Global Marketing, 9e

Global Marketing, 9e

Global Marketing Ninth Edition Chapter 16 Strategic Elements of Competitive Advantage Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Learning Objectives 16.1 Identify the forces that shape competition in an

industry and illustrate each force with a specific company or industry example. 16.2 Define competitive advantage and identify the key conceptual frameworks that guide decision makers in the strategic planning process. 16.3 Explain how a nation can achieve competitive advantage, and list the forces that may be present in a national diamond. 16.4 Define hypercompetitive industry and list the key arenas in which dynamic strategic interactions take place. Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Industry Analysis: Forces Influencing Competition Industry - group of firms that produce products that are close substitutes for each other Michael Porter developed a five forces model on competition Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Porters Force 1: Threat of New Entrants

New entrants mean downward pressure on prices and reduced profitability Barriers to entry determines the extent of threat of new industry entrants Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Threat of New Entrants: Barriers to Entry (1 of 3) Economies of Scale

Refers to the decline in per-unit product costs as the absolute volume of production per period increases Product differentiation The extent of a products perceived uniqueness Capital requirements Required investment for manufacturing, R&D, advertising, field sales and service, etc. Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Threat of New Entrants: Barriers to Entry

(2 of 3) Switching costs Costs related to making a change in suppliers or products Distribution channels Are there current distribution channels available with capacity? Government policy Are there regulations in place that restrict competitive entry?

Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Threat of New Entrants: Barriers to Entry (3 of 3) Cost advantages independent of scale economies Is there access to raw materials, large pool of lowcost labor, favorable locations, and government subsidies? Competitor response How will the market react in anticipation of increased

competition within a given market? Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Porters Force 2: Threat of Substitute Products Availability of substitute products places limits on the prices market leaders can charge High prices induce buyers to switch to the substitute Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Porters Force 3: Bargaining Power of Buyers Buyers=manufacturers and retailers, not consumers Buyers seek to pay the lowest possible price Buyers have leverage over suppliers when: They purchase in large quantities (enhances supplier dependence on buyer) Suppliers products are commodities Product represents significant portion of buyers costs Buyer is willing and able to achieve backward

integration Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Bargaining Power of Buyers (1 of 2) Walmart exercises its buying power by refusing to stock CDs bearing Parental Advisory stickers warning of controversial or potentially offensive lyrics. Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Bargaining Power of Buyers (2 of 2) In response, Slipknot vocalist/lyricist Corey Taylor wrote lyrics for Vol. 3 (The Subliminal Verses) without profanity. He recognized that many fans had no other place to shop. Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Porters Force 4: Bargaining Power of Suppliers When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers Leverage accrues when

Suppliers are large and few in number Suppliers products are critical inputs, are highly differentiated, or carry switching costs Few substitutes exist Suppliers are willing and able to sell product themselves Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Porters Force 5: Rivalry Among Competitors

Refers to all actions taken by firms in the industry to improve their positions and gain advantage over each other Price competition Advertising battles Product positioning Differentiation Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Competitive Advantage (1 of 2)

Achieved when there is a match between a firms distinctive competencies and the factors critical for success within its industry Two ways to achieve competitive advantage Generic strategies-four types Strategic intent-also four types Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Competitive Advantage (2 of 2) The only way to gain lasting competitive advantage is to

leverage your capabilities around the world so that the company as a whole is greater than the sum of its parts. Being an international company- selling globally, having global brands or operations in different countries-isnt enough. - David Witwam, former CEO, Whirlpool Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Generic Strategies for Creating Competitive Advantage

Broad market strategies Cost Leadership-low price Product Differentiation-premium price Narrow market strategies Cost Focus-low price Focused Differentiation-premium price Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Broad Market Strategy: Cost Leadership Based on a firms position as the industrys low-cost

producer Must construct the most efficient facilities Must obtain the largest market share so that its per unit cost is the lowest in the industry Only works if barriers exist that prevent competitors from achieving the same low costs Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Broad Market Strategy: Product Differentiation

Product that has an actual or perceived uniqueness in a broad market has a differentiation advantage Extremely effective for defending market position Extremely effective for obtaining above-average financial returns; unique products command a premium price Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Narrow Market Strategy: Cost Focus Firms lower cost position enables it to offer a narrow target market and lower prices than the competition

Sustainability is the central issue for this strategy Works if competitors define their target market more broadly Works if competitors cannot define the segment even more narrowly Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Narrow Market Strategy: Focused Differentiation (1 of 2) The product not only has actual uniqueness but it also

has a very narrow target market Results from a better understanding of customers wants and desires Ex.: High-end audio equipment Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Narrow Market Strategy: Focused Differentiation (2 of 2) This amplifier costs $25,000.

Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Creating Competitive Advantage via Strategic Intent (1 of 2) Few competitive advantages are long lasting. Keeping score of existing advantages is not the same as building new advantages. The essence of strategy lies in creating tomorrows competitive advantages faster than competitors mimic the ones you possess today. An organizations capacity to improve existing skills and learn new ones is the most defensible competitive

advantage of all. - Gary Hamel and C.K. Prahalad Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Creating Competitive Advantage via Strategic Intent (2 of 2) Created on the continuous improvement principles of W.E. Deming Building layers of advantage Searching for loose bricks

Changing the rules of engagement Collaborating Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Building Layers of Advantage A company faces less risk if it has a wide portfolio of advantages Successful companies build portfolios by establishing layers of advantage on top of one another Illustrates how a company can move along the value

chain to strengthen competitive advantage Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Searching for Loose Bricks Search for opportunities in the defensive walls of competitors whose attention is narrowly focused Focused on a market segment Focused on a geographic area to the exclusion of others

Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Changing the Rules of Engagement Refuse to play by the rules set by industry leaders Example Xerox and Canon Xerox employed a huge direct sales force; Canon chose to use product dealers Xerox built a wide range of copiers; Canon standardized machines and components Xerox leased machines; Canon sold machines

Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Collaborating Use the know-how developed by other companies Licensing agreements, joint ventures, or partnerships Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Global Competition and National Competitive Advantage Global competition occurs when a firm takes a global

view of competition and sets about maximizing profits worldwide The effect is beneficial to consumers because prices generally fall as a result of global competition While creating value for consumers, it can destroy the potential for jobs and profits Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Factor Conditions (1 of 2) Human Resources - the quantity of workers available,

skills possessed by those workers, wage levels, and work ethic Physical Resources - the availability, quantity, quality, and cost of land, water, minerals, and other natural resources Knowledge Resources - the availability within a nation of a significant population having scientific, technical, and market-related knowledge Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Factor Conditions (2 of 2) Capital Resources - the availability, amount, cost, and types of capital available; also includes savings rate, interest rates, tax laws, and government deficit Infrastructure Resources - this includes a nations banking, healthcare, transportation, and communication systems Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Demand Conditions (1 of 2)

Composition of Home Demand - determines how firms perceive, interpret, and respond to buyer needs Size and Pattern of Growth of Home Demand - large home markets offer opportunities to achieve economies of scale and learning in familiar, comfortable markets Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Demand Conditions (2 of 2) Rapid Home Market Growth - another incentive to invest in and adopt new technologies faster and build

large, efficient facilities Products being pushed or pulled - do a nations people and businesses go abroad and then demand the nations products and services in those second countries? Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Related and Supporting Industries The advantage that a nation gains by being home to internationally competitive industries in fields that are

related to, or in direct support of, other industries Contact and coordination with suppliers that optimize the value chain Example: Non-U.S. sales of PCs from H-P, Lenovo, Dell, Acer have bolstered demand for software from Microsoft Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Firm Strategy, Structure, and Rivalry (1 of 2) Domestic rivalry in a single national market is a

powerful influence on competitive advantage The absence of significant domestic rivalry can lead to complacency in the home firms and eventually cause them to become noncompetitive in the world markets Differences in management styles, organizational skills, and strategic perspectives also create advantages and disadvantages for firms competing in different types of industries Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Firm Strategy, Structure, and Rivalry (2 of 2) Chance events are occurrences that are beyond control of firms, industries & usually governments; they create major discontinuities War Exchange rate swings Price fluctuation of inputs, like oil Government is also an influence on determinants by virtue of its roles as a consumer, policy maker, and commerce regulator

Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Current Issues in Competitive Advantage (1 of 3) Todays business environment, market stability is undermined by: Short product life cycles Short product design cycles New technologies

Globalization Result is an escalation and acceleration of competitive forces Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Current Issues in Competitive Advantage (2 of 3) Hypercompetition is a term used to describe a dynamic competitive world in which no action or advantage can be

sustained for long Competition unfolds in a series of dynamic strategic interactions in four areas: cost quality, timing and knowhow, and barriers to entry Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Cost/Quality Cost/Quality occurs via 7 dynamic strategic interactions: price wars quality & price positioning the middle path

cover all niches outflanking & niching the move toward ultimate value marketplace escaping the ultimate value marketplace by restarting the cycle Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Timing and Know-How Second arena for hypercompetition Firms with first-mover skills has achieved a timing

advantage Technology knowledge achieves a know-how advantage Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Entry Barriers The third arena for hypercompetition is high barriers to entry Build a geographic stronghold Target the stronghold of competitors in other countries

Incumbents make short-term counter-responses to guerilla attacks The Incumbent responds to the invader by creating new hurdles Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Current Issues in Competitive Advantage (3 of 3) In todays world, in order to achieve a sustainable

advantage, companies must seek a series of unsustainable advantages The role of marketing is innovation and the creation of new markets Innovation begins with abandonment of the old and obsolete Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved The Flagship Firm A collection of 5 partners

Key suppliers do some tasks better than the flagship (ex: manufacturing) Key customers (ex: car dealers) Key consumers (ex: car buyers) Selected competitors like Global Strategic Partnerships Non-business infrastructure: universities, governments, trade unions that supply intangibles like technology and intellectual property Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

Blue Ocean Strategy Two categories of competitive spaces: Red Oceans are existing markets where the players understand the rules Blue Oceans are markets or industries that do not currently exist Better to avoid the red ocean of cost cutting and imitation and create a new space without hypercompetitive forces Ex.: eBay, cirque du Soliel, Wii

Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved Copyright Copyright 2017, 2015, 2013 Pearson Education, Inc. All Rights Reserved

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