410 Final

•Trade across nations will exceed trade within nations

•Rise of market capitalism around the world

•Transfer of money from rich to poor countries

nEquity

nBond investments

nCommercial loans


•Economies of East Asia have grown rapidly, but little progress in the rest of the world

•Poor education levels in many countries

•Failure to manage broader economic factors in some countries

nInterest rates

nInflation

nUnemployment

• Factor Conditions
• To achieve competitive advantage, factors of production must be created
• •Industry specific
• •Firm specific
• •Pool of resources at a firm’s or country’s disposal is less important than the speed and efficiency with which the resources are deployed

Demand Conditions

Demands that consumers place on an industry for goods and services

•Demanding consumers push firms to move ahead of companies from other nations

•Demanding consumers drive firms in a country to

nMeet high standards

nUpgrade existing products and services

nCreate innovative products and services

• Related and supporting industries
• •Enable firms to manage inputs more effectively

nStrong supplier base adds efficiency to downstream activities

nCompetitive supplier base lets a firm obtain inputs using cost-effective, timely methods

•Allow joint efforts among firms

•Create the probability that new entrants will enter the market

• Firm strategy structure and rivalry
• •Rivalry is intense in nations with conditions of

•Strong consumer demand ;Strong supplier bases

•High new entrant potential from related industries

•Competitive rivalry increases the efficiency with which firms develop, market, and distribute products and services within the home country

•Competitive rivalry increases the efficiency with which firms

•Develop within the home country

•Market within the home country

•Distribute products and services within the home country





•Competitive rivalry increases the efficiency with which firms

•Develop within the home country

•Market within the home country

•Distribute products and services within the home country

•Domestic rivalry provides a strong impetus for firms to

•Innovate

•Find new sources of competitive advantage

•Domestic rivalry forces firms to look beyond national borders for new markets

•

•Political and economic risk

•Social unrest

•Military turmoil

•Demonstrations

•Violent conflict and terrorism

•Laws and their enforcement

•Currency risks: Currency exchange fluctuations

•Management risks : Culture ; Customs; Language

•Income levels

•Customer preferences

•Distribution system

•

•

• International Strategy

•Pressure for both local adaptation and low costs are rather low

•Different activities in the value chain have different optimal locations

•Susceptible to higher levels of currency and political risks

• Global Strategy

•Competitive strategy is centralized and controlled largely by corporate office

•Emphasizes economies of scale

•Advantages

•Larger production plants

•Efficient logistics and distribution networks

•Supports high levels of investment in R&D

•Standard level of quality throughout the world

•

Multidomestic Strategy




•Emphasis is differentiating products and services to adapt to local markets

•Authority is more decentralized

•Risks include

•Increased cost structure

•Potential problems with local adaptations

•Finding optimal degree of local adaptation is difficult


Transnational Strategy





•Optimization of tradeoffs associated with efficiency, local adaptation, and learning

•Firm’s assets and capabilities are dispersed according to the most beneficial location for a specific activity

•Avoids the tendency to either

•Concentrate activities in a central location

•Disperse them across many locations to enhance adaptation

•Unique risks and challenges

•Choice of an “optimal” location cannot guarantee that the quality and cost of factor inputs will be optimal

•Knowledge transfer can be a key source of competitive advantage, but it does not take place automatically

•

•Internet technologies lower barriers to entry

•Scale economies may be less important in Internet context

•New entrants can go to market with lower capital costs

•Businesses on the Internet may have lower expenses such as office rent, printing, and postage

•End users

•Final customers in a distribution channel

•B2C Internet sales activity (business to consumer)

•Internet increases the power of these buyers

nmore information

nLower switching costs

•Such buyers likely to have more bargaining power

•Buyer channel intermediaries

•Wholesalers, distributors, and retailers

•Internet makes it easier for the business to reach consumers directly

•Internet may decrease the bargaining power of buyer channel intermediaries

•

•

•B2B—providing products or services to other businesses

•Advantages

•Access to business customers at lower cost

•More downstream outlets

•Creation of Web-based purchasing arrangements

nMakes purchasing easier

nDiscourages customers from switching

•Can reach end users without intermediaries

•Disadvantages

•Buyers can shop competitively and negotiate prices easier

•Inhibited ability to offer differentiated products or unique services

•Creating new functions (re-intermediation)

•Threat of substitutes is increased because the Internet creates new ways to accomplish the same tasks

•Alternative way to participate in conferences

•Storing information on the Web

•Online market surveys

•Primary factor increasing substitution is economic

•

•Rivalry is likely to be more intense

•More tools and means for competing

•New firm technologies can be imitated easily and quickly

•Competitors in cyberspace are more equally balanced and competitive

•Infomediaries increase importance of pricing

Threat of new substitutes

(+) by making an overall industry more efficient, the internet can expand sales in that industry

(-) internet-based capabilities create new substitution threats

(-) technology-based efficiencies can be captured, lowering the impact of scale economies

(-) differences among competitors are difficult to detect and to keep proprietary

Bargaining power of buyers

•Bargaining power of channels

(+) eliminates powerful channels or improves bargaining power over traditional channels

•Bargaining power of end users

(-) shifts bargaining power to consumers

(-) reduces switching costs

Bargaining power of suppliers

(+-) procurement using the Internet may raise bargaining power over suppliers, but it can also give suppliers access to more customers

