Description
strategic competitiveness and above normal returns
concerns managerial decisions and actions which materially affect the success and survival of business enterprises
involves the judgment necessary to strategically position a business and its resources so as to maximize long-term profits in the face of irreducible uncertainty and aggressive competition
strategy is the linkage between a business and its current and future environment
1
MBA290:
MBA290:
ADVANCED
ADVANCED
STRATEGIC
STRATEGIC
MANAGEMENT
MANAGEMENT
Professor Stanley Han
College of Bs!ness A"#!n!strat!on
$ans%&ss'e"
Corse ()er)!e*: (+,e&t!)es
Corse ()er)!e*: (+,e&t!)es
?
To acquire familiarity with the principal concepts, To acquire familiarity with the principal concepts,
frameworks and techniques of strategic management. frameworks and techniques of strategic management.
?
To gain expertise in applying these concepts, To gain expertise in applying these concepts,
frameworks and techniques in order to frameworks and techniques in order to
- - understand the reasons for good or bad understand the reasons for good or bad
performance by an enterprise, performance by an enterprise,
- - generate strategy options for an enterprise, generate strategy options for an enterprise,
- - assess available options under conditions of assess available options under conditions of
imperfect knowledge, imperfect knowledge,
- - select the most appropriate strategy, select the most appropriate strategy,
- - recommend the best means of implementing the recommend the best means of implementing the
chosen strategy. chosen strategy.
2
Corse ()er)!e*: (+,e&t!)es -&ont."/
Corse ()er)!e*: (+,e&t!)es -&ont."/
?
To integrate the knowledge gained in previous To integrate the knowledge gained in previous
courses. courses.
?
To develop your capacity as a general manager in To develop your capacity as a general manager in
terms of terms of
- - an appreciation of the work of the general an appreciation of the work of the general
manager, manager,
- - the ability to view business problems from a the ability to view business problems from a
general management perspective, general management perspective,
- - the ability to develop original and innovative the ability to develop original and innovative
approaches to strategic problems, approaches to strategic problems,
- - developing business judgment. developing business judgment.
THE C(NCEPT (0
STRATEG1
THE C(NCEPT (0
STRATEG1
T$e Con&e2t of Strategy an" t$e Prs!t of
Ssta!na+le A+o)e3Nor#al Prof!ts
Do#a!n of Strategy
Do#a!n of Strategy
!
strategic competitiveness and above normal returns
!
concerns managerial decisions and actions which
materially affect the success and survival of business
enterprises
!
involves the judgment necessary to strategically position
a business and its resources so as to maximi"e long-
term profits in the face of irreducible uncertainty and
aggressive competition
!
strategy is the linkage between a business and its
current and future environment
Def!n!t!on
Def!n!t!on
!
T$e "eter#!nat!on of t$e long rn goals
an" o+,e&t!)es of an enter2r!se4 t$e
a"o2t!on of &orses of a&t!on an" t$e
allo&at!on of resor&es ne&essary for
&arry!ng ot t$ese goals
Alfred Chandler, Strategy and Structure
5e)els of Strategy
D!)!s!on A
R 6 D
Personnel
0!nan&e
Pro"&t!on
Mar7et!ng8Sales
D!)!s!on B
R 6 D
Personnel
0!nan&e
Pro"&t!on
Mar7et!ng8Sales
09NCTI(NA5
STRATEGIES
B9SINESS
STRATEG1
C(RP(RATE
STRATEG1
C(RP(RATE
HEAD (00ICE
5e)els of Strategy
5e)els of Strategy
!
#orporate strategy... defines the scope of the
business in terms of the industries and markets in
which it competes.
!
includes decisions about diversification, vertical
integration, acquisitions, new ventures,
divestments, allocation of scarce resources
between business units
!
$usiness strategy... is concerned with how the firm
competes within a particular industry or market... to
win a business unit must adopt a strategy that
establishes a competitive advantage over its rivals.
!
%unctional strategy... the detailed deployment of
resources at the operational level
Co##on Ele#ents !n S&&essfl Strategy
Co##on Ele#ents !n S&&essfl Strategy
S&&essfl
Strategy
Profon"
n"erstan"!ng of
t$e &o#2et!t!)e
en)!ron#ent
(+,e&t!)e
a22ra!sal of
resor&es
5ong3ter#4 s!#2le
an" agree" 2on
o+,e&t!)es
$
E00ECTIVE IMP5EMENTATI(N
Strategy as a :est for Prof!t
Strategy as a :est for Prof!t
! The stakeholder approach : T$e f!r# !s a &oal!t!on of !nterest gro2s;
!t see7s to +alan&e t$e!r "!fferent o+,e&t!)es
?
The shareholder approach : T$e f!r# e<!sts to #a<!#!=e t$e *ealt$ of
!ts o*ners -> #a<' 2resent )ale of 2rof!ts o)er t$e l!fe of t$e f!r#/
For the purposes of strategy analysis we assume that the primary goal
of the firm is profit maximization.
Rationale:
?/ Boar"s of "!re&tors legally o+l!ge" to 2rse s$are$ol"er !nterest
2/ To re2la&e assets f!r# #st earn retrn on &a2!tal @ &ost of &a2!tal
-"!ff!< *$en &o#2et!t!on strong/'
A/ 0!r#s t$at "o not #a<' sto&73#ar7et )ale *!ll +e a&B!re"
Hence: Strategy analys!s !s &on&erne" *!t$ !"ent!fy!ng an" a&&ess!ng
t$e sor&es of 2rof!t a)a!la+le to t$e f!r#
0ro# Prof!t Ma<!#!=at!on to Vale Ma<!#!=at!on
0ro# Prof!t Ma<!#!=at!on to Vale Ma<!#!=at!on
! Prof!t #a<!#!=at!on an a#+!gos goal
& Total 2rof!t )s' Rate of 2rof!t
& ()er *$at t!#e 2er!o"C
& D$at #easre of 2rof!tC
& A&&ont!ng 2rof!t versus e&ono#!& 2rof!t -e'g' E&ono#!&
Vale A""e": Post3ta< o2erat!ng 2rof!t less &ost of &a2!tal
Maximizing the value of the firm:
Ma<' net 2resent )ale of free &as$ flo*s:
#a<' V >
?
t
C
t
-? E r/
t
D$ere: V #ar7et )ale of t$e f!r#'
C
t
free &as$ flo* !n t!#e t
r *e!g$te" a)erage &ost of &a2!tal
T$e Dorl".s Most Vala+le Co#2an!es:
Perfor#an&e 9n"er D!fferent Prof!ta+!l!ty Measres
T$e Dorl".s Most Vala+le Co#2an!es:
Perfor#an&e 9n"er D!fferent Prof!ta+!l!ty Measres
C(MPAN1 MARFET
CAP'
-GBN'/
NET
INC(ME
-GBN/
RET9RN
(N
SA5ES
-H/
RET9RN
(N
E:9IT1
-H/
RET9RN
(N
ASSETS
-H/
RET9RN
T(
SHARE3
H(5DERS
-H/
E<<on Mo+!l AI2 AJ'? ?9'9 AK'9 ?I'L ??'I
General Ele&tr!& AJA ?J'K ?0'I 22'2 ?K'I -?'M/
M!&rosoft 2L? ?2'A K0'A A0'0 ?L'L -0'9/
C!t!gro2 2A9 2K'J 22'0 2?'9 ?'M K'J
BP 2AA 22'A 9'9 2I'9 ?0'I ?0'2
Ban7 of A#er!&a 2?2 ?J'M 2I'0 ?K'? ?'2 2'K
Royal Dt&$ S$ell 2?? 2M'A ?K'I 2J'I ??'J ??'L
Dal3Mart ?9I ??'2 M'M 2?'K L'? -?0'A/
Toyota Motor ?9I ?2'? ?0'I ?A'0 K'L -22'?/
Ga=2ro# ?9J I'A 2L'? 9'L I'? n'a'
HSBC ?90 ?M'9 2A'0 ?J'A ?'0 -??'L/
Pro&ter 6 Ga#+le ?90 L'I ?I'A ?A'I J'K I'2
S$are$ol"er Vale Ma<!#!=at!on an" Strategy C$o!&e
S$are$ol"er Vale Ma<!#!=at!on an" Strategy C$o!&e
The alue Maximizing !pproach to "trategy Formulation:
! I"ent!fy strategy alternat!)es
! Est!#ate &as$ flo*s asso&!ate" *!t$ &as$ strategy
! Est!#ate &ost of &a2!tal for ea&$ strategy
! Sele&t t$e strategy *$!&$ generates t$e $!g$est NPV
#ro$lems:
! Est!#at!ng &as$ flo*s +eyon" 23A years !s "!ff!<
! Vale of f!r# "e2en"s on option value as *ell as DC0 )ale
%mplications for strategy analysis:
! So#e s!#2le f!nan&!al g!"el!nes for )ale #a<!#!=at!on
a/ (n e<!st!ng assets;#a<!#!=e after3ta< rate of retrn
+/ (n ne* !n)est#ent;see7 rate of retrn @ &ost of &a2!tal
! 9t!l!=e Bal!tat!)e strategy analys!s to e)alate ftre 2rof!t
2otent!al
S$are$ol"er
Vale
Measures:
• Mar7et )ale of t$e
f!r#
!Mar7et )ale a""e"
-MVA/
!Retrn to
s$are$ol"ers
Intr!ns!&
Vale
Measures:
• D!s&onte" &as$
flo*s
!Real o2t!on )ales
0!nan&!al
In"!&ators
Measures:
• Retrn on Ca2!tal
! Gro*t$ -of
re)enes 6 o2erat!ng
2rof!ts
!E&ono#!& 2rof!t -EVA/
Vale
Dr!)ers
"ources:
• Mar7et s$are
! S&ale e&ono#!es
! Inno)at!on
! Bran"s
A Co#2re$ens!)e Vale Metr!&s 0ra#e*or7
A Co#2re$ens!)e Vale Metr!&s 0ra#e*or7
A+o)e Nor#al
Prof!ts
-!n E<&ess of t$e Co#2et!t!)e 5e)el/
A)o!"
Co#2et!tors
Be Better T$an
Co#2et!t!on
'ttractive
(ndustry
'ttractive
)iche
#ost
'dvantage
*ifferentiation
'dvantage
'ttractive
+trategic
,roup
-ntry
$arriers
.obility
$arriers
(solating
.echanisms
Sor&es of S2er!or Perfor#an&e
Sor&es of S2er!or Perfor#an&e
Sor&es of Co#2et!t!)e A")antage
Sor&es of Co#2et!t!)e A")antage
C(ST
ADVANTAGE
C(ST
ADVANTAGE
DI00ERENTIATI(N
ADVANTAGE
DI00ERENTIATI(N
ADVANTAGE
C(MPETITIVE
ADVANTAGE
C(MPETITIVE
ADVANTAGE
S
!
#
!
l
a
r
2
r
o
"
&
t
a
t
l
o
*
e
r
&
o
s
t
P
r
!
&
e
2
r
e
#
!
#
f
r
o
#
n
!
B
e
2
r
o
"
&
t
T$e E<2er!en&e Cr)e
T$e E<2er!en&e Cr)e
The /0aw of -xperience1
The unit cost value added to a standard product
declines by a constant 2 3typically 24-425 each
time cumulative output doubles.
#ost per
unit of
output 3in
real 65
#umulative 7utput
8992
899:
899;
899<
2444
2442
244:
E<a#2les of E<2er!en&e Cr)es
E<a#2les of E<2er!en&e Cr)es
844= 244= >44= 8,444= > 84 >4
'ccumulated unit production 'ccumulated units
3millions5 3millions5
8
9
;
4
?
e
n
8
>
=
2
4
=
4
=
@
r
i
c
e
(
n
d
e
x
>
4
8
4
4
2
4
4
4
4
A42 slope
A>2
Bapanese clocks C watches, 89;2-A2 D= refrigerators, 89>A-A8
Dr!)ers of Cost A")antage
Dr!)ers of Cost A")antage
PR(D9CTI(N TECHNI:9ES
PR(D9CT DESIGN
INP9T C(STS
CAPACIT1 9TI5INATI(N
RESID9A5 E00ICIENC1
EC(N(MIES (0 5EARNING
EC(N(MIES (0 SCA5E
! 7rgani"ational slackE .otivation C
cultureE .anagerial efficiency
! Fatio of fixed to variable costs
! +peed of capacity adjustment
! 0ocation advantages
! 7wnership of low-cost inputs
! )on-union labor
! $argaining power
! +tandardi"ing designs C components
! *esign for manufacture
! @rocess innovation
! Feengineering business processes
! (ncreased dexterity
! (mproved organi"ational routines
! (ndivisibliGties
! +peciali"ation and division of labor
E&ono#!es of S&ale: T$e 5ong3Rn
Cost Cr)e for a Plant
E&ono#!es of S&ale: T$e 5ong3Rn
Cost Cr)e for a Plant
Dnits of output
per period
Minimum
Efficient Plant
Size: the point
here most scale
economies are
e!hausted
#ost per
unit of
output
+ources of scale economiesH
- technical inputIoutput relationships
- indivisibilities
- speciali"ation
84 24 >4 844 244 >44 8,444
'nnual sales volume 3millions of cases5
'
d
v
e
r
t
i
s
i
n
g
-
x
p
e
n
d
i
t
u
r
e
3
6
p
e
r
c
a
s
e
5
4
.
4
2
4
.
4
>
4
.
8
4
4
.
8
>
4
.
2
4
#oke
@epsi
+even Dp
*r. @epper
+prite
*iet @epsi
Tab
%resca
*iet Fite
*iet A-Dp
+chweppes
+% *r. @epper
*espite the massive advertising budgets of brand leaders #oke and @epsi, their main
brands incur lower advertising costs per unit of sales than their smaller rivals.
S&ale E&ono#!es !n A")ert!s!ng: 9'S' Soft Dr!n7s
S&ale E&ono#!es !n A")ert!s!ng: 9'S' Soft Dr!n7s
A22ly!ng t$e Vale C$a!n to Cost Analys!s:
T$e Case of Ato#o+!le Manfa&tre
A22ly!ng t$e Vale C$a!n to Cost Analys!s:
T$e Case of Ato#o+!le Manfa&tre
"T!&' (. %)'*T%F+ TH' #R%*,%#-' !,T%%T%'"
"T!&' .. !--/,!T' T/T!- ,/"T"
@DF#J-
'+(),
@'FT+
()K-)-
T7F(-+
FC*
*-+(,)
-),)F),
#7.@7)-)T
.%F
'++-.$0?
T-+T(),,
LD'0(T?
#7)TF70
,77*+
()K-)-
T7F(-+
+'0-+
C
.=(T,
*(+TF(-
$DT(7)
*-'0-F C
#D+T7.-F
+D@@7FT
@DF#J-
'+(),
@'FT+
()K-)-
T7F(-+
FC*
*-+(,)
-),)F),
#7.@7)-)T
.%F
'++-.$0?
T-+T(),,
LD'0(T?
#7)TF70
,77*+
()K-)-
T7F(-+
+'0-+
C
.=(T,
*(+TF(-
$DT(7)
*-'0-F C
#D+T7.-F
+D@@7FT
33Plant s&ale for ea&$ 33 5e)el of Bal!ty targets 33 No' of "ealers
&o#2onent 33 0reBen&y of "efe&ts 33 Sales 8 "ealer
33 Pro&ess te&$nology 33 5e)el of "ealer
33 Plant lo&at!on s22ort
33 Rn lengt$ 33 0reBen&y of "efe&ts
33 Ca2a&!ty t!l!=at!on n"er *arranty
@rices paid --+i"e of commitment -- @lant scale --#yclicality C
depend onH --@roductivity of -- %lexibility of production predictability of sales
-- 7rder si"e FC*Idesign -- )o. of models per plant --#ustomersM
--@urchases per --)o. C frequency of new -- *egree of automation willingness to wait
supplier models -- +ales I model
-- $argaining power -- Nage levels
-- +upplier location -- #apacity utili"ation
"T!&' 0.
%)'*T%F+
,/"T
)R%'R"
A22ly!ng t$e Vale C$a!n to Cost Analys!s: T$e Case
of Ato#o+!le Manfa&tre -&ont!ne"/
A22ly!ng t$e Vale C$a!n to Cost Analys!s: T$e Case
of Ato#o+!le Manfa&tre -&ont!ne"/
PRCHSNG PARTS R6D C(MP(NENT ASSEM3 TESTING G((DS SA5ES DSTRBTN D5R
INVNTRS DESIGN M0R B51 :9A5IT1 INV MFTG CTMR
#onsolidation of orders to increase
discounts, increases inventories
*esigning different models around
common components and platforms
reduces manufacturing costs
Jigher quality parts and materials
reduces costs of defects
at later stages
Jigher quality in manufacturing
reduces warranty costs
"T!&' 1. R',,/M'*)!T%/*" F/R ,/"T R')2,T%/*
"T!&' 3. %)'*T%F+ -%*4!&'"
A22ly!ng t$e Vale C$a!n to Cost Analys!s: T$e Case
of Ato#o+!le Manfa&tre -&ont!ne"/
A22ly!ng t$e Vale C$a!n to Cost Analys!s: T$e Case
of Ato#o+!le Manfa&tre -&ont!ne"/
T$e Natre of D!fferent!at!on
T$e Natre of D!fferent!at!on
T(TA5 C9ST(MER RESP(NSIVENESS
D!fferent!at!on not ,st a+ot t$e product4 !t e#+ra&es t$e *$ole
relationship +et*een t$e s22l!er an" t$e &sto#er'
INTANGIB5E
DI00ERENTATI(N
9no+ser)a+le an" s+,e&t!)e
&$ara&ter!st!&s t$at a22eal to
&sto#er.s !#age4 stats4 !"ent!ty4
an" "es!re for e<&ls!)!ty
TANGIB5E DI00ERENTATI(N
(+ser)a+le 2ro"&t &$ara&ter!st!&s:
! s!=e4 &olor4 #ater!als4 et&'
! 2erfor#an&e
! 2a&7ag!ng
! &o#2le#entary ser)!&es
DE0INITI(N: O#roviding something uni5ue that is valua$le to the
$uyer $eyond simply offering a low price'P -M' Porter/
TH' 4'+ %" T/ ,R'!T' !-2' F/R TH' ,2"T/M'R
I"ent!fy!ng D!fferent!at!on Potent!al:
T$e De#an" S!"e
I"ent!fy!ng D!fferent!at!on Potent!al:
T$e De#an" S!"e
TJ- @F7*D#T
TJ-
#D+T7.-F
Nhat needs
does it satisfyO
$y what
criteria do they
chooseO
Nhat
motivates
themO
Nhat are key
attributesO
Felate patterns of
customer
preferences to
product attributes
Nhat price
premiums do
product attributes
commandO
Nhat are
demographic,
sociological,
psychological
correlates of customer
behaviorO
%7F.D0'T-
*(%%-F-)T('T(7)
+TF'T-,?
! +elect product
positioning in relation
to product attributes
! +elect target
customer group
! -nsure customer I
product compatibility
! -valuate costs and
benefits of
differentiation
9s!ng t$e Vale C$a!n to I"ent!fy
D!fferent!at!on Potent!al on t$e S22ly S!"e
9s!ng t$e Vale C$a!n to I"ent!fy
D!fferent!at!on Potent!al on t$e S22ly S!"e
%(F. ()%F'+TFD#TDF-
JD.') F-+7DF#- .')',-.-)T
T-#J)707,? *[email protected])T
()$7D)* 7@-F'T(7)+ 7DT$7D)* .'F=-T(), +-FK(#-
07,(+T(#+ 07,(+T(#+ C +'0-+
.(+ that supports
fast response
capabilities
Training to support
customer service
excellence
Dnique product features.
%ast new product
development
Luality of
components C
materials
*efect free
products.
Nide variety
%ast delivery.
