curve The “Law of Experience” 1992 The unit cost value added to a standard product declines by a constant % (typically 20-30%) each time cumulative output doubles. 1994Cost per unit ofoutput (in 1996 real $) 1998 2000 2002 2004 Cumulative Output
Examples of Experience Curves Examples of Experience Curves Japanese clocks & watches, 1962-72 UK refrigerators, 1957-71 50 100 200 300 20K 30K 1960 Yen Price Index15K 75% 70% slope 100K 200K 500K 1,000K 5 10 50 Accumulated unit production Accumulated units (millions) (millions)
Drivers of Cost Advantage Drivers of Cost Advantage ECONOMIES OF SCALE • Indivisiblities • Specialization and division of laborECONOMIES OF LEARNING • Increased dexterity • Improved organizational routines • Process innovationPRODUCTION TECHNIQUES • Reengineering business processes PRODUCT DESIGN • Standardizing designs & components • Design for manufacture • Location advantages INPUT COSTS • Ownership of low-cost inputs • Non-union labor • Bargaining power CAPACITY UTILIZATION • Ratio of fixed to variable costs • Speed of capacity adjustment RESIDUAL EFFICIENCY • Organizational slack; Motivation & culture; Managerial efficiency
Economies of Scale: The Long-Run Economies of Scale: The Long-Run Cost Curve for a Plant Cost Curve for a Plant Sources of scale economies: - technical input/output relationships - indivisibilities - specializationCost per unit of output Minimum Units of output Efficient Plant per period Size: the point where most scale economies are exhausted
Scale Economies in Advertising: U.S. Soft Drinks Scale Economies in Advertising: U.S. Soft DrinksDespite the massive advertising budgets of brand leaders Coke and Pepsi, their main brands incur lower advertising costs per unit of sales than their smaller rivals. 0.20 Advertising Expenditure ($ per case) Schweppes SF Dr. Pepper 0.15 Tab Diet 7-Up Diet Pepsi Diet Rite 0.10 Fresca Seven Up 0.05 Sprite Dr. Pepper Pepsi Coke 0.02 10 20 50 100 200 500 1,000 Annual sales volume (millions of cases)
Applying the Value Chain to Cost Analysis: Applying the Value Chain to Cost Analysis: The Case of Automobile Manufacture The Case of Automobile Manufacture STAGE 1. IDENTIFY THE PRINCIPLE ACTIVITIES R&D TESTING, GOODS SALES DISTRI- DEALER & PARTSPURCH- DESIGN COMPONENT ASSEMBLY QUALITY INVEN- & INVEN- BUTION CUSTOMER ASING ENGNRNG MFR CONTROL TORIES MKITG SUPPORT TORIES STAGE 2. ALLOCATE TOTAL COSTS
Applying the Value Chain to Cost Analysis: The Case Applying the Value Chain to Cost Analysis: The Case of Automobile Manufacture (continued) of Automobile Manufacture (continued) --Plant scale for each -- Level of quality targets -- No. of dealersSTAGE 3. component -- Frequency of defects -- Sales / dealerIDENTIFY -- Process technology -- Level of dealer -- Plant location supportCOST -- Run length -- Frequency of defectsDRIVERS -- Capacity utilization under warranty PARTS R&D COMPONENT ASSEMBLY TESTING, GOODSPURCH- SALES INVEN- DESIGN QUALITY INVEN- DISTRI- DEALER &ASING MFR & TORIES ENGNRNG CONTROL TORIES BUTION CUSTOMER MKITG SUPPORTPrices paid --Size of commitment -- Plant scale --Cyclicality &depend on: --Productivity of -- Flexibility of production predictability of sales-- Order size R&D/design -- No. of models per plant --Customers’--Purchases per --No. & frequency of new -- Degree of automation willingness to wait supplier models -- Sales / model-- Bargaining power -- Wage levels-- Supplier location -- Capacity utilization
Applying the Value Chain to Cost Analysis: The Case Applying the Value Chain to Cost Analysis: The Case of Automobile Manufacture (continued) of Automobile Manufacture (continued) STAGE 4. IDENTIFY LINKAGES Designing different models around Consolidation of orders to increase common components and platforms discounts, increases inventories reduces manufacturing costsPRCHSNG PARTS R&D COMPONENT ASSEM- TESTING GOODS SALES DSTRBTN DLR INVNTRS DESIGN MFR BLY QUALITY INV MKTG CTMR Higher quality parts and materials Higher quality in manufacturing reduces costs of defects reduces warranty costs at later stagesSTAGE 5. RECCOMENDATIONS FOR COST REDUCTION
The Nature of Differentiation The Nature of Differentiation DEFINITION: “Providing something unique that is valuable to the buyer beyond simply offering a low price.” (M. Porter) THE KEY IS TO CREATE VALUE FOR THE CUSTOMER TANGIBLE DIFFERENTATION INTANGIBLEObservable product characteristics: DIFFERENTATION • size, color, materials, etc. Unobservable and subjective • performance characteristics that appeal to • packaging customer’s image, status, • complementary services identity, and desire for exclusivity TOTAL CUSTOMER RESPONSIVENESS Differentiation not just about the product, it embraces the whole relationship between the supplier and the customer.
Identifying Differentiation Potential: Identifying Differentiation Potential: The Demand Side The Demand SideTHE PRODUCT What needs What are key does it satisfy? attributes? FORMULATE DIFFERENTIATION Relate patterns of STRATEGY customer preferences to • Select product By what product attributes positioning in relation criteria do they to product attributes choose? THE • Select targetCUSTOMER What price customer group premiums do product attributes • Ensure customer / command? product compatibility What What are • Evaluate costs and motivates demographic, benefits of them? sociological, differentiation psychological correlates of customer behavior?
