Purpose and Perspectives of Chapter 1

This chapter serves as an introduction to global strategy, utilizing real-world companies

such as Zoom, LEGO, and more, to emphasize the application of the strategies being
discussed. Updates include examples of how global strategy has been affected by the onset
of a world-wide pandemic.

Purpose and Perspectives of Chapter 2

This chapter serves as an introduction to global strategy, utilizing real-world companies
such as Zoom, LEGO, and more, to emphasize the application of the strategies being
discussed. Updates include examples of how global strategy has been affected by the onset
of a world-wide pandemic.

This chapter dives into what defines an industry and the competition within and between
industries. Porter’s five forces framework clarifies the industry-based view of strategy and
looks at how rivalry, threat of entrants, bargaining power of suppliers and buyers, and the
threat of substitutions influence the best strategy for a firm to pursue. A look at the three
generic competitive strategies—cost leadership, differentiation, and focus—helps form an
understanding that, in addition to the five forces, the dynamics of an industry create
endless possibilities, even where none might be immediately obvious.

Purpose and Perspectives of Chapter 3

Resources and capabilities provide the foundation of this chapter. Because of their
importance to every organization, strategists must use available tools to assess and make
use of those capabilities and resources. Using SWOT analysis and VRIO helps managers
determine strengths and weaknesses and how to convert them to competitive advantage.
The chapter also addresses the options of offshoring and its benefits, drawbacks, and
strategic implications.

CHAPTERS 1-3 DISCUSSION

1. Why are negative attitudes toward globalization growing in some parts of the
world? How can strategists make sure that the benefits of their various
actions outweigh their drawbacks?

Costs associated with globalization include:

• The loss of domestic jobs as companies move their manufacturing and
distribution facilities to other countries in order to reduce costs and improve
profit margins
 • The loss of some ability to control quality as companies outsource
manufacturing, which may lead to product liability problems if defects are not
caught and fixed before products are sold to end users
• Unanticipated costs, such as those associated with gaining access to foreign
distribution channels or finding local suppliers of necessary raw materials,
natural resources, or other supplies
• Increased exposure to political risks, such as war, government takeover of
foreign assets, bribery of government officials, etc.
• Lack of familiarity with the needs of foreign customers that may require
increased expenditures in market research
• Employment laws, product liability, tax policies, and environmental regulations
that differ from one country to another. Companies may incur increased costs as
they try to figure out how various laws impact their business
• Additional costs incurred to coordinate and monitor performance across units
when companies have business units scattered around the world
• Exposure to more competition—companies may become distracted by trying to
win the battle in foreign markets—as a result, their position at home may
deteriorate
• Differing laws to protect consumers in different countries. If a company sells
products that harm customers in another country, there may be a negative
reaction in the home market and demand may decline
• Difficulty in monitoring actions and decisions across many countries to ensure
that they are in line with corporate goals and objectives

Some things that companies can do to ensure the benefits of their actions outweigh the
drawbacks are as follows:
• Identify ways to develop new products/services and/or production processes
that have a minimal adverse impact on the environment
• Hire local residents to be managers, as well as serve in other positions, which
helps to gain local knowledge and avoid blunders
• Develop and follow a code of ethics—incorporate that code of ethics into
performance evaluation processes
• Develop strategic alliances with firms from different countries, learn how to
cooperate effectively to satisfy customer needs
• Develop products and services that people can afford, regardless of whether
they live in a poor, emerging economy or a rich, developed one
• Increase the standard of living and improve working conditions in foreign
factories;
• Ensure that people have adequate health care, regardless of where they live
• Find ways to be profitable and behave ethically at the same time
• Increase efficiency and reduce waste that is conceptually close to the cost and
efficiency savings from automation (e.g. fewer inputs, same, or even greater,
output)
2. Why do price wars often erupt in certain industries (such as the automobile
industry), but less frequently in other industries (such as the diamond
industry)? What can a firm do to discourage price wars or be better prepared
for price wars?

Price wars usually erupt when firms cannot easily differentiate their products from one
another. As in the PC industry today, or along certain airline routes, price wars are
common as most firms are not able to convince customers that their products are
different from the competitors’. In addition, in a slow growing market, firms are more
likely to compete for market share to emerge as one of the top two or three firms. To
solve this problem, firms should not assume that their products are destined for
commoditization; they may be able to add new features and functions to differentiate
from lower end products. For example, Swatch was able to add fashion and a broader
range of product offering to differentiate from the low-priced commodity watches that
Swatch was (initially) targeted against. To better prepare for price wars, it is important to
get costs down. This is not only cost cutting (which is a day-by-day process), but also
doing other things consistent with a low-cost strategy. This would include trimming the
product line, minimizing product variation and customization, selling through
distributors that can push the product, thus reducing promotion expenditure, and
selling the products in quantity (bundling) whenever possible or feasible.

3. You have just purchased your fourth apartment complex, which has nearly
doubled the number of tenants. Each apartment complex has their own
manager, but two have decided to move on to other things. Managing the
tenant complaints and questions, issues with facilities and tracking rent
payments has become overwhelming and you are considering outsourcing
some of the responsibilities. Discuss the pros and cons of keeping these
activities in-house or outsourcing it: Apartment Manager; Maintenance;
Groundskeeping; Accounting

• In-house: Pros could be: better customer service if the apartment manager is on-
site and easily accessible; maintenance could be handled quicker if a maintenance
person is on-site; possible hiring of a tenant for groundskeeping with a discount on
rent; financials may be done more easily because the accountant would know the
tenants and any expenses incurred for maintenance, etc. Cons: your business
would incur the cost of four employees for each position; tenants could become too
close to the manager, causing some bending of rules; tenants could take advantage
of having management and maintenance on-site; financial data would be on-site
and could be at risk of being stolen.

