0 Meaning & Definition of 0 0 0

Competitive Advantage Environmental Forces Environmental Indicators Companies Ability to Compete- Michael Porters Five Forces Model Sources of Global Competitive AdvantageMichael Porter Generic Strategies for achieving Competitive Advantage- Michael Porter

International/ Global Competitive Advantage: Main Contents

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Competitive Advantage: Unit 3

International/Global Competitive Advantage: Main Contents

0 The Value Chain Analysis- Michael Porter 0 The Value Chain & Competitive Scope in

International Business 0 The Competitive Advantage of Nations- Porters Diamond 0 Global Competitiveness Index- India & China: A Comparison

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Competitive Advantage: Unit 3

Competitive Advantage
0 Capabilities that are difficult to replicate or imitate

and are non-tradable 0 The factor/resources/set of resources that set an organization apart giving it a distinctive edge 0 Any Feature of a business firm that enables it to earn a high return on investment despite counter pressures from competitors. --- Pitts & Snow

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Competitive Advantage: A Resource Based Approach: VRIO Framework

0 Resource
0 An Asset, Competency,

0 Value
0 Rareness 0 Imitability

process, skill, knowledge controlled by the corporation 0 Resource can be a strength if it provides competitive advantage

0 Organization

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Grants Five Step Resource Based Approach

1) Identify & Classify the

firms resources in terms of Strengths & Weaknesses 2) Combine firms strengths into specific capabilities
0 Core Competencies 0 Distinctive

3) Assess the profit

Competencies

potential of these resources in generating & sustaining competitive advantage 4) Select the strategy that best exploits the firms s resources vis a vis external opportunities 5) Identify resource gaps and invest in upgrading weaknesses
5

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Environmental Forces Macroenvironment

Sociocultural Forces Industry
Communities Union/ employees

Economic Forces

Government

Firm/ Organization:

Structure Culture Stockholders Competencies Resources Creditors

Trade Association Competitors Suppliers

Political/Legal Forces
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Customers

Technological Forces
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Competitive Advantage: Unit 3

Environmental Forces Indicators

ECONOMIC TECHNOLOGICAL Total federal spending for R&D Total industry spending for R&D Focus of technological efforts

GDP trends
Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/revaluation Energy availability & cost Disposable 28-09-2013 income

Patent protection
New products New technologies New developments in technology transfer from lab to marketplace
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& discretionary Competitive Advantage: Unit 3 Productivity improvements

Environmental Forces Indicators

POLITICAL-LEGAL Antitrust regulations Environmental protection laws Tax laws SOCIOCULTURAL

Lifestyle changes
Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population

Special incentives
Foreign trade regulations Attitudes toward foreign companies Laws on hiring and promotion

Life expectancies
28-09-2013 Stability Competitive Advantage: Unit 3 of government Birth rates 8

0 The challenge is to sort

through the noise to find the key strategic factors for your organization or industry or market. 0 This requires a constant process of scanning, which is both art and science. 0 As you conduct various analyses of your industry or markets, keep track of the outside forces that affect them, and especially the trends and discontinuities - the opportunities and threats -- driven by these forces.

Scan the Environment

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Environmental Analysis Informs All Other Analyses

Environmental Analysis
Economic, Sociocultural, Technological, Political-Legal Factors

Market/Buyer Analysis Competitor Analysis

Resource Analysis

Interest Group Analysis

Supplier Analysis Select STRATEGIC FACTORS ie

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Opportunities Threats Competitive Advantage: Unit 3

Governmental Analysis
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Tool: Matrix for Tracking Environmental Forces

Env. Forces Stakeholders
Communities Creditors Customers Employees Stockholders Economic

Technological 1 . 2 .

Political-Legal Sociocultural
1. 2. 1. 2.

1. 2.

Note how each force or set of forces affects each stakeholder group...

Suppliers
Etc.
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Industry Structure
0 Once you understand some of the forces affecting your

industry, it is useful to look at the structure of the industry, and especially the power relations that define the interactions within the industry. 0 Actually, it often works best to start with this industry analysis and then examine how larger trends might shape or change the picture. 0 The key tool for defining industry structure is Porters Five Forces Model

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Tool: Porters Five Forces Model

Threat from New Entrants

Suppliers Power

Rivalry of Firms

Buyers Power

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Threat from Competitive Advantage: Unit 3 Substitutes

Power of other Stakeholders

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0 Applying microeconomic

theory, Porter highlights the forces that affect a firms ability to raise prices and earn profits. 0 The stronger a force, the more it limits the industry firms ability to set prices.
0 Thus, strong forces are threats

because they are likely to reduce profits; weak forces are opportunities because they may allow firms a chance to earn greater profits. 0 The pattern of forces shape an industry and constrain firms within the industry -- but industry structure is subject to change as the environment, each force, and each participants strategy change.
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Porters Five Forces Model,

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0 Industries that are hard to

enter are cozy for insiders, but also often attractive to outsiders longing for the value being shared by so few. 0 Barriers to entry make it harder for newcomers to play.
0 Fierce reaction by incumbents. 0 Size of payoff/relation of supply to