Using the Value Chain to Identify Using the Value Chain to Identify Differentiation Potential on the Supply Side Differentiation Potential on the Supply Side MIS that supports Training to support Unique product features. fast response customer service Fast new product capabilities excellence development FIRM INFRASTRUCTURE HUMAN RESOURCE MANAGEMENT TECHNOLOGY DEVELOPMENT INBOUND OPERATIONS OUTBOUND MARKETING SERVICE LOGISTICS LOGISTICS & SALES Customer technical support. Consumer credit. Availability of Quality of Defect free Fast delivery. Building brand sparescomponents & products. Efficient order reputation materials Wide variety processing
Identifying Differentiation Opportunities through Identifying Differentiation Opportunities through Linking the Value Chains of the Firm and its Linking the Value Chains of the Firm and its Customers: Can Manufacture Customers: Can Manufacture 1 5 2 3 4 Inventory holdingSupplies of steel Inventory holding Inventory holding technical support Manufacturing & aluminum Purchasing Distribution Processing Engineering Marketing Distribution Purchasing Canning Service & Design Sales CAN MAKER CANNER 1. Distinctive can design can assist canners’ marketing activities. 2. High manufacturing tolerances can avoid breakdowns in customer’s canning lines. 3. Frequent, reliable delivery can permit canner to adopt JIT can supply. 4. Efficient order processing system can reduce customers’ ordering costs. 5. Competent technical support can increase canner’s efficiency of plant utilization.
INDUSTRY ANALYSIS INDUSTRY ANALYSISAND POSITIONINGAND POSITIONINGDetermining Industry Attractiveness and Identifying Strategic Opportunities
Profitability of US Industries (selected industries only) Profitability of US Industries (selected industries only) Median return on equity (%), 1999-2005Household & Personal Products 22.7 Gas & Electric Utilities 10.4Pharmaceuticals 22.3 Food and Drug Stores 10.0Tobacco 21.6 Motor Vehicles & Parts 9.8Food Consumer Products 19.6 Hotels, Casinos, Resorts 9.7Securities 18.9 Railroads 9.0Diversified financials 18.3 Insurance: Life and Health 8.6Beverages 18.8 Packaging & Containers 8.6Mining & crude oil 17.8 Insurance: Property & Casualty 8.3Petroleum Refining 17.3 Building Materials, Glass 8.3Medical Products & Equipment 17.2 Metals 8.0Commercial Banks 15.5 Food Production 7.2Scientific & Photographic Equipt. 15.0 Forest and Paper Products 6.6Apparel 14.4 Semiconductors &Computer Software 13.9 Electronic Components 5.9Publishing, Printing 13.5 Telecommunications 4.6Health Care 13.1 Communications Equipment 1.2Electronics, Electrical Equipment 13.0 Entertainment 0.2Specialty Retailers 13.0 Airlines (22.0)Computers, Office Equipment 11.7
The Profitability of Global Industries: Return on Invested Capital, 1963-2003 Utilities 6.2 Telecom services 6.5 Transporation 6.9 Energy 7.7 Materials 8.4 OVERALL AVERAGE 9 Retailing 9 Consumer durables and apparel 9.5 Food retailing 9.6 Capital goods 9.9 Automobiles and components 9.9 Technology hardware and equipment 10.3 Hotels, restaurants, leisure 10.3 Food, beverages, tobacco 11 Healthcare equipmernt and services 11.3 Semiconductors 11.9 Commercial services 12.8 Media 14.7 Computer software and services 15 Household and personal products 15.2 Pharmaceuticals 18.4 0 5 10 15 20 Average ROIC 1963-2003 (%)
From Environmental Analysis From Environmental Analysis to Industry Analysis to Industry AnalysisThe national/ The naturalinternational environment economy THE INDUSTRY ENVIRONMENT Demographic Technology • Suppliers structure • Competitors • CustomersGovernment Social structure & Politics•The Industry Environment lies at the core of the Macro Environment.•The Macro Environment impacts the firm through its effect on the Industry Environment.
Drawing Industry Boundaries :: Drawing Industry Boundaries Identifying the Relevant Market Identifying the Relevant Market• What industry is BMW in: – World Auto industry – European Auto industry – World luxury car industry?• Key criterion: SUBSTITUTABILITY – On the demand side : are buyers willing to substitute between types of cars and across countries – On the supply side : are manufacturers able to switch production between types of cars and across countries• We may need to analyze industry at different levels of aggregation for different types of decision
The Spectrum of Industry Structures The Spectrum of Industry Structures Perfect Oligopoly Duopoly Monopoly CompetitionConcentration Many firms A few firms Two firms One firmEntry and Exit No/Low barriers Significant barriers High barriers Barriers Product HomogeneousDifferentiation Potential for product differentiation Product Perfect Information Imperfect availability of information Information flow
Porter’s Five Forces of Competition FrameworkPorter’s Five Forces of Competition Framework SUPPLIERS Bargaining power of suppliers INDUSTRY COMPETITORS POTENTIAL Threat of Threat of SUBSTITUTES ENTRANTS new Rivalry among substitutes entrants existing firms Bargaining power of buyers BUYERS
The Structural Determinants of CompetitionThe Structural Determinants of Competition SUPPLIER POWER • Supplier concentration • Relative bargaining powerTHREAT OF ENTRY INDUSTRY RIVALRY SUBSTITUTE•Capital requirements •Concentration COMPETITION•Economies of scale •Diversity of•Absolute cost advantage competitors • Buyers’ propensity •Product differentiation to substitute•Product differentiation • Relative prices &•Access to distribution •Excess capacity & channels exit barriers performance of substitutes•Legal/ regulatory barriers •Cost conditions•Retaliation BUYER POWER • Buyers’ price sensitivity • Relative bargaining power
SUPPLIER POWER LOW DRUG INDUSTRY (ROE=22%)THREAT OF ENTRYLOW INDUSTRY COMPETITIVENESS•economies of scale LOW THREAT OF•capital requirements SUBSTITUTES for R&D and clinical •high concentration LOW trials •product differentiation•product differentiation •patent protection No substitutes.•control of distribution •steady demand growth (Changing as managed care channels •no cyclical fluctuations encourages generics.)•patent protection of demand BUYER POWER LOW Physician as buyer: Not price sensitive No bargaining power. (Changing with managed care.)
