Global Marketing

Session 14
Internationalisation competitiveness
Today’s session
• Analysis of national competitiveness
(Porter’s diamond) – macro level
• Competition analysis in an industry –
meso level (Porter’s five force model)
• Value chain analysis – micro level
• CSR – corporate social responsibility
• The value net
• Blue-ocean strategy and value
innovation
 Porter’s diamond
• The characteristics of the ‘home base’ play a central role in
explaining the international competitiveness of the firm –
the explaining elements consist of factor conditions,
demand conditions, related and supporting industries, firm
strategy – structure and rivalry, chance and government.

Source: Porter (1990)

 Porter’s diamond
Factor conditions
–Basic factors include natural resources (climate, minerals,
oil) where the mobility of the factors is low. These factors
can also create the ground for international
competitiveness, but they can never turn into real value
creation without the advanced factors
–Advanced factors: sophisticated human resources
(skills)and research capabilities which tend to be specific to
the industry.
 Porter’s diamond
• Demand conditions
– such as the presence of early home demand,
market size, its rate of growth and sophistication.
 Porter’s diamond
• Related and supporting industries
– The success of an industry is associated with the presence
of suppliers and related industries within a region.
– In many cases competitive advantages come from being
able to use labour that is attracted to an area to serve the
core industry, but which is available and skilled enough to
support this industry. Coordination of technology is also
eased by geographic proximity.
– The advantage of clustering is not so much transportation
cost reductions but technical and marketing cooperation.
 Porter’s diamond
• Firm strategy, structure and rivalry
– This fairly broad element includes how companies
are organized and managed, their objectives, and
the nature of domestic rivalry
 Porter’s diamond
• Government:
– can influence and be influenced by each of the four
main factors.
– can play a powerful role in encouraging the
development of industries within their own borders
that will assume global positions.
– finance and construct infrastructure, providing roads,
airports, education and health care, and can support
use of alternative sustainable energy or other
environmental systems that affect factors of
production.
 Porter’s diamond
• Chance
– National/ regional competitiveness may also be
triggered by random events.
– Perhaps the most important instance of chance
involves the question of who comes up with a
major new idea first.
Porter’s five-forces model
 Porter’s five-forces model
• Industry competitive rivalry: The intensity of rivalry
between existing competitors in the market depends
on a number of factors
– Concentration of the industry.
– Rate of market growth.
– Structure of costs.
– Degree of differentiation.
– Switching costs.
– Exit barriers.
 Porter’s five-forces model
• Suppliers: The cost of raw materials and components can have a major bearing
on a firm’s profitability. The higher the bargaining power of suppliers, the higher
the costs. The bargaining power of suppliers will be higher in the following
circumstances:
– Supply is dominated by a few companies and they are more concentrated
than the industry they sell to.
– Their products are unique or differentiated, or they have built up switching
costs.
– They are not obliged to contend with other products for sale to the industry.
– They pose a credible threat of integrating forwards into the industry’s
business.
– Buyers do not threaten to integrate backwards into supply.
– The firm is not important customer to the supplier group.
 Porter’s five-forces model
• Buyers: The bargaining power of buyers is higher in the
following circumstances:
– Buyers are concentrated and/or purchase in large volumes.
– Buyers pose a credible threat of integrating backwards to manufacture
the industry’s product.
– Products they purchase are standard or undifferentiated.
– There are many suppliers (sellers) of the product.
– Buyers earn low profits, which create a great incentive to lower
purchasing costs.
– The industry’s product is unimportant to the quality of the buyer’s
products, but price is very important.
 Porter’s five-forces model
• Substitutes: The threat of substitute products depends on the
following factors
– the buyer’s willingness to substitute;
– the relative price and performance of substitutes;
– the costs of switching to substitutes.
 Porter’s five-forces model
• New entrants: The threat of new entrants is largely a function of
the extent to which barriers to entry exist in the market. Some
key factors affecting these entry barriers include the following:
– economies of scale;
– product differentiation and brand identity, which give existing
firms customer loyalty;
– capital requirements in production;
– switching costs – the cost of switching from one supplier to
another;
– access to distribution channels.
• High barriers to entry can make even a potentially lucrative
market unattractive (or even impossible) to enter for new
competitors
 Strategic group
