Protectionism

4.1GlobalisationSAMPLE

What you need to know

• a)Tariffs• b)Importquotas• c)Othertradebarriers:

– government legislation– domestic subsidies

SAMPLE

Conceptlinks

ProtectionismEmergingmarkets

Globalisation

InternationalTrade

Marketdevelopment

MNCs

SAMPLE

WhatisFree(Open)Trade?

Free(open)tradeisaneconomicpolicyofnotdiscriminatingagainstimportsfrom

andexportstoothercountries.Buyersandsellersfromseparateeconomiesmaytradewithoutthedomesticgovernmentapplyingtariffs,quotas,subsidiesorprohibitionson

theirgoodsandservices.

SAMPLE

KeyBenefitsofFreeTrade(note:thesealsoargumentsagainstProtectionism)

• Countriescanbenefitfromcomparativeadvantage

• Businessescanbetterachieveeconomiesofscale

• Encouragescompetitionandeconomicefficiency

• Enablesbusinessestogrowbeyondtheirdomesticborders

SAMPLE

TheWorldTradeOrganisation(WTO)

TheWorldTradeOrganization(WTO)istheonlyinternationalorganisationdealingwiththeglobalrulesoftradebetweennations.Itsmainfunctionistoensurethattradeflowsassmoothly,predictablyandfreelyaspossible.

SAMPLE

WhatisProtectionism?

Protectionisminvolvesanyattemptbyacountrytotoimposerestrictionsontradeingoodsandservices.Themainaimofprotectionismistocushiondomestic

businessesandindustriesfromoverseascompetitionandpreventtheoutcome

resultingsolelyfromtheinterplayoffreemarketforcesofsupplyanddemand.

SAMPLE

ThreeMainKindsofProtectionism

ImportQuotas

Tariffs

Domestic&ExportSubsidies

SAMPLE

Protectionism- Tariffs

Atariffataxordutythatraisesthepriceofimportedproductsandcausesareductionindomesticdemandandanexpansionindomesticsupply.Forexample,untilrecently,Mexicoimposeda150%tariffonBrazilianchicken.TheUnitedStateshasan11%importtariffonimportsofbicyclesfromtheUK!

SAMPLE

Protectionism– ImportQuotas

Quotasarevolumelimitsonthelevelofimportsallowedoralimittothevalueofimportspermittedintoacountryinagiventimeperiod.Forexample,until2014,SouthKoreamaintainedstrictquotasonimportedrice.IthasnowreplacedaquotawithimporttariffsdesignedtoprotectSouthKoreanricefarmers.Quotasdonotnormallybringinanyimmediatetaxrevenueforthegovernmentalthoughiftheycausedomesticproductionandincomestoexpand,therewillbeabeneficialimpactontaxespaid.

SAMPLE

Protectionism– Subsidies

Asubsidyisapaymenttoencouragedomesticproductionbyloweringtheircosts.WellknownsubsidiesincludeCommonAgriculturalPolicyintheEU,orcottonsubsidiesforUSfarmersandfarmsubsidiesintroducedbycountriessuchasRussia.In2012,theUSgovernmentimposedtariffsonChinesemanufacturersofsolarpanelcells,judgingthattheybenefitedfromunfairexportsubsidiesafterareviewthatsplittheUSsolarindustry.

SAMPLE

OtherMoreSpecialisedMethodsofProtectionism

Importlicensing:inthiscase,governmentsgrantimportersthelicensetoimportgoods– thesecanberestricted

Exchangecontrols:Thisformofprotectionisminvolveslimitingcurrenciesthatcanmovebetweencountries(alsoknownascapitalcontrols)

Intellectualpropertylaws e.g.patentsandcopyrightprotectionprotectingdomesticideasandproducts

Technicalbarrierstotrade:theseincludeproductlabelingrulesandstringentsanitarystandards.Technicalbarrierstotradeincreaseproductcompliancecostsandimposemonitoringcostsonexportagencies.