Applying Five-Forces Analysis Applying Five-Forces AnalysisForecasting Industry Profitability • Past profitability a poor indicator of future profitability. • If we can forecast changes in industry structure we can predict likely impact on competition and profitability.Strategies to Improve Industry Profitability • What structural variables are depressing profitability • Which of these variables can be changed by individual or collective strategies?
Neutralizing The Five Neutralizing The Five Competitive Forces Competitive ForcesForce Method for Neutralizing ForceEntry Erecting barriers (isolating mechanisms) create & exploit economies of scale, aggressive deterrence, design in switching costs, etc.Rivalry Compete on nonprice dimensions: cost leadership, differentiation, cooperation, etc.Substitutes Improve attractiveness compared to substitutes: better service, more features, etc.. Reduce buyer uniqueness: forwardBuyers integrate, differentiate product, new customers, etc.. Reduce supplier uniqueness: backwardSuppliers integrate, obtain minority position, second source, etc..
The Traditional Model of Industry Life Cycle Fermentation Shakeout Maturity Declinee ml ov s e a S u l Time
How Typical is the Life Cycle Pattern? How Typical is the Life Cycle Pattern?• Technology-intensive industries (e.g. pharmaceuticals, semiconductors, computers) may retain features of emerging industries.• Other industries (especially those providing basic necessities, e.g. food processing, construction, apparel) reach maturity, but not decline.• Industries may experience life cycle regeneration. Sales Sales Color B&W Portable HDTV ? 1900 50 90 07 1930 50 70 90 07 MOTORCYCLES TV’s• Life cycle model can help us to anticipate industry evolution—but dangerous to assume any common, pre- determined pattern of industry development
Evolution of Industry Structure over the Life Cycle Evolution of Industry Structure over the Life Cycle INTRODUCTION GROWTH MATURITY DECLINEDEMAND Affluent buyers Increasing Mass market Knowledgeable, penetration replacement customers, resi- demand dual segmentsTECHNOLOGY Rapid product Product and Incremental Well-diffused innovation process innovation innovation technologyPRODUCTS Wide variety, Standardization Commoditiz- Continued rapid design change ation commoditizationMANUFACT- Short-runs, skill Capacity shortage, Deskilling OvercapacityURING intensive mass-productionTRADE -----Production shifts from advanced to developing countries-----COMPETITION Technology- Entry & exit Shakeout & Price wars, consolidation exitKSFs Product innovation Process techno- Cost efficiency Overhead red- logy. Design for uction, ration- alization, low cost sourcing
The Driving Forces of Industry Evolution The Driving Forces of Industry EvolutionBASIC CONDITIONS INDUSTRY STRUCTURE COMPETITIONCustomers becomemore knowledgeable Customers become & experienced more price conscious Quest for new sources of differentiation Products become more standardized Diffusion of Price competition technology Production intensifies Production shifts becomes less to low-wage R&D countries & skill-intensive Excess capacity increases Demand growth Bargaining power slows as market of distributorssaturation approaches Distribution channels increases consolidate
Changes in the Population of Firms over the Changes in the Population of Firms over the Industry Life Cycle: US Auto Industry 1885-1961 Industry Life Cycle: US Auto Industry 1885-1961 250 200 150 No. of firms 100 50 0 1895 1905 1915 1925 1935 1945 1955rce: S. Klepper, Industrial & Corporate Change, August 2002, p. 654.