0 0 0 0

demand. Economies of scale: 0 minimum efficient scale of production 0 distribution or sales networks Pioneering brand advantages. Experience curve. Licenses or patents. Cost of exit.
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Porters Five Forces Model, Threat of Entry 15

Tool: Porters Five Forces Model, Threat of Substitution

0 Industries with few

substitute products are more attractive than those with many substitutes. 0 Effective substitutes can often provide ways in for upstarts. 0 The threat of substitutes is often the weakest of the forces -- except during times of high demand or fast change, when interlopers may see opportunities.
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Tool: Porters Five Forces Model, Buyer Power

0 Attractive industries feature

disorganized, small customers, with little purchasing and negotiating power. 0 Buyers gain power when:
0 They are large, relative to the

seller (superstores). 0 They are organized (eg., a coop). 0 It is easy to switch to another supplier (eg., when products are standard). 0 They could integrate backwards and so take over a supplier.
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Tool: Porters Five Forces Model, Supplier Power

0 Attractive industries feature small

and disorganized suppliers. 0 Suppliers gain power when:

0 They are large, relative to the

buyers. 0 It is difficult for buyers to switch to competing suppliers. (Custom products, proprietary information). 0 They pose a credible threat of integrating forward and taking over the buyers functions.

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Tool: Porters Five Forces Model, Other Stakeholders Power

0 Governments (if not in the

environmental scan), unions, creditors (if not a supplier), advocacy groups (eg., environmentalists) can all constrain industries.
0 Regulated industries 0 Institutional investors

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Tool: Porters Five Forces Model, Industry Rivalry

0 Attractive industries are controlled by monopolies or

gentlemanly oligopolies.

0 On the other hand, the more the players, and the more

equally matched, the closer the industry approximates perfect competition and minimum profits.

0 Rivalry is reduced when: 0 Power is concentrated 0 Competitors can truly differentiate. 0 It is easy to exit. 0 Demand is stable and predictable. 0 Regulation takes the edge off.
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Sources of Global Competitive Advantage- Michael Porter

0 Conventional Comparative Advantage

0 Economies of Scale
0 Global Experience 0 Product Differentiation 0 Technological Innovation

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Competitive Advantage of Global Firms: Sources

0 Access to globally Scarce

resources

0 Access to low cost &

skilled Labour 0 Access to cheaper Capital 0 Access to suppliers 0 Access to Information

0 Unique Assets 0 Unique Low cost position 0 Unique Distribution Network 0 Well Established Brands 0 Patents 0 Economies of Scale 0 World Class R&D Facility

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Generic Strategies for Achieving Competitive Advantage- Michael Porter

0 Lower Cost Strategy 0 Differentiation

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Generic Strategies
0 Lower Cost Strategy 0 The ability of a company or a business unit to design, produce and market and comparable product more efficiently than its competitors

0 Differentiation Strategy 0 The ability to provide unique and superior value to the buyer in terms of product quality, special features/after sale service

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Competitive Scope
0 The breadth of the

companys or business units target market

1) Choose the range of product 2)

3)
4) 5)

varieties to produce The number and kind of distribution channels The types of buyers it will serve The geographic areas in which it will sell Array of related industries in which it will compete

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THE THREE GENERIC STRATEGIES CREATING A BUSINESS FOCUS

0 Organizations typically follow one of Porters three generic

strategies when entering a new market

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Generic Strategies: Combinations

0 Cost Leadership & Differentiation: Broad Mass Market 0 Cost Focus & Differentiation Focus: Niche/Narrow
BUSINESS FOCUS

Market.THE THREE GENERIC STRATEGIES CREATING A

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Use of generic Strategies

0 Fragmented Industry
0 Many Small and medium

0 Consolidated Industry
0 Dominated by Few Large

sized local companies compete for relatively small shares of the total market 0 Option: Focus Strategies

companies

0 Option: Cost

Leadership/ 0 Differentiation

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Value Chain
0 The value chain is really a cross-linked network of distinct activities that

affect the cost or performance of the others. 0 Optimizing the links as well as the functions or activities so that the entire chain supports a strategy can yield a powerful, durable, hard-to-duplicate strategic advantage.

Infrastructure Human Resource Management

Technology Development
Procurement Inbound Logistics
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Margin

Operations

Outbound Logistics

Marketing/ Sales

After Sales Service

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Competitive Advantage: Unit 3

Value Chain Analysis & Competitive Scope

0 Segment Scope

0 Vertical Scope
0 Geographical Scope 0 Industry Scope

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Advantages and disadvantages of the four strategies

Sustaining Global Competitive Advantage- Key Factors

0 Replicability

0 Transferability
0 Transparency 0 Durability

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Competitive Advantage of Nations- Michael Porters Diamond

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International Business Strategy -Choices

0 International

0 Multi-Domestic
0 Global 0 Transnational

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International/Global Competitiveness Index (GCI)

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