-fficient order
processing
$uilding brand
reputation
#ustomer technical
support. #onsumer
credit. 'vailability of
spares
I"ent!fy!ng D!fferent!at!on (22ortn!t!es t$rog$
5!n7!ng t$e Vale C$a!ns of t$e 0!r# an" !ts
Csto#ers: Can Manfa&tre
I"ent!fy!ng D!fferent!at!on (22ortn!t!es t$rog$
5!n7!ng t$e Vale C$a!ns of t$e 0!r# an" !ts
Csto#ers: Can Manfa&tre
8. *istinctive can design can assist cannersM marketing activities.
2. Jigh manufacturing tolerances can avoid breakdowns in customerMs canning lines.
. %requent, reliable delivery can permit canner to adopt B(T can supply.
:. -fficient order processing system can reduce customersM ordering costs.
>. #ompetent technical support can increase cannerMs efficiency of plant utili"ation.
+
u
p
p
l
i
e
s
o
f
s
t
e
e
l
C
a
l
u
m
i
n
u
m
+
e
r
v
i
c
e
C
t
e
c
h
n
i
c
a
l
s
u
p
p
o
r
t
+
a
l
e
s
*
i
s
t
r
i
b
u
t
i
o
n
(
n
v
e
n
t
o
r
y
h
o
l
d
i
n
g
.
a
n
u
f
a
c
t
u
r
i
n
g
*
e
s
i
g
n
-
n
g
i
n
e
e
r
i
n
g
(
n
v
e
n
t
o
r
y
h
o
l
d
i
n
g
@
u
r
c
h
a
s
i
n
g
*
i
s
t
r
i
b
u
t
i
o
n
.
a
r
k
e
t
i
n
g
#
a
n
n
i
n
g
@
r
o
c
e
s
s
i
n
g
(
n
v
e
n
t
o
r
y
h
o
l
d
i
n
g
@
u
r
c
h
a
s
i
n
g
#'))-F #') .'=-F
8
2
:
>
IND9STR1 ANA51SIS
AND P(SITI(NING
IND9STR1 ANA51SIS
AND P(SITI(NING
Deter#!n!ng In"stry Attra&t!)eness an"
I"ent!fy!ng Strateg!& (22ortn!t!es
Prof!ta+!l!ty of 9S In"str!es -sele&te" !n"str!es only/
Prof!ta+!l!ty of 9S In"str!es -sele&te" !n"str!es only/
Hose$ol" 6 Personal Pro"&ts 22'I Gas 6 Ele&tr!& 9t!l!t!es ?0'K
P$ar#a&et!&als 22'A 0oo" an" Drg Stores ?0'0
To+a&&o 2?'J Motor Ve$!&les 6 Parts 9'L
0oo" Cons#er Pro"&ts ?9'J Hotels4 Cas!nos4 Resorts 9'I
Se&r!t!es ?L'9 Ra!lroa"s 9'0
D!)ers!f!e" f!nan&!als ?L'A Insran&e: 5!fe an" Healt$ L'J
Be)erages ?L'L Pa&7ag!ng 6 Conta!ners L'J
M!n!ng 6 &r"e o!l ?I'L Insran&e: Pro2erty 6 Casalty L'A
Petrole# Ref!n!ng ?I'A B!l"!ng Mater!als4 Glass L'A
Me"!&al Pro"&ts 6 EB!2#ent ?I'2 Metals L'0
Co##er&!al Ban7s ?M'M 0oo" Pro"&t!on I'2
S&!ent!f!& 6 P$otogra2$!& EB!2t' ?M'0 0orest an" Pa2er Pro"&ts J'J
A22arel ?K'K Se#!&on"&tors 6
Co#2ter Soft*are ?A'9 Ele&tron!& Co#2onents M'9
P+l!s$!ng4 Pr!nt!ng ?A'M Tele&o##n!&at!ons K'J
Healt$ Care ?A'? Co##n!&at!ons EB!2#ent ?'2
Ele&tron!&s4 Ele&tr!&al EB!2#ent ?A'0 Enterta!n#ent 0'2
S2e&!alty Reta!lers ?A'0 A!rl!nes -22'0/
Co#2ters4 (ff!&e EB!2#ent ??'I
Median return on e5uity 6789
::;.<<1
T$e Prof!ta+!l!ty of Glo+al In"str!es: Retrn on In)este" Ca2!tal4 ?9JA3200A
THE IND9STR1
ENVIR(NMENT
! S22l!ers
! Co#2et!tors
! Csto#ers
So&!al str&tre
T$e nat!onal8 T$e nat!onal8
!nternat!onal !nternat!onal
e&ono#y e&ono#y
Te&$nology Te&$nology
Go)ern#ent Go)ern#ent
6 Pol!t!&s 6 Pol!t!&s
T$e natral T$e natral
en)!ron#ent en)!ron#ent
De#ogra2$!& De#ogra2$!&
str&tre str&tre
So&!al str&tre So&!al str&tre
0ro# En)!ron#ental Analys!s
to In"stry Analys!s
0ro# En)!ron#ental Analys!s
to In"stry Analys!s
!The %ndustry 'nvironment lies at the core of the Macro 'nvironment.
!The Macro 'nvironment impacts the firm through its effect on the %ndustry
'nvironment.
Dra*!ng In"stry Bon"ar!es :
I"ent!fy!ng t$e Rele)ant Mar7et
Dra*!ng In"stry Bon"ar!es :
I"ent!fy!ng t$e Rele)ant Mar7et
! D$at !n"stry !s BMD !n:
& Dorl" Ato !n"stry
& Ero2ean Ato !n"stry
& Dorl" l<ry &ar !n"stryC
! Fey &r!ter!on: "2="T%T2T!=%-%T+
& (n t$e "e#an" s!"e : are +yers *!ll!ng to s+st!tte +et*een
ty2es of &ars an" a&ross &ontr!es
& (n t$e s22ly s!"e : are #anfa&trers a+le to s*!t&$
2ro"&t!on +et*een ty2es of &ars an" a&ross &ontr!es
! De #ay nee" to analy=e !n"stry at "!fferent le)els of
aggregat!on for "!fferent ty2es of "e&!s!on
T$e S2e&tr# of In"stry Str&tres
T$e S2e&tr# of In"stry Str&tres
Concentration
Entry and E!it
"arriers
Product
#ifferentiation
$nformation
#erfect
,ompetition
/ligopoly )uopoly Monopoly
.any firms
' few firms Two firms 7ne firm
)oI0ow barriers +ignificant barriers Jigh barriers
Jomogeneous
@roduct
@otential for product differentiation
@erfect
(nformation flow
(mperfect availability of information
Porter.s 0!)e 0or&es of Co#2et!t!on 0ra#e*or7
Porter.s 0!)e 0or&es of Co#2et!t!on 0ra#e*or7
S9PP5IERS
P(TENTIA5
ENTRANTS
S9BSTIT9TES
B91ERS
IND9STR1
C(MPETIT(RS
R!)alry a#ong
e<!st!ng f!r#s
Barga!n!ng 2o*er of s22l!ers
Barga!n!ng 2o*er of +yers
T$reat of
ne*
entrants
T$reat of
s+st!ttes
THREAT (0 ENTR1
!Ca2!tal reB!re#ents
!E&ono#!es of s&ale
!A+solte &ost a")antage
!Pro"&t "!fferent!at!on
!A&&ess to "!str!+t!on
&$annels
!5egal8 reglatory +arr!ers
!Retal!at!on
S9BSTIT9TE
C(MPETITI(N
! Byers. 2ro2ens!ty
to s+st!tte
! Relat!)e 2r!&es 6
2erfor#an&e of
s+st!ttes
B91ER P(DER
!
Byers. 2r!&e sens!t!)!ty
! Relat!)e +arga!n!ng
2o*er
IND9STR1 RIVA5R1
!Con&entrat!on
!D!)ers!ty of
&o#2et!tors
!Pro"&t "!fferent!at!on
!E<&ess &a2a&!ty 6
e<!t +arr!ers
!Cost &on"!t!ons
S9PP5IER P(DER
!
S22l!er &on&entrat!on
! Relat!)e +arga!n!ng
2o*er
T$e Str&tral Deter#!nants of Co#2et!t!on
T$e Str&tral Deter#!nants of Co#2et!t!on
S9PP5IER P(DER
-/>
THREAT (0 ENTR1
-/>
!economies of scale
!capital requirements
for FC* and clinical
trials
!product differentiation
!control of distribution
channels
!patent protection
IND9STR1
C(MPETITIVENESS
-/>
!high concentration
!product differentiation
!patent protection
!steady demand growth
!no cyclical fluctuations
of demand
THREAT (0
S9BSTIT9TES
-/>
)o substitutes.
3#hanging as managed care
encourages generics.5
B91ER P(DER
-/>
@hysician as buyerH
)ot price sensitive
)o bargaining power.
3#hanging with managed care.5
*FD,
()*D+TF?
3F7-P2225
A22ly!ng 0!)e30or&es Analys!s
A22ly!ng 0!)e30or&es Analys!s
Forecasting %ndustry #rofita$ility
!
Past 2rof!ta+!l!ty a 2oor !n"!&ator of ftre
2rof!ta+!l!ty'
!
If *e &an fore&ast changes in industry
structure *e &an 2re"!&t l!7ely !#2a&t on
competition an" profita$ility'
"trategies to %mprove %ndustry #rofita$ility
! D$at str&tral )ar!a+les are "e2ress!ng 2rof!ta+!l!ty
! D$!&$ of t$ese )ar!a+les &an +e &$ange" +y
!n"!)!"al or &olle&t!)e strateg!esC
Netral!=!ng T$e 0!)e
Co#2et!t!)e 0or&es
Netral!=!ng T$e 0!)e
Co#2et!t!)e 0or&es
0or&e
Entry
R!)alry
S+st!ttes
Byers
S22l!ers
Met$o" for Netral!=!ng 0or&e
'recting $arriers 6isolating
mechanisms8 create C exploit economies of
scale, aggressive deterrence, design in switching
costs, etc.
,ompete on nonprice dimensions:
cost leadership, differentiation, cooperation, etc.
%mprove attractiveness compared to
substitutesH better service, more features, etc..
Reduce $uyer uni5ueness: forward
integrate, differentiate product, new customers, etc..
Reduce supplier uni5ueness: backward
integrate, obtain minority position, second source, etc..
T$e Tra"!t!onal Mo"el of In"stry 5!fe Cy&le
T$e Tra"!t!onal Mo"el of In"stry 5!fe Cy&le
Time
+
a
l
e
s
v
o
l
u
m
e
%ermentation +hakeout .aturity *ecline
Ho* Ty2!&al !s t$e 5!fe Cy&le PatternC
Ho* Ty2!&al !s t$e 5!fe Cy&le PatternC
! Te&$nology3!ntens!)e !n"str!es -e'g' 2$ar#a&et!&als4
se#!&on"&tors4 &o#2ters/ #ay reta!n featres of
e#erg!ng !n"str!es'
! (t$er !n"str!es -es2e&!ally t$ose 2ro)!"!ng +as!&
ne&ess!t!es4 e'g' foo" 2ro&ess!ng4 &onstr&t!on4 a22arel/
rea&$ #atr!ty4 +t not "e&l!ne'
! In"str!es #ay e<2er!en&e l!fe &y&le regenerat!on'
Sales Sales
?900 M0 90 0I ?9A0 M0 I0 90 0I
M(T(RC1C5ES TV.s
! 5!fe &y&le #o"el &an $el2 s to ant!&!2ate !n"stry
e)olt!on;+t "angeros to ass#e any &o##on4 2re3
"eter#!ne" 2attern of !n"stry "e)elo2#ent
Color
B6D
Porta+le
HDTV C
E)olt!on of In"stry Str&tre o)er t$e 5!fe Cy&le
E)olt!on of In"stry Str&tre o)er t$e 5!fe Cy&le
%*TR/)2,T%/* &R/>TH M!T2R%T+ )',-%*'
)'M!*) Afflent +yers In&reas!ng Mass #ar7et Fno*le"gea+le4
2enetrat!on re2la&e#ent &sto#ers4 res!3
"e#an" "al seg#ents
T',H*/-/&+ Ra2!" 2ro"&t Pro"&t an" In&re#ental Dell3"!ffse"
!nno)at!on 2ro&ess !nno)at!on !nno)at!on te&$nology
#R/)2,T" D!"e )ar!ety4 Stan"ar"!=at!on Co##o"!t!=3 Cont!ne"
ra2!" "es!gn &$ange at!on &o##o"!t!=at!on
M!*2F!,T; S$ort3rns4 s7!ll Ca2a&!ty s$ortage4 Des7!ll!ng ()er&a2a&!ty
2R%*& !ntens!)e #ass32ro"&t!on
TR!)' 33333Pro"&t!on s$!fts fro# a")an&e" to "e)elo2!ng &ontr!es33333
,/M#'T%T%/* Te&$nology3 Entry 6 e<!t S$a7eot 6 Pr!&e *ars4
&onsol!"at!on e<!t
4"Fs Pro"&t !nno)at!on Pro&ess te&$no3 Cost eff!&!en&y ()er$ea" re"3
logy' Des!gn for &t!on4 rat!on3
al!=at!on4 lo*
&ost sor&!ng
T$e Dr!)!ng 0or&es of In"stry E)olt!on
T$e Dr!)!ng 0or&es of In"stry E)olt!on
Csto#ers +e&o#e
#ore 7no*le"gea+le
6 e<2er!en&e"
D!ffs!on of
te&$nology
De#an" gro*t$
slo*s as #ar7et
satrat!on a22roa&$es
Csto#ers +e&o#e
#ore 2r!&e &ons&!os
Pro"&ts +e&o#e
#ore stan"ar"!=e"
D!str!+t!on &$annels
&onsol!"ate
Pro"&t!on s$!fts
to lo*3*age
&ontr!es
Pr!&e &o#2et!t!on
!ntens!f!es
Barga!n!ng 2o*er
of "!str!+tors
!n&reases
BASIC C(NDITI(NS IND9STR1 STR9CT9RE C(MPETITI(N
E<&ess &a2a&!ty
!n&reases
Pro"&t!on
+e&o#es less
R6D
6 s7!ll3!ntens!)e
:est for ne*
sor&es of
"!fferent!at!on
C$anges !n t$e Po2lat!on of 0!r#s o)er t$e
In"stry 5!fe Cy&le: 9S Ato In"stry ?LLM3?9J?
C$anges !n t$e Po2lat!on of 0!r#s o)er t$e
In"stry 5!fe Cy&le: 9S Ato In"stry ?LLM3?9J?
Sor&e: S' Fle22er4 %ndustrial ? ,orporate ,hange9 Agst 20024 2' JMK'
Pre2ar!ng for t$e 0tre : T$e Role of S&enar!o
Analys!s !n A"a2t!ng to In"stry C$ange
Pre2ar!ng for t$e 0tre : T$e Role of S&enar!o
Analys!s !n A"a2t!ng to In"stry C$ange
Stages !n n"erta7!ng #lt!2le S&enar!o Analys!s:
! I"ent!fy #a,or for&es "r!)!ng !n"stry &$ange
! Pre"!&t 2oss!+le !#2a&ts of ea&$ for&e on t$e !n"stry
en)!ron#ent
! I"ent!fy !ntera&t!ons +et*een "!fferent e<ternal for&es
! A#ong range of ot&o#es4 !"ent!fy 23K #ost l!7ely8 #ost
!nterest!ng s&enar!os: &onf!grat!ons of &$anges an"
ot&o#es
! Cons!"er !#2l!&at!ons of ea&$ s&enar!o for t$e &o#2any
! I"ent!fy 7ey s!gn2osts 2o!nt!ng to*ar" t$e e#ergen&e of
ea&$ s&enar!o
! Pre2are &ont!ngen&y 2lan
?LL0s ?920s ?9J0s 2000
Ma!l or"er4
&ataloge
reta!l!ng
e.g. +ears
Foebuck
C$a!n
Stores
e.g. 'C@
D!s&ont
Stores
e.g. =-.art
Nal-.art
OCategory
F!llersP
e.g. Toys-F-Ds,
Jome *epot
Internet
Reta!lers
e.g. 'ma"onE
-xpedia
Dare$ose
Cl+s
e.g. @rice #lub
+amMs #lub
Inno)at!on 6 Rene*al o)er t$e
In"stry 5!fe Cy&le: Reta!l!ng
Inno)at!on 6 Rene*al o)er t$e
In"stry 5!fe Cy&le: Reta!l!ng
C
Gary Ha#el: S$a7!ng t$e 0on"at!ons
(5D BRICF NED BRICF
To2 #anage#ent !s res2ons!+le
for sett!ng strategy
E)eryone !s res2ons!+le
for sett!ng strategy
Gett!ng +etter4 gett!ng faster
!s t$e *ay to *!n
Rle3+st!ng !nno)at!on
!s t$e *ay to *!n
IT &reates &o#2et!t!)e a")antage
9n&on)ent!onal +s!ness &on&e2ts
&reate &o#2et!t!)e a")antage
Be!ng re)olt!onary !s $!g$ r!s7 More of t$e sa#e !s $!g$ r!s7
De &an #erge or *ay to
&o#2et!t!)eness
T$ere.s no &orrelat!on +et*een
s!=e an" &o#2et!t!)eness
Inno)at!on eBals ne* 2ro"&ts
an" ne* te&$nology
Inno)at!on eBals ent!rely ne*
+s!ness &on&e2ts
Strategy !s t$e easy 2art4
I#2le#entat!on t$e $ar" 2art
Strategy !s t$e easy only !f yo.re
&ontent to +e an !#!tator
C$ange starts at t$e to2
C$ange starts *!t$ a&t!)!sts
(r real 2ro+le# !s e<e&t!on
(r real 2ro+le# !s !nno)at!on
B!g &o#2an!es &an.t !nno)ate
B!g &o#2an!es &an +e&o#e gray3$a!re"
re)olt!onar!es
An Alternate Mo"el of In"stry 5!fe Cy&le
An Alternate Mo"el of In"stry 5!fe Cy&le
Time
+
a
l
e
s
v
o
l
u
m
e
-mergence #onvergence #oexistence *ominance
-stablished
(ndustry
-merging (ndustry
T$e In"stry 5!fe Cy&le as an S &r)e
T$e In"stry 5!fe Cy&le as an S &r)e
@erformance
Time
%erment
Takeoff
.aturity
*iscontinuity
T$e S3&r)e Ma2s Ma,or Trans!t!ons
T$e S3&r)e Ma2s Ma,or Trans!t!ons
@erformance
Time
%erment
Takeoff
.aturity
*iscontinuity
RES(9RCES4
CAPABI5ITIES4 AND
C(RE C(MPETENCES
RES(9RCES4
CAPABI5ITIES4 AND
C(RE C(MPETENCES
THE 0IRM
Goals an"
Vales
Resor&es an"
Ca2a+!l!t!es
Str&tre an"
Syste#s
THE
IND9STR1
ENVIR(NMENT
!Co#2et!tors
!Csto#ers
!S22l!ers
STRATEG1
STRATEG1
The
Firm;"trategy
%nterface
The
'nvironment;"trategy
%nterface
S$!ft!ng t$e 0o&s of Strategy Analys!s:
0ro# t$e E<ternal to t$e Internal En)!ron#ent
S$!ft!ng t$e 0o&s of Strategy Analys!s:
0ro# t$e E<ternal to t$e Internal En)!ron#ent
Rat!onale for t$e Resor&e3+ase"
A22roa&$ to Strategy
Rat!onale for t$e Resor&e3+ase"
A22roa&$ to Strategy
!
D$en t$e e<ternal en)!ron#ent !s s+,e&t to
ra2!" &$ange4 !nternal resor&es an" &a2a+!l!t!es
offer a #ore se&re +as!s for strategy t$an
#ar7et fo&s'
!