Preparing for the Future :: The Role of ScenarioPreparing for the Future The Role of Scenario Analysis in Adapting to Industry Change Analysis in Adapting to Industry ChangeStages in undertaking multiple Scenario Analysis: • Identify major forces driving industry change • Predict possible impacts of each force on the industry environment • Identify interactions between different external forces • Among range of outcomes, identify 2-4 most likely/ most interesting scenarios: configurations of changes and outcomes • Consider implications of each scenario for the company • Identify key signposts pointing toward the emergence of each scenario • Prepare contingency plan
Innovation & Renewal over the Innovation & Renewal over the Industry Life Cycle: Retailing Industry Life Cycle: Retailing Warehouse Clubs Internet e.g. Price Club Retailers Sam’s Club e.g. Amazon; Discount Expedia “Category Stores Killers” e.g. K-Mart e.g. Toys-R-Us,Mail order, Wal-Martcatalogue Chain Home Depot ? Stores retailing e.g. A&Pe.g. Sears Roebuck 1880s 1920s 1960s 2000
Gary Hamel: Shaking the Foundations OLD BRICK NEW BRICKTop management is responsible Everyone is responsible for setting strategy for setting strategyGetting better, getting faster Rule-busting innovation is the way to win is the way to winIT creates competitive advantage Unconventional business concepts create competitive advantageBeing revolutionary is high risk More of the same is high riskWe can merge our way to There’s no correlation between competitiveness size and competitivenessInnovation equals new products Innovation equals entirely new and new technology business concepts Strategy is the easy part, Strategy is the easy only if you’reImplementation the hard part content to be an imitatorChange starts at the top Change starts with activistsOur real problem is execution Our real problem is innovationBig companies can’t innovate Big companies can become gray-haired revolutionaries
An Alternate Model of Industry Life Cycle Emergence Convergence Coexistence Dominance Established Industrye ml ov s e a S l Emerging Industry u Time
The Industry Life Cycle as an S curvePerformance Maturity Discontinuity Takeoff Ferment Time
The S-curve Maps Major Transitions MaturityPerformance Discontinuity Takeoff Ferment Time
RESOURCES, RESOURCES, CAPABILITIES, AND CAPABILITIES, ANDCORE COMPETENCESCORE COMPETENCES
Shifting the Focus of Strategy Analysis: Shifting the Focus of Strategy Analysis: From the External to the Internal Environment From the External to the Internal Environment THE FIRM THE Goals and INDUSTRY Values ENVIRONMENTResources and Capabilities STRATEGY •Competitors STRATEGYStructure and •Customers Systems •Suppliers The The Firm-Strategy Environment-Strategy Interface Interface
Rationale for the Resource-based Rationale for the Resource-based Approach to Strategy Approach to Strategy• When the external environment is subject to rapid change, internal resources and capabilities offer a more secure basis for strategy than market focus.• Resources and capabilities are the primary sources of profitability.
Canon: Products and Core Technical CapabilitiesCanon: Products and Core Technical Capabilities Precision Fine Mechanics Optics 35mm SLR camera Plain-paper copier Compact fashion camera Color copier EOS autofocus camera Color laser copier Digital camera Basic fax Laser copier Video still camera Laser fax Mask aligners Inkjet printer Excimer laser aligners Laser printer Stepper aligners Color video printer Calculator Notebook computer Micro- Electronics
Eastman Kodak’s Dilemma Resources & Capabilities Businesses Chemical Imaging Film1980’s •Organic Chemistry Cameras •Polymer technology Fine Chemicals •Optomechtronics Pharmaceuticals •Thin-film coatings Brands Diagnostics Global Distribution1990’s DIVESTS: Eastman Chemical, Sterling Winthrop, Diagnostics Need to build digital Digital Imaging imaging capability Products (e.g. Photo CD System; Advantix cameras & film
The Links between Resources, CapabilitiesThe Links between Resources, Capabilities and Competitive Advantage and Competitive Advantage INDUSTRY KEYCOMPETITIVE SUCCESS FACTORS STRATEGYADVANTAGE ORGANIZATIONAL CAPABILITIES RESOURCES TANGIBLE INTANGIBLE HUMAN •Financial •Skills/know-how •Technology •Capacity for •Physical •Reputation communication •Culture & collaboration •Motivation
Appraising Resources Appraising ResourcesRESOURCE CHARACTERISTICS INDICATORS Financial Borrowing capacity Debt/ Equity ratio Internal funds generation Credit ratingTangible Net cash flowResources Physical Plant and equipment: Market value of size, location, technology fixed assets. flexibility. Scale of plants Land and buildings. Alternative uses for Raw materials. fixed assets Technology Patents, copyrights, know how No. of patents owned R&D facilities. Royalty incomeIntangible Technical and scientific R&D expenditureResources employees R&D staff Reputation Brands. Customer loyalty. Company Brand equity reputation (with suppliers, customers, Customer retention government) Supplier loyaltyHuman Training, experience, adaptability, Employee qualifications,Resources commitment and loyalty of employees pay rates, turnover.
The World’s Most Valuable Brands, 2006 The World’s Most Valuable Brands, 2006Rank Company Brand Rank Company Brand value value ($bn.) ($bn.)1 Coca-Cola 67.5 11 Mercedes Benz 20.02 Microsoft 59.9 12 Citi 20.03 IBM 53.4 13 Hewlett-Packard 18.9 4 GE 47.0 14 American Express 18.6 5 Intel 35.6 15 Gillette 17.5 6 Nokia 26.5 16 BMW 17.1 7 Disney 26.4 17 Cisco 16.6 8 McDonald’s 26.0 18 Louis Vuitton 16.1 9 Toyota 24.8 19 Honda 15.810 Marlboro 21.2 20 Samsung 15.0http://www.interbrand.com/best_brands_2007.asp Source: Interbrand
Defining Organizational Capabilities Defining Organizational CapabilitiesOrganizational Capabilities = firm’s capacity for undertaking a particular activity. (Grant)Distinctive Competence = things that an organization does particularly well relative to competitors. (Selznick)Core Competence = capabilities that are fundamental to a firm’s strategy and performance. (Hamel and Prahalad)
