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International Business (Subject) / Kapitel 1-13 (Lesson)
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- Classifying Tangible Resources RESOURCE CHARACTERISTICS KEY INDICATORSfinancial borrowing capacity& internal funds dept ratioresources generation determine a firm's operating cash flow resilience and capacity for invest- credit rating ment physcial constrain the firm's set of production market values of fixed assetsresources possibilities & impact its cost flexibility of fixed assets position -> reserves of raw material -> size and location of plant and equipment
- Classifying Intangible Resources RESOURCE CHARACTERISTICS KEY INDICATORStechnological intellectural property: patent port- number & significance ofresources folio or trade secrets patents resources for innovation: research R&D staff facilities, scientific/ technical em- number & location of research ployees facilities Reputation reputation through the ownership brand recognition of brands brand equity established relationships with cus- percent of repeat buying tomers measures of comparative reputation of the products & services product performance for quality and reliability
- Resources only contribute to a superior firm performance when they fulfill a range of criteria: THE CONCEPT OF CORE COMPETENCIES The Resourced Based View provides a set of guidelines to determine which resources generate core competencies and thereby competetive advantage
- Resources only contribute to a superior firm performance when they fulfill a range of criteria: THE CONCEPT OF CORE COMPETENCIES Guidelines 1. Is the resource or skill critical to fulfilling a customer's need better than that of the firm's competitors? - only resources that contribute to competitive superiority are valuable - others may be essential to doing business: e.g. parking space 2. Is the resource scarce? (in short supply and not easy to imitate?) - scarce resource is more valuable and can become a competitive advantage - available substitutes can cause the resource to generate only a temporary advantage - isolating mechanisms make resources difficult to imitate: e.g. physically unique resources 3. Appropriability: who actually gets the profit created by a resource? - some companies generate sizeable profits based on resources that are not inextricably linked to the company - therefore it is not easy for the company to capture the profits 4. Durability: how rapidly will the resource depreciate? - the slower a resource depreciates the more valuable it is
- Resources differ in how far they can be imitated Easily Imitated Possibly Imitated Hard to imitate cannot be imitated utilities skilled emplyees Image/reputation unique location cash additional capacity customer satisfaction patents common raw economies of scale employee attitudes unique assets materials GOOGLE: electricity smart people search leadership search algorythms server farms large server farms brand image
- 4th tool internal analysis: SWOT-Analysis --> integrates internal and external perspective and derives four strategy approaches <-- ENVIRONMENTAL OPPORTUNITIES = a major favourable situation in the firm's environment INTERNAL INTERNAL STRENGTHWEAKNESS supports a turnaround supports an = a resource advantage = a limitation or oriented strategy agressive strategy relative to competitors deficiency in one or more resour- ces or competen- supports a defensive supports a diversification cies relative to strategy strategy competitors that impede effective performance ENVIRONMENTAL THREATS = a major unfavorable situation in a firm's environment
- Limitations of the SWOT-Analysis (offers a general effort to examine internal capabilities in light of external environment) BUT a SWOT-Analysis can..: - overemphasize internal strengths and downplay external threats- static and risk ignoring changing circumstances- overemphasize a single strength or element of strategy- a strength is not necessarily a source of competitive advantage
- What is a grand strategy? A grand strategy is a master long-term plan that provides basic direction for major actions directed toward achieving long-term business objectives.