Resor&es an" &a2a+!l!t!es are t$e 2r!#ary
sor&es of 2rof!ta+!l!ty'
#recision
Mechanics
Fine
/ptics
Micro;
'lectronics
AM## S5R &a#era
Co#2a&t fas$!on &a#era
E(S atofo&s &a#era
D!g!tal &a#era
V!"eo st!ll &a#era
Pla!n32a2er &o2!er
Color &o2!er
Color laser &o2!er
5aser &o2!er
Bas!& fa<
5aser fa<
Mas7 al!gners
E<&!#er laser al!gners
Ste22er al!gners
In7,et 2r!nter
5aser 2r!nter
Color )!"eo 2r!nter
Cal&lator
Note+oo7 &o#2ter
Canon: Pro"&ts an" Core Te&$n!&al Ca2a+!l!t!es
Canon: Pro"&ts an" Core Te&$n!&al Ca2a+!l!t!es
East#an Fo"a7.s D!le##a
?9L0.s
?990.s
Resor&es 6 Ca2a+!l!t!es Bs!nesses
C$e#!&al I#ag!ng
!(rgan!& C$e#!stry
!Poly#er te&$nology
!(2to#e&$tron!&s
!T$!n3f!l# &oat!ngs
Bran"s
Glo+al D!str!+t!on
0!l#
Ca#eras
DIVESTS: East#an C$e#!&al4 Sterl!ng D!nt$ro24 D!agnost!&s
Nee" to +!l" "!g!tal
!#ag!ng &a2a+!l!ty
D!g!tal I#ag!ng
Pro"&ts -e'g' P$oto CD
Syste#Q A")ant!<
&a#eras 6 f!l#
0!ne C$e#!&als
P$ar#a&et!&als
D!agnost!&s
STRATEG1
IND9STR1 FE1
S9CCESS 0ACT(RS
C(MPETITIVE
ADVANTAGE
(RGANINATI(NA5
CAPABI5ITIES
RES(9RCES
TANGIB5E INTANGIB5E H9MAN
!0!nan&!al
!P$ys!&al
!Te&$nology
!Re2tat!on
!Cltre
!S7!lls87no*3$o*
!Ca2a&!ty for
&o##n!&at!on
6 &olla+orat!on
!Mot!)at!on
T$e 5!n7s +et*een Resor&es4 Ca2a+!l!t!es
an" Co#2et!t!)e A")antage
T$e 5!n7s +et*een Resor&es4 Ca2a+!l!t!es
an" Co#2et!t!)e A")antage
A22ra!s!ng Resor&es
A22ra!s!ng Resor&es
RES(9RCE CHARACTERISTICS INDICAT(RS
0!nan&!al Borro*!ng &a2a&!ty De+t8 EB!ty rat!o
Internal fn"s generat!on Cre"!t rat!ng
Tang!+le Net &as$ flo*
Resor&es P$ys!&al Plant an" eB!2#ent: Mar7et )ale of
s!=e4 lo&at!on4 te&$nology f!<e" assets'
fle<!+!l!ty' S&ale of 2lants
5an" an" +!l"!ngs' Alternat!)e ses for
Ra* #ater!als' f!<e" assets
Te&$nology Patents4 &o2yr!g$ts4 7no* $o* No' of 2atents o*ne"
R6D fa&!l!t!es' Royalty !n&o#e
Intang!+le Te&$n!&al an" s&!ent!f!& R6D e<2en"!tre
Resor&es e#2loyees R6D staff
Re2tat!on Bran"s' Csto#er loyalty' Co#2any Bran" eB!ty
re2tat!on -*!t$ s22l!ers4 &sto#ers4 Csto#er retent!on
go)ern#ent/ S22l!er loyalty
H#an Tra!n!ng4 e<2er!en&e4 a"a2ta+!l!ty4 E#2loyee Bal!f!&at!ons4
Resor&es &o##!t#ent an" loyalty of e#2loyees 2ay rates4 trno)er'
T$e Dorl".s Most Vala+le Bran"s4 200J
T$e Dorl".s Most Vala+le Bran"s4 200J
Rank ,ompany =rand Rank ,ompany =rand
value value
6@$n.8 6@$n.8
? Co&a3Cola JI'M ?? Mer&e"es Ben= 20'0
2 M!&rosoft M9'9 ?2 C!t! 20'0
A IBMMA'K ?A He*lett3Pa&7ar" ?L'9
K GE KI'0 ?K A#er!&an E<2ress ?L'J
M Intel AM'J ?M G!llette ?I'M
J No7!a 2J'M ?J BMD ?I'?
I D!sney 2J'K ?I C!s&o ?J'J
L M&Donal".s 2J'0 ?L 5o!s V!tton ?J'?
9 Toyota 2K'L ?9 Hon"a ?M'L
?0 Marl+oro 2?'2 20 Sa#sng ?M'0
$tt2:88***'!nter+ran"'&o#8+estR+ran"sR200I'as2 "ource: Inter+ran"
/rganizational ,apa$ilities P firmMs capacity for
undertaking a particular activity. 3,rant5
)istinctive ,ompetence P things that an organi"ation
does particularly well relative to competitors. 3+el"nick5
,ore ,ompetence P capabilities that are fundamental to a
firmMs strategy and performance. 3Jamel and @rahalad5
Def!n!ng (rgan!=at!onal Ca2a+!l!t!es
Def!n!ng (rgan!=at!onal Ca2a+!l!t!es
I"ent!fy!ng (rgan!=at!onal Ca2a+!l!t!es:
A 0n&t!onal Class!f!&at!on
I"ent!fy!ng (rgan!=at!onal Ca2a+!l!t!es:
A 0n&t!onal Class!f!&at!on
09NCTI(N CAPABI5IT1 ESEMP5ARS
Cor2orate 0!nan&!al #anage#ent E<<onMo+!l4 GE
Manage#ent Strateg!& &ontrol IBM4 Sa#sng
Coor"!nat!ng +s!ness n!ts BP4 P6G
Manag!ng a&B!s!t!ons C!t!gro24 C!s&o
MIS S2ee" an" res2ons!)eness t$rog$ Dal3Mart4 Dell
ra2!" !nfor#at!on transfer Ca2!tal (ne
R6D Resear&$ &a2a+!l!ty Mer&74 IBM
De)elo2#ent of !nno)at!)e ne* 2ro"&ts A22le4 AM
Manfa&tr!ng Eff!&!ent )ol#e #anfa&tr!ng Br!ggs 6 Stratton
Cont!nos I#2ro)e#ent N&or4 Harley3D
0le<!+!l!ty Nara4 0or Seasons
Des!gn Des!gn Ca2a+!l!ty A22le4 No7!a
Mar7et!ng Bran" Manage#ent P6G4 5VMH
:al!ty re2tat!on To$nson 6 To$nson
Res2ons!)eness to #ar7et tren"s MTV4 5.(real
Sales4 D!str!+t!on Sales Res2ons!)eness Pe2s!Co4 Pf!=er
6 Ser)!&e Eff!&!en&y an" s2ee" of "!str!+t!on 55 Bean4 Dell
Csto#er Ser)!&e S!nga2ore A!rl!nes
Cater2!llar
T$e Vale C$a!n:
T$e M&F!nsey Bs!ness Syste#
T$e Vale C$a!n:
T$e M&F!nsey Bs!ness Syste#
TECHN(5(G1 PR(D9CT DESIGN MAN90ACT9RING MARFETING DISTRIB9TI(N SERVICE
T$e Porter Vale C$a!n
T$e Porter Vale C$a!n
0IRM IN0RASTR9CT9RE
H9MAN RES(9RCE MANAGEMENT
TECHN(5(G1 DEVE5(PMENT
PR(C9REMENT
INB(9ND (PERATI(NS (9TB(9ND MARFETING SERVICE
5(GISTICS 5(GISTICS 6 SA5ES
PRIMAR1
ACTIVITIES
S9PP(RT
ACTIVITIES
S&ar&!ty
Rele)an&e
Dra+!l!ty
Transfera+!l!ty
Re2l!&a+!l!ty
Pro2erty r!g$ts
Relat!)e
+arga!n!ng 2o*er
E#+e""e"ness
THE ESTENT (0 THE
C(MPETITIVE ADVANTAGE
ESTAB5ISHED
S9STAINABI5IT1 (0 THE
C(MPETITIVE
ADVANTAGE
APPR(PRIABI5IT1
THE PR(0IT
EARNING P(TENTIA5
(0 A RES(9RCE (R
CAPABI5IT1
T$e Rent3Earn!ng Potent!al
of Resor&es an" Ca2a+!l!t!es
T$e Rent3Earn!ng Potent!al
of Resor&es an" Ca2a+!l!t!es
%mportance
>As
Relative
"trength
C?' Pro"&t
"e)elo2#ent
9 K
C2' Pr&$as!ng I M
CA' Eng!neer!ng I 9
CK' Manfa&tr!ng L I
CM' 0!nan&!al
#anage#ent
J A
CJ' R6D J K
CI' Mar7et!ng 6
sales
9 K
CL' Go)ern#ent
relat!ons
K L
%mportan
ce
>As
Relative
"trength
R?' 0!nan&e J K
R2' Te&$nology I M
RA' Plant an"
eB!2#ent
L L
RK' 5o&at!on I K
RM' D!str!+t!on L M
RES(9RCES CAPABI5ITIES
Assess!ng a Co#2an!es Resor&es
an" Ca2a+!l!t!es: T$e Case of VD
Assess!ng a Co#2an!es Resor&es
an" Ca2a+!l!t!es: T$e Case of VD
R
e
l
a
t
!
)
e
S
t
r
e
n
g
t
$
Strateg!& I#2ortan&e
"uperfluous "trengths
4ey "trengths
Bone of %rrelevance 4ey >eaknesses
1
1
5 10
5
10
R?
R2
RA
RK
RM
C?
C2
CA
CK
CM
CJ CI
CL
A22ra!s!ng VD.s Resor&es an" Ca2a+!l!t!es
A22ra!s!ng VD.s Resor&es an" Ca2a+!l!t!es
-Hy2ot$et!&al only/
A22roa&$es to Ca2a+!l!ty De)elo2#ent
A22roa&$es to Ca2a+!l!ty De)elo2#ent
?/ A&B!re an" "e)elo2 t$e n"erly!ng resor&es' Es2e&!ally
$#an resor&es
33E<ternally -$!r!ng/
33Internally t$rog$ "e)elo2!ng !n"!)!"al s7!lls
2/ A&B!re8a&&ess &a2a+!l!t!es e<ternally t$rog$ a&B!s!t!on or
all!an&e
A/ Greenf!el" "e)elo2#ent of &a2a+!l!t!es !n se2arate
organ!=at!onal n!t -IBM 6 t$e PC4 Sero< 6 PARC4 GM 6 Satrn/
K/ B!l" tea#3+ase" &a2a+!l!t!es t$rog$ tra!n!ng an" tea#
"e)elo2#ent -!'e' "e)elo2 organizational routines/
M/ Al!gn str&tre 6 syste#s *!t$ reB!re" &a2a+!l!t!es
J/ C$ange #anage#ent to transfor# )ales an" +e$a)!ors -GE4
BP/
I/ Pro"&t seBen&!ng -Intel 4 Sony4 Hyn"a!/
L/ Fno*le"ge Manage#ent -syste#at!& a22roa&$es to a&B!r!ng4
stor!ng4 re2l!&at!ng4 an" a&&ess!ng 7no*le"ge/
?/ A&B!re an" "e)elo2 t$e n"erly!ng resor&es' Es2e&!ally
$#an resor&es
33E<ternally -$!r!ng/
33Internally t$rog$ "e)elo2!ng !n"!)!"al s7!lls
2/ A&B!re8a&&ess &a2a+!l!t!es e<ternally t$rog$ a&B!s!t!on or
all!an&e
A/ Greenf!el" "e)elo2#ent of &a2a+!l!t!es !n se2arate
organ!=at!onal n!t -IBM 6 t$e PC4 Sero< 6 PARC4 GM 6 Satrn/
K/ B!l" tea#3+ase" &a2a+!l!t!es t$rog$ tra!n!ng an" tea#
"e)elo2#ent -!'e' "e)elo2 organizational routines/
M/ Al!gn str&tre 6 syste#s *!t$ reB!re" &a2a+!l!t!es
J/ C$ange #anage#ent to transfor# )ales an" +e$a)!ors -GE4
BP/
I/ Pro"&t seBen&!ng -Intel 4 Sony4 Hyn"a!/
L/ Fno*le"ge Manage#ent -syste#at!& a22roa&$es to a&B!r!ng4
stor!ng4 re2l!&at!ng4 an" a&&ess!ng 7no*le"ge/
C(MPETITIVE
ADVANTAGE AND THE
SC(PE (0 THE 0IRM
C(MPETITIVE
ADVANTAGE AND THE
SC(PE (0 THE 0IRM
0ro# Bs!ness Strategy to Cor2orate
Strategy: T$e S&o2e of t$e 0!r#
0ro# Bs!ness Strategy to Cor2orate
Strategy: T$e S&o2e of t$e 0!r#
!
=usiness "trategy !s &on&erne" *!t$ how a f!r#
&o#2tes *!t$!n a 2art!&lar #ar7et
!
,orporate "trategy !s &on&erne" *!t$ where a
f!r# &o#2etes4 !'e' t$e scope of !ts a&t!)!t!es
!
T$e "!#ens!ons of s&o2e are
!
2ro"&t s&o2e
!
)ert!&al s&o2e
!
geogra2$!&al s&o2e
P
?
P
2
P
A
C
?
C
2
C
A
ertical#roduct &eographical
"cope "cope "cope
V
?
V
2
V
A
P
A
P
2
P
?
C
A
C
2
C
?
V
?
V
2
V
A
C!D "ingle
%ntegrated
Firm
C=D "everal
"pecialized
Firms linked
$y Markets
In s!tat!on UAV t$e +s!ness n!ts are !ntegrate" *!t$!n a s!ngle f!r#'
In s!tat!on UBV t$e +s!ness n!ts are !n"e2en"ent f!r#s l!n7e" +y #ar7ets'
Are t$e a"#!n!strat!)e &osts of t$e !ntegrate" f!r# less t$an t$e transa&t!on
&osts of #ar7etsC
Transactions Costs and the
Scope of the Firm
Transactions Costs and the
Scope of the Firm
Deter#!nants of C$anges !n Cor2orate S&o2e
Deter#!nants of C$anges !n Cor2orate S&o2e
?L00 W ?9L0 E<2an"!ng s&ale an" s&o2e of !n"str!al &or2orat!ons "e to
"e&l!n!ng a"#!n!strat!)e &osts of f!r#s:
! A")an&es !n trans2ortat!on4 !nfor#at!on an" &o##n!&at!on
te&$nolog!es
! A")an&es !n #anage#ent;a&&ont!ng syste#s4 "e&!s!on s&!en&es4
f!nan&!al te&$n!Bes4 organ!=at!onal !nno)at!ons4 s&!ent!f!& #anage#ent
?9L0 W ?99M S$r!n7!ng s!=e an" s&o2e of +!ggest !n"str!al &or2orat!ons'
In&reas!ngly In&rease" no' of #anager!al A"#!n' &osts of
tr+lent "e&!s!ons' Nee" for fast f!r#s r!se relat!)e
e<ternal res2onses to e<ternal to transa&t!on
en)!ron#ent &$ange &osts of #ar7ets
?99M W 200I Ra2!" !n&rease !n glo+al &on&entrat!on -steel4 al#!n!#4
o!l4 +eer4 +an7!ng4 &e#ent/'
Fey "r!)ers: Best for #ar7et 2o*er an" s&ale e&ono#!es'
Also4 large &or2orat!ons +etter at re&on&!l!ng s!=e *!t$ ag!l!ty
RATE (0 PR(0IT
@ C(ST (0 CAPITA5
IND9STR1
ATTRACTIVENESS
C(MPETITIVE
ADVANTAGE
T$e Bas!& Isses !n D!)ers!f!&at!on De&!s!ons
T$e Bas!& Isses !n D!)ers!f!&at!on De&!s!ons
S2er!or 2rof!t "er!)es fro# t*o sor&es:
D!)ers!f!&at!on "e&!s!ons !n)ol)e t$ese sa#e t*o !sses:
! Ho* attra&t!)e !s t$e se&tor to +e entere"C
!Can t$e f!r# a&$!e)e a &o#2et!t!)e a")antageC
D!)ers!f!&at!on a#ong t$e 9S 0ortne M004 ?9K93IK
D!)ers!f!&at!on a#ong t$e 9S 0ortne M004 ?9K93IK
Per&entage of S2e&!al!=e" Co#2an!es -s!ngle3+s!ness4
)ert!&ally3!ntegrate" an" "o#!nant3+s!ness/
Per&entage of D!)ers!f!e" Co#2an!es -relate"3+s!ness
an" nrelate" +s!ness/
*ote: )uring theE<s and :<s the trend reversed as large
companies refocused upon their core $usinesses
?9K9 ?9MK ?9M9 ?9JK ?9J9 ?9IK
I0'2 JA'M MA'I MA'9 A9'9 AI'0
29'L AJ'M KJ'A KJ'? J0'? JA'0
0
10
20
30
40
50
60
70
1950 1960 1970 1983 1993
Singe !"siness
#ominant
!"siness
$eated !"siness
%nreated
!"siness
D!)ers!f!&at!on a#ong 5arge 9F
Cor2orat!ons4 ?9M039A
D!)ers!f!&at!on a#ong 5arge 9F
Cor2orat!ons4 ?9M039A
Mot!)es for D!)ers!f!&at!on
Mot!)es for D!)ers!f!&at!on
GR(DTH 33T$e "es!re to es&a2e stagnant or "e&l!n!ng !n"str!es
!s a 2o*erfl #ot!)e for "!)ers!f!&at!on -e'g' to+a&&o4
o!l4 ne*s2a2ers/'
33=ut4 gro*t$ sat!sf!es managers not shareholders'
33Gro*t$ strateg!es -es2' +y a&B!s!t!on/4 ten" to
"estroy s$are$ol"er )ale
RISF 33D!)ers!f!&at!on re"&es )ar!an&e of 2rof!t flo*s
SPREADING 33=ut4 "oesn.t &reate )ale for s$are$ol"ers;t$ey &an
$ol" "!)ers!f!e" 2ortfol!os of se&r!t!es'
33Ca2!tal Asset Pr!&!ng Mo"el s$o*s t$at "!)ers!f!&at!on
lo*ers unsystematic risk not systematic risk'
PR(0IT 330or "!)ers!f!&at!on to &reate s$are$ol"er )ale4 t$en
+r!ng!ng toget$er of "!fferent +s!nesses n"er
&o##on o*ners$!2 6 #st so#e$o* !n&rease
t$e!r 2rof!ta+!l!ty'
D!)ers!f!&at!on an" S$are$ol"er Vale:
Porter.s T$ree Essent!al Tests
D!)ers!f!&at!on an" S$are$ol"er Vale:
Porter.s T$ree Essent!al Tests
If "!)ers!f!&at!on !s to &reate s$are$ol"er )ale4 !t #st #eet
t$ree tests:
?' The !ttractiveness Test: "!)ers!f!&at!on #st +e "!re&te"
to*ar"s attra&t!)e !n"str!es -or $a)e t$e 2otent!al to
+e&o#e attra&t!)e/'
2' The ,ost of 'ntry Test: t$e &ost of entry #st not &a2!tal!=e
all ftre 2rof!ts'