• A group of firms (or strategic business units, or
brands) operating within an industry where the
firms (or strategic business units, or brands)
within a group compete for the same group of
customers (segment), using similar market-
related strategies.
• Direct rivals (those with similar strategies or
business models) vs. indirect rivals.
 Five-sources model
Five potential sources for building collaborative
advantages together with the firm’s surrounding actors.
 Value chain analysis
Customer perceived value
–Perceived value is the relation between the benefits
customers realize from using the product/service (the
numerator in Figure 4.2 ) and the costs, direct and
indirect, that they incur in finding, acquiring and using
it (the denominator in Figure 4.2 ).
–The higher this relation is, the better the perceived
value for the customer and the better competitiveness.
 Value chain analysis
• Competitive triangle
– Consists of a customer, the company and a
competitor (the ‘triangle’ or 3Cs).
– The firm or competitor ‘winning’ the customer’s
favour depends on perceived value offered to the
customer compared to the relative costs between
the firm and the competitor.
– Perceived value (compared to the price): The
customer’s overall evaluation of the product/ service
offered by a firm.
 Value chain analysis
• Competitive triangle
 Value chain analysis
– Perceived value advantage
– Relative cost advantage: A firm’s cost position
depends on the configuration of the activities in its
value chain versus that of the competitor
• requires an understanding of the factors that affect
costs.
• ‘big is beautiful’: economies of scale, which enable fixed
costs to be spread over a greater output, but more
particularly it is due to the impact of the experience
curve.
 Value chain analysis
• The basic sources of competitive advantage: depend on
the firm’s resources and its competences
• Resources: Basic units of analysis – financial,
technological, human and organizational resources –
found in the firm’s different departments.
• Competences: Combination of different resources into
capabilities and later competences – being something
that the firm is really good at
– Core competences: Value chain activities in which the firm is
regarded as better than its competitors
Value chain analysis
 Value chain analysis
Competitive benchmarking
• A technique for assessing relative marketplace
performance compared with main competitors.
• Critical success factors. Those value chain
functions where the customer demands/expects
the supplier (firm X) to have a strong
competence.
• Core competences. Those value chain functions
where firm X has a strong competitive position.
The strategy process
 Corporate social responsibility
• CSR: A number of corporate activities that
focus on the welfare of stakeholder groups
other than investors, such as charitable and
community organizations, employees,
suppliers, customers, and future generations.
 The value net
• A company’s value creation in collaboration
with suppliers and customers (vertical
network partners) and complementors and
competitors (horizontal network partners).
The value net
 Blue-ocean strategy and value innovation
• Kim and Mauborgne (2005a, 2005b, 2005c) use
the ocean as a metaphor to describe the
competitive space in which an organization
chooses to swim.
– Red oceansTough head-to-headcompetition in mature
industries often results in nothing but a bloody red
ocean of rivals fightingover a shrinking profit pool.
– Blue oceansThe unserved market, where competitors
are not yet structured andthe market is relatively
unknown. Here it is about avoiding head-to-head
competition
 Blue-ocean strategy and value innovation
• Value innovation
• Kim and Mauborgne (2005a) argue that tomorrow’s leading
companies will succeed not by battling competitors, but by
making strategic moves, which they call value innovation.
• The combination of value with innovation is not just
marketing and taxonomic positioning. It has consequences.
Value without innovation tends to focus on value creation
on an incremental scale, and innovation without value
tends to be technology driven, market pioneering, or
futuristic, often overshooting what buyers are ready to
accept and pay for.
 Blue-ocean strategy and value innovation
• Value innovation
• The output of the value innovation analysis is the value curves of
the different marketers in the industry (also called the ‘strategy
canvas’ in Kim and Mauborgne (2005a) – see Figure 1 in Case 4.1:
Wii). These different value curves raise four basic questions for the
focal firm:
• 1 Which factors should be reduced well below the industry
standard?
• 2 Which of the factors that the industry takes for granted should be
eliminated?
• 3 Which factors should be raised well above the industry standard?
• 4 Which factors should be created that the industry has never
offered?
 Blue-ocean strategy and value innovation

• Value innovation
 Reading
Chapter 4
 Summary
• Analysis of national competitiveness
(the Porter diamond)
• Competition analysis in an industry
• Value chain analysis
• CSR – corporate social responsibility
• The value net
• Blue-ocean strategy and value
innovation