SAMPLE

KeyArgumentsinFavourofProtectionism

• Helpinfantorfledglingindustriesestablishthemselves,includingachievingeconomiesofscale

InfantIndustryProtection

• Protectjobs,skillsandcapabilitiesinkey(strategic)industriestoacountry

ProtectionofStrategicIndustries

• Dumpingisaformofpredatorypricingwhichcanseriouslydamagedomesticindustries

ProtectionAgainstImportDumping

SAMPLE

KeyArgumentsAgainstProtectionism

• Particularlyarisingfromimporttariffsorimportquotasthatrestrictmarketsupply

Higherpricesforconsumers

• Protectionistmeasuresoftenresultinretaliation- suchaspricewars

Retaliationfromothercountries

• Protectionismthatbecomeswidespreadinglobalindustriesincreasesthecostsfacingdomesticfirmstryingtoexport

Extracostsforexporters

SAMPLE

SAMPLE

Porter’sStrategyMatrix

3.1BusinessobjectivesandstrategySAMPLE

What you need to know

• Theoriesofcorporatestrategy• a)Developmentofcorporatestrategy:• Porter’sStrategicMatrix

SAMPLE

Conceptlinks

Porter’sStrategies

Marketpositioning

Productdifferentiation

Mass&nichemarkets

Competitiveadvantage

Corporateobjectives

SAMPLE

TheChallengeFacingBusinessStrategy

Tofindawayofachievingasustainablecompetitiveadvantageovertheothercompetingproductsand

firmsinamarket

SAMPLE

Porter’sSuggestedApproachtoStrategicPositioning

• Portersuggestedtwooverallbusinessstrategiesthatcouldbefollowedinordertogaincompetitiveadvantage

• Porterarguedthatdifferentiation andlowcostareeffectivestrategiesforfirmstogaincompetitiveadvantage

SAMPLE

WhatisaCompetitiveAdvantage?

Anadvantageovercompetitorsgainedbyofferingconsumers

greatervalue,eitherbymeansoflowerpricesorbyproviding

greaterbenefitsandservicethatjustifieshigherprices

SAMPLE

Porter’sGenericStrategies

LowCost

Differentiation

SAMPLE

LowCostStrategy

Withthisstrategy,theobjectiveistobecomethelowest-costoperator.

Thistypicallyinvolvesproductiononalargescalewhichenablesthebusinesstoexploiteconomiesof

scale.

SAMPLE

WhyLowCostisaSourceofCompetitiveAdvantage

• Whyiscostleadershipimportant?– If selling prices are broadly similar, the lowest-

cost operator will enjoy the highest profits– Lowest-cost operator can also offer the lowest

prices (gain market share)• Suitablemarketsforthisstrategy?

– Standard product– Little product differentiation– Branding relatively unimportant

SAMPLE

LikelyFeaturesofaLowCostOperators

• Highlevelsofproductivity&efficiency• Highcapacityutilisation• Largescale=economies• Usebargainingpowertonegotiatelowestpricesfromsuppliers

• Leanproductionmethodsandculture• Accesstothewidestandmostimportantdistributionchannels

SAMPLE

ExamplesofLowCostStrategiesinAction

SAMPLE

StrategyofFocus&Differentiation

Withadifferentiationstrategy,aimstoofferaproductthatisdistinctivelydifferent fromthecompetition,withthecustomervaluingthatdifferentiation

SAMPLE

WaystoforaBusinesstoAchieveDifferentiation

• Superiorproductquality(features,benefits,durability,reliability)

• Branding (strongcustomerrecognition&desire;brandloyalty)

• Widedistributionacrossallmajorchannels(i.e.theproductorbrandisanessentialitemtobestockedbyretailers)

• Sustainedpromotion– oftendominatedbyadvertising,sponsorshipetc

SAMPLE

ExamplesofSuccessfulDifferentiationStrategies?

SAMPLE

“StuckintheMiddle”

LowCost

Differentiation

StuckintheMiddle

SAMPLE

ExamplesofStuckintheMiddle?

SAMPLE

HybridStrategies:DifferentiationAND LowCost

Value proposition = stylish furniture; good quality; low pricesAchieves its low prices via cost leadership:• Furniture is flat packed to reduce storage space• Large out of town retail units spread fixed costs• Products are made in China and Malaysia reducing unit costs• Low margins/ high volume allows economies of scaleDifferentiates using:• Unique / unusual design• Localisation of product range• Targeting (mainly) the young global middle class

SAMPLE

SAMPLE