A' The =etter;/ff Test: e!t$er t$e ne* n!t #st ga!n
&o#2et!t!)e a")antage fro# !ts l!n7 *!t$ t$e &o#2any4 or
)!&e3)ersa' -!'e' so#e for# of OsynergyF #st +e 2resent/
A""!t!onal sor&e of )ale fro# "!)ers!f!&at!on: (2t!on )ale
Co#2et!t!)e A")antage fro# D!)ers!f!&at!on
Co#2et!t!)e A")antage fro# D!)ers!f!&at!on
! S$ar!ng tang!+le resor&es -resear&$ la+s4 "!str!+t!on
syste#s/ a&ross #lt!2le +s!nesses
! S$ar!ng !ntang!+le resor&es -+ran"s4 te&$nology/ a&ross
#lt!2le +s!nesses
! Transferr!ng fn&t!onal &a2a+!l!t!es -#ar7et!ng4 2ro"&t
"e)elo2#ent/ a&ross +s!nesses
! A22ly!ng general #anage#ent &a2a+!l!t!es to #lt!2le
+s!nesses
! E&ono#!es of s&o2e not a sff!&!ent +as!s for
"!)ers!f!&at!on 3333#st +e s22orte" +y transa&t!on &osts
! D!)ers!f!&at!on f!r# &an a)o!" transa&t!on &osts +y
o2erat!ng !nternal &a2!tal an" la+or #ar7ets
! Fey a")antage of "!)ers!f!e" f!r# o)er e<ternal #ar7ets333
s2er!or a&&ess to !nfor#at!on
EC(N(MIES
(0
SC(PE
EC(N(MIES
0R(M
INTERNA5INING
TRANSACTI(NS
Relate"ness !n D!)ers!f!&at!on
Relate"ness !n D!)ers!f!&at!on
E&ono#!es of s&o2e !n "!)ers!f!&at!on "er!)e fro# t*o
ty2es of relate"ness:
! /perational Relatedness33 synerg!es fro# s$ar!ng
resor&es a&ross +s!nesses -&o##on "!str!+t!on
fa&!l!t!es4 +ran"s4 ,o!nt R6D/
! "trategic Relatedness33 synerg!es at t$e &or2orate le)el
"er!)!ng fro# t$e a+!l!ty to a22ly &o##on #anage#ent
&a2a+!l!t!es to "!fferent +s!nesses'
#ro$lem of operational relatedness:3 t$e +enef!ts !n ter#s
of e&ono#!es of s&o2e #ay +e "*arfe" +y t$e
a"#!n!strat!)e &osts !n)ol)e" !n t$e!r e<2lo!tat!on'
Transa&t!ons Costs an" T$e
E<!sten&e of t$e 0!r#
Transa&t!ons Costs an" T$e
E<!sten&e of t$e 0!r#
! Transa&t!on &ost t$eory e<2la!ns not ,st t$e $oundaries
of firms4 also t$e existence of firms'
! In ?Lt$ &entry Engl!s$ *oollen !n"stry4 no f!r#s W
!n"e2en"ent s2!nners an" *ea)ers l!n7e" +y #er&$ants'
! Res!"ent!al re#o"el!ng !n"stry 33 #a!nly !n"e2en"ent self3
e#2loye" +!l"ers4 2l#+ers4 ele&tr!&!ans4 2a!nters'
! Fey !sse 33 transa&t!on &osts of t$e #ar7et )s'
a"#!n!strat!)e &osts of f!r#s'
! D$ere transa&t!on &osts $!g$;f!r# !s #ore eff!&!ent #eans
of organ!=at!on
*ote: transa&t!on &osts &o#2r!se &osts of sear&$ an" &ontra&t
negot!at!on an" enfor&e#ent
T$e Costs an" Benef!ts of Vert!&al
Integrat!on: BENE0ITS
T$e Costs an" Benef!ts of Vert!&al
Integrat!on: BENE0ITS
! Te&$n!&al e&ono#!es fro# !ntegrat!ng 2ro&esses e'g' !ron
an" steel 2ro"&t!on
;+t "oesn.t ne&essar!ly reB!re &o##on o*ners$!2
! S2er!or &oor"!nat!on
! A)o!"s transa&t!ons &osts of #ar7et &ontra&ts !n s!tat!ons
*$ere t$ere are:
33 s#all n#+ers of f!r#s
33 transa&t!on3s2e&!f!& !n)est#ents
33 o22ortn!s# an" strateg!& #!sre2resentat!on
33 ta<es an" reglat!ons on #ar7et transa&t!ons
T$e Costs an" Benef!ts of Vert!&al
Integrat!on: C(STS
T$e Costs an" Benef!ts of Vert!&al
Integrat!on: C(STS
! D!fferen&es !n o2t!#al s&ale of o2erat!on +et*een "!fferent
stages 2re)ents +alan&e" VI
! Strateg!& "!fferen&es +et*een "!fferent )ert!&al stages &reate
#anage#ent "!ff!<!es
! In$!+!ts "e)elo2#ent of an" e<2lo!tat!on of &ore
&o#2eten&!es
! 5!#!ts fle<!+!l!ty 33 !n res2on"!ng to "e#an" &y&les
33 !n res2on"!ng to &$anges !n te&$nology4
&sto#er 2referen&es4 et&'
-Bt4 VI #ay +e &on"&!)e to system;wide flexi$ility8
! Co#2on"!ng of r!s7
D$en !s Vert!&al Integrat!on More Attra&t!)e
t$an (tsor&!ngC
D$en !s Vert!&al Integrat!on More Attra&t!)e
t$an (tsor&!ngC
Ho* #any f!r#s are a)a!la+le T$e fe*er t$e &o#2an!es
to n"erta7e t$e a&t!)!t!esC t$e #ore attra&t!)e !s VI
Is transa&t!on3s2e&!f!& !n)est#ent If yes4 VI #ore attra&t!)e
nee"e"C
Does l!#!te" !nfor#at!on 2er#!t VI &an l!#!t o22ortn!s#
&$eat!ngC
Are ta<es or reglat!on !#2ose" VI &an a)o!" t$e#
on transa&t!onsC
Do t$e "!fferent stages $a)e s!#!lar Greater t$e s!#!lar!ty4 t$e
o2t!#al s&ales of o2erat!onC #ore attra&t!)e !s VI
Are t$e t*o stages strateg!&ally Greater t$e strateg!&
s!#!larC s!#!lar!ty 333t$e #ore attra&t!)e !s VI
Ho* great t$e nee" for entre2reners$!2 Greater t$e nee"4 t$e greater
6 &ont!nal 2gra"!ng of &a2a+!l!t!es t$e "!sa")antages of VI
Ho* n&erta!n !s #ar7et "e#an"C Greater t$e n2re"!&ta+!l!ty
3333t$e #ore &ostly !s VI
Are r!s7s &o#2on"e" +y VI !n&reases r!s7'
l!n7ages +et*een )ert!&al stages
Iron ore
#!n!ng
Steel
2ro"&t!on
Steel str!2
2ro"&t!on
Can
#a7!ng
T$e )ale &$a!n for steel &ans
MARFET
C(NTRACTS
VERTICA5
INTEGRATI(N
MARFET
C(NTRACTS
Cann!ng of
foo"4 "r!n74
o!l4 et&'
VERTICA5
INTEGRATI(N4
AND MARFET
C(NTRACTS
>hat factors explain why some stages are vertically integrated9
while others are linked $y market transactionsG
Des!gn!ng Vert!&al Relat!ons$!2s: 5ong3Ter#
Contra&ts an" :as!3Vert!&al Integrat!on
Des!gn!ng Vert!&al Relat!ons$!2s: 5ong3Ter#
Contra&ts an" :as!3Vert!&al Integrat!on
! Inter#e"!ate +et*een s2ot transa&t!ons an" )ert!&al
!ntegrat!on are se)eral ty2es of )ert!&al relat!ons$!2s
333s&$ relat!ons$!2s #ay &o#+!ne +enef!ts of +ot$ #ar7et
transa&t!ons an" !nternal!=at!on
! Fey !sses !n "es!gn!ng )ert!&al relat!ons$!2s
33 Ho* !s r!s7 allo&ate" +et*een t$e 2art!esC
33 Are t$e !n&ent!)es a22ro2r!ateC
Re&ent Tren"s !n Vert!&al Relat!ons$!2s
Re&ent Tren"s !n Vert!&al Relat!ons$!2s
! 0ro# competitive contracting to supplier partnerships9 e'g'
!n atos
! 0ro# )ert!&al !ntegrat!on to otsor&!ng -not ,st
&o#2onents4 also IT4 "!str!+t!on4 an" a"#!n!strat!)e
ser)!&es/'
! D!ffs!on of fran&$!s!ng
! Te&$nology 2artners$!2s -e'g' IBM3 A22leQ Canon3 HP/
! Inter3f!r# net*or7s
&eneral conclusion: +on"ar!es +et*een f!r#s an"
#ar7ets +e&o#!ng !n&reas!ngly +lrre"'
Patterns of Internat!onal!=at!on
Patterns of Internat!onal!=at!on
Tra"!ng Glo+al
In"str!es In"str!es
33aeros2a&e 33ato#o+!les
33#!l!tary $ar"*are 33o!l
33"!a#on" #!n!ng 33se#!&on"&tors
33agr!<re 33&ons#er ele&tron!&s
Do#est!& Mlt!"o#est!&
In"str!es In"str!es
33ra!lroa"s
33lan"r!es8"ry &lean!ng 33reta!l +an7!ng
33$a!r"ress!ng 33$otels
33#!l7 33&onslt!ng
I
n
t
e
r
n
a
t
!
o
n
a
l
T
r
a
"
e
0ore!gn D!re&t In)est#ent
5
(
D
5(D
H
I
G
H
HIGH
I#2l!&at!ons of Internat!onal!=at!on
for In"stry Analys!s
I#2l!&at!ons of Internat!onal!=at!on
for In"stry Analys!s
IND9STR1 STR9CT9RE
! 5o*er entry +arr!ers aron" nat!onal #ar7ets
! In&rease" !n"stry r!)alry 333 lo*er seller &on&entrat!on
333 greater "!)ers!ty of &o#2et!tors
! In&rease" +yer 2o*er: *!"er &$o!&e for "ealers 6 &ons#ers
C(MPETITI(N
! In&rease" !ntens!ty of &o#2et!t!on
PR(0ITABI5IT1
! (t$er t$!ngs re#a!n!ng eBal4 !nternat!onal!=at!on ten"s to
re"&e an !n"stry.s #arg!ns 6 rate of retrn on &a2!tal
C(MPETITIVE
ADVANTAGE
THE IND9STR1
ENVIR(NMENT
Fey S&&ess 0a&tors
0IRM RES(9RCES
6 CAPABI5ITIES
33 0!nan&!al resor&es
33 P$ys!&al resor&es
33 Te&$nology
33 Re2tat!on
33 0n&t!onal &a2a+!l!t!es
33 General #anage#ent
&a2a+!l!t!es
THE NATI(NA5 ENVIR(NMENT
33 Nat!onal resor&es an" &a2a+!l!t!es -ra* #ater!alsQ
nat!onal <reQ $#an resor&esQ trans2ortat!on4
&o##n!&at!on4 legal !nfrastr&tre
33 Do#est!& #ar7et &on"!t!ons
33 Go)ern#ent 2ol!&!es
33 E<&$ange rates
33 Relate" an" s22ort!ng !n"str!es
Co#2et!t!)e A")antage *!t$!n an Internat!onal
Conte<t: T$e Bas!& 0ra#e*or7
Co#2et!t!)e A")antage *!t$!n an Internat!onal
Conte<t: T$e Bas!& 0ra#e*or7
Nat!onal Inflen&es on
Co#2et!t!)eness: T$e T$eory of
Co#2arat!)e A")antage
Nat!onal Inflen&es on
Co#2et!t!)eness: T$e T$eory of
Co#2arat!)e A")antage
A &ontry $as a relat!)e eff!&!en&y a")antage !n t$ose 2ro"&ts
t$at #a7e !ntens!)e se of resor&es t$at are relat!)ely
a+n"ant *!t$!n t$e &ontry' E'g'
! P$!l!22!nes relat!)ely #ore eff!&!ent !n t$e 2ro"&t!on of
foot*ear4 a22arel4 an" asse#+le" ele&tron!& 2ro"&ts t$an !n
t$e 2ro"&t!on of &$e#!&als an" ato#o+!les'
! 9'S' !s relat!)ely #ore eff!&!ent !n t$e 2ro"&t!on of
se#!&on"&tors an" 2$ar#a&et!&als t$an s$oes or s$!rts.
>hen exchange rates are well;$ehaved9 comparative
advantage $ecomes competitive advantage.
Re)eale" Co#2arat!)e A")antage for
Certa!n Broa" Pro"&t Categor!es
Re)eale" Co#2arat!)e A")antage for
Certa!n Broa" Pro"&t Categor!es
9SA Cana"a D' Ger#any Italy Ta2an
0oo"4 "r!n7 6 to+a&&o 'A? '2L 3'AJ 3'29 3'LM
Ra* #ater!als 'KA 'M? 3'MM 3'A0 3'LL
(!l 6 ref!ne" 2ro"&ts 3'JK 'AK 3'I2 3'IK 3'99
C$e#!&als 'K2 3'?J '20 3'0J 3'ML
Ma&$!nery an" trans3 '?2 3'?9 'AK '22 'L0
2ortat!on eB!2#ent
(t$er #anfa&trers 3'JL 3'0I '0? '29 'K0
*ote: Re)eale" &o#2arat!)e a")antage for ea&$ 2ro"&t gro2
!s #easre" as: -E<2orts less I#2orts/8 Do#est!& 2ro"&t!on
Porter.s Co#2et!t!)e A")antage
of Nat!ons
Porter.s Co#2et!t!)e A")antage
of Nat!ons
E<ten"s an" a"a2ts tra"!t!onal t$eory of &o#2arat!)e
a")antage to ta7e a&&ont of t$ree fa&tors:
?
Internat!onal &o#2et!t!)e a")antage !s a+ot companies
not countriesHt$e role of t$e nat!onal en)!ron#ent !s
2ro)!"!ng a home $ase for t$e &o#2any'
?
Ssta!ne" &o#2et!t!)e a")antage "e2en"s 2on dynamic
fa&tors33 innovation an" t$e upgrading of resor&es an"
&a2a+!l!t!es
?
T$e &r!t!&al role of t$e nat!onal en)!ron#ent !s !ts !#2a&t
2on t$e "yna#!&s of !nno)at!on an" 2gra"!ng'
0ACT(R C(NDITI(NS
DEMAND
C(NDITI(NS
RE5ATING AND
S9PP(RTING
IND9STRIES
STRATEG14 STR9CT9RE4
AND RIVA5R1
Porter.s Nat!onal D!a#on" 0ra#e*or7
Porter.s Nat!onal D!a#on" 0ra#e*or7
?' 0ACT(R C(NDITI(NS;IHome grownF resor&es8&a2a+!l!t!es #ore !#2ortant
t$an natural endowments.
2' RE5ATED AND S9PP(RTING IND9STRIES;Fey role of O!n"stry &lstersP
A' DEMAND C(NDITI(NS;D!s&ern!ng "o#est!& &sto#ers "r!)e Bal!ty 6 !nno)at!on
K' STRATEG14 STR9CT9RE4 RIVA5R1' E'g' "o#est!& r!)alry "r!)es 2gra"!ng'
Cons!sten&y Bet*een Strategy
an" Nat!onal Con"!t!ons
Cons!sten&y Bet*een Strategy
an" Nat!onal Con"!t!ons
In glo+ally3&o#2et!t!)e !n"str!es4 f!r# strategy nee"s to
ta7e a&&ont of nat!onal &on"!t!ons:
& 9'S' te<t!le #anfa&trers #st &o#2ete on t$e +as!s of
a")an&e" 2ro&ess te&$nolog!es an" fo&s on $!g$ Bal!ty4
less 2r!&e3sens!t!)e #ar7et seg#ents
& In t$e se#!&on"&tor !n"stry4 CA3+ase" f!r#s &on&entrate
#a!nly 2on "es!gn of a")an&e" &$!2s4 Malays!an f!r#s
&on&entrate 2on fa+r!&at!on of $!g$ )ol#e4 less
te&$nolog!&ally a")an&e" !te#s -e'g' DRAM &$!2s/
& D!s2ers!on of )ale &$a!n to e<2lo!t "!fferent nat!onal
en)!ron#ents -e'g' N!7e &on"&ts R6D !n 9S4 &o#2onents !n
Forea an" T$a!lan"4 asse#+ly !n In"ones!a4 C$!na4 an" In"!a4
#ar7et!ng !n Ero2e an" Nort$ A#er!&a/
Internat!onal 5o&at!on of Pro"&t!on
Internat!onal 5o&at!on of Pro"&t!on
& *ational resource conditions: D$at are t$e #a,or
resor&es *$!&$ t$e 2ro"&t reB!resC D$ere are t$ese
a)a!la+le at lo* &ostC
& Firm;specific advantages: to *$at e<tent !s t$e
&o#2any.s &o#2et!t!)e a")antage +ase" 2on f!r#3
s2e&!f!& resor&es an" &a2a+!l!t!es4 an" are t$ese
transfera+leC
& Trada$ility issues: Can t$e 2ro"&t +e trans2orte" at
e&ono#!& &ostC If not4 or !f tra"e restr!&t!ons e<!st4 t$en
2ro"&t!on #st +e &lose to t$e #ar7et'
T$e Role of 5a+or Costs
T$e Role of 5a+or Costs
Hourly ,ompensation for #roduction >orkers9:: 6@8
Ger#any 2J'9A
Ta2an 20'L9
9'S' ?9'20 0ran&e ?9'9L 9'F' ?J'MJ
S2a!n ?2'??
Forea J'IM Me<!&o 2'?2
=2T4 *ages are only one ele#ent of &osts:
,ost of #roducing a ,ompact !utomo$ile
9'S' Me<!&o Parts 6 &o#2onents I4IM0 L4000 5a+or
I00 K0 S$!22!ng &ost A00 ?4000 In)entory 20
K0 T(TA5 L4II0 94?L0
5o&at!on an" t$e Vale C$a!n
5o&at!on an" t$e Vale C$a!n
Co#2arat!)e a")antage !n te<t!les an" a22arel +y stage of 2ro&ess!ng
Hong Fong ? 30'9J
2 30'L?
A 30'K?