Identifying Organizational Capabilities: Identifying Organizational Capabilities: A Functional Classification A Functional ClassificationFUNCTION CAPABILITY EXEMPLARSCorporate Financial management ExxonMobil, GEManagement Strategic control IBM, Samsung Coordinating business units BP, P&G Managing acquisitions Citigroup, CiscoMIS Speed and responsiveness through Wal-Mart, Dell rapid information transfer Capital OneR&D Research capability Merck, IBM Development of innovative new products Apple, 3MManufacturing Efficient volume manufacturing Briggs & Stratton Continuous Improvement Nucor, Harley-D Flexibility Zara, Four SeasonsDesign Design Capability Apple, NokiaMarketing Brand Management P&G, LVMH Quality reputation Johnson & Johnson Responsiveness to market trends MTV, L’OrealSales, Distribution Sales Responsiveness PepsiCo, Pfizer& Service Efficiency and speed of distribution LL Bean, Dell Customer Service Singapore Airlines Caterpillar
The Value Chain: The Value Chain: The McKinsey Business System The McKinsey Business SystemTECHNOLOGY PRODUCT DESIGN MANUFACTURING MARKETING DISTRIBUTION SERVICE
The Porter Value Chain The Porter Value ChainFIRM INFRASTRUCTURE SUPPORTHUMAN RESOURCE MANAGEMENT ACTIVITIESTECHNOLOGY DEVELOPMENTPROCUREMENTINBOUND OPERATIONS OUTBOUND MARKETING SERVICELOGISTICS LOGISTICS & SALES PRIMARY ACTIVITIES
The Rent-Earning Potential The Rent-Earning Potential of Resources and Capabilities of Resources and Capabilities THE EXTENT OF THE Scarcity COMPETITIVE ADVANTAGE ESTABLISHED Relevance Durability THE PROFITEARNING POTENTIAL SUSTAINABILITY OF THE TransferabilityOF A RESOURCE OR COMPETITIVE CAPABILITY ADVANTAGE Replicability Property rights Relative APPROPRIABILITY bargaining power Embeddedness
Assessing a Companies Resources Assessing a Companies Resources and Capabilities: The Case of VW and Capabilities: The Case of VW Importan VW’s VW’s RESOURCES ce Relative CAPABILITIES Importance Relative Strength Strength C1. ProductR1. Finance 6 4 9 4 developmentR2. Technology 7 5 C2. Purchasing 7 5 C3. Engineering 7 9R3. Plant and 8 8equipment C4. Manufacturing 8 7R4. Location 7 4 C5. Financial 6 3 managementR5. Distribution 8 5 C6. R&D 6 4 C7. Marketing & 9 4 sales C8. Government 4 8 relations
Approaches to Capability Development Approaches to Capability Development1) Acquire and develop the underlying resources. Especially 1) Acquire and develop the underlying resources. Especially human resources human resources --Externally (hiring) --Externally (hiring) --Internally through developing individual skills --Internally through developing individual skills2) Acquire/access capabilities externally through acquisition or 2) Acquire/access capabilities externally through acquisition or alliance alliance3) Greenfield development of capabilities in separate 3) Greenfield development of capabilities in separate organizational unit (IBM & the PC, Xerox & PARC, GM & Saturn) organizational unit (IBM & the PC, Xerox & PARC, GM & Saturn)4) Build team-based capabilities through training and team 4) Build team-based capabilities through training and team development (i.e. develop organizational routines) development (i.e. develop organizational routines)5) 5) Align structure & systems with required capabilities Align structure & systems with required capabilities6) 6) Change management to transform values and behaviors (GE, Change management to transform values and behaviors (GE, BP) BP)7) 7) Product sequencing (Intel , ,Sony, Hyundai) Product sequencing (Intel Sony, Hyundai)8) 8) Knowledge Management (systematic approaches to acquiring, Knowledge Management (systematic approaches to acquiring, storing, replicating, and accessing knowledge) storing, replicating, and accessing knowledge)
COMPETITIVE COMPETITIVEADVANTAGE AND THEADVANTAGE AND THESCOPE OF THE FIRM SCOPE OF THE FIRM
From Business Strategy to Corporate From Business Strategy to Corporate Strategy: The Scope of the Firm Strategy: The Scope of the Firm• Business Strategy is concerned with how a firm computes within a particular market• Corporate Strategy is concerned with where a firm competes, i.e. the scope of its activities• The dimensions of scope are • product scope • vertical scope • geographical scope
Transactions Costs and the Transactions Costs and the Scope of the Firm Scope of the Firm Vertical Product Geographical Scope Scope Scope [A] Single V1 Integrated V2 P1 P2 P3 C1 C2 C3 Firm V3 [B] Several V1 Specialized P1 P2 P3 C1 C2 C3 V2 Firms linked by Markets V3In situation [A] the business units are integrated within a single firm.In situation [B] the business units are independent firms linked by markets.Are the administrative costs of the integrated firm less than the transactioncosts of markets?
Determinants of Changes in Corporate Scope Determinants of Changes in Corporate Scope1800 – 1980 Expanding scale and scope of industrial corporations due todeclining administrative costs of firms: • Advances in transportation, information and communication technologies • Advances in management—accounting systems, decision sciences, financial techniques, organizational innovations, scientific management1980 – 1995 Shrinking size and scope of biggest industrial corporations.Increasingly Increased no. of managerial Admin. costs ofturbulent decisions. Need for fast firms rise relativeexternal responses to external to transactionenvironment change costs of markets1995 – 2007 Rapid increase in global concentration (steel, aluminium,oil, beer, banking, cement).Key drivers: quest for market power and scale economies.Also, large corporations better at reconciling size with agility
The Basic Issues in Diversification DecisionsThe Basic Issues in Diversification Decisions Superior profit derives from two sources: INDUSTRY ATTRACTIVENESS RATE OF PROFIT > COST OF CAPITAL COMPETITIVE ADVANTAGE Diversification decisions involve these same two issues: • How attractive is the sector to be entered? •Can the firm achieve a competitive advantage?