- 1. Grand Strategy: Concentrated Growth = firm directs its resources to the profitable growth of a single product in a single market with a single dominant technology Reasons for superior performance- ability to assess market needs- knowledge of buyer behaviour- customer price sensitivity - effectiveness of promotion... are important core capabilities Favorable Conditions- target markets are not product saturated- competitive advantages based on efficient production channels- inputs are stable in price and quantity- stable market Risk and Reward- a firm committed to growth faces high risks in a changing environment- concentrating in a single market makes a firm vulnerable to changes in that segment- high opportunity costs as a result of ignoring other options Options- increasing present customers' rate- attracting competitor's customers- attracting non users to buy the product
- 2. & 3. Grand Strategy: Market and Product Development 1. Market Development = a grand strategy of marketing presents products, often with only little cosmetic modifications, to customers in related marketing areas - opening additional geographic markets: regional, national, international expansion - attracting other market segments: - developing product versions to appeal to other segments - entering other channels of distribution - advertising in other media 2. Product development= a grand strategy that involves the substantial modification of existing products that can be marketed to current custormers --> strategy is based on the penetration of existing markets by incorporating product modifications into existing items or by developing new products with a clear connection to the existing product lineOPTIONS: - developing new product features: adapt, combine, magnify, minify... - developing quality variations - developing additional models and sizes
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- 4. Grand Strategy: Innovation = the grand strategy seeks to reap the premium margins associated with the creation and customer acceptance of new products or services - the case of disruptive innovation: when a company's size inhibits innovation - managers pay too much attention on their current customer's needs and neglect emerging innovative opportunitiesRECOMMENDATION- check wheather a new innovation has the potential of being a disruptive one- builidng units responsible for disruptive innovations- determination of innovation's strategic relevance- determination of starting market for a disruptive technology
- 5. & 6. Grand Strategy: Horizontal and Vertical Integration 1. Horizontal integration - strategy based on growth through the acquisition of a similiar form (same stage of production marketing) - can eliminate competitors - provides access to new markets - offer a broader product line - combine resources as a means to improve operational efficiency 2. Vertical Integration - strategy basod on growth through the acquistion of firms that supply the acquiring firm with inputs or of customers for its inputs - backward integration: acquiring a firm that operated at an earlier stage --> increasing dependability of suppliers and quality of raw material - forward integration: a firm that is closer to the ultimate customer is acquired --> preferred if great advantages accrue to stable production textile producer short manufacturer clothing store
- 7. & 8. Grand Strategy: Concentric and Conglomerate Diversification 1. Concentric diversification - operation of a second business that has access to and benefits from the first firm's core competencies - new business possesses a high degree of compatibility with the firm's current business - ideal concentric diversification: if internal weaknesses and extern threats decrease and strenghts and opportunities increase - distribution channels, technology, products and resource requirements can be similar to those of the first firm but should not be identical 2. Conglomerate diversification - acquisition of a business it presents the most promising indvestment opportunity available - based on profit considerations - diversifiers seek financial synergy MOTIVATION FOR DIVERSIFICATION- increase stock value- increase growth rate- improve stability of earnings and sales- diversify product line- increase efficiency
- 7. & 8. Grand Strategy: Concentric and Conglomerate Diversification 1. Concentric diversification - operation of a second business that has access to and benefits from the first firm's core competencies - new business possesses a high degree of compatibility with the firm's current business - ideal concentric diversification: if internal weaknesses and extern threats decrease and strenghts and opportunities increase - distribution channels, technology, products and resource requirements can be similar to those of the first firm but should not be identical 2. Conglomerate diversification - acquisition of a business because it presents the most promising indvestment opportunity available - based on profit considerations - diversifiers seek financial synergy MOTIVATION FOR DIVERSIFICATION- increase stock value- increase growth rate- improve stability of earnings and sales- diversify product line- increase efficiency
- 9. Grand Strategy: Turnaround Situation: Cause & SeverityResponse: Retrenchment Phase & Recovery Phase - internal factors: declining sales --> cost reduction ---> efficiency maintainance --> recovery - external factors: imminent bankruptcy --> asset reduction --> entrepreneurial reconfiguration --> recovery