K E0'IM
Italy ? 30'MK
2 E0'?L
A E0'?K
K E0'I2
Ta2an ? 30'AJ
2 E0'KL
A E0'KL
K 30'KL
9'S'A' ? E0'9J
2 E0'JK
A E0'22
K 30'IA
,ountry "tage %ndex of ,ountry "tage %ndex of
of Revealed of Revealed
#rocessing ,omparative #rocessing ,omparative
!dvantage !dvantage
*ote:
? > 2ro"&t!on of f!+er -natral 6 synt$et!&/ 2 > 2ro"&t!on of s2n yarn
A > 2ro"&t!on of te<t!les K > 2ro"&t!on of &lot$!ng
T$e o2t!#al lo&at!on
of a&t!)!ty S &ons!"ere"
!n"e2en"ently
DHERE T( 5(CATE
ACTIVIT1 SC
T$e !#2ortan&e of l!n7s
+et*een a&t!)!ty S an"
ot$er a&t!)!t!es of t$e f!r#
D$ere !s t$e o2t!#al lo&at!on
of S !n ter#s of t$e &ost an"
a)a!la+!l!ty of !n2tsC
D$at go)ern#ent !n&ent!)es8 2enalt!es
affe&t t$e lo&at!on "e&!s!onC
D$at !nternal
resor&es an" &a2a+!l!t!es "oes t$e f!r#
2ossess !n 2art!&lar lo&at!onsC
D$at !s t$e f!r#.s +s!ness strategy
-e'g' &ost )s' "!fferent!at!on a")antage/C
Ho* great are t$e &oor"!nat!on
+enef!ts fro# &o3lo&at!ng a&t!)!t!esC
Deter#!n!ng t$e (2t!#al 5o&at!on
of Vale C$a!n A&t!)!t!es
Deter#!n!ng t$e (2t!#al 5o&at!on
of Vale C$a!n A&t!)!t!es
Resource commitment
TRANSACTI(NS DIRECT INVESTMENT
S2ot
sales
E<2ort!ng
0ore!gn
agent 8
"!str!+tor
5!&ens!ng
0ran&$!s!ng
To!nt )entre
Mar7et!ng 6
D!str!+t!on
only
5ong3
ter#
&ontra&t
5!&ens!ng
2atents 6
ot$er IP
0lly
!ntegrate"
D$olly
o*ne"
s+s!"!ary
Mar7et!ng6
D!str!+t!on
only
0lly
!ntegrate"
5o* H!g$
Alternat!)e Mo"es of ()erseas Mar7et Entry
Alternat!)e Mo"es of ()erseas Mar7et Entry
All!an&es an" To!nt Ventres:
Manage#ent Isses
All!an&es an" To!nt Ventres:
Manage#ent Isses
! Benef!ts:
33Co#+!n!ng resor&es an" &a2a+!l!t!es of "!fferent &o#2an!es
335earn!ng fro# one anot$er
33Re"&!ng t!#e3to3#ar7et for !nno)at!ons
33R!s7 s$ar!ng
! Pro+le#s:
33Manage#ent "!fferen&es +et*een t$e t*o 2artners' Confl!&t
#ost l!7ely *$ere t$e 2artners are also &o#2et!tors'
! Benef!ts are sel"o# s$are" eBally' D!str!+t!on of +enef!ts
"eter#!ne" +y:
& Strateg!& !ntent of t$e 2artners3 *$!&$ 2artner $as t$e &learer
)!s!on of t$e 2r2ose of t$e all!an&eC
& A22ro2r!a+!l!ty of t$e &ontr!+t!on33 *$!&$ 2artner.s resor&es
an" &a2a+!l!t!es &an #ore eas!ly +e &a2tre" +y t$e ot$erC
& A+sor2t!)e &a2a&!ty of t$e &o#2any33 *$!&$ 2artner !s t$e
#ore re&e2t!)e learnerC
S9N9FI
IS9N9
T(1(TA
($# Kehicles
0td. 3D.=.5
GM
)ew Dnited .otor
.anufacturing
(nc. 3)D..(5
8
4
2
o
w
n
e
d
.
#
o
-
p
r
o
d
u
c
t
io
n
:
9
2
o
w
n
e
d
. #
o
-p
ro
d
u
c
tio
n
:42 investment
;42
owned
>42 owned
>42
owned
3.akes vans in D=5
3.akes cars in D+5
SAAB
>42
owned
0IAT
2
4
2
o
w
n
e
d
3
2
4
4
4
-
>
5
.
#
o
ll
a
b
o
r
a
t
io
n
o
n
t
e
c
h
n
o
l
o
g
y
a
n
d
c
o
m
p
o
n
e
n
t
s
09TI
242 ownedE joint production
DAED((
>
4
.
9
2
o
w
n
e
d
E
t
e
c
h
n
i
c
a
l
C
p
r
o
d
u
c
t
i
o
n
c
o
l
l
a
b
o
r
a
t
i
o
n
AVT(VAN
F
u
s
s
i
a
n
B
K
t
o
p
r
o
d
u
c
e
c
a
r
s
SAIC
B
K
t
o
p
r
o
d
u
c
e
c
a
r
s
i
n
#
h
i
n
a
General Motors. All!an&es *!t$ Co#2et!tors
General Motors. All!an&es *!t$ Co#2et!tors
Mlt!nat!onal Strateg!es:
Glo+al!=at!on )s' Nat!onal D!fferent!at!on
Mlt!nat!onal Strateg!es:
Glo+al!=at!on )s' Nat!onal D!fferent!at!on
! Nat!onal 2referen&es !n "e&l!ne;*orl" +e&o#!ng a s!ngle4
!f seg#ente"4 #ar7et
! A&&ess!ng glo+al s&ale e&ono#!es;!n 2r&$as!ng4
#anfa&tr!ng4 2ro"&t "e)elo2#ent4 #ar7et!ng'
! Strateg!& strengt$ fro# glo+al le)erage;a+!l!ty to &ross3
s+s!"!=e a nat!onal s+s!"!ary *!t$ &as$ flo*s fro#
ot$er nat!onal s+s!"!ar!es
! Nee" to a&&ess #ar7et tren"s an" te&$nolog!&al
"e)elo2#ents !n ea&$ of t$e *orl".s #a,or e&ono#!&
&enters3 N' A#er!&a4 Ero2e4 East As!a'
Ha#el 6
Pra$ala"
T$es!s
Fen!&$!
($#ae.s
OTr!a"
Po*erP
T$es!s
Te"
5e)!tt
OGlo+al!=3
3at!on of
Mar7etsP
T$es!s
T$e &ase for a glo+al strategy:
Glo+al!=at!on 6 Glo+al Strategy ;D$at are t$eyC
Glo+al!=at!on 6 Glo+al Strategy ;D$at are t$eyC
! G5(BA5INATI(N C
33So#et$!ng to "o *!t$ !n&reas!ng !nter"e2en"en&e
+et*een &ontr!es'
! G5(BA5INATI(N C
33So#et$!ng to "o *!t$ !n&reas!ng !nter"e2en"en&e
+et*een &ontr!es'
! G5(BA5 STRATEG1
33At s!#2lest le)el: Treat!ng t$e *orl" as a s!ngle #ar7et
E'g' Ta2anese &o#2an!es "r!ng t$e ?9I0s 6 ?9L0s4
-1FF4 Hon"a/ stan"ar" 2ro"&ts4 "e)elo2e" 6
#anfa&tre" *!t$!n Ta2anQ "!str!+te" 6 #ar7ete"
*orl"*!"e
33At #ore so2$!st!&ate" le)el: Strategy t$at re&ogn!=es
an" e<2lo!ts l!n7ages +et*een &ontr!es -e'g' e<2lo!ts
glo+al s&ale4 nat!onal resor&e "!fferen&es4 strateg!&
&o#2et!t!on/
! G5(BA5 STRATEG1
33At s!#2lest le)el: Treat!ng t$e *orl" as a s!ngle #ar7et
E'g' Ta2anese &o#2an!es "r!ng t$e ?9I0s 6 ?9L0s4
-1FF4 Hon"a/ stan"ar" 2ro"&ts4 "e)elo2e" 6
#anfa&tre" *!t$!n Ta2anQ "!str!+te" 6 #ar7ete"
*orl"*!"e
33At #ore so2$!st!&ate" le)el: Strategy t$at re&ogn!=es
an" e<2lo!ts l!n7ages +et*een &ontr!es -e'g' e<2lo!ts
glo+al s&ale4 nat!onal resor&e "!fferen&es4 strateg!&
&o#2et!t!on/
Dorl" as
s!ngle #7t'
Dorl" as
se2arate
nat!onal #7ts'
glo$al strategy
Dorl" as !nter3
relate" #7ts'
multidomestic strategy
Analy=!ng +enef!ts8&osts of a glo+al strategy
Analy=!ng +enef!ts8&osts of a glo+al strategy
Forces for localization J national
differentiation
MARFET DRIVERS
33D!fferent langages
33D!fferent &sto#er 2referen&es
33Cltral "!fferen&es
C(ST DRIVERS
33Trans2ortat!on &osts
33Transa&t!on &osts
33E&ono#!& 6 2ol!t!&al r!s7
33S2ee" of res2onse
G(VERNMENT DRIVERS
33Barr!ers to tra"e 6 !n*ar" !n)'
33Reglat!ons
Forces for localization J national
differentiation
MARFET DRIVERS
33D!fferent langages
33D!fferent &sto#er 2referen&es
33Cltral "!fferen&es
C(ST DRIVERS
33Trans2ortat!on &osts
33Transa&t!on &osts
33E&ono#!& 6 2ol!t!&al r!s7
33S2ee" of res2onse
G(VERNMENT DRIVERS
33Barr!ers to tra"e 6 !n*ar" !n)'
33Reglat!ons
Forces for glo$alization
MARFET DRIVERS
33Co##on &sto#er nee"s
33Glo+al &sto#ers
33Cross3+or"er net*or7 effe&ts
C(ST DRIVERS
33Glo+al s&ale e&ono#!es
33D!fferen&es !n nat!onal
resor&e a)a!la+!l!ty
335earn!ng
C(MPETITIVE DRIVERS
33Potent!al for strateg!&
&o#2et!t!on -e'g' &ross3
s+s!"!=at!on/
Forces for glo$alization
MARFET DRIVERS
33Co##on &sto#er nee"s
33Glo+al &sto#ers
33Cross3+or"er net*or7 effe&ts
C(ST DRIVERS
33Glo+al s&ale e&ono#!es
33D!fferen&es !n nat!onal
resor&e a)a!la+!l!ty
335earn!ng
C(MPETITIVE DRIVERS
33Potent!al for strateg!&
&o#2et!t!on -e'g' &ross3
s+s!"!=at!on/
=enefits of national differentiation
=enefits
of
glo$al
integration
Ce#ent
Tele&o#
eB!2#ent
Tet eng!nes
Cons#er
ele&tron!&s
Atos
0neral
ser)!&es
Reta!l
+an7!ng
In)est#ent
+an7!ng
Ato
re2a!r
Restarant
&$a!ns
Steel
(nl!ne C2C a&t!ons
Beer
Dry
&lean!ng
=enefits of national differentiation
=enefits
of
glo$al
integration
Ce#ent
Tele&o#
eB!2#ent
Tet eng!nes
Cons#er
ele&tron!&s
Atos
0neral
ser)!&es
Reta!l
+an7!ng
In)est#ent
+an7!ng
Ato
re2a!r
Pos!t!on!ng !n"str!es !n ter#s of +enef!ts of
glo+al!=at!on an" nat!onal "!fferent!at!on
Pos!t!on!ng !n"str!es !n ter#s of +enef!ts of
glo+al!=at!on an" nat!onal "!fferent!at!on
T$e E)olt!on of Mlt!nat!onal Strateg!es an"
Str&tres: -?/ ?9003?9A9;Era of t$e Ero2eans
T$e E)olt!on of Mlt!nat!onal Strateg!es an"
Str&tres: -?/ ?9003?9A9;Era of t$e Ero2eans
The 'uropean M*, as )ecentralized Federation :
! Nat!onal s+s!"!ar!es self3sff!&!ent an" atono#os
! Parent &ontrol t$rog$ a22o!nt#ent of s+s!"!ar!es sen!or
#anage#ent
! (rgan!=at!on an" #anage#ent syste#s refle&t &on"!t!ons of
trans2ort an" &o##n!&at!ons at t$e t!#e e'g' 9n!le)er4 P$!ll!2s4
Cortal"s4 Royal Dt&$8S$ell'
T$e E)olt!on of Mlt!nat!onal Strateg!es
an" Str&tres: -2/ ?9KM3?9I0;9'S' Do#!nan&e
T$e E)olt!on of Mlt!nat!onal Strateg!es
an" Str&tres: -2/ ?9KM3?9I0;9'S' Do#!nan&e
!merican M*,As as ,oordinated Federations :
! Nat!onal s+s!"!ar!es fa!rly atono#os
! Do#!nant role as 9'S' 2arent33 es2e&!ally !n "e)elo2!ng
ne* te&$nology an" 2ro"&ts
! Parent3s+s!"!ary relat!ons !n)ol)e" flo*s of te&$nology
an" f!nan&e4 an" a22o!nt#ent of to2 #anage#ent' e'g'
0or"4 GM4 Co&a Cola4 IBM
T$e E)olt!on of Mlt!nat!onal
Strateg!es an" Str&tres:
-A/ ?9I0s an" ?9L0s;T$e Ta2anese C$allenge
T$e E)olt!on of Mlt!nat!onal
Strateg!es an" Str&tres:
-A/ ?9I0s an" ?9L0s;T$e Ta2anese C$allenge
The Kapanese M*, as ,entralized Hu$
! Prs!t of glo+al strategy fro# $o#e +ase
! Strategy4 te&$nology "e)elo2#ent4 an" #anfa&tre
&on&entrate" at $o#e
! Nat!onal s+s!"!ar!es 2r!#ar!ly sales an" "!str!+t!on
&o#2an!es *!t$ l!#!te" atono#y' e'g' Toyota4 NEC4
Matss$!ta
Mar7et!ng Glo+al Strateg!es an" S!tat!ons to In"stry
Con"!t!ons: 0!r# S&&ess !n D!fferent In"str!es
Mar7et!ng Glo+al Strateg!es an" S!tat!ons to In"stry
Con"!t!ons: 0!r# S&&ess !n D!fferent In"str!es
,onsumer 'lectronics =randed9 #ackaged Telecommunications
,onsumer &oods '5uipment
3 Glo+al !n"stry 3 S+stant!al nat!onal 3 ReB!res +ot$ glo+al
3 Matss$!ta t$e #ost "!fferent!at!on4 fe* glo+al !ntegrat!on an" nat!onal
s&&essfl s&ale e&ono#!es "!fferent!at!on'
3 P$!l!2s t$e sr)!)or 3 Fao $as l!#!te" s&&ess 3 NEC only 2art!ally
3 GE sol" ot ots!"e Ta2an s&&essfl
3 9n!le)er an" P6G #ost 3 ITT sol" ot
s&&essfl 3 Er!&sson #ost
s&&essfl
lo&al res2ons!)eness lo&al res2ons!)eness lo&al res2ons!)eness
g
l
o
+
a
l
!
n
t
e
g
r
a
t
!
o
n
g
l
o
+
a
l
!
n
t
e
g
r
a
t
!
o
n
g
l
o
+
a
l
!
n
t
e
g
r
a
t
!
o
n
Matss$!t
a
P$!l!2s
General Ele&tr!&
Fa
o
P6G
9n!le)er
NEC
Er!&7son
ITT
Re&on&!l!ng Glo+al Integrat!on *!t$ Nat!onal
D!fferent!at!on: T$e Transnat!onal Cor2orat!on
Re&on&!l!ng Glo+al Integrat!on *!t$ Nat!onal
D!fferent!at!on: T$e Transnat!onal Cor2orat!on
The Transnational: an !ntegrate" net*or7 of "!str!+te" !nter"e2en"ent
resor&es an" &a2a+!l!t!es'
& Ea&$ nat!onal n!t an" sor&e of !"eas4 s7!lls an" &a2a+!l!t!es t$at &an
+e $arnesse" to +enef!t *$ole &or2orat!on'
& Nat!onal n!ts +e&o#e *orl" sor&es for 2art!&lar 2ro"&ts4
&o#2onents4 an" a&t!)!t!es'
& Cor2orate &enter !n)ol)e" !n or&$estrat!ng &olla+orat!on t$rog$
&reat!ng t$e r!g$t organ!=at!onal &onte<t'
T!g$t &o#2le<
&ontrols an"
&oor"!nat!on an" a
s$are" strateg!&
"e&!s!on 2ro&ess'
Hea)y flo*s of
te&$nology4
f!nan&es4 2eo2le4
an" #ater!als
+et*een
!nter"e2en"ent
n!ts.
?' (n *$at +as!s to organ!=e;2ro"&ts4 geogra2$y4 fn&t!onsC
33D$ere !s &oor"!nat!on #ost !#2ortantC
33Ho* glo+al !s t$e !n"stryC Ho* glo+al !s t$e f!r#.s
strategyC
2' If one "!#ens!on !s "o#!nant4 $o* to &oor"!nat!on along t$e
ot$er "!#ens!onsC
33Ma!nta!n s!ngle l!ne a&&onta+!l!ty
33(t$er "!#ens!ons of &oor"!nat!on &an +e O"otte" l!neP
relat!ons
A' D$at.s t$e role of H:C
33Control fn&t!on
33Coor"!nat!on fn&t!on
33E<2lo!t!ng s&ale e&ono#!es !n &entral!=e" 2ro)!s!on of
ser)!&es
K' T$e nee" for !nternal "!fferent!at!on
33By 2ro"&t8+s!ness
33By fn&t!on
33By &ontry
M' 0or#al 6 !nfor#al organ!=at!on
Des!gn!ng t$e MNC: Fey 5earn!ng
Des!gn!ng t$e MNC: Fey 5earn!ng
doc_465368403.ppt
strategic competitiveness and above normal returns
concerns managerial decisions and actions which materially affect the success and survival of business enterprises
involves the judgment necessary to strategically position a business and its resources so as to maximize long-term profits in the face of irreducible uncertainty and aggressive competition
strategy is the linkage between a business and its current and future environment
1
MBA290:
MBA290:
ADVANCED
ADVANCED
STRATEGIC
STRATEGIC
MANAGEMENT
MANAGEMENT
Professor Stanley Han
College of Bs!ness A"#!n!strat!on
$ans%&ss'e"
Corse ()er)!e*: (+,e&t!)es
Corse ()er)!e*: (+,e&t!)es
?
To acquire familiarity with the principal concepts, To acquire familiarity with the principal concepts,
frameworks and techniques of strategic management. frameworks and techniques of strategic management.
?
To gain expertise in applying these concepts, To gain expertise in applying these concepts,
frameworks and techniques in order to frameworks and techniques in order to
- - understand the reasons for good or bad understand the reasons for good or bad
performance by an enterprise, performance by an enterprise,
- - generate strategy options for an enterprise, generate strategy options for an enterprise,
- - assess available options under conditions of assess available options under conditions of
imperfect knowledge, imperfect knowledge,
- - select the most appropriate strategy, select the most appropriate strategy,
- - recommend the best means of implementing the recommend the best means of implementing the
chosen strategy. chosen strategy.
2
Corse ()er)!e*: (+,e&t!)es -&ont."/
Corse ()er)!e*: (+,e&t!)es -&ont."/
?
To integrate the knowledge gained in previous To integrate the knowledge gained in previous
courses. courses.
?
To develop your capacity as a general manager in To develop your capacity as a general manager in
terms of terms of
- - an appreciation of the work of the general an appreciation of the work of the general
manager, manager,
- - the ability to view business problems from a the ability to view business problems from a
general management perspective, general management perspective,
- - the ability to develop original and innovative the ability to develop original and innovative
approaches to strategic problems, approaches to strategic problems,
- - developing business judgment. developing business judgment.
THE C(NCEPT (0
STRATEG1
THE C(NCEPT (0
STRATEG1
T$e Con&e2t of Strategy an" t$e Prs!t of
Ssta!na+le A+o)e3Nor#al Prof!ts
Do#a!n of Strategy
Do#a!n of Strategy
!
strategic competitiveness and above normal returns
!
concerns managerial decisions and actions which
materially affect the success and survival of business
enterprises
!
involves the judgment necessary to strategically position
a business and its resources so as to maximi"e long-
term profits in the face of irreducible uncertainty and
aggressive competition
!
strategy is the linkage between a business and its
current and future environment
Def!n!t!on
Def!n!t!on
!
T$e "eter#!nat!on of t$e long rn goals
an" o+,e&t!)es of an enter2r!se4 t$e
a"o2t!on of &orses of a&t!on an" t$e
allo&at!on of resor&es ne&essary for
&arry!ng ot t$ese goals
Alfred Chandler, Strategy and Structure
5e)els of Strategy
D!)!s!on A
R 6 D
Personnel
0!nan&e
Pro"&t!on
Mar7et!ng8Sales
D!)!s!on B
R 6 D
Personnel
0!nan&e
Pro"&t!on
Mar7et!ng8Sales
09NCTI(NA5
STRATEGIES
B9SINESS
STRATEG1
C(RP(RATE
STRATEG1
C(RP(RATE
HEAD (00ICE
5e)els of Strategy
5e)els of Strategy
!
#orporate strategy... defines the scope of the
business in terms of the industries and markets in
which it competes.
!
includes decisions about diversification, vertical
integration, acquisitions, new ventures,
divestments, allocation of scarce resources
between business units
!
