1. COURSE: GLOBAL BUSINESS MANAGEMENT MGT610
DR. DIMITRIS STAVROULAKIS
PROFESSOR OF HUMAN RESOURCE MANAGEMENT
DEPT OF ACCOUNTING
TEI OF PIRAEUS

2. Unit 4: MNC Strategy “Outside-In” Training Material: Textbook (103-109, Ch4 & Ch5)

3. Business Strategy

4. Michael Porter
Michael E. Porter is the C. Roland Christensen Professor of Business Administration at Harvard Business School and Director, Institute for Strategy and Competitiveness
He is the author of many seminal books on competition and strategy, including On Competition, The Competitive Advantage of Nations, Competitive Advantage: Creating and Sustaining Superior Performance, etc

5. 21st Century Competitive Landscape
Fundamental nature of competition is changing:
The pace of change is relentless....
and increasing
Rapid technological changes
Traditional industry boundaries are blurring, such as in ...
Rapid technology diffusions
Dramatic changes in information and communication
Computers
Telecommunications
Television
Information
Visual Arts
Increasing importance of knowledge

6. How Environment Affects Industry and Competition
Socio-Cultural
Demographic
Political/Legal
Industry Environment
(5 Forces)
Competitive
Environment
Global
Economic
Technological 10

7. Porter’s 5 Forces Model of Competition

8. The Five Forces Model of Competition
Supplier Power
Few concentrated suppliers
Low importance of buyer to supplier
Differentiated products
Product is important to the buyer
High switching costs
Scarcity of substitute products
Degree of Rivalry
Declining industry
Undifferentiated products
Numerous competitors
Switching costs
Exit barriers
High strategic stakes
Threat of Substitutes
Price differences
Performance of substitutes
Switching costs
Appeal of substitutes
Threat of Entry
Cost advantages
Government policy
Economies of scale
Capital requirements
Brand identity
Switching costs
Access to distribution
Expected retaliation
Competition
Intensity
Determinants of Buyer Power
Bargaining leverage Price sensitivity
Buyer concentration Price/Total Purchases
Buyer volume Impact on quality
Buyer information Product differences
Buyer switching cost Brand identity
Degree of differentiation of products

9. Barriers to Entry Economies of Scale Government policy Switching costs
- Bureaucracy, licensing and permit requirements that may be forbidding to new entrants (closed professions)
-Regulation / Deregulation of industries (telecoms, power, water etc)
Switching costs
- Customers may be loyal to existing businesses due to favorable prices, psychological contract, or technology compatibility.

10. Barriers to Entry (cont)
Capital Requirements
Facilities, Inventories, Marketing activities (sales, advertisement, distribution), Availability of capital
Expected retaliation
Responses by existing competitors may depend on a firm’s present stake in the industry (available business options). Established firms may retaliate through advertizing campaigns, price wars, political lobbying, monopolization of distribution channels (e.g. 3E), battle for the super market selves, slander (e.g. British Airways vs. Virgin) etc.

11. Substitute products Existence of similar products Switching costs
For example, digital encyclopedias (Wikipedia, Encarta, Magenta) have posed a threat to traditional paper publishers
Switching costs
Switching costs of industrial customers may involve production redesign and retraining their workforce.
Consumers’ preference to substitutes
Preferences of consumers are dependent upon prices and performance of substitutes (e.g. e-readers & tablets vs. paper books).

12. Bargaining Power of Suppliers
Suppliers exert power in the industry by:
Threatening to raise
prices or to reduce quality
Bargaining Power of Suppliers
Suppliers are powerful if: *
Supplier industry is dominated by a few firms (ore suppliers vs. steel customers) *
Buyer is not an important customer to supplier *
Suppliers’ product is an important input to buyers’ product
Powerful suppliers can squeeze client industry profitability if firms are unable to absorb
cost increases *
Suppliers’ products have high switching costs
* E.g. it is very difficult for a PC manufacturer to switch from Microsoft Windows to Linux (suppliers) *
Suppliers’ products are differentiated
Suppliers’ goods have few substitutes *
The reverse also applies ( ) *
Supplier poses credible threat of forward integration, thus competing customers (e.g. establishing super markets) 16

13. Bargaining Power of Buyers
Buyer groups are powerful if: *
Buyers are concentrated, or volume of purchases is large compared to seller’s overall sales *
Purchase accounts for a significant fraction of supplier’s sales (Carrefour, Tesco)
Buyers compete with supplying industry by:
Bargaining down prices *
Products are undifferentiated (cement) *
Buyers face few switching costs *
Buyers’ industry earns low profits *
Buyer presents a credible threat of backward/vertical integration (glass producers vs. glass frame manufacturers)
*Industrial buyers may be dependent on the technology of suppliers
Forcing higher quality
Playing firms off of
each other
Buyer has full information on supplier’s costs and transactions
The reverse also applies ( ) 18

14. Intensity of Rivalry Among Competitors
Industry rivalry increases when:
There are numerous or equally
balanced competitors
Industry growth slows or declines
There are high fixed costs or
high storage costs → low profit margins
Products are undifferentiated
Switching costs are low
Strategic stakes are high (e.g. energy)
High exit barriers prevent competitors from leaving the industry

15. Intensity of Rivalry Rivalry is generally stronger when:
Rivals are active in making fresh moves to increase sales and market share
Buyer demand is declining
The number of rivals is large
Rivals are of roughly equal size and capability
Buyer costs to switch brands are low
One or more rivals is dissatisfied with their current position and market share and make aggressive moves to improve their market prospects
When one or two rivals have powerful strategies and other rivals are scrambling to stay in the game
The “Weapons” of Competitive Rivalry
Lower prices
More appealing features
Better product performance
Higher quality
Strong brand image and appeal
Better customer service
Wider product selection
Bigger/better sales network
Stronger product innovation capabilities
Longer warranties
Higher levels of advertising
Rivalry
among
Competing
Sellers
Efforts of rivals to gain
better market position, higher sales and market share,
and competitive
advantage
Rivalry is generally weaker when:
Firms draw sales and market share away from rivals
Buyer demand is growing rapidly
Buyer costs to switch brands are high gl

16. Interpreting Industry Analyses
Low entry barriers
Suppliers and buyers have strong positions
Unattractive Industry
Strong threats from substitute products
Intense rivalry among competitors
Low profit potential

17. Interpreting Industry Analyses
High entry barriers
Suppliers and buyers have undefined positions
Attractive Industry
Few threats from substitute products
Moderate rivalry among competitors
High profit potential

18. Competitor Analysis Response: Future objectives Response
Current strategy
Response:
What will our competitors do in the future?
Where do we hold an advantage over our competitors?
How is our relationship with competitors formed?
Assumptions
Capabilities

19. Competitor Analysis Components

20. Competitive Industries of Selected Nations