• Outsource: Pros: Overall, money is saved; relationship between management and

tenants would remain professional; maintenance could be scheduled so all
 residents can be serviced in order of receipt or grouped so that fewer maintenance
people are needed; professional groundskeeping can be handled, possibly at
bundled pricing (with other services); one accountant/bookkeeper could handle all
payment and bill processing. Cons: it is never pleasant to cause people to lose their
job; tenants could decide not to stay if they liked the manager/maintenance person
and don’t like the changes with the outsourced work; some people work better
when they are more invested in the location – so an on-site manager may take more
care with the property and customer service than a property manager who comes
once a week or so; your reputation could be harmed by not having control over
what the outsourced people are doing if issues are not realized or addressed
quickly.

4. Integration versus Outsourcing describes Japan’s technique of keiretsu to

enable their manufacturing processes to be cost effective and of high quality.
Since then, Japan has been pressured to become more “American-like.”

• Discuss the benefits of American automakers becoming “more

Japanese-like?” Are there any drawbacks?

• Discuss the benefit of Japan firms becoming more “American-like”? Are

there any drawbacks?

• American benefit: Using the methodology Japan used in the 1980s and 199s,
American automakers could produce a more-efficient and less wasteful process of
producing cars. Quality could go up, but a drawback is that it could possibly
increase costs and time to complete in order to ensure the quality.

• Japanese benefit: Using the American process, Japan could pull some activities in-
house and possibly save time and money by being able to control the work more
closely. New relationships with vendors could be established with less friction or
rigidity that was seen in earlier years. The Japanese companies would also be
exposed to vendors with new or emerging technology, which could help the
company’s competitive offerings. A drawback is that the relationship with the
vendors may not be as close, which can lead to consistent changes in vendors and
quality that is not consistent.

5. Understanding an industry inside and out is an important way to start any

business. Using the five forces framework, what might be different in your
analysis if your endeavor is taken on a global scale as opposed to local?

Other countries may have businesses that are more established and larger in your
industry, making work competitive; added costs to advertise and convince
customers in other countries to buy your product; ability to offer something unique
could be challenging; ability to get your product overseas quickly could be an issue if
you do not have a location overseas to produce the product; using vendors in
countries could offer environmental issues not encountered in the U.S. (monsoons,
 tsunamis, etc.); quality could be an issue that you have little direct control over;
insuring the confidentiality of your data or product could be harder to achieve;
cultural differences may have effects on your business (ex. Restrictions based on
what a country/company may find offensive; religious beliefs may hinder some
items from being produced, etc.).

6. Compare and contrast the five forces affecting the cruise industry, the fashion
industry, the airline industry, and the automobile industry. Which industry
holds more promise for earning higher returns?

Cruise Industry
• Entrants – The barriers to entry are high, so the industry has few large
organizations.
• Rivalry – High. This industry is quite competitive and successes are rare.
• Suppliers – Low. Shipbuilders are eager to bid.
• Buyers – Low to moderate. It is a highly popular vacation option with 3.5% of U.S.
and Australian populations taking a cruise each year.
• Substitute products. High. It faces many competitors as a vacation service
provider, and mass tourism has its limits.
Fashion Industry
• Entrants – Low. High fashion dominated by the big three.
• Rivalry – Moderate to high. Virtually all firms pursue a differentiation strategy
and a smaller number of them engage in a focus strategy.
• Suppliers – Low. These suppliers were also hard-hit by the 2008 recession and
were eager to make deals.
• Buyers –Moderate. Customers can be fickle. The recession of 2008 affected
sales, and many younger buyers showed less label consciousness.
• Substitute products. Fairly insignificant.
Airline Industry
• Entrants – Moderate. There are a number of secondary airports in the U.S.
looking to expand and attract passenger jets to land. Easy to build a fleet by
leasing planes.
• Rivalry – High. This is a product that is still hard to differentiate. The frequent
flier programs helped a little, but people joined multiple programs, so they are
not a big edge anymore.
• Suppliers – Low. Sometimes the oil suppliers cause trouble for the airlines, but
they do it to everyone, and usually only temporarily. The aircraft manufacturers
are not that powerful; they compete fiercely for new business. Airline labor is
very powerful in the U.S.; they regularly bid away an airline’s profit in new
contracts, and have driven airlines to the brink of bankruptcy.
• Buyers – Moderate. Travel agents are a lot weaker today and passengers have a
 lot of choice and can switch, but not on all routes.
• Substitute products. Low to moderate. Some substitutes possible on short
routes (less than 400 km), mostly on the U.S. east coast and along the west
coast. High-speed regional trains, though planned, will not be built in the near
term.
Automobile Industry

• Entrants – Moderate. Recent entrants include Tesla, Google, and Uber.

• Rivalry – High, but mostly stable until recently with the emergence of ride-
sharing options and EVs and AVs. Incumbents are beginning to experiment with
new business models.
• Suppliers – Mostly low, no major component supplier has undertaken forward
integration to become a viable automaker.
• Buyers – Moderate, despite being almost a rite of passage to autonomy, car
ownership has become less attractive: some estimate that the average car
ownership for an American family that stands at 2.1 vehicles in 2020 will be
down to 1.2 by 2040..
• Substitutes – Low. Although individual ownership may give way to ride-sharing
services and rentals, this mode of transportation is not going away, it will just
look different.