1. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Chapter Two Global Competitive Analysis

2. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 1 Global Competitive Analysis PORTER’S FIVE SOURCES OF COMPETITION NEED TO BE ANALYZED: NEW PRODUCT SUBSTITUTES SUPPLIER POWER BUYER CONCENTRATION NEW ENTRANTS RIVALRY BETWEEN EXISTING COMPETITORS

3. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 2 Global Factors in Rivalry COMPETITIVE STRENGTH: THIS INVOLVES A COMPETITOR’S FINANCIAL, MANPOWER, STRATEGIC INTENT AND OTHER RESOURCES. COMPETITIVE REPERTOIRE: THIS COVERS THE “WEAPONS” A COMPANY HAS TO KEEP AHEAD OF THE COMPETITION (FOR EXAMPLE, STARTING A PRICE WAR AS A DIVERSION TACTIC).

4. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 3 MARKETING ACTIONS: USE OF SUCH TOOLS AS A GLOBAL NETWORK AND MARKET PRESENCE TO MAKE SURPRISE COMPETITIVE MOVES (FOR EXAMPLE, THE CONTINUAL KODAK-FUJI BATTLE). Global Factors in Rivalry

5. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 4 Comparative Advantage PRINCIPLE: EVEN IF YOU ARE ABLE TO DO EVERYTHING YOURSELF -- AND AT LESS COST/ENERGY THAN ELSEWHERE -- IT PAYS TO SPECIALIZE IN WHAT YOU DO RELATIVELY BEST -- AND TRADE FOR OTHER PRODUCTS AND SERVICES. EXAMPLES: UK TOBACCO (+) JAPAN TEXTILES (-) SWEDEN?

6. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 5 Comparative Advantage COMPARATIVE ADVANTAGE (OR COUNTRY- SPECIFIC ADVANTAGE) IS WHEN ONE COUNTRY PRODUCING A GIVEN PRODUCT IS ABLE TO DO SO WITH LESS SACRIFICE IN THE OUTPUT OF OTHER PRODUCTS THAN ANOTHER COUNTRY CAN. THIS CREATES A RELATIVE ADVANTAGE IN PRODUCTION.

7. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 6 Examples of Comparative Advantage JAPAN: TEXTILES, CLOTHING, CONSUMER ELECTRONICS UNITED KINGDOM: FOOD AND TOBACCO PRODUCTS SWEDEN: MECHANICAL AND ELECTRICAL ENGINEERING UNITED STATES: TRANSPORTATION EQUIPMENT

8. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 7 Getting the Picture Who Has What Absolute Advantage? Source: Adapted from Dunning, 1981

9. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 8 Porter’s Determinants of National Advantage Firm strategy, structure and rivalry Related and supporting industries Demand conditions Factory conditions Source: Adapted and reprinted with the permission of the Free Press, a division of Simon and Schuster, from The Competitive Advantage of Nations, by Michael E. Porter. Copyright © 1990 by Michael E. Porter Exhibit 2.2

10. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 9 Getting the Picture Source: Porter, 1990, p.105

11. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 10 First-Mover Advantages (FMAs) 1.SET STANDARDS 2.TIE UP SUPPLIERS, DISTRIBUTORS 3.CREATE BRAND LOYALTY 4.CAPITALIZE ON OTHERS’ ADVERTISING DISADVANTAGES 1.HIGHER RISK 2.MORE UPFRONT SPENDING - EDUCATING BUYERS - DEVELOP INFRASTRUCTURE - PROMOTE GENERICALLY

12. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 11 The International Product Cycle Advanced countries Exports Imports Quantity Time 510151 New Product Maturing Product Standardized Product Stages of production development ProductionConsumption Source: Reprinted with permission from the Journal of Marketing, “A Product Life Cycle for International Trade. ?” by Louis T. Wells, July 1968, pp. 1-6. ©1968 by the American Marketing Association. Exhibit 2.1

13. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 12 The International Product Cycle Developing countries Exports Imports Quantity Time New Product Maturing Product Standardized Product Stages of production development ProductionConsumption Source: Reprinted with permission from the Journal of Marketing, “A Product Life Cycle for International Trade.?” by Louis T. Wells, July 1968, pp. 1-6. ©1968 by the American Marketing Association. Exhibit 2.1 cont.. 510151

14. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 13 Less developed countries Exports Imports Quantity Time 510151 New Product Maturing Product Standardized Product Stages of production development ProductionConsumption The International Product Cycle Source: Reprinted with permission from the Journal of Marketing, “A Product Life Cycle for International Trade.?” by Louis T. Wells, July 1968, pp. 1-6. ©1968 by the American Marketing Association. Exhibit 2.1 cont.

15. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 14 The “Electic Theory” of Foreign Production ANSWER THREE QUESTIONS: 1. WHICH COUNTRY WILL PRODUCE? ANSWER: THE ONE(S) WITH COMPARATIVE ADVANTAGE (LOCATION-SPECIFIC ADVANTAGES -- LSA’S) 2. WHICH COMPANY WILL PRODUCE? ANSWER: THE ONE(S) WITH COMPETITIVE ADVANTAGES (FIRM- SPECIFIC ADVANTAGES -- FSA’S) 3. HOW WILL A PARTICULAR COUNTRY MARKET BE SERVED? ANSWER: EXPORTS IF TRADE BARRIERS ARE LOW; LICENSING IF BARRIERS ARE HIGH AND CONTRACTS CAN BE ENFORCED; FDI IF BARRIERS ARE HIGH AND CONTRACTS CANNOT BE ENFORCED.

16. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 15 Typical Country-Specific Advantages (CSA’s) 1. LOW MANUFACTURING COST 2. HIGH MANUFACTURING QUALITY 3. COUNTRY-OF-ORIGIN REPUTATION 4. PROTECTIVE BARRIERS FOR MARKETING PURPOSES, 2 AND 3 ARE MOST IMPORTANT

17. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 16 Firm-Specific Advantages (FSA’S) FSA’S REPRESENT THE KEY STRENGTHS OF A FIRM -- WHICH ENABLE IT TO GAIN A COMPETITIVE ADVANTAGE -- (I.E. A MONOPOLISTIC PREMIUM IN THE MARKETPLACE). IF NO FSA EXISTS, THE ONLY STRATEGY IS LOW PRICE.

18. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 17 FSA’S BRAND BRAND -- COCA COLA, MERCEDES, SONY TECHNOLOGY TECHNOLOGY -- ERICSSON, BMW, CANON ADVERTISING ADVERTISING -- MARLBORO, UNILEVER, ABSOLUT VODKA DISTRIBUTION DISTRIBUTION -- KODAK, PANASONIC, GILLETTE VALUE VALUE -- TOYOTA, IKEA, COMPAQ

19. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 18 Krugman’s Point INTRA-INDUSTRY TRADE -- EX. CARS TO AND FROM SWEDEN -- OCCURS BECAUSE OF PRODUCT DIFFERENTIATION. PRODUCT DIFFERENTIATION LEADS TO COMPETITIVE ADVANTAGE WHICH BECOMES THE FSA’S.

20. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 19 Two Key Opposites INTERNALIZATION: EXPLOIT YOUR FSA’S BY OWN PRODUCTION AND MARKETING. EXTERNALIZATION: EXPLOIT YOUR FSA’S BY LICENSING, OUTSOURCING. BEWARE: DISSIPATION!!

21. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 20 Transaction Cost Theory THEORY: FIRMS ADOPT THE MODE OF ENTRY WHICH WHICH MINIMIZES THE COSTS OF TRANSACTING EXCHANGES INTERNALIZATION (FDI) OCCURS WHEN TRADE BARRIERS ARE HIGH. EXTERNALIZATION (LICENSING, INDEPENDENT AGENTS) OCCURS WHEN INTERNAL TRANSACTIONS COST MORE THAN EXTERNAL. TRANSACTION COST THEORY WORKS WELL WITH DISTRIBUTION PROBLEMS.

22. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 21 The Value Chain THE FLOW OF ACTIVITIES FROM RAW MATERIALS THROUGH TO THE ULTIMATE BUYER. FSA’S CAN EXIST AT ANY POINT IN THE CHAIN. IF YOU SELL THE FSA, YOU EXTERNALIZE. IF YOU USE THE FSA FOR OWN PRODUCTION, YOU INTERNALIZE.

23. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 22 Two Bases for Strategy RESOURCE-BASED STRATEGY: “DO WHAT YOU CAN DO, WHAT YOU ARE GOOD AT -- DEVELOP FSA’S.” MARKET-BASED STRATEGY: “DO WHAT THE MARKET DEMANDS -- EXPLOIT FSA’S” NEED BOTH IN GLOBAL MARKETING

24. Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Irwin/McGraw-Hill ©The McGraw-Hill Companies,, Inc., 2000 Slide 2- 23 Basic Issues of Global Marketing Strategies