$usiness strategy... is concerned with how the firm
competes within a particular industry or market... to
win a business unit must adopt a strategy that
establishes a competitive advantage over its rivals.
!
%unctional strategy... the detailed deployment of
resources at the operational level
Co##on Ele#ents !n S&&essfl Strategy
Co##on Ele#ents !n S&&essfl Strategy
S&&essfl
Strategy
Profon"
n"erstan"!ng of
t$e &o#2et!t!)e
en)!ron#ent
(+,e&t!)e
a22ra!sal of
resor&es
5ong3ter#4 s!#2le
an" agree" 2on
o+,e&t!)es
$
E00ECTIVE IMP5EMENTATI(N
Strategy as a :est for Prof!t
Strategy as a :est for Prof!t
! The stakeholder approach : T$e f!r# !s a &oal!t!on of !nterest gro2s;
!t see7s to +alan&e t$e!r "!fferent o+,e&t!)es
?
The shareholder approach : T$e f!r# e<!sts to #a<!#!=e t$e *ealt$ of
!ts o*ners -> #a<' 2resent )ale of 2rof!ts o)er t$e l!fe of t$e f!r#/
For the purposes of strategy analysis we assume that the primary goal
of the firm is profit maximization.
Rationale:
?/ Boar"s of "!re&tors legally o+l!ge" to 2rse s$are$ol"er !nterest
2/ To re2la&e assets f!r# #st earn retrn on &a2!tal @ &ost of &a2!tal
-"!ff!< *$en &o#2et!t!on strong/'
A/ 0!r#s t$at "o not #a<' sto&73#ar7et )ale *!ll +e a&B!re"
Hence: Strategy analys!s !s &on&erne" *!t$ !"ent!fy!ng an" a&&ess!ng
t$e sor&es of 2rof!t a)a!la+le to t$e f!r#
0ro# Prof!t Ma<!#!=at!on to Vale Ma<!#!=at!on
0ro# Prof!t Ma<!#!=at!on to Vale Ma<!#!=at!on
! Prof!t #a<!#!=at!on an a#+!gos goal
& Total 2rof!t )s' Rate of 2rof!t
& ()er *$at t!#e 2er!o"C
& D$at #easre of 2rof!tC
& A&&ont!ng 2rof!t versus e&ono#!& 2rof!t -e'g' E&ono#!&
Vale A""e": Post3ta< o2erat!ng 2rof!t less &ost of &a2!tal
Maximizing the value of the firm:
Ma<' net 2resent )ale of free &as$ flo*s:
#a<' V >
?
t
C
t
-? E r/
t
D$ere: V #ar7et )ale of t$e f!r#'
C
t
free &as$ flo* !n t!#e t
r *e!g$te" a)erage &ost of &a2!tal
T$e Dorl".s Most Vala+le Co#2an!es:
Perfor#an&e 9n"er D!fferent Prof!ta+!l!ty Measres
T$e Dorl".s Most Vala+le Co#2an!es:
Perfor#an&e 9n"er D!fferent Prof!ta+!l!ty Measres
C(MPAN1 MARFET
CAP'
-GBN'/
NET
INC(ME
-GBN/
RET9RN
(N
SA5ES
-H/
RET9RN
(N
E:9IT1
-H/
RET9RN
(N
ASSETS
-H/
RET9RN
T(
SHARE3
H(5DERS
-H/
E<<on Mo+!l AI2 AJ'? ?9'9 AK'9 ?I'L ??'I
General Ele&tr!& AJA ?J'K ?0'I 22'2 ?K'I -?'M/
M!&rosoft 2L? ?2'A K0'A A0'0 ?L'L -0'9/
C!t!gro2 2A9 2K'J 22'0 2?'9 ?'M K'J
BP 2AA 22'A 9'9 2I'9 ?0'I ?0'2
Ban7 of A#er!&a 2?2 ?J'M 2I'0 ?K'? ?'2 2'K
Royal Dt&$ S$ell 2?? 2M'A ?K'I 2J'I ??'J ??'L
Dal3Mart ?9I ??'2 M'M 2?'K L'? -?0'A/
Toyota Motor ?9I ?2'? ?0'I ?A'0 K'L -22'?/
Ga=2ro# ?9J I'A 2L'? 9'L I'? n'a'
HSBC ?90 ?M'9 2A'0 ?J'A ?'0 -??'L/
Pro&ter 6 Ga#+le ?90 L'I ?I'A ?A'I J'K I'2
S$are$ol"er Vale Ma<!#!=at!on an" Strategy C$o!&e
S$are$ol"er Vale Ma<!#!=at!on an" Strategy C$o!&e
The alue Maximizing !pproach to "trategy Formulation:
! I"ent!fy strategy alternat!)es
! Est!#ate &as$ flo*s asso&!ate" *!t$ &as$ strategy
! Est!#ate &ost of &a2!tal for ea&$ strategy
! Sele&t t$e strategy *$!&$ generates t$e $!g$est NPV
#ro$lems:
! Est!#at!ng &as$ flo*s +eyon" 23A years !s "!ff!<
! Vale of f!r# "e2en"s on option value as *ell as DC0 )ale
%mplications for strategy analysis:
! So#e s!#2le f!nan&!al g!"el!nes for )ale #a<!#!=at!on
a/ (n e<!st!ng assets;#a<!#!=e after3ta< rate of retrn
+/ (n ne* !n)est#ent;see7 rate of retrn @ &ost of &a2!tal
! 9t!l!=e Bal!tat!)e strategy analys!s to e)alate ftre 2rof!t
2otent!al
S$are$ol"er
Vale
Measures:
• Mar7et )ale of t$e
f!r#
!Mar7et )ale a""e"
-MVA/
!Retrn to
s$are$ol"ers
Intr!ns!&
Vale
Measures:
• D!s&onte" &as$
flo*s
!Real o2t!on )ales
0!nan&!al
In"!&ators
Measures:
• Retrn on Ca2!tal
! Gro*t$ -of
re)enes 6 o2erat!ng
2rof!ts
!E&ono#!& 2rof!t -EVA/
Vale
Dr!)ers
"ources:
• Mar7et s$are
! S&ale e&ono#!es
! Inno)at!on
! Bran"s
A Co#2re$ens!)e Vale Metr!&s 0ra#e*or7
A Co#2re$ens!)e Vale Metr!&s 0ra#e*or7
A+o)e Nor#al
Prof!ts
-!n E<&ess of t$e Co#2et!t!)e 5e)el/
A)o!"
Co#2et!tors
Be Better T$an
Co#2et!t!on
'ttractive
(ndustry
'ttractive
)iche
#ost
'dvantage
*ifferentiation
'dvantage
'ttractive
+trategic
,roup
-ntry
$arriers
.obility
$arriers
(solating
.echanisms
Sor&es of S2er!or Perfor#an&e
Sor&es of S2er!or Perfor#an&e
Sor&es of Co#2et!t!)e A")antage
Sor&es of Co#2et!t!)e A")antage
C(ST
ADVANTAGE
C(ST
ADVANTAGE
DI00ERENTIATI(N
ADVANTAGE
DI00ERENTIATI(N
ADVANTAGE
C(MPETITIVE
ADVANTAGE
C(MPETITIVE
ADVANTAGE
S
!
#
!
l
a
r
2
r
o
"
&
t
a
t
l
o
*
e
r
&
o
s
t
P
r
!
&
e
2
r
e
#
!
#
f
r
o
#
n
!
B
e
2
r
o
"
&
t
T$e E<2er!en&e Cr)e
T$e E<2er!en&e Cr)e
The /0aw of -xperience1
The unit cost value added to a standard product
declines by a constant 2 3typically 24-425 each
time cumulative output doubles.
#ost per
unit of
output 3in
real 65
#umulative 7utput
8992
899:
899;
899<
2444
2442
244:
E<a#2les of E<2er!en&e Cr)es
E<a#2les of E<2er!en&e Cr)es
844= 244= >44= 8,444= > 84 >4
'ccumulated unit production 'ccumulated units
3millions5 3millions5
8
9
;
4
?
e
n
8
>
=
2
4
=
4
=
@
r
i
c
e
(
n
d
e
x
>
4
8
4
4
2
4
4
4
4
A42 slope
A>2
Bapanese clocks C watches, 89;2-A2 D= refrigerators, 89>A-A8
Dr!)ers of Cost A")antage
Dr!)ers of Cost A")antage
PR(D9CTI(N TECHNI:9ES
PR(D9CT DESIGN
INP9T C(STS
CAPACIT1 9TI5INATI(N
RESID9A5 E00ICIENC1
EC(N(MIES (0 5EARNING
EC(N(MIES (0 SCA5E
! 7rgani"ational slackE .otivation C
cultureE .anagerial efficiency
! Fatio of fixed to variable costs
! +peed of capacity adjustment
! 0ocation advantages
! 7wnership of low-cost inputs
! )on-union labor
! $argaining power
! +tandardi"ing designs C components
! *esign for manufacture
! @rocess innovation
! Feengineering business processes
! (ncreased dexterity
! (mproved organi"ational routines
! (ndivisibliGties
! +peciali"ation and division of labor
E&ono#!es of S&ale: T$e 5ong3Rn
Cost Cr)e for a Plant
E&ono#!es of S&ale: T$e 5ong3Rn
Cost Cr)e for a Plant
Dnits of output
per period
Minimum
Efficient Plant
Size: the point
here most scale
economies are
e!hausted
#ost per
unit of
output
+ources of scale economiesH
- technical inputIoutput relationships
- indivisibilities
- speciali"ation
84 24 >4 844 244 >44 8,444
'nnual sales volume 3millions of cases5
'
d
v
e
r
t
i
s
i
n
g
-
x
p
e
n
d
i
t
u
r
e
3
6
p
e
r
c
a
s
e
5
4
.
4
2
4
.
4
>
4
.
8
4
4
.
8
>
4
.
2
4
#oke
@epsi
+even Dp
*r. @epper
+prite
*iet @epsi
Tab
%resca
*iet Fite
*iet A-Dp
+chweppes
+% *r. @epper
*espite the massive advertising budgets of brand leaders #oke and @epsi, their main
brands incur lower advertising costs per unit of sales than their smaller rivals.
S&ale E&ono#!es !n A")ert!s!ng: 9'S' Soft Dr!n7s
S&ale E&ono#!es !n A")ert!s!ng: 9'S' Soft Dr!n7s
A22ly!ng t$e Vale C$a!n to Cost Analys!s:
T$e Case of Ato#o+!le Manfa&tre
A22ly!ng t$e Vale C$a!n to Cost Analys!s:
T$e Case of Ato#o+!le Manfa&tre
"T!&' (. %)'*T%F+ TH' #R%*,%#-' !,T%%T%'"
"T!&' .. !--/,!T' T/T!- ,/"T"
@DF#J-
'+(),
@'FT+
()K-)-
T7F(-+
FC*
*-+(,)
-),)F),
#7.@7)-)T
.%F
'++-.$0?
T-+T(),,
LD'0(T?
#7)TF70
,77*+
()K-)-
T7F(-+
+'0-+
C
.=(T,
*(+TF(-
$DT(7)
*-'0-F C
#D+T7.-F
+D@@7FT
@DF#J-
'+(),
@'FT+
()K-)-
T7F(-+
FC*
*-+(,)
-),)F),
#7.@7)-)T
.%F
'++-.$0?
T-+T(),,
LD'0(T?
#7)TF70
,77*+
()K-)-
T7F(-+
+'0-+
C
.=(T,
*(+TF(-
$DT(7)
*-'0-F C
#D+T7.-F
+D@@7FT
33Plant s&ale for ea&$ 33 5e)el of Bal!ty targets 33 No' of "ealers
&o#2onent 33 0reBen&y of "efe&ts 33 Sales 8 "ealer
33 Pro&ess te&$nology 33 5e)el of "ealer
33 Plant lo&at!on s22ort
33 Rn lengt$ 33 0reBen&y of "efe&ts
33 Ca2a&!ty t!l!=at!on n"er *arranty
@rices paid --+i"e of commitment -- @lant scale --#yclicality C
depend onH --@roductivity of -- %lexibility of production predictability of sales
-- 7rder si"e FC*Idesign -- )o. of models per plant --#ustomersM
--@urchases per --)o. C frequency of new -- *egree of automation willingness to wait
supplier models -- +ales I model
-- $argaining power -- Nage levels
-- +upplier location -- #apacity utili"ation
"T!&' 0.
%)'*T%F+
,/"T
)R%'R"
A22ly!ng t$e Vale C$a!n to Cost Analys!s: T$e Case
of Ato#o+!le Manfa&tre -&ont!ne"/
A22ly!ng t$e Vale C$a!n to Cost Analys!s: T$e Case
of Ato#o+!le Manfa&tre -&ont!ne"/
PRCHSNG PARTS R6D C(MP(NENT ASSEM3 TESTING G((DS SA5ES DSTRBTN D5R
INVNTRS DESIGN M0R B51 :9A5IT1 INV MFTG CTMR
#onsolidation of orders to increase
discounts, increases inventories
*esigning different models around
common components and platforms
reduces manufacturing costs
Jigher quality parts and materials
reduces costs of defects
at later stages
Jigher quality in manufacturing
reduces warranty costs
"T!&' 1. R',,/M'*)!T%/*" F/R ,/"T R')2,T%/*
"T!&' 3. %)'*T%F+ -%*4!&'"
A22ly!ng t$e Vale C$a!n to Cost Analys!s: T$e Case
of Ato#o+!le Manfa&tre -&ont!ne"/
A22ly!ng t$e Vale C$a!n to Cost Analys!s: T$e Case
of Ato#o+!le Manfa&tre -&ont!ne"/
T$e Natre of D!fferent!at!on
T$e Natre of D!fferent!at!on
T(TA5 C9ST(MER RESP(NSIVENESS
D!fferent!at!on not ,st a+ot t$e product4 !t e#+ra&es t$e *$ole
relationship +et*een t$e s22l!er an" t$e &sto#er'
INTANGIB5E
DI00ERENTATI(N
9no+ser)a+le an" s+,e&t!)e
&$ara&ter!st!&s t$at a22eal to
&sto#er.s !#age4 stats4 !"ent!ty4
an" "es!re for e<&ls!)!ty
TANGIB5E DI00ERENTATI(N
(+ser)a+le 2ro"&t &$ara&ter!st!&s:
! s!=e4 &olor4 #ater!als4 et&'
! 2erfor#an&e
! 2a&7ag!ng
! &o#2le#entary ser)!&es
DE0INITI(N: O#roviding something uni5ue that is valua$le to the
$uyer $eyond simply offering a low price'P -M' Porter/
TH' 4'+ %" T/ ,R'!T' !-2' F/R TH' ,2"T/M'R
I"ent!fy!ng D!fferent!at!on Potent!al:
T$e De#an" S!"e
I"ent!fy!ng D!fferent!at!on Potent!al:
T$e De#an" S!"e
TJ- @F7*D#T
TJ-
#D+T7.-F
Nhat needs
does it satisfyO
$y what
criteria do they
chooseO
Nhat
motivates
themO
Nhat are key
attributesO
Felate patterns of
customer
preferences to
product attributes
Nhat price
premiums do
product attributes
commandO
Nhat are
demographic,
sociological,
psychological
correlates of customer
behaviorO
%7F.D0'T-
*(%%-F-)T('T(7)
+TF'T-,?
! +elect product
positioning in relation
to product attributes
! +elect target
customer group
! -nsure customer I
product compatibility
! -valuate costs and
benefits of
differentiation
9s!ng t$e Vale C$a!n to I"ent!fy
D!fferent!at!on Potent!al on t$e S22ly S!"e
9s!ng t$e Vale C$a!n to I"ent!fy
D!fferent!at!on Potent!al on t$e S22ly S!"e
%(F. ()%F'+TFD#TDF-
JD.') F-+7DF#- .')',-.-)T
T-#J)707,? *[email protected])T
()$7D)* 7@-F'T(7)+ 7DT$7D)* .'F=-T(), +-FK(#-
07,(+T(#+ 07,(+T(#+ C +'0-+
.(+ that supports
fast response
capabilities
Training to support
customer service
excellence
Dnique product features.
%ast new product
development
Luality of
components C
materials
*efect free
products.
Nide variety
%ast delivery.
-fficient order
processing
$uilding brand
reputation
#ustomer technical
support. #onsumer
credit. 'vailability of
spares
I"ent!fy!ng D!fferent!at!on (22ortn!t!es t$rog$
5!n7!ng t$e Vale C$a!ns of t$e 0!r# an" !ts
Csto#ers: Can Manfa&tre
I"ent!fy!ng D!fferent!at!on (22ortn!t!es t$rog$
5!n7!ng t$e Vale C$a!ns of t$e 0!r# an" !ts
Csto#ers: Can Manfa&tre
8. *istinctive can design can assist cannersM marketing activities.
2. Jigh manufacturing tolerances can avoid breakdowns in customerMs canning lines.
. %requent, reliable delivery can permit canner to adopt B(T can supply.
:. -fficient order processing system can reduce customersM ordering costs.
>. #ompetent technical support can increase cannerMs efficiency of plant utili"ation.
+
u
p
p
l
i
e
s
o
f
s
t
e
e
l
C
a
l
u
m
i
n
u
m
+
e
r
v
i
c
e
C
t
e
c
h
n
i
c
a
l
s
u
p
p
o
r
t
+
a
l
e
s
*
i
s
t
r
i
b
u
t
i
o
n
(
n
v
e
n
t
o
r
y
h
o
l
d
i
n
g
.
a
n
u
f
a
c
t
u
r
i
n
g
*
e
s
i
g
n
-
n
g
i
n
e
e
r
i
n
g
(
n
v
e
n
t
o
r
y
h
o
l
d
i
n
g
@
u
r
c
h
a
s
i
n
g
*
i
s
t
r
i
b
u
t
i
o
n
.
a
r
k
e
t
i
n
g
#
a
n
n
i
n
g
@
r
o
c
e
s
s
i
n
g
(
n
v
e
n
t
o
r
y
h
o
l
d
i
n
g
@
u
r
c
h
a
s
i
n
g
#'))-F #') .'=-F
8
2
:
>
IND9STR1 ANA51SIS
AND P(SITI(NING
IND9STR1 ANA51SIS
AND P(SITI(NING
Deter#!n!ng In"stry Attra&t!)eness an"
I"ent!fy!ng Strateg!& (22ortn!t!es
Prof!ta+!l!ty of 9S In"str!es -sele&te" !n"str!es only/
Prof!ta+!l!ty of 9S In"str!es -sele&te" !n"str!es only/
Hose$ol" 6 Personal Pro"&ts 22'I Gas 6 Ele&tr!& 9t!l!t!es ?0'K
P$ar#a&et!&als 22'A 0oo" an" Drg Stores ?0'0
To+a&&o 2?'J Motor Ve$!&les 6 Parts 9'L
0oo" Cons#er Pro"&ts ?9'J Hotels4 Cas!nos4 Resorts 9'I
Se&r!t!es ?L'9 Ra!lroa"s 9'0
D!)ers!f!e" f!nan&!als ?L'A Insran&e: 5!fe an" Healt$ L'J
Be)erages ?L'L Pa&7ag!ng 6 Conta!ners L'J
M!n!ng 6 &r"e o!l ?I'L Insran&e: Pro2erty 6 Casalty L'A
Petrole# Ref!n!ng ?I'A B!l"!ng Mater!als4 Glass L'A
Me"!&al Pro"&ts 6 EB!2#ent ?I'2 Metals L'0
Co##er&!al Ban7s ?M'M 0oo" Pro"&t!on I'2
S&!ent!f!& 6 P$otogra2$!& EB!2t' ?M'0 0orest an" Pa2er Pro"&ts J'J
A22arel ?K'K Se#!&on"&tors 6
Co#2ter Soft*are ?A'9 Ele&tron!& Co#2onents M'9
P+l!s$!ng4 Pr!nt!ng ?A'M Tele&o##n!&at!ons K'J
Healt$ Care ?A'? Co##n!&at!ons EB!2#ent ?'2
Ele&tron!&s4 Ele&tr!&al EB!2#ent ?A'0 Enterta!n#ent 0'2
S2e&!alty Reta!lers ?A'0 A!rl!nes -22'0/
Co#2ters4 (ff!&e EB!2#ent ??'I
Median return on e5uity 6789
::;.<<1 T$e Prof!ta+!l!ty of Glo+al In"str!es: Retrn on In)este" Ca2!tal4 ?9JA3200A
THE IND9STR1
ENVIR(NMENT
! S22l!ers
! Co#2et!tors
! Csto#ers
So&!al str&tre
T$e nat!onal8 T$e nat!onal8
!nternat!onal !nternat!onal
e&ono#y e&ono#y
Te&$nology Te&$nology
Go)ern#ent Go)ern#ent
6 Pol!t!&s 6 Pol!t!&s
T$e natral T$e natral
en)!ron#ent en)!ron#ent
De#ogra2$!& De#ogra2$!&
str&tre str&tre
So&!al str&tre So&!al str&tre
0ro# En)!ron#ental Analys!s
to In"stry Analys!s
0ro# En)!ron#ental Analys!s
to In"stry Analys!s
!The %ndustry 'nvironment lies at the core of the Macro 'nvironment.