Diversification among the US Fortune 500, 1949-74Diversification among the US Fortune 500, 1949-74 70.2 63.5 53.7 53.9 39.9 37.0 29.8 36.5 46.3 46.1 60.1 63.0 1949 1954 1959 1964 1969 1974 Percentage of Specialized Companies (single-business, vertically-integrated and dominant-business) Percentage of Diversified Companies (related-business and unrelated business) Note: During the 1980s and 1990s the trend reversed as large companies refocused upon their core businesses
Diversification among Large UK Diversification among Large UK Corporations, 1950-93 Corporations, 1950-937060 Single business5040 Dominant business30 Related business20 Unrelated10 business 0 1950 1960 1970 1983 1993
Motives for Diversification Motives for DiversificationGROWTH --The desire to escape stagnant or declining industries is a powerful motive for diversification (e.g. tobacco, oil, newspapers). --But, growth satisfies managers not shareholders. --Growth strategies (esp. by acquisition), tend to destroy shareholder valueRISK --Diversification reduces variance of profit flowsSPREADING --But, doesn’t create value for shareholders—they can hold diversified portfolios of securities. --Capital Asset Pricing Model shows that diversification lowers unsystematic risk not systematic risk.PROFIT --For diversification to create shareholder value, then bringing together of different businesses under common ownership & must somehow increase their profitability.
Diversification and Shareholder Value: Diversification and Shareholder Value: Porter’s Three Essential Tests Porter’s Three Essential TestsIf diversification is to create shareholder value, it must meet three tests:1. The Attractiveness Test: diversification must be directed towards attractive industries (or have the potential to become attractive).2. The Cost of Entry Test: the cost of entry must not capitalize all future profits.3. The Better-Off Test: either the new unit must gain competitive advantage from its link with the company, or vice-versa. (i.e. some form of “synergy” must be present) Additional source of value from diversification: Option value
Competitive Advantage from Diversification Competitive Advantage from Diversification • Sharing tangible resources (research labs, distribution systems) across multiple businesses • Sharing intangible resources (brands, technology) acrossECONOMIES multiple businesses OF • Transferring functional capabilities (marketing, product SCOPE development) across businesses • Applying general management capabilities to multiple businesses • Economies of scope not a sufficient basis for ECONOMIES diversification ----must be supported by transaction costs FROM • Diversification firm can avoid transaction costs byINTERNALIZINGTRANSACTIONS operating internal capital and labor markets • Key advantage of diversified firm over external markets--- superior access to information
Relatedness in Diversification Relatedness in Diversification Economies of scope in diversification derive from two types of relatedness:• Operational Relatedness-- synergies from sharing resources across businesses (common distribution facilities, brands, joint R&D)• Strategic Relatedness-- synergies at the corporate level deriving from the ability to apply common management capabilities to different businesses. Problem of operational relatedness:- the benefits in terms of economies of scope may be dwarfed by the administrative costs involved in their exploitation.
Transactions Costs and The Transactions Costs and The Existence of the Firm Existence of the Firm• Transaction cost theory explains not just the boundaries of firms, also the existence of firms.• In 18th century English woollen industry, no firms – independent spinners and weavers linked by merchants.• Residential remodeling industry -- mainly independent self- employed builders, plumbers, electricians, painters.• Key issue -- transaction costs of the market vs. administrative costs of firms.• Where transaction costs high—firm is more efficient means of organization Note: transaction costs comprise costs of search and contract negotiation and enforcement
The Costs and Benefits of Vertical The Costs and Benefits of Vertical Integration: BENEFITS Integration: BENEFITS• Technical economies from integrating processes e.g. iron and steel production —but doesn’t necessarily require common ownership• Superior coordination• Avoids transactions costs of market contracts in situations where there are: -- small numbers of firms -- transaction-specific investments -- opportunism and strategic misrepresentation -- taxes and regulations on market transactions
The Costs and Benefits of Vertical The Costs and Benefits of Vertical Integration: COSTS Integration: COSTS• Differences in optimal scale of operation between different stages prevents balanced VI• Strategic differences between different vertical stages create management difficulties• Inhibits development of and exploitation of core competencies• Limits flexibility -- in responding to demand cycles -- in responding to changes in technology, customer preferences, etc. (But, VI may be conducive to system-wide flexibility)• Compounding of risk
When is Vertical Integration More Attractive When is Vertical Integration More Attractive than Outsourcing? than Outsourcing?How many firms are available The fewer the companiesto undertake the activities? the more attractive is VIIs transaction-specific investment If yes, VI more attractiveneeded?Does limited information permit VI can limit opportunismcheating?Are taxes or regulation imposed VI can avoid themon transactions?Do the different stages have similar Greater the similarity, theoptimal scales of operation? more attractive is VIAre the two stages strategically Greater the strategicsimilar? similarity ---the more attractive is VIHow great the need for entrepreneurship Greater the need, the greater& continual upgrading of capabilities the disadvantages of VIHow uncertain is market demand? Greater the unpredictability ----the more costly is VIAre risks compounded by VI increases risk.linkages between vertical stages
The value chain for steel cans Canning ofIron ore Steel Steel strip Can mining production food, drink, production making oil, etc. VERTICAL VERTICAL INTEGRATION INTEGRATION, AND MARKET CONTRACTS MARKET MARKET CONTRACTS CONTRACTS What factors explain why some stages are vertically integrated, while others are linked by market transactions?
Designing Vertical Relationships: Long-TermDesigning Vertical Relationships: Long-Term Contracts and Quasi-Vertical Integration Contracts and Quasi-Vertical Integration• Intermediate between spot transactions and vertical integration are several types of vertical relationships ---such relationships may combine benefits of both market transactions and internalization• Key issues in designing vertical relationships -- How is risk allocated between the parties? -- Are the incentives appropriate?
Recent Trends in Vertical RelationshipsRecent Trends in Vertical Relationships• From competitive contracting to supplier partnerships, e.g. in autos• From vertical integration to outsourcing (not just components, also IT, distribution, and administrative services).• Diffusion of franchising• Technology partnerships (e.g. IBM- Apple; Canon- HP)• Inter-firm networks General conclusion: boundaries between firms and markets becoming increasingly blurred.