(-) the Internet provides a channel for suppliers to reach end users, reducing the power of intermediaries

(-) Internet procurement and digital markets tend to reduce differentiating features

(-) reduced barriers to entry and the proliferation of competitors downstream shifts power to suppliers

Threat of new entrants

•(-) reduces barriers to entry such as need for a sales force, access to channels, and physical assets

•(-) Internet applications are difficult to keep proprietary from new entrants

•(-) a flood of new entrants has come into may industries

Search



•The process of gathering information and identifying purchase options

•Faster speed of information gathering (buyers, suppliers)

•Greater breadth of information that can be accessed (buyers)

•Decreased cost of search (buyers)

•Easier to be found (suppliers)



Evaluation





•The process of considering alternatives and comparing the costs and benefits of various options

•Facilitates comparative shopping (buyers)

•Provides product reviews (buyers)

•Catalogues customer evaluations of performance (buyers, suppliers)

Problem Solving





•The process of identifying problems or needs and generating ideas and action plans to address those needs

•Ability to handle unique problems individually (buyers, suppliers)

•Ability to provide immediate answers (buyers, suppliers

•Ability to deliver new products and services (suppliers)


Transaction





•The process of completing the sale, including negotiating and agreeing contractually, making payments, and taking delivery

•Lowering overall transaction cost (buyers, suppliers)

•Permitting more rapid sales (buyers, suppliers)

•More reliable transactions






•Internet content as a source of competitive advantage

•Customer feedback

nBuyers trust what other buyers say more than a company’s promises

nCustomer testimonials

•Expertise

nInternet as a library

nEducation of consumers regarding options and implications of various choices

•Entertainment programming

nStreaming media

nInteractive programming and other applications

•Internet can decrease costs throughout a firm’s value chain in both primary and support activities

•Minimizing rework

nDirect access to progress reports

nAbility for customers to periodically check work in progress

•Minimizing sales-force expenses

nOnline bidding

nOnline order processing

•Reducing costs of procurement and paper


nOnline purchase orders makes many transactions paperless





•Internet can decrease costs throughout a firm’s value chain in both primary and support activities

•Reducing costs and speeding the process of new-product development

nCollaborative design efforts (internet links designers, materials suppliers, and manufacturers)

•Reducing costs of hiring and training employees

nOnline testing

nOnline evaluation

nOnline training

•

•Internet can create new ways of differentiating by enabling mass customization and increasing customer control over the process

•Shortening response times and accelerating organization learning

•Internet-based knowledge management systems

•Linking all parts of the organization

•Personalizing online access so customers can access

•Prior orders

•Current order status

•Process requests for future orders

•



•Enhancing marketing efforts

•Quick online response to service requests

•Rapid feedback to customer surveys and product promotions

•Empowered sales force and updated R&D efforts

•Online access to real-time sales and service information

•Access to detailed status reports and purchasing histories

•Automated procurement and payment systems

•Focusing sales efforts on specific customers

•Permission marketing techniques

•Creating community for customers with common interests

•Chat rooms

•Discussion boards

•Member functions

•Internet permits focusers to access markets less expensively (low cost) and provides more services and features (differentiation)

•Providing advertisers with access to viewers with specialized interests

•Niche portals

•Minimizing firm infrastructure requirements

•Virtual organizing

•Online “officing”

•Highlighting specialized buyers and drawing attention to smaller suppliers

•Procurement technologies (matching buyers and sellers)

•Low-cost leaders

•Ease of imitation by competitors

•Ease of comparison shopping by consumers

•Temptation to place too much emphasis on one business activity and ignore others

•Differentiators

•Sustainability of internet gains may deteriorate if differentiating features are unwanted by customers

•Overpriced products and services

•Focus

•Misreading scope and interests of target markets

•Efforts to read a broader audience can cause it to lose cost advantage

►Every industry has a lifecycle

§Introduction

§Growth

§Maturity

§Decline

►Useful to think of industry in terms of broad product lines or services that have a life cycle too

§e.g. Personal computers, photocopies

►Firms develop differing products or services

§Product and service use varies across the industry lifecycle

§Strategy should change also

►There is a need to match strategy to industry lifecycle

§E.g. more investment in R&D in the introductory stage of a lifecycle

§




►Change influences consumer demand for specific products or services

►

►There is a need to match strategy to changes that affect the industry lifecycle

§E.g. emergence of a new type of product or service that is becoming popular among consumers

§

Every industry changes over time.



There are 3 types of change that can affect an industry

1.Evolutionary change

2.Gradual progressive change

3.Revolutionary change

4.

Each differs in terms of intensity and affects choices in terms of strategy

►

Sources of change:

1. External environment

e.g. economic downturn



2. Internal environment

e.g. Health Canada brings in a new regulation





►

►Develop an awareness of competitive threats

§Involves:

►Environmental scanning

►Environmental monitoring

►Answers the question:

§Who are the closest competitors?

►

►Two types of competitive actions

§Strategic actions

§Tactical actions

§Guerilla offensives and selective attacks

§Defensive actions


Strategic Actions


►Major commitment

►Distinctive

►Specific resources are used

►Examples:

§Launching a new technology

§Merger


Tactical Actions




►Refinements or extensions of strategies

►Examples:

§Cutting prices

§Improving gaps in service

§Strengthening marketing and distribution efforts