!The Macro 'nvironment impacts the firm through its effect on the %ndustry
'nvironment.
Dra*!ng In"stry Bon"ar!es :
I"ent!fy!ng t$e Rele)ant Mar7et
Dra*!ng In"stry Bon"ar!es :
I"ent!fy!ng t$e Rele)ant Mar7et
! D$at !n"stry !s BMD !n:
& Dorl" Ato !n"stry
& Ero2ean Ato !n"stry
& Dorl" l<ry &ar !n"stryC
! Fey &r!ter!on: "2="T%T2T!=%-%T+
& (n t$e "e#an" s!"e : are +yers *!ll!ng to s+st!tte +et*een
ty2es of &ars an" a&ross &ontr!es
& (n t$e s22ly s!"e : are #anfa&trers a+le to s*!t&$
2ro"&t!on +et*een ty2es of &ars an" a&ross &ontr!es
! De #ay nee" to analy=e !n"stry at "!fferent le)els of
aggregat!on for "!fferent ty2es of "e&!s!on
T$e S2e&tr# of In"stry Str&tres
T$e S2e&tr# of In"stry Str&tres
Concentration
Entry and E!it
"arriers
Product
#ifferentiation
$nformation
#erfect
,ompetition
/ligopoly )uopoly Monopoly
.any firms
' few firms Two firms 7ne firm
)oI0ow barriers +ignificant barriers Jigh barriers
Jomogeneous
@roduct
@otential for product differentiation
@erfect
(nformation flow
(mperfect availability of information
Porter.s 0!)e 0or&es of Co#2et!t!on 0ra#e*or7
Porter.s 0!)e 0or&es of Co#2et!t!on 0ra#e*or7
S9PP5IERS
P(TENTIA5
ENTRANTS
S9BSTIT9TES
B91ERS
IND9STR1
C(MPETIT(RS
R!)alry a#ong
e<!st!ng f!r#s
Barga!n!ng 2o*er of s22l!ers
Barga!n!ng 2o*er of +yers
T$reat of
ne*
entrants
T$reat of
s+st!ttes
THREAT (0 ENTR1
!Ca2!tal reB!re#ents
!E&ono#!es of s&ale
!A+solte &ost a")antage
!Pro"&t "!fferent!at!on
!A&&ess to "!str!+t!on
&$annels
!5egal8 reglatory +arr!ers
!Retal!at!on
S9BSTIT9TE
C(MPETITI(N
! Byers. 2ro2ens!ty
to s+st!tte
! Relat!)e 2r!&es 6
2erfor#an&e of
s+st!ttes
B91ER P(DER
!
Byers. 2r!&e sens!t!)!ty
! Relat!)e +arga!n!ng
2o*er
IND9STR1 RIVA5R1
!Con&entrat!on
!D!)ers!ty of
&o#2et!tors
!Pro"&t "!fferent!at!on
!E<&ess &a2a&!ty 6
e<!t +arr!ers
!Cost &on"!t!ons
S9PP5IER P(DER
!
S22l!er &on&entrat!on
! Relat!)e +arga!n!ng
2o*er
T$e Str&tral Deter#!nants of Co#2et!t!on
T$e Str&tral Deter#!nants of Co#2et!t!on
S9PP5IER P(DER
-/>
THREAT (0 ENTR1
-/>
!economies of scale
!capital requirements
for FC* and clinical
trials
!product differentiation
!control of distribution
channels
!patent protection
IND9STR1
C(MPETITIVENESS
-/>
!high concentration
!product differentiation
!patent protection
!steady demand growth
!no cyclical fluctuations
of demand
THREAT (0
S9BSTIT9TES
-/>
)o substitutes.
3#hanging as managed care
encourages generics.5
B91ER P(DER
-/>
@hysician as buyerH
)ot price sensitive
)o bargaining power.
3#hanging with managed care.5
*FD,
()*D+TF?
3F7-P2225
A22ly!ng 0!)e30or&es Analys!s
A22ly!ng 0!)e30or&es Analys!s
Forecasting %ndustry #rofita$ility
!
Past 2rof!ta+!l!ty a 2oor !n"!&ator of ftre
2rof!ta+!l!ty'
!
If *e &an fore&ast changes in industry
structure *e &an 2re"!&t l!7ely !#2a&t on
competition an" profita$ility'
"trategies to %mprove %ndustry #rofita$ility
! D$at str&tral )ar!a+les are "e2ress!ng 2rof!ta+!l!ty
! D$!&$ of t$ese )ar!a+les &an +e &$ange" +y
!n"!)!"al or &olle&t!)e strateg!esC
Netral!=!ng T$e 0!)e
Co#2et!t!)e 0or&es
Netral!=!ng T$e 0!)e
Co#2et!t!)e 0or&es
0or&e
Entry
R!)alry
S+st!ttes
Byers
S22l!ers
Met$o" for Netral!=!ng 0or&e
'recting $arriers 6isolating
mechanisms8 create C exploit economies of
scale, aggressive deterrence, design in switching
costs, etc.
,ompete on nonprice dimensions:
cost leadership, differentiation, cooperation, etc.
%mprove attractiveness compared to
substitutesH better service, more features, etc..
Reduce $uyer uni5ueness: forward
integrate, differentiate product, new customers, etc..
Reduce supplier uni5ueness: backward
integrate, obtain minority position, second source, etc..
T$e Tra"!t!onal Mo"el of In"stry 5!fe Cy&le
T$e Tra"!t!onal Mo"el of In"stry 5!fe Cy&le
Time
+
a
l
e
s
v
o
l
u
m
e
%ermentation +hakeout .aturity *ecline
Ho* Ty2!&al !s t$e 5!fe Cy&le PatternC
Ho* Ty2!&al !s t$e 5!fe Cy&le PatternC
! Te&$nology3!ntens!)e !n"str!es -e'g' 2$ar#a&et!&als4
se#!&on"&tors4 &o#2ters/ #ay reta!n featres of
e#erg!ng !n"str!es'
! (t$er !n"str!es -es2e&!ally t$ose 2ro)!"!ng +as!&
ne&ess!t!es4 e'g' foo" 2ro&ess!ng4 &onstr&t!on4 a22arel/
rea&$ #atr!ty4 +t not "e&l!ne'
! In"str!es #ay e<2er!en&e l!fe &y&le regenerat!on'
Sales Sales
?900 M0 90 0I ?9A0 M0 I0 90 0I
M(T(RC1C5ES TV.s
! 5!fe &y&le #o"el &an $el2 s to ant!&!2ate !n"stry
e)olt!on;+t "angeros to ass#e any &o##on4 2re3
"eter#!ne" 2attern of !n"stry "e)elo2#ent
Color
B6D
Porta+le
HDTV C
E)olt!on of In"stry Str&tre o)er t$e 5!fe Cy&le
E)olt!on of In"stry Str&tre o)er t$e 5!fe Cy&le
%*TR/)2,T%/* &R/>TH M!T2R%T+ )',-%*'
)'M!*) Afflent +yers In&reas!ng Mass #ar7et Fno*le"gea+le4
2enetrat!on re2la&e#ent &sto#ers4 res!3
"e#an" "al seg#ents
T',H*/-/&+ Ra2!" 2ro"&t Pro"&t an" In&re#ental Dell3"!ffse"
!nno)at!on 2ro&ess !nno)at!on !nno)at!on te&$nology
#R/)2,T" D!"e )ar!ety4 Stan"ar"!=at!on Co##o"!t!=3 Cont!ne"
ra2!" "es!gn &$ange at!on &o##o"!t!=at!on
M!*2F!,T; S$ort3rns4 s7!ll Ca2a&!ty s$ortage4 Des7!ll!ng ()er&a2a&!ty
2R%*& !ntens!)e #ass32ro"&t!on
TR!)' 33333Pro"&t!on s$!fts fro# a")an&e" to "e)elo2!ng &ontr!es33333
,/M#'T%T%/* Te&$nology3 Entry 6 e<!t S$a7eot 6 Pr!&e *ars4
&onsol!"at!on e<!t
4"Fs Pro"&t !nno)at!on Pro&ess te&$no3 Cost eff!&!en&y ()er$ea" re"3
logy' Des!gn for &t!on4 rat!on3
al!=at!on4 lo*
&ost sor&!ng
T$e Dr!)!ng 0or&es of In"stry E)olt!on
T$e Dr!)!ng 0or&es of In"stry E)olt!on
Csto#ers +e&o#e
#ore 7no*le"gea+le
6 e<2er!en&e"
D!ffs!on of
te&$nology
De#an" gro*t$
slo*s as #ar7et
satrat!on a22roa&$es
Csto#ers +e&o#e
#ore 2r!&e &ons&!os
Pro"&ts +e&o#e
#ore stan"ar"!=e"
D!str!+t!on &$annels
&onsol!"ate
Pro"&t!on s$!fts
to lo*3*age
&ontr!es
Pr!&e &o#2et!t!on
!ntens!f!es
Barga!n!ng 2o*er
of "!str!+tors
!n&reases
BASIC C(NDITI(NS IND9STR1 STR9CT9RE C(MPETITI(N
E<&ess &a2a&!ty
!n&reases
Pro"&t!on
+e&o#es less
R6D
6 s7!ll3!ntens!)e
:est for ne*
sor&es of
"!fferent!at!on
C$anges !n t$e Po2lat!on of 0!r#s o)er t$e
In"stry 5!fe Cy&le: 9S Ato In"stry ?LLM3?9J?
C$anges !n t$e Po2lat!on of 0!r#s o)er t$e
In"stry 5!fe Cy&le: 9S Ato In"stry ?LLM3?9J?
Sor&e: S' Fle22er4 %ndustrial ? ,orporate ,hange9 Agst 20024 2' JMK'
Pre2ar!ng for t$e 0tre : T$e Role of S&enar!o
Analys!s !n A"a2t!ng to In"stry C$ange
Pre2ar!ng for t$e 0tre : T$e Role of S&enar!o
Analys!s !n A"a2t!ng to In"stry C$ange
Stages !n n"erta7!ng #lt!2le S&enar!o Analys!s:
! I"ent!fy #a,or for&es "r!)!ng !n"stry &$ange
! Pre"!&t 2oss!+le !#2a&ts of ea&$ for&e on t$e !n"stry
en)!ron#ent
! I"ent!fy !ntera&t!ons +et*een "!fferent e<ternal for&es
! A#ong range of ot&o#es4 !"ent!fy 23K #ost l!7ely8 #ost
!nterest!ng s&enar!os: &onf!grat!ons of &$anges an"
ot&o#es
! Cons!"er !#2l!&at!ons of ea&$ s&enar!o for t$e &o#2any
! I"ent!fy 7ey s!gn2osts 2o!nt!ng to*ar" t$e e#ergen&e of
ea&$ s&enar!o
! Pre2are &ont!ngen&y 2lan
?LL0s ?920s ?9J0s 2000
Ma!l or"er4
&ataloge
reta!l!ng
e.g. +ears
Foebuck
C$a!n
Stores
e.g. 'C@
D!s&ont
Stores
e.g. =-.art
Nal-.art
OCategory
F!llersP
e.g. Toys-F-Ds,
Jome *epot
Internet
Reta!lers
e.g. 'ma"onE
-xpedia
Dare$ose
Cl+s
e.g. @rice #lub
+amMs #lub
Inno)at!on 6 Rene*al o)er t$e
In"stry 5!fe Cy&le: Reta!l!ng
Inno)at!on 6 Rene*al o)er t$e
In"stry 5!fe Cy&le: Reta!l!ng
C
Gary Ha#el: S$a7!ng t$e 0on"at!ons
(5D BRICF NED BRICF
To2 #anage#ent !s res2ons!+le
for sett!ng strategy
E)eryone !s res2ons!+le
for sett!ng strategy
Gett!ng +etter4 gett!ng faster
!s t$e *ay to *!n
Rle3+st!ng !nno)at!on
!s t$e *ay to *!n
IT &reates &o#2et!t!)e a")antage
9n&on)ent!onal +s!ness &on&e2ts
&reate &o#2et!t!)e a")antage
Be!ng re)olt!onary !s $!g$ r!s7 More of t$e sa#e !s $!g$ r!s7
De &an #erge or *ay to
&o#2et!t!)eness
T$ere.s no &orrelat!on +et*een
s!=e an" &o#2et!t!)eness
Inno)at!on eBals ne* 2ro"&ts
an" ne* te&$nology
Inno)at!on eBals ent!rely ne*
+s!ness &on&e2ts
Strategy !s t$e easy 2art4
I#2le#entat!on t$e $ar" 2art
Strategy !s t$e easy only !f yo.re
&ontent to +e an !#!tator
C$ange starts at t$e to2
C$ange starts *!t$ a&t!)!sts
(r real 2ro+le# !s e<e&t!on
(r real 2ro+le# !s !nno)at!on
B!g &o#2an!es &an.t !nno)ate
B!g &o#2an!es &an +e&o#e gray3$a!re"
re)olt!onar!es
An Alternate Mo"el of In"stry 5!fe Cy&le
An Alternate Mo"el of In"stry 5!fe Cy&le
Time
+
a
l
e
s
v
o
l
u
m
e
-mergence #onvergence #oexistence *ominance
-stablished
(ndustry
-merging (ndustry
T$e In"stry 5!fe Cy&le as an S &r)e
T$e In"stry 5!fe Cy&le as an S &r)e
@erformance
Time
%erment
Takeoff
.aturity
*iscontinuity
T$e S3&r)e Ma2s Ma,or Trans!t!ons
T$e S3&r)e Ma2s Ma,or Trans!t!ons
@erformance
Time
%erment
Takeoff
.aturity
*iscontinuity
RES(9RCES4
CAPABI5ITIES4 AND
C(RE C(MPETENCES
RES(9RCES4
CAPABI5ITIES4 AND
C(RE C(MPETENCES
THE 0IRM
Goals an"
Vales
Resor&es an"
Ca2a+!l!t!es
Str&tre an"
Syste#s
THE
IND9STR1
ENVIR(NMENT
!Co#2et!tors
!Csto#ers
!S22l!ers
STRATEG1
STRATEG1
The
Firm;"trategy
%nterface
The
'nvironment;"trategy
%nterface
S$!ft!ng t$e 0o&s of Strategy Analys!s:
0ro# t$e E<ternal to t$e Internal En)!ron#ent
S$!ft!ng t$e 0o&s of Strategy Analys!s:
0ro# t$e E<ternal to t$e Internal En)!ron#ent
Rat!onale for t$e Resor&e3+ase"
A22roa&$ to Strategy
Rat!onale for t$e Resor&e3+ase"
A22roa&$ to Strategy
!
D$en t$e e<ternal en)!ron#ent !s s+,e&t to
ra2!" &$ange4 !nternal resor&es an" &a2a+!l!t!es
offer a #ore se&re +as!s for strategy t$an
#ar7et fo&s'
!
Resor&es an" &a2a+!l!t!es are t$e 2r!#ary
sor&es of 2rof!ta+!l!ty'
#recision
Mechanics
Fine
/ptics
Micro;
'lectronics
AM## S5R &a#era
Co#2a&t fas$!on &a#era
E(S atofo&s &a#era
D!g!tal &a#era
V!"eo st!ll &a#era
Pla!n32a2er &o2!er
Color &o2!er
Color laser &o2!er
5aser &o2!er
Bas!& fa<
5aser fa<
Mas7 al!gners
E<&!#er laser al!gners
Ste22er al!gners
In7,et 2r!nter
5aser 2r!nter
Color )!"eo 2r!nter
Cal&lator
Note+oo7 &o#2ter
Canon: Pro"&ts an" Core Te&$n!&al Ca2a+!l!t!es
Canon: Pro"&ts an" Core Te&$n!&al Ca2a+!l!t!es
East#an Fo"a7.s D!le##a
?9L0.s
?990.s
Resor&es 6 Ca2a+!l!t!es Bs!nesses
C$e#!&al I#ag!ng
!(rgan!& C$e#!stry
!Poly#er te&$nology
!(2to#e&$tron!&s
!T$!n3f!l# &oat!ngs
Bran"s
Glo+al D!str!+t!on
0!l#
Ca#eras
DIVESTS: East#an C$e#!&al4 Sterl!ng D!nt$ro24 D!agnost!&s
Nee" to +!l" "!g!tal
!#ag!ng &a2a+!l!ty
D!g!tal I#ag!ng
Pro"&ts -e'g' P$oto CD
Syste#Q A")ant!<
&a#eras 6 f!l#
0!ne C$e#!&als
P$ar#a&et!&als
D!agnost!&s
STRATEG1
IND9STR1 FE1
S9CCESS 0ACT(RS
C(MPETITIVE
ADVANTAGE
(RGANINATI(NA5
CAPABI5ITIES
RES(9RCES
TANGIB5E INTANGIB5E H9MAN
!0!nan&!al
!P$ys!&al
!Te&$nology
!Re2tat!on
!Cltre
!S7!lls87no*3$o*
!Ca2a&!ty for
&o##n!&at!on
6 &olla+orat!on
!Mot!)at!on
T$e 5!n7s +et*een Resor&es4 Ca2a+!l!t!es
an" Co#2et!t!)e A")antage
T$e 5!n7s +et*een Resor&es4 Ca2a+!l!t!es
an" Co#2et!t!)e A")antage
A22ra!s!ng Resor&es
A22ra!s!ng Resor&es
RES(9RCE CHARACTERISTICS INDICAT(RS
0!nan&!al Borro*!ng &a2a&!ty De+t8 EB!ty rat!o
Internal fn"s generat!on Cre"!t rat!ng
Tang!+le Net &as$ flo*
Resor&es P$ys!&al Plant an" eB!2#ent: Mar7et )ale of
s!=e4 lo&at!on4 te&$nology f!<e" assets'
fle<!+!l!ty' S&ale of 2lants
5an" an" +!l"!ngs' Alternat!)e ses for
Ra* #ater!als' f!<e" assets
Te&$nology Patents4 &o2yr!g$ts4 7no* $o* No' of 2atents o*ne"
R6D fa&!l!t!es' Royalty !n&o#e
Intang!+le Te&$n!&al an" s&!ent!f!& R6D e<2en"!tre
Resor&es e#2loyees R6D staff
Re2tat!on Bran"s' Csto#er loyalty' Co#2any Bran" eB!ty
re2tat!on -*!t$ s22l!ers4 &sto#ers4 Csto#er retent!on
go)ern#ent/ S22l!er loyalty
H#an Tra!n!ng4 e<2er!en&e4 a"a2ta+!l!ty4 E#2loyee Bal!f!&at!ons4
Resor&es &o##!t#ent an" loyalty of e#2loyees 2ay rates4 trno)er'
T$e Dorl".s Most Vala+le Bran"s4 200J
T$e Dorl".s Most Vala+le Bran"s4 200J
Rank ,ompany =rand Rank ,ompany =rand
value value
6@$n.8 6@$n.8
? Co&a3Cola JI'M ?? Mer&e"es Ben= 20'0
2 M!&rosoft M9'9 ?2 C!t! 20'0
A IBMMA'K ?A He*lett3Pa&7ar" ?L'9
K GE KI'0 ?K A#er!&an E<2ress ?L'J
M Intel AM'J ?M G!llette ?I'M
J No7!a 2J'M ?J BMD ?I'?