- 10. & 11. Grand Strategy: Divestiture and Liquidation 1. Divestiture= sale of a firm or a major unit of a firm as a going conern --> when retrenchment fails to bring about turnaround, managers often decide to sell the firm--> their task: convincing buyers that the will profit from the acquistion--> aim: finding a buyer who is willing to pay a premium above the value of the going conern's assetsSeveral reasons are relevant:- partial mismatches between the acquired firm and the parent corporation can require a spin-off- corporate financial needs (as improvement of cashflow can cause a divestiture)- government antitrust actions is another reason for divestiture 2. Liquidation= sale of a business' assets for their salvage value- the firm is sold in parts: for its tangible asset values, not as a going concern- least attractive strategy- but can minimize the losses of all the stockholders
- 12. Grand Strategy: Bankruptcy Situation: the firm is unable to pay its debts or has more debts than assets supplier, customers, employees lose their trust in the company 1. Liquidation Bankruptcy- best alternative if the firm cannot be sold as a going concern- property is collected, reduced to cash and distributed among the creditors- the business is terminated 2. Reorganization Bankruptcy- managers try to persuade the creditors to temporarily freeze their claims- managers try to rebuild the company's operations in a more profitable way- far more repayments of debts to creditors if the plan is successful Emerging from Bankruptcy:- the situation requires to think about the causes for the firm's decline- creditors must trust in the manager's abilities to reorganzize the firm- team must be supported by board of external directors
- 13. Grand Strategy: Joint Ventures = companies create a co-owned business that operats for their mutual benefit - two or more companies lack a necessary component for success- joint ventures include commercial companies operating for the benefit of the co-owners- extends supplier-consumer-relationship- strategic advantages for both partners- foreign firms may only be allowed to enter the market in joint ventures to minimize the threat of foreign domination in the market
- 14. Grand Strategy: Strategic Alliance = contractual partnership, because the companies involved don't take an equity position in one another 1. Partnership - exist for a defined period during which partners contribute their skills and expertise to a cooperative project - "steal" each others know-how in order to supplant the partner after the project is finished 2. Licensing Agrements - transfer of some industrial property rights (patent, technical know-how) - can be used to exploit local advantages by contracting the manufacturing of its product line to a foreign company 3. Outsourcing - enables firms to gain a competitive advantage - siginificant changes in many American business segments cause an increasing use of outsourcing practices
- 15. Grand Strategy: Konsortia, Chaebols, Keiretsus - Consortia: large interlocking relationships between businesses of an industry in Europe projects are increasing in number and success rate - Keiretsus: Japanese consortia of businesses coordinated by a large trading company to gain strategic advantage --> designed to use industry coordination to minimize risks of competition - Chaebol: Korean consortia financed through government banking groups to gain a strategic advantage
- 2 major generic strategy types 1. differentiation = firm offers a unique product or service to the customer that generates additional value to him --> higher price and therefore higher margins and differentiation from competitors 2. cost leadership = firm has the lowest cost in the industry --> firm offers the cheapest product or service to the customer PORTER: recommendates either following a differentiation strategy or cost leadership, because a dual focus can result in the firm being stuck in the middle (y-Achse: ROI %, x-Achse: relative market share)
- How to design the value chain if differentiation wants to be achieved? 1. Skills & Resources that foster differentiation - strong marketing abilities - product engineering - creative talent and flair - strong capabilities in basic research - corporate reputation for quality or technical leadership 2. Organizational Requirments to support Differentiation Activities - strong coordination among functions in R&D, product development and marketing - subjective measurement and incentives instead of quantity measurement - amenities to attract highly skilled labor and scientists
- How businesses achieve competitive advantage via differentiation (along the value chain) General Administration: develop comprehensive and personalized database to sell customized products HRM: develop programmes to ensure technical competence of sales staff technology development: cutting-edge production technology and product features to maintain a distinct image Procurement: quality control at key supplier facilities Inbound Logistics: purchase superior quality Operations: inspect products at each production step to improve product performance Outbound Logistics: use own or captive transportation service to ensure timeliness Marketing & Sales: build brand image with advertising and promotion Service: allow service personnel considerable discretion
- How businesses achieve speed differentiation 1. Skills and Resource that foster speed differentiation - process engineering skills - excellent inbound and outbound logistics - technical people in sales and customer service - high levels of automation - corporate reputation for quality or technical leadership 2. Organizational requirements to support rapid response activities - strong coordination among functions in R&D, product development, marketing - tradition of closeness to key customers - emphasis on customer satisfaction in incentive programs - strong delegation to operating personnel
