Analytical Frameworks © Professor Daniel F. Spulber

First key framework The global competitive strategy “Star Analysis” Will use in our case discussions and in our case analysis The “Star Analysis” provides a way to organize our thoughts and knowledge about geography and international business The “Star Analysis” provides information for the international business manager to develop a competitive strategy

Global Competitive Strategy The international business firm’s competitive advantage depends on five major drivers: Home country Supplier countries Customer countries Partner countries Competitor countries

The global competitive strategy star Home country Supplier countries Customer countries International business Partner countries Competitor countries

The international business “Star Analysis” Gather country data from global mosaic Information needed to design competitive strategy Star Analysis

Global Competitive Strategy Home country features – headquarters Company globalization – Launching pad Company history and culture Managers’ background Brand nationality Corporate governance Home market Political, legal, regulatory climate

Global Competitive Strategy Supplier country features – production and procurement Worker wages and productivity Technology Finance capital Factor supplies Supplier firms Political, legal, regulatory climate Operating costs/risks

Global Competitive Strategy Customer country features – distribution and sales Customer preferences Elasticity of demand Income per capita and income distribution Customer knowledge Distribution infrastructure Society and culture Political, legal and regulatory climate

Global Competitive Strategy Partner countries – Demand-side and supply-side complements Complementary products Complementary technology Complementary capabilities Market knowledge Political, legal, regulatory climate

Global Competitive Strategy Competitor countries Home, supplier, customer, and partner countries of competitors Global and local competitors Customer and supplier bypass competition Political, legal and regulatory climate – trade agreements, home-country policies

Second key framework: Global added value Global value created by global business: Gains from trade minus Costs of trade Global added value is competitive advantage of a global business Global competitive strategy is means to create and capture global added value

Five major gains from trade: Global added value Five major gains from trade: Preference for product variety and production economies of scale Comparative advantage: Productivity and wages Comparative availability of factors of production Differences in preferences and endowments Differences in innovation and technology

International business profits from gains from trade: Best target countries to serve customers Best countries to deal with suppliers and partners Best combination of international transactions

Costs of trade Global business cannot just maximize gains from trade Must adjust strategy to optimize gains minus costs Adjust to sticky borders

Global business creates value U.S. multinational corporations home country added value (contribution to GDP) $ 2 tr. U.S. multinational corporations’ foreign affiliates added value to host country $ 0.7 tr. Total $ 2.7 tr. bea.gov international economic accounts

Third key framework “G5” competitive strategies: Global platform strategy Global network strategy Global intermediary strategy Global entrepreneur strategy Global investment strategy

Global Competitive Strategy Location, location, location – key role of geography Where to produce and find suppliers? Where to target customer markets? Where to find best partners Where are competitors coming from, serving and seeking suppliers Global competitive strategy – integrate economic and geographic forces for competitive advantage