1. 0 Schedule Today Fax Global Industry 7-31Philips and Matsushita 8-1EuroDisney 8-5P&G 8-6P&G Cont. Summary Evaluations 8-7ClipIt! discussion 8-8Presentations 8-12 Final in Class

2. CH-ZWA645-005jsmGB Competitive Advantage of Nations James Oldroyd Kellogg Graduate School of Management Northwestern University j-oldroyd@northwestern.edu 801-422-7888 650 TNRB

3. Customer Drivers Competitive Drivers Government Drivers Cost Drivers Trade policies Technical standards Regulations Common customer needs Global customers Global channels Transferable marketing know-how and global brands Global competitors Competitors leveraging global position (i.e. cross subsidizing). Location of strategic resources Differences in country costs Potential for economies of scale, innovation, flexibility Cost of shipping (value/bulk) Industry globalization potential Assessing Industry Globalization Potential Source: Jeff Dyer BYU 2001

4. 3 Porter’s Diamond Model Firm strategy, structure, and rivalry Firm strategy, structure, and rivalry Related and supporting industries Related and supporting industries Factor Conditions Factor Conditions Demand Conditions Demand Conditions Government

5. Competitive Advantage of Nations (National Perspective) Firm strategy, structure, and rivalry Related and supporting industries Factor Conditions Demand Conditions Source: M. Porter Skilled designers, engineers Fax demand - language - lack substitutes - control subs Copier companies Semiconductor companies Thermal print components Laser printers Thermal paper Strong rivalry Innovation focus JAPANESE FACSIMILE INDUSTRY Government - NTT promotion - “legal” docs

6. Location-Specific Advantage Issue: Competitive vs Comparative advantage Competitive advantage is a firm’s ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors Comparative advantage –What sources of potential advantage reside in geographic locations (factor endowments)? –How can firms derive advantage based on the created endowments within a particular country (created endowments)? Traditional view Focus on national factor endowments –Countries differ in factor endowments and countries should produce goods in which their factor endowments offer a comparative advantage.

7. Globalizing for Competitive Advantage (Utilizing country comparative advantages) Land: supply, usability, location (geography) Natural resources: abundance, type Labor : plentiful (cheap) Size of local population: size of home market Skilled labor: effective education systems and productive workforce Technology/knowledge base Government support: Financial, stable economic and political environment Culture: costs of transacting, demanding users, inventiveness of human resources Factor Endowments Created Endowments

8. Selected Top Export Industries United States Pop: 250mm Automobiles Aerospace/aircraft Computer equip./ software Pharmaceuticals Medical Equipment Entertainment (motion pictures) Food Processing/ consumer pdts. Waste management Japan Pop: 125mm Automobiles & motorcycles Consumer electronics Computer equip./ semiconductors Robotics Cameras/watches Musical instruments Machine tools Shipbuilding/steel Germany Pop: 61mm Automobiles (Performance) Machine Tools Printing presses Chemicals Surgical Instruments Cutlery Pens & pencils Optical instruments Italy Pop: 57mm Ceramic tiles Knitwear/textiles Leather goods and footwear Ski Boots Jewelry Lighting/glass Furniture

9. Sources of Competitive Advantage Implication of Location/Country Efficiency Firm’s ability to perform activities at lowest cost or highest efficiency Optimize where individual tasks are located Flexibility Firm’s ability to respond to substantial, uncertain, and rapid changes in its environment Optimize location and flows of products or components Innovation/Learning Firm’s ability to sense and respond to market, technological opportunities Optimize flows of information and/or technology and tap into leading edge resources to determine how a task should be performed (e.g., best practices)