- How to achieve speed differentiation along the value chain General Administration: develop highly automated and integrated informatin processing systems HRM: decision making at the lowest level to increase responsiveness Technology Development: use companywide technology sharing activities to speed product development Procurement: integrate preapproved online suppliers into production inbound logistics: work very closely with suppliers to include their choice of warehouse location to minimize delivery time operations: standardize components and production equipment to allow quick changeover to special orders outbound logistics: ensure rapid dilivery with JIT delivery marketing & sales: use of laptops directly linked to operations to speed the order process service: service technicians at customer facilites
- How businesses achieve cost leadership 1. Skills and Resources that foster cost leadership - sustained capital investment - process engineering skills - supervision of labor - products or services desigend for ease of manufacture 2. Organizational Requirements that foster cost leadership - tight cost control - detailed control reports - continous improvement and benchmarkin orientation - strucutred organization and responsibilites - incentives based on meeting strict
- How businesses achieve cost leadership along the value chain General Administration: computerized, integrated information system reduces errors HRM: safety training for all employees reduces downtime and accidents Technology Development: process innovations lower production costs Procurement: favorable long-term contracts Inbound Logistics: global online suppliers provide automatic restocking Operations: economy of scale in plant Outbound Logistics: computerized routing Marketing & Sales: cooperative advertising with distributors Service: subcontracted service technicians repair product correctly the first time or they bear all costs
- Emerging Industries: Definition and Characteristics = an industry that has growing sales across all the companies in the industry based on growing demand for the relative new products, technologies, services - technologies are mostly proprietary to the pioneering firms- technological uncertainty about how product standardization will unfold- competitor uncertainty because of inadequate information about competitors and buyers- high initial costs: but as the experience curve takes effect steep cost declines- few entry barriers- inability to obtain raw materials until suppliers gear up to meet the industry's needs
- 6 features business strategies need require in order to be successful in emerging industries 1. ability to shape the industry's structure based on the timing of entry, reputation, success in related countries 2. ability to rapidly improve product quality 3. advantegous relationship with key suppliers and promising distribution channels 4. ability to establish the firm's technology as the dominant one 5. early acquisition of a core group of loyal customers + the expansion of that group through advertising 6. ability of forecast future competitors and their strategies
- Growing Industries = Rapid growth brings new competitors into the industry. Ofentimes those new entrants are large competitors with substantial resources --> business strategies that may be more advantageous for firms participating in rapidly growing industries and markets
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- 7 features business strategies have to require in order to be successful in growing industries 1. ability to establish strong brand recognition through promotional resources 2. ability and resources to scale up to meet increasing demand 3. strong product design skills 4. ability to differentiate the firm's products from competitor's products 5. R&D resources and skills to create product variatons 6. ability to build repeat buying 7. strong capabilities in sales and marketing
- Mature industry environments: definition = competiton for market share becomes more intense, because firms of the industry are forced to achieve sales growth at one another's expense strategies: used by firms competing in markets where the growth rate of the market from year to year has reached or is close to zero
- strategic elements of successful firms in maturing industries often include 6 features: 1. product line dropping unprofitable models, size and options from the firm's product mix 2. emphasis on process innovation 3. emphasis on cost reduction through experting pressure on suppliers for lower prices 4. careful buyer selection to focus on buyers who are less agressive 5. horizontal integration to acquire rival firms whose weaknesses can be used to gain a bargaining price 6. international expansion to markets where attractive growth still exists
- declining industries: definition = an industry in which the trend of local sales as an indicator of total demand for an industry's product has started to drop from the last several years with the likelihood being that such a trend will continue indefinitely
- 4 features business strategies in a declining industry should emphasize: 1. focus on segments within the industry that offer a chance of higher growth or return 2. emphasize product innovation and quality improvement to differentiate the product 3. emphasize product efficiency 4. gradually harvest the business: now new investment!