Patterns of Internationalization Patterns of InternationalizationHIGH Trading Global Industries Industries --aerospace --automobiles --military hardware --oilInternational Trade --diamond mining --semiconductors --agriculture --consumer electronics Domestic Multidomestic Industries Industries --railroads --laundries/dry cleaning --retail banking --hairdressing --hotelsLO W --milk --consulting LOW Foreign Direct Investment HIGH
Implications of Internationalization Implications of Internationalization for Industry Analysis for Industry Analysis INDUSTRY STRUCTURE• Lower entry barriers around national markets• Increased industry rivalry --- lower seller concentration --- greater diversity of competitors• Increased buyer power: wider choice for dealers & consumers COMPETITION • Increased intensity of competition PROFITABILITY • Other things remaining equal, internationalization tends to reduce an industry’s margins & rate of return on capital
Competitive Advantage within an International Competitive Advantage within an International Context: The Basic Framework Context: The Basic FrameworkFIRM RESOURCES THE INDUSTRY& CAPABILITIES ENVIRONMENT-- Financial resources-- Physical resources Key Success Factors-- Technology-- Reputation-- Functional capabilities COMPETITIVE-- General management ADVANTAGE capabilities THE NATIONAL ENVIRONMENT -- National resources and capabilities (raw materials; national culture; human resources; transportation, communication, legal infrastructure -- Domestic market conditions -- Government policies -- Exchange rates -- Related and supporting industries
National Influences on National Influences on Competitiveness: The Theory of Competitiveness: The Theory of Comparative Advantage Comparative AdvantageA country has a relative efficiency advantage in those productsthat make intensive use of resources that are relativelyabundant within the country. E.g. • Philippines relatively more efficient in the production of footwear, apparel, and assembled electronic products than in the production of chemicals and automobiles. • U.S. is relatively more efficient in the production of semiconductors and pharmaceuticals than shoes or shirts. When exchange rates are well-behaved, comparative advantage becomes competitive advantage.
Revealed Comparative Advantage for Revealed Comparative Advantage for Certain Broad Product Categories Certain Broad Product Categories USA Canada W. Germany Italy JapanFood, drink & tobacco .31 .28 -.36 -.29 -.85Raw materials .43 .51 -.55 -.30 -.88Oil & refined products -.64 .34 -.72 -.74 -.99Chemicals .42 -.16 .20 -.06 -.58Machinery and trans- .12 -.19 .34 .22 .80portation equipmentOther manufacturers -.68 -.07 .01 .29 .40 Note: Revealed comparative advantage for each product group is measured as: (Exports less Imports)/ Domestic production
Porter’s Competitive Advantage Porter’s Competitive Advantage of Nations of Nations Extends and adapts traditional theory of comparative advantage to take account of three factors: International competitive advantage is about companies not countries—the role of the national environment is providing a home base for the company. Sustained competitive advantage depends upon dynamic factors-- innovation and the upgrading of resources and capabilities The critical role of the national environment is its impact upon the dynamics of innovation and upgrading.
Porter’s National Diamond Framework Porter’s National Diamond Framework FACTOR CONDITIONS RELATING AND DEMAND SUPPORTING CONDITIONS INDUSTRIES STRATEGY, STRUCTURE, AND RIVALRY. FACTOR CONDITIONS—“Home grown” resources/capabilities more important than natural endowments.. RELATED AND SUPPORTING INDUSTRIES—Key role of “industry clusters”. DEMAND CONDITIONS—Discerning domestic customers drive quality & innovation. STRATEGY, STRUCTURE, RIVALRY. E.g. domestic rivalry drives upgrading.
Consistency Between Strategy Consistency Between Strategy and National Conditions and National ConditionsIn globally-competitive industries, firm strategy needs totake account of national conditions:– U.S. textile manufacturers must compete on the basis of advanced process technologies and focus on high quality, less price-sensitive market segments– In the semiconductor industry, CA-based firms concentrate mainly upon design of advanced chips, Malaysian firms concentrate upon fabrication of high volume, less technologically advanced items (e.g. DRAM chips)– Dispersion of value chain to exploit different national environments (e.g. Nike conducts R&D in US, components in Korea and Thailand, assembly in Indonesia, China, and India, marketing in Europe and North America)
International Location of Production International Location of Production– National resource conditions: What are the major resources which the product requires? Where are these available at low cost?– Firm-specific advantages: to what extent is the company’s competitive advantage based upon firm- specific resources and capabilities, and are these transferable?– Tradability issues: Can the product be transported at economic cost? If not, or if trade restrictions exist, then production must be close to the market.
The Role of Labor Costs The Role of Labor CostsHourly Compensation for Production Workers, 1999 ($) Germany 26.93 Japan 20.89 U.S. 19.20 France 19.98 U.K. 16.56 Spain 12.11 Korea 6.75 Mexico 2.12BUT, wages are only one element of costs: Cost of Producing a Compact Automobile U.S. Mexico Parts & components 7,750 8,000 Labor 700 40 Shipping cost 300 1,000 Inventory 20 40 TOTAL 8,770 9,180
Location and the Value Chain Location and the Value Chain Comparative advantage in textiles and apparel by stage of processing Country Stage Index of Country Stage Index of of Revealed of Revealed Processing Comparative Processing Comparative Advantage Advantage Hong Kong 1 -0.96 Japan 1 -0.36 2 -0.81 2 +0.48 3 -0.41 3 +0.48 4 +0.75 4 -0.48 Italy 1 -0.54 U.S.A. 1 +0.96 2 +0.18 2 +0.64 3 +0.14 3 +0.22 4 +0.72 4 -0.73Note:1 = production of fiber (natural & synthetic) 2 = production of spun yarn3 = production of textiles 4 = production of clothing
Determining the Optimal Location Determining the Optimal Location of Value Chain Activities of Value Chain Activities Where is the optimal location of X in terms of the cost and The optimal location availability of inputs? of activity X considered independently What government incentives/ penalties affect the location decision? What internalWHERE TO LOCATE resources and capabilities does the firmACTIVITY X? possess in particular locations? What is the firm’s business strategy (e.g. cost vs. differentiation advantage)? The importance of links between activity X and other activities of the firm How great are the coordination benefits from co-locating activities?
