International Business Strategy 301LON National Competitive Advantage Unit: 6 Knowledgecast:2

Demonstrate a sound appreciation of current strategic management concepts Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process Assess current developments in the organisational environment and alternative responses related to strategy Module Learning Outcomes

Theories of International Trade and Investment

Comparative Advantage The foundation concept of international trade; answers the question of how nations can achieve and sustain economic success and prosperity Refers to the superior features of a country that provide it with unique benefits in global competition Derived either from natural endowments or from deliberate national policies

Examples of National Comparative Advantage France has a superior climate and soil for producing wine. Saudi Arabia has a natural abundance of oil for the production of petroleum products. Over time, Japan has acquired a superior base of knowledge and experience for producing cars. Over time, India has acquired a superior base of IT workers for producing computer software. What are the comparative advantages in your country?

New Trade Theory Argues that economies of scale are an important factor in some industries for superior international performance, even in the absence of superior comparative advantages. Some industries succeed best as their volume of production increases. Example The commercial aircraft industry has very high fixed costs that necessitate high-volume sales to achieve profitability.

Comparative vs. Competitive Advantage

Determinants of National Advantage SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright ©1990, 1998 by Michael E. Porter. Porter’s Diamond

Determinants of National Advantage Factors of production : the inputs necessary to compete in any industry – Labor  Land  Natural resources – Capital  Infrastructure Basic factors include natural and labor resources Advanced factors include digital communication systems and an educated workforce

Determinants of National Advantage (cont’d) Demand conditions : characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services – Size of the market segment can lead to scale- efficient facilities – Efficiency can lead to domination of the industry in other countries – Specialized demand may create opportunities beyond national boundaries

Determinants of National Advantage (cont’d) Related and supporting industries : supporting services, facilities, suppliers and so on – Support in design – Support in distribution – Related industries as suppliers and buyers

Determinants of National Advantage (cont’d) Firm strategy, structure and rivalry : the pattern of strategy, structure, and rivalry among firms – Common technical training – Methodological product and process improvement – Cooperative and competitive systems

Evaluate the National Advantage of Brazil? BRAZIL: A NEW WORLD OF LUXURY BUSINESS OPPORTUNITY

The Diamond Model and the Japanese Video Game Industry Demand conditions: high customer expectations in consumer electronics; popularity of role-playing games Domestic rivalry : initially low rivalry for Nintendo but then well-established electronics firms such as Matsushita; in 1994, Sony launched PlayStation; also rivalry from Sega Factor conditions : game designers & sound programmers. 300 training programs designed for video game-related occupations, and some 170 programs designed for cartoonists, animators etc. Related and supporting industries: e.g. learning about liquid crystal display technology (Mitsubishi Electric, Ricoh and Sharp)

Selecting location A crucial step in developing a global expansion strategy is the selection of potential target markets. A four-step procedure for the initial screening process: 1. Select indicators and collect data 2. Determine importance of country indicators 3. Rate the countries on each indicator 4. Compute overall score for each country

17 Country Screening Objective: To reduce the number of countries that warrant in-depth investigation as potential target markets to a manageable few. Outcomes: Identification of 5 or 6 of the highest potential country markets. Criteria: Market size and growth rate; market intensity (that is, buying power of the residents in terms of income level); consumption capacity (that is, size and growth rate of the country’s middle class); country’s receptivity to imports; infrastructure appropriate for doing business; economic freedom; political risk.

18 Specific Considerations Cultural Similarity with Target Market may Matter. Some firms target countries that are “psychically” similar in terms of language and culture. Nature of Information Sought varies with product/industry. E.g., for farming equipment, consider countries with much agricultural land and farmers with higher incomes. Targeting a Region may Make Sense. E.g., European Union, Latin America

Example measurement indicators

Demonstrate a sound appreciation of current strategic management concepts Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process Assess current developments in the organisational environment and alternative responses related to strategy Knowledgecast Summary

Regular Assignment Group Presentation on Environmental audit Seminar

Group Activity Regular Assignment Group Presentation on Environmental audit