- fragmented industries: definition = numerous competitors in the industry such that no single firm or small group of firms controls any significant share of the overall industry sales
- 5 features business strategies in fragmented industries may focus for competitive advantage: 1. tightly managed decentralization: need for intense local coordination, local management orientation, high personal service 2. Formula Facilities: standardized, efficient low-cost facilities at multiple locations 3. Increase Value Added: products or services are difficult to differentiate --> add value by providing more service 4. Specialism by: - product type: build expertise focusing on a narrow range of products - customer type: becoming familiar with a narrow customer segment - type of order: only handle certain kinds of order - geographic area: concentrates on a single area 5. Bare Bones/ No Frills - bare bones posture may build a sustainable cost advantage in such industries
- The Tornado Phenomenon company's that experienced disruptive innovations that are related to a new product category that promises unprecedented benefits for the users
- Rogers diffusion model as the theoretical foundation of the tornado phenomenon Kurve: sales volume x-Achse von links nach rechts: 1. Innovators: freaks, limited buying power2. Visionaries: interested in competitive advantage3. Pragmatists: interested in efficiency gains, prefer the market leader 4. Conservatives: investements under pressure, highly demanding customers5. Laggards: strong sceptism
- Moore's adaption of Roger's diffusion model to strategy making in firms facing disruptive innovations 1. Innovators/ Visoniories CHASM 2. PragmatistsBowling Alley Tornado (high point)3. Conservatives Mainstreet4. Laggards - strategic phases for each customer group (chasm, bowling alley, tornado, mainstreet)- for each phase a specific appraoch is needed in order to leverage the full potential of the disruptive innovation
- Moore's model: How to overcome the chams - by differentiating two major groups of customers VISIONARIES PRAGMATISTS- accept 80% solutions - require 100% solutions- intuitive - analytic- risk tolerance - risk aversion- motivation: future possibilities - motivation: current problems Strategy Recommendation:- identification of one segment/ customer among the pragmatists, than: - a clear competitive advantage should be offered - competitive intensity should be low
- After the Tornado Market Shares- emergence of one strong market leader- no stabilization of market until a market leader emerges Profit Shares- the gorilla has a large and loyal customer base- market leader profits from economies of scale- market leader has strong pricing power --> market and profit shares after a tornado provide a major explanation for the tremendous wealth of selected companies
- Uppsala Model = a theory that explains how firms gradually intensify their activities in foreign markets
- Outcomes: Uppsala Model 1. establishment chain--> firms tend to slowly increase their involvement in a specific foreign market- y-Achse: resource commitment- x-Achse: market knowledge/ timer no regular export --> export modes --> foreign sales subsidiary --> foreign production & sales subsidiary 2. order of market entry--> firms first enter markets with high potential & close to their home country- y-Achse: distance- x-Achse: market knowledge/ time 3. combain establishment chain and order of market entry - left: Market A .... Market Z- top: no regular export, export modes, foreign subsidiary, foreign sales & production subsidaryPfeil vertikal nach unten: increasing geographic diversificationPfeil diagonal: increase internationalizationPfeil horizontal: increasing market commitment
- Born globals = firms that internationalize very early in their lifetimes and adopt an international or global approach right from birth or shortly after DRIVERS of born globals:1. Management: managers with strong international background2. Products: products with a short life cycle3. Markets: typically niche markets4. Technology: enable internationalization with reasonable investments
- Multibusiness Strategy: BCG growth - share - matrix a classification of businesses along market growth rate and market share y-Achse: growth rate (=cash use)x-Achse: market share (= cash generation) market share: sales relative to those of competitors in the market division line around 1,5% --> only the 2 or 3 largest competitors fall into the high market share region (company market share / best competitor market share) market growth: indusry growth rate in $ dividing point is the GNP's growth rate
- The "Industry-attractiveness - business-strength" matrix BUSINESS STRENGTH strong average weak high premium invest for selective-invest for selectively invest for growth growth earnings INDUS-TRYATTRAC-TIVE- medium challenge-invest for prime-selectively restructure - NESS growth invest for earnings harvest or divest low opportunistic - opportunistic - harvest or divest selectively invest for preserve for harvest earnings
- Business Strength - Industry Attractiveness: factors to be considered in constructing such a matrix Industry Attractiveness 1. Nature of industry rivalry- number of competitors- size of competitors- price wars- competiton on multiple dimensions 2. Bargaining Power of Suppliers/ Customers- number of each- relative size of typical players- importance of purchase for the firm- ability to vertically integrate 3. Threat of substitute products- technological maturity- diversity of the market- barriers to entry 4. Economic Factors- cyclicality of the demand- market growth- capital intensity 5. financial norms- average profitability- typical leverage - credit practices 6. sociopolitical considerations- government regulation- community support- ethical standards
- Business Strength - Industry Attractiveness factors to be considered when constructing the matrix Business Strength 1. Cost Position- economies of scale- manufacturing costs- experience effects 2. Level of differentiation- promotion of effectiveness- product quality- company image 3. Response time- delivery time- time needed to introduce new products 4. financial strength- solvency- liquidity- profitability 5. Human Assets- turnover- skill level- commitment 6. public approval- goodwill- reputation- image
- market attractiveness - competence strength portfolio matrix = identifies cross-business competences and shows their further development high development use MarketAttractiveness low outsourcing transferring low high Competence Strength