Alternative Modes of Overseas Market Entry Alternative Modes of Overseas Market Entry TRANSACTIONS DIRECT INVESTMENT Exporting Licensing Joint venture Wholly owned Marketing & FullySpot Foreign Distribution integrated subsidiarysales agent / only distributor Long- Licensing Franchising Marketing& Fully term patents & Distribution integrated contract other IP only Low Resource commitment High
Alliances and Joint Ventures: Alliances and Joint Ventures: Management Issues Management Issues• Benefits: --Combining resources and capabilities of different companies --Learning from one another --Reducing time-to-market for innovations --Risk sharing• Problems: --Management differences between the two partners. Conflict most likely where the partners are also competitors.• Benefits are seldom shared equally. Distribution of benefits determined by: – Strategic intent of the partners- which partner has the clearer vision of the purpose of the alliance? – Appropriability of the contribution-- which partner’s resources and capabilities can more easily be captured by the other? – Absorptive capacity of the company-- which partner is the more receptive learner?
General Motors’ Alliances with Competitors General Motors’ Alliances with Competitors SAAB 5). 00- ology (20AVTOVAZ ed techn FIAT own on ts Ru ssi 50% 20% ation ponen an or m JV owned C oll a b n d c o to p aSUZUKI r od uc e 10% own c ar ed. s C o- pr od 20% owned; join uctio n GM t production FUJI JV duction 60% to p o-pro rodISUZU 49%o wned. C owned u ce c ar s in Ch 50 pro 40% investment IBC Vehicles ina . 9 du Ltd. (U.K.) % c ti 50% SAIC ow on owned n e co (Makes vans in UK) d; lla t e bo ch ra New United Motor n i t io ca n TOYOTA Manufacturing l& 50% owned Inc. (NUMMI) (Makes cars in US) DAEWOO
Multinational Strategies: Multinational Strategies: Globalization vs. National Differentiation Globalization vs. National Differentiation The case for a global strategy:• National preferences in decline—world becoming a single, Ted if segmented, market Levitt “Globaliz- -ation of• Accessing global scale economies—in purchasing, Markets” Thesis manufacturing, product development, marketing.• Strategic strength from global leverage—ability to cross- Hamel & Prahalad subsidize a national subsidiary with cash flows from Thesis other national subsidiaries Kenichi Ohmae’s• Need to access market trends and technological “Triad developments in each of the world’s major economic Power” centers- N. America, Europe, East Asia. Thesis
Globalization & Global Strategy —What are they? Globalization & Global Strategy —What are they?•• GLOBALIZATION ? GLOBALIZATION ? --Something to do with increasing interdependence --Something to do with increasing interdependence between countries. between countries.•• GLOBAL STRATEGY GLOBAL STRATEGY --At simplest level: Treating the world as a single market --At simplest level: Treating the world as a single market E.g. Japanese companies during the 1970s & 1980s, E.g. Japanese companies during the 1970s & 1980s, (YKK, Honda) standard products, developed & (YKK, Honda) standard products, developed & manfactured within Japan; distributed & marketed manfactured within Japan; distributed & marketed worldwide worldwide --At more sophisticated level: Strategy that recognizes --At more sophisticated level: Strategy that recognizes and exploits linkages between countries (e.g. exploits and exploits linkages between countries (e.g. exploits global scale, national resource differences, strategic global scale, national resource differences, strategic competition) competition) World as World as inter- World as single mkt. related mkts. separate national mkts. global strategy multidomestic strategy
Analyzing benefits/costs of a global strategyAnalyzing benefits/costs of a global strategyForces for globalization Forces for globalization Forces for localization / /national Forces for localization national differentiation differentiationMARKET DRIVERS MARKET DRIVERS--Common customer needs --Common customer needs MARKET DRIVERS MARKET DRIVERS--Global customers --Global customers --Different languages --Different languages--Cross-border network effects --Cross-border network effects --Different customer preferences --Different customer preferences --Cultural differences --Cultural differencesCOST DRIVERS COST DRIVERS--Global scale economies COST DRIVERS COST DRIVERS --Global scale economies --Transportation costs--Differences in national --Transportation costs --Differences in national --Transaction costs resource availability --Transaction costs resource availability --Economic & political risk--Learning --Economic & political risk --Learning --Speed of response --Speed of response GOVERNMENT DRIVERS GOVERNMENT DRIVERSCOMPETITIVE DRIVERS COMPETITIVE DRIVERS --Barriers to trade & inward inv. --Barriers to trade & inward inv.--Potential for strategic --Potential for strategic --Regulations --Regulations competition (e.g. cross- competition (e.g. cross- subsidization) subsidization)
Jet engines Autos Benefits Consumer of electronics Telecom globalintegration equipment Steel Investment banking Cement Online C2C auctions Restaurant Retail chains Beer banking Dry Auto Funeral cleaning repair services Benefits of national differentiation