1. Chapter 10 The Industry Context
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

2. © 2014, Cengage Learning EMEA, ISBN 97814082683
Contents
Introduction
The issue of industry development
The paradox of compliance and choice
Perspectives on the industry context
Managing the paradox of compliance and choice
The industry context in international perspective
Readings and Case 10
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

3. The issue of industry development
Industry rules are the demands dictated to the firm by the industry context, limiting the scope of potential strategic behaviors, e.g. ‘must have strong brand’
Industry rules arise from the structure of the industry
As industries develop, the rules of competition change. Strategizing managers need to identify which characteristics in the industry structure and which aspects of competitive interaction are changing.
Strategists need to recognize the drivers and the inhibitors of industry development
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

4. The issue of industry development
Dimensions of industry development
Convergence–divergence
Concentration–fragmentation
Vertical integration–fragmentation
Horizontal integration–fragmentation
International integration–fragmentation
Expansion–contraction
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

5. The issue of industry development
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

6. The issue of industry development
Paths of industry development
Gradual development
Continuous development
Discontinuous development – where one business model is dominant for a long period of time and is then suddenly displaced by a radically better one
Hypercompetitive development – where business models are frequently pushed aside by radically
better ones
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

7. The issue of industry development
Examples of industry development paths
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

8. The issue of industry development
Patterns of dominant business model development
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

9. The issue of industry development
Drivers of industry development
Environmental factors that are external or internal to the industry
Factors in the contextual environment include socio-cultural, economic, political/regulatory and technological forces of change
Factors in the industry environment can be divided into groups surrounding suppliers, buyers, incumbent rivals, new entrants, substitutes and complementors
Where one firm is the major driver of industry development it can claim industry leadership
If there is no industry leader, the industry dynamics determine the path of industry development
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

10. The issue of industry development
Drivers of industry development
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

11. The issue of industry development
Inhibitors of industry development
Underlying conditions
Industry integration
Power structures
Risk averseness
Industry recipes
Institutional pressures
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

12. The paradox of compliance and choice
The demand for firm compliance
Organizations must adapt themselves to their environments. Therefore all organizations need to understand the context in which they operate.
The demand for strategic choice
If firms only play by the current rules, it is difficult to gain a significant competitive advantage over their rivals. To be unique and develop a competitive advantage, firms need to do something different.
Read carefully Exhibit 10.1 UNIQLO: Fast
retailing in slow fashion
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

13. Perspectives on the industry context
The industry dynamics perspective
Belief that individual firms have the power to shape their industry
Firms are small players in a large game – their behaviors cannot fundamentally shape the direction of changes
Also known as the industry evolution perspective – the survival and growth of entities depends on their fit with the environment
Changing the rules is difficult, slow and hazardous
Read carefully Exhibit 10.2 A fairy world of
plenty operating systems?
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

14. Perspectives on the industry context
The industry leadership perspective
Belief that in industry some rules are immutable but other environmental factors can be manipulated
Strategist must recognize the limits of the possible and the limitless possibilities
Leading firms need the intellectual ability to envision the industry’s future and be able to communicate this vision so that other firms and individuals will buy into it
A leading firm needs to work out a new competitive business model
Read carefully Exhibit 10.3 Spotify: Who pays
the piper calls the tune
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

15. Managing the paradox of compliance and choice
Juxtaposing
The majority of industry rules cannot be broken, but it is important to know which can
The industry dynamics perspective is applicable in some occasions, the industry leadership perspective is preferred in others
Independent from perspectives strategists need to juxtapose between firm compliance and strategic choice
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

16. Managing the paradox of compliance and choice
Industry dynamics versus industry leadership perspective
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

17. The industry context in international perspective
International economics and trade
Interactions between location, the competitiveness of multinational companies and company strategies was only discussed in the latter part of the 20th century
Comparative advantage and international trade
At the end of the 18th century mass production of manufactured products became apparent in the international market
Mercantilism started from the assumption that a country should export more than it imports – the beginning of protectionism and import-substitution
With the Industrial Revolution scholars such as Adam Smith wrote of the benefits of free trade
A country that does not have an absolute advantage in
producing one good could still benefit from engaging in
international trade if they have comparative advantage
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

18. The industry context in international perspective
Factor endowments
Another shortcoming of the classical theory on trade and production was the assumption that only labor, in terms of hourly input, was responsible for the value of end products
The factor proportion theory states that both labor and capital are of equal importance for the value of a product and both factor endowments determine specialization and location of production.
The driving forces behind allocating production and international trade are the costs of a country’s endowments of labor and capital e.g. China has cheap labor so should specialize in the production of labor-intensive products.
Declining terms of trade
There are complications to comparative advantage.
Efficiently allocating international production benefits the world economy at large but not every country benefits in the same way.
Terms of trade – what countries paid for imports against what they earned for exports - deteriorated for countries exporting raw materials
and importing end products.
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

19. The industry context in international perspective
Leontief paradox
In 1950 US firms, contrary to the hypothesis, exported more labor-intensive products than capital-intensive products
A large part of international trade consisted of buying and selling almost similar end products – shows the importance of non-tangible perceived distinctive capacities like branding
Market imperfections
The input of labor and capital in one country is not necessarily comparable to the same inputs in another. The value of a product depends on the quality or productivity of labor and capital i.e. market conditions are not perfect.
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

20. The industry context in international perspective
Life cycle and location
Technical innovations lead to new and profitable products – these innovations need capital and a good educational infrastructure
This has an effect on the location of industries as the comparative advantage in production shift across countries
Locus of control
In some cultures there is a view that the individual is at the mercy of external forces, (external locus) in other cultures there is a belief in the freedom of individuals to create their own circumstances (internal locus)
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN

21. The industry context in international perspective
Role of government
In some countries the view is that governments should facilitate industry development by creating supportive business circumstances but individual countries are the primary drivers of development
In other countries the view is that governments should take a more proactive role to protect weaker parties e.g. workers and the environment
Network of relationships
In countries where the discrete organization perspective is predominant, companies strive to retain their independence and power position against other companies
In other countries firms are more inclined to operate in networks – the ability of the individual firm to shape its industry thus declines
Only to be used with Strategy : An International Perspective 5th edn by Bob de Wit
© 2014, Cengage Learning EMEA, ISBN