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COURSE: GLOBAL BUSINESS MANAGEMENT MGT610
DR. DIMITRIS STAVROULAKISPROFESSOR OF HUMAN RESOURCE MANAGEMENTDEPT OF ACCOUNTINGTEI OF PIRAEUS
Unit 4: MNC Strategy “Outside-In”
Training Material: Textbook (103-109, Ch4 & Ch5)
Business Strategy
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
The pace of change is relentless....and increasing
The pace of change is relentless....and increasing
Traditional industry boundaries are blurring, such as in ...
Traditional industry boundaries are blurring, such as in ...
• Computers• Telecommunications• Television• Information• Visual Arts
• Computers• Telecommunications• Television• Information• Visual Arts
21st Century Competitive Landscape21st Century Competitive Landscape
Fundamental nature of competition is changing:
•Rapid technological changes
•Rapid technology diffusions
•Dramatic changes in information and communication
•Increasing importance of knowledge
Political/LegalPolitical/Legal
CompetitiveEnvironment
Industry Industry EnvironmentEnvironment
(5 Forces)(5 Forces)
Industry Industry EnvironmentEnvironment
(5 Forces)(5 Forces)
TechnologicalTechnological
Socio-CulturalSocio-Cultural
DemographicDemographic
GlobalGlobal EconomicEconomic
How Environment Affects Industry and Competition
Porter’s 5 Forces Model of CompetitionPorter’s 5 Forces Model of Competition
The Five Forces Model of Competition
CompetitionIntensity
Threat of EntryCost advantagesGovernment policyEconomies of scaleCapital requirementsBrand identitySwitching costsAccess to distributionExpected retaliation
Threat of SubstitutesPrice differencesPerformance of substitutesSwitching costsAppeal of substitutes
Supplier PowerFew concentrated suppliersLow importance of buyer to supplierDifferentiated products Product is important to the buyerHigh switching costs Scarcity of substitute products
Degree of RivalryDeclining industryUndifferentiated productsNumerous competitorsSwitching costsExit barriersHigh strategic stakes
Determinants of Buyer PowerBargaining leverage Price sensitivityBuyer concentration Price/Total PurchasesBuyer volume Impact on qualityBuyer information Product differencesBuyer switching cost Brand identityDegree of differentiation of products
9
Barriers to Entry
Economies of Scale
Government policy
- 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.
Substitute products
Existence of similar products 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).
** Supplier industry is dominated by a few Supplier industry is dominated by a few firms (ore suppliers vs. steel customers)firms (ore suppliers vs. steel customers)
** Buyer is not an important customer to Buyer is not an important customer to suppliersupplier
** Suppliers’ product is an important Suppliers’ product is an important input to buyers’ productinput to buyers’ product
** Suppliers’ products are differentiatedSuppliers’ products are differentiated
Suppliers are powerful if:Suppliers are powerful if:
** Suppliers’ products have high Suppliers’ products have high switching costsswitching costs
**Supplier poses credible threat of forward Supplier poses credible threat of forward integration, thus competing customers (e.g. integration, thus competing customers (e.g. establishing super markets)establishing super markets)
Suppliers exert power in the industry by:
Threatening to raise prices or to reduce quality
Powerful suppliers can Powerful suppliers can squeeze client industry squeeze client industry profitability if firms are profitability if firms are unable to absorbunable to absorb cost increasescost increases
Suppliers’ goods have few substitutesSuppliers’ goods have few substitutes**
Bargaining Power of SuppliersBargaining Power of Suppliers
The reverse The reverse also applies also applies (( ))
Playing firms off ofPlaying firms off of
each othereach other
Buyers compete Buyers compete with supplying with supplying
industry by:industry by:
Bargaining down pricesBargaining down prices
Forcing higher qualityForcing higher quality
Buyer groups are powerful if:Buyer groups are powerful if:
** Buyers are concentrated, or volume of purchases Buyers are concentrated, or volume of purchases is large compared to seller’s overall salesis large compared to seller’s overall sales
** Purchase accounts for a significant fraction Purchase accounts for a significant fraction of supplier’s sales (Carrefour, Tesco)of supplier’s sales (Carrefour, Tesco)
** Products are undifferentiated (cement)Products are undifferentiated (cement)
** Buyers face few switching costsBuyers face few switching costs
** Buyers’ industry earns low profitsBuyers’ industry earns low profits
** Buyer presents a credible threat of Buyer presents a credible threat of backward/vertical integration (glass backward/vertical integration (glass producers vs. glass frame manufacturers) producers vs. glass frame manufacturers)
Buyer has full information on supplier’s Buyer has full information on supplier’s costs and transactions costs and transactions
Bargaining Power of BuyersBargaining Power of Buyers
The reverse The reverse also appliesalso applies(( ))
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
3-15
Intensity of RivalryRivalry is generally stronger when:•Rivals are active in making fresh moves to increase sales and market shareBuyer demand is decliningThe number of rivals is largeRivals are of roughly equal size and capabilityBuyer costs to switch brands are lowOne or more rivals is dissatisfied with their current position and market share and make aggressive moves to improve their market prospectsWhen one or two rivals have powerful strategies and other rivals are scrambling to stay in the game
Rivalry is generally weaker when:Firms draw sales and market share away from rivalsBuyer demand is growing rapidlyBuyer costs to switch brands are high
The “Weapons” of Competitive Rivalry•Lower pricesMore appealing featuresBetter product performanceHigher qualityStrong brand image and appealBetter customer service Wider product selectionBigger/better sales networkStronger product innovation capabilitiesLonger warrantiesHigher levels of advertising
Rivalry among
Competing Sellers
Efforts of rivals to gainbetter market
position, higher sales and market
share,and
competitiveadvantage
gl
16
Low entry barriers
Interpreting Industry Analyses
UnattractiveIndustry
Suppliers and buyers have strong positions
Strong threats from substitute products
Intense rivalry among competitors
Low profit potential
17
AttractiveIndustry
High entry barriers
Interpreting Industry Analyses
Suppliers and buyers have undefined positions
Few threats from substitute products
Moderate rivalry among competitors
High profit potential
19
Competitor Analysis
Components
Competitive Industries of Selected Nations
SWEDENcar carrierscommunication products for handicapped personsenvironmental control equipmentheavy trucksmining equipment
teller-operated cash dispensersnewsprintrefrigerated shippingrock drillssemihard wood flooring
UNITED STATESadvertisingagricultural chemicalscommercial aircraft*commercial refrigeration and air-conditioningcomputer software
construction equipmentdetergentsengineering/constructionmotion picturespatient monitoring equipmentsyringeswaste management services
KOREAapparelautomobilesconstructionfootwearpianos
semiconductorsshipbuildingsteeltravel goodsvideo and audio recording tapewigs
SINGAPOREairlinesapparelbeveragesship repairtrading
SWITZERLANDbankingchocolateconfectionerydyestuffsfire protection equipment
freight forwardinghearing aidsheating controlsinsurancemarine enginespaper product manufacturing machinerypharmaceuticals
surveying equipmenttextile machinery
tradingwatches
DENMARKagricultural machinerybuilding maintenance servicesconsultancy engineeringdairy productsfood additives
furnitureindustrial enzymespharmaceuticalsspecialty electronicstelecommunications equipmentwaste treatment equipment
ITALYceramic tilesdance club and theater equipmentdomestic appliancesengineering/constructionfactory automation equipment
footwearpackaging and filling equipmentski bootswool fabrics
GERMANYautomobileschemicalscutleryeyeglass framesharvesting/threshing combines
optical instrumentspackaging, bottling equipmentpens and pencilsprinting pressesrubber, plastic working machineryX-ray apparatus
JAPANair-conditioningmachineryhome audio equipmentcar audiocarbon fibers
continuous synthetic weavesfacsimileforklift trucksmicrowave and satellite communications equipmentmusical instrumentsoptical elements and instrumentsrobotics
semiconductorssewing machinesshipbuildingtires for trucks and buses
truckstypewritersvideocassette recorderswatches