I D!sney 2J'K ?I C!s&o ?J'J
L M&Donal".s 2J'0 ?L 5o!s V!tton ?J'?
9 Toyota 2K'L ?9 Hon"a ?M'L
?0 Marl+oro 2?'2 20 Sa#sng ?M'0
$tt2:88***'!nter+ran"'&o#8+estR+ran"sR200I'as2 "ource: Inter+ran"
/rganizational ,apa$ilities P firmMs capacity for
undertaking a particular activity. 3,rant5
)istinctive ,ompetence P things that an organi"ation
does particularly well relative to competitors. 3+el"nick5
,ore ,ompetence P capabilities that are fundamental to a
firmMs strategy and performance. 3Jamel and @rahalad5
Def!n!ng (rgan!=at!onal Ca2a+!l!t!es
Def!n!ng (rgan!=at!onal Ca2a+!l!t!es
I"ent!fy!ng (rgan!=at!onal Ca2a+!l!t!es:
A 0n&t!onal Class!f!&at!on
I"ent!fy!ng (rgan!=at!onal Ca2a+!l!t!es:
A 0n&t!onal Class!f!&at!on
09NCTI(N CAPABI5IT1 ESEMP5ARS
Cor2orate 0!nan&!al #anage#ent E<<onMo+!l4 GE
Manage#ent Strateg!& &ontrol IBM4 Sa#sng
Coor"!nat!ng +s!ness n!ts BP4 P6G
Manag!ng a&B!s!t!ons C!t!gro24 C!s&o
MIS S2ee" an" res2ons!)eness t$rog$ Dal3Mart4 Dell
ra2!" !nfor#at!on transfer Ca2!tal (ne
R6D Resear&$ &a2a+!l!ty Mer&74 IBM
De)elo2#ent of !nno)at!)e ne* 2ro"&ts A22le4 AM
Manfa&tr!ng Eff!&!ent )ol#e #anfa&tr!ng Br!ggs 6 Stratton
Cont!nos I#2ro)e#ent N&or4 Harley3D
0le<!+!l!ty Nara4 0or Seasons
Des!gn Des!gn Ca2a+!l!ty A22le4 No7!a
Mar7et!ng Bran" Manage#ent P6G4 5VMH
:al!ty re2tat!on To$nson 6 To$nson
Res2ons!)eness to #ar7et tren"s MTV4 5.(real
Sales4 D!str!+t!on Sales Res2ons!)eness Pe2s!Co4 Pf!=er
6 Ser)!&e Eff!&!en&y an" s2ee" of "!str!+t!on 55 Bean4 Dell
Csto#er Ser)!&e S!nga2ore A!rl!nes
Cater2!llar
T$e Vale C$a!n:
T$e M&F!nsey Bs!ness Syste#
T$e Vale C$a!n:
T$e M&F!nsey Bs!ness Syste#
TECHN(5(G1 PR(D9CT DESIGN MAN90ACT9RING MARFETING DISTRIB9TI(N SERVICE
T$e Porter Vale C$a!n
T$e Porter Vale C$a!n
0IRM IN0RASTR9CT9RE
H9MAN RES(9RCE MANAGEMENT
TECHN(5(G1 DEVE5(PMENT
PR(C9REMENT
INB(9ND (PERATI(NS (9TB(9ND MARFETING SERVICE
5(GISTICS 5(GISTICS 6 SA5ES
PRIMAR1
ACTIVITIES
S9PP(RT
ACTIVITIES
S&ar&!ty
Rele)an&e
Dra+!l!ty
Transfera+!l!ty
Re2l!&a+!l!ty
Pro2erty r!g$ts
Relat!)e
+arga!n!ng 2o*er
E#+e""e"ness
THE ESTENT (0 THE
C(MPETITIVE ADVANTAGE
ESTAB5ISHED
S9STAINABI5IT1 (0 THE
C(MPETITIVE
ADVANTAGE
APPR(PRIABI5IT1
THE PR(0IT
EARNING P(TENTIA5
(0 A RES(9RCE (R
CAPABI5IT1
T$e Rent3Earn!ng Potent!al
of Resor&es an" Ca2a+!l!t!es
T$e Rent3Earn!ng Potent!al
of Resor&es an" Ca2a+!l!t!es
%mportance
>As
Relative
"trength
C?' Pro"&t
"e)elo2#ent
9 K
C2' Pr&$as!ng I M
CA' Eng!neer!ng I 9
CK' Manfa&tr!ng L I
CM' 0!nan&!al
#anage#ent
J A
CJ' R6D J K
CI' Mar7et!ng 6
sales
9 K
CL' Go)ern#ent
relat!ons
K L
%mportan
ce
>As
Relative
"trength
R?' 0!nan&e J K
R2' Te&$nology I M
RA' Plant an"
eB!2#ent
L L
RK' 5o&at!on I K
RM' D!str!+t!on L M
RES(9RCES CAPABI5ITIES
Assess!ng a Co#2an!es Resor&es
an" Ca2a+!l!t!es: T$e Case of VD
Assess!ng a Co#2an!es Resor&es
an" Ca2a+!l!t!es: T$e Case of VD
R
e
l
a
t
!
)
e
S
t
r
e
n
g
t
$
Strateg!& I#2ortan&e
"uperfluous "trengths
4ey "trengths
Bone of %rrelevance 4ey >eaknesses
1
1
5 10
5
10
R?
R2
RA
RK
RM
C?
C2
CA
CK
CM
CJ CI
CL
A22ra!s!ng VD.s Resor&es an" Ca2a+!l!t!es
A22ra!s!ng VD.s Resor&es an" Ca2a+!l!t!es
-Hy2ot$et!&al only/
A22roa&$es to Ca2a+!l!ty De)elo2#ent
A22roa&$es to Ca2a+!l!ty De)elo2#ent
?/ A&B!re an" "e)elo2 t$e n"erly!ng resor&es' Es2e&!ally
$#an resor&es
33E<ternally -$!r!ng/
33Internally t$rog$ "e)elo2!ng !n"!)!"al s7!lls
2/ A&B!re8a&&ess &a2a+!l!t!es e<ternally t$rog$ a&B!s!t!on or
all!an&e
A/ Greenf!el" "e)elo2#ent of &a2a+!l!t!es !n se2arate
organ!=at!onal n!t -IBM 6 t$e PC4 Sero< 6 PARC4 GM 6 Satrn/
K/ B!l" tea#3+ase" &a2a+!l!t!es t$rog$ tra!n!ng an" tea#
"e)elo2#ent -!'e' "e)elo2 organizational routines/
M/ Al!gn str&tre 6 syste#s *!t$ reB!re" &a2a+!l!t!es
J/ C$ange #anage#ent to transfor# )ales an" +e$a)!ors -GE4
BP/
I/ Pro"&t seBen&!ng -Intel 4 Sony4 Hyn"a!/
L/ Fno*le"ge Manage#ent -syste#at!& a22roa&$es to a&B!r!ng4
stor!ng4 re2l!&at!ng4 an" a&&ess!ng 7no*le"ge/
?/ A&B!re an" "e)elo2 t$e n"erly!ng resor&es' Es2e&!ally
$#an resor&es
33E<ternally -$!r!ng/
33Internally t$rog$ "e)elo2!ng !n"!)!"al s7!lls
2/ A&B!re8a&&ess &a2a+!l!t!es e<ternally t$rog$ a&B!s!t!on or
all!an&e
A/ Greenf!el" "e)elo2#ent of &a2a+!l!t!es !n se2arate
organ!=at!onal n!t -IBM 6 t$e PC4 Sero< 6 PARC4 GM 6 Satrn/
K/ B!l" tea#3+ase" &a2a+!l!t!es t$rog$ tra!n!ng an" tea#
"e)elo2#ent -!'e' "e)elo2 organizational routines/
M/ Al!gn str&tre 6 syste#s *!t$ reB!re" &a2a+!l!t!es
J/ C$ange #anage#ent to transfor# )ales an" +e$a)!ors -GE4
BP/
I/ Pro"&t seBen&!ng -Intel 4 Sony4 Hyn"a!/
L/ Fno*le"ge Manage#ent -syste#at!& a22roa&$es to a&B!r!ng4
stor!ng4 re2l!&at!ng4 an" a&&ess!ng 7no*le"ge/
C(MPETITIVE
ADVANTAGE AND THE
SC(PE (0 THE 0IRM
C(MPETITIVE
ADVANTAGE AND THE
SC(PE (0 THE 0IRM
0ro# Bs!ness Strategy to Cor2orate
Strategy: T$e S&o2e of t$e 0!r#
0ro# Bs!ness Strategy to Cor2orate
Strategy: T$e S&o2e of t$e 0!r#
!
=usiness "trategy !s &on&erne" *!t$ how a f!r#
&o#2tes *!t$!n a 2art!&lar #ar7et
!
,orporate "trategy !s &on&erne" *!t$ where a
f!r# &o#2etes4 !'e' t$e scope of !ts a&t!)!t!es
!
T$e "!#ens!ons of s&o2e are
!
2ro"&t s&o2e
!
)ert!&al s&o2e
!
geogra2$!&al s&o2e
P
?
P
2
P
A
C
?
C
2
C
A
ertical#roduct &eographical
"cope "cope "cope
V
?
V
2
V
A
P
A
P
2
P
?
C
A
C
2
C
?
V
?
V
2
V
A
C!D "ingle
%ntegrated
Firm
C=D "everal
"pecialized
Firms linked
$y Markets
In s!tat!on UAV t$e +s!ness n!ts are !ntegrate" *!t$!n a s!ngle f!r#'
In s!tat!on UBV t$e +s!ness n!ts are !n"e2en"ent f!r#s l!n7e" +y #ar7ets'
Are t$e a"#!n!strat!)e &osts of t$e !ntegrate" f!r# less t$an t$e transa&t!on
&osts of #ar7etsC
Transactions Costs and the
Scope of the Firm
Transactions Costs and the
Scope of the Firm
Deter#!nants of C$anges !n Cor2orate S&o2e
Deter#!nants of C$anges !n Cor2orate S&o2e
?L00 W ?9L0 E<2an"!ng s&ale an" s&o2e of !n"str!al &or2orat!ons "e to
"e&l!n!ng a"#!n!strat!)e &osts of f!r#s:
! A")an&es !n trans2ortat!on4 !nfor#at!on an" &o##n!&at!on
te&$nolog!es
! A")an&es !n #anage#ent;a&&ont!ng syste#s4 "e&!s!on s&!en&es4
f!nan&!al te&$n!Bes4 organ!=at!onal !nno)at!ons4 s&!ent!f!& #anage#ent
?9L0 W ?99M S$r!n7!ng s!=e an" s&o2e of +!ggest !n"str!al &or2orat!ons'
In&reas!ngly In&rease" no' of #anager!al A"#!n' &osts of
tr+lent "e&!s!ons' Nee" for fast f!r#s r!se relat!)e
e<ternal res2onses to e<ternal to transa&t!on
en)!ron#ent &$ange &osts of #ar7ets
?99M W 200I Ra2!" !n&rease !n glo+al &on&entrat!on -steel4 al#!n!#4
o!l4 +eer4 +an7!ng4 &e#ent/'
Fey "r!)ers: Best for #ar7et 2o*er an" s&ale e&ono#!es'
Also4 large &or2orat!ons +etter at re&on&!l!ng s!=e *!t$ ag!l!ty
RATE (0 PR(0IT
@ C(ST (0 CAPITA5
IND9STR1
ATTRACTIVENESS
C(MPETITIVE
ADVANTAGE
T$e Bas!& Isses !n D!)ers!f!&at!on De&!s!ons
T$e Bas!& Isses !n D!)ers!f!&at!on De&!s!ons
S2er!or 2rof!t "er!)es fro# t*o sor&es:
D!)ers!f!&at!on "e&!s!ons !n)ol)e t$ese sa#e t*o !sses:
! Ho* attra&t!)e !s t$e se&tor to +e entere"C
!Can t$e f!r# a&$!e)e a &o#2et!t!)e a")antageC
D!)ers!f!&at!on a#ong t$e 9S 0ortne M004 ?9K93IK
D!)ers!f!&at!on a#ong t$e 9S 0ortne M004 ?9K93IK
Per&entage of S2e&!al!=e" Co#2an!es -s!ngle3+s!ness4
)ert!&ally3!ntegrate" an" "o#!nant3+s!ness/
Per&entage of D!)ers!f!e" Co#2an!es -relate"3+s!ness
an" nrelate" +s!ness/
*ote: )uring the
E<s and :<s the trend reversed as largecompanies refocused upon their core $usinesses
?9K9 ?9MK ?9M9 ?9JK ?9J9 ?9IK
I0'2 JA'M MA'I MA'9 A9'9 AI'0
29'L AJ'M KJ'A KJ'? J0'? JA'0
0
10
20
30
40
50
60
70
1950 1960 1970 1983 1993
Singe !"siness
#ominant
!"siness
$eated !"siness
%nreated
!"siness
D!)ers!f!&at!on a#ong 5arge 9F
Cor2orat!ons4 ?9M039A
D!)ers!f!&at!on a#ong 5arge 9F
Cor2orat!ons4 ?9M039A
Mot!)es for D!)ers!f!&at!on
Mot!)es for D!)ers!f!&at!on
GR(DTH 33T$e "es!re to es&a2e stagnant or "e&l!n!ng !n"str!es
!s a 2o*erfl #ot!)e for "!)ers!f!&at!on -e'g' to+a&&o4
o!l4 ne*s2a2ers/'
33=ut4 gro*t$ sat!sf!es managers not shareholders'
33Gro*t$ strateg!es -es2' +y a&B!s!t!on/4 ten" to
"estroy s$are$ol"er )ale
RISF 33D!)ers!f!&at!on re"&es )ar!an&e of 2rof!t flo*s
SPREADING 33=ut4 "oesn.t &reate )ale for s$are$ol"ers;t$ey &an
$ol" "!)ers!f!e" 2ortfol!os of se&r!t!es'
33Ca2!tal Asset Pr!&!ng Mo"el s$o*s t$at "!)ers!f!&at!on
lo*ers unsystematic risk not systematic risk'
PR(0IT 330or "!)ers!f!&at!on to &reate s$are$ol"er )ale4 t$en
+r!ng!ng toget$er of "!fferent +s!nesses n"er
&o##on o*ners$!2 6 #st so#e$o* !n&rease
t$e!r 2rof!ta+!l!ty'
D!)ers!f!&at!on an" S$are$ol"er Vale:
Porter.s T$ree Essent!al Tests
D!)ers!f!&at!on an" S$are$ol"er Vale:
Porter.s T$ree Essent!al Tests
If "!)ers!f!&at!on !s to &reate s$are$ol"er )ale4 !t #st #eet
t$ree tests:
?' The !ttractiveness Test: "!)ers!f!&at!on #st +e "!re&te"
to*ar"s attra&t!)e !n"str!es -or $a)e t$e 2otent!al to
+e&o#e attra&t!)e/'
2' The ,ost of 'ntry Test: t$e &ost of entry #st not &a2!tal!=e
all ftre 2rof!ts'
A' The =etter;/ff Test: e!t$er t$e ne* n!t #st ga!n
&o#2et!t!)e a")antage fro# !ts l!n7 *!t$ t$e &o#2any4 or
)!&e3)ersa' -!'e' so#e for# of OsynergyF #st +e 2resent/
A""!t!onal sor&e of )ale fro# "!)ers!f!&at!on: (2t!on )ale
Co#2et!t!)e A")antage fro# D!)ers!f!&at!on
Co#2et!t!)e A")antage fro# D!)ers!f!&at!on
! S$ar!ng tang!+le resor&es -resear&$ la+s4 "!str!+t!on
syste#s/ a&ross #lt!2le +s!nesses
! S$ar!ng !ntang!+le resor&es -+ran"s4 te&$nology/ a&ross
#lt!2le +s!nesses
! Transferr!ng fn&t!onal &a2a+!l!t!es -#ar7et!ng4 2ro"&t
"e)elo2#ent/ a&ross +s!nesses
! A22ly!ng general #anage#ent &a2a+!l!t!es to #lt!2le
+s!nesses
! E&ono#!es of s&o2e not a sff!&!ent +as!s for
"!)ers!f!&at!on 3333#st +e s22orte" +y transa&t!on &osts
! D!)ers!f!&at!on f!r# &an a)o!" transa&t!on &osts +y
o2erat!ng !nternal &a2!tal an" la+or #ar7ets
! Fey a")antage of "!)ers!f!e" f!r# o)er e<ternal #ar7ets333
s2er!or a&&ess to !nfor#at!on
EC(N(MIES
(0
SC(PE
EC(N(MIES
0R(M
INTERNA5INING
TRANSACTI(NS
Relate"ness !n D!)ers!f!&at!on
Relate"ness !n D!)ers!f!&at!on
E&ono#!es of s&o2e !n "!)ers!f!&at!on "er!)e fro# t*o
ty2es of relate"ness:
! /perational Relatedness33 synerg!es fro# s$ar!ng
resor&es a&ross +s!nesses -&o##on "!str!+t!on
fa&!l!t!es4 +ran"s4 ,o!nt R6D/
! "trategic Relatedness33 synerg!es at t$e &or2orate le)el
"er!)!ng fro# t$e a+!l!ty to a22ly &o##on #anage#ent
&a2a+!l!t!es to "!fferent +s!nesses'
#ro$lem of operational relatedness:3 t$e +enef!ts !n ter#s
of e&ono#!es of s&o2e #ay +e "*arfe" +y t$e
a"#!n!strat!)e &osts !n)ol)e" !n t$e!r e<2lo!tat!on'
Transa&t!ons Costs an" T$e
E<!sten&e of t$e 0!r#
Transa&t!ons Costs an" T$e
E<!sten&e of t$e 0!r#
! Transa&t!on &ost t$eory e<2la!ns not ,st t$e $oundaries
of firms4 also t$e existence of firms'
! In ?Lt$ &entry Engl!s$ *oollen !n"stry4 no f!r#s W
!n"e2en"ent s2!nners an" *ea)ers l!n7e" +y #er&$ants'
! Res!"ent!al re#o"el!ng !n"stry 33 #a!nly !n"e2en"ent self3
e#2loye" +!l"ers4 2l#+ers4 ele&tr!&!ans4 2a!nters'
! Fey !sse 33 transa&t!on &osts of t$e #ar7et )s'
a"#!n!strat!)e &osts of f!r#s'
! D$ere transa&t!on &osts $!g$;f!r# !s #ore eff!&!ent #eans
of organ!=at!on
*ote: transa&t!on &osts &o#2r!se &osts of sear&$ an" &ontra&t
negot!at!on an" enfor&e#ent
T$e Costs an" Benef!ts of Vert!&al
Integrat!on: BENE0ITS
T$e Costs an" Benef!ts of Vert!&al
Integrat!on: BENE0ITS
! Te&$n!&al e&ono#!es fro# !ntegrat!ng 2ro&esses e'g' !ron
an" steel 2ro"&t!on
;+t "oesn.t ne&essar!ly reB!re &o##on o*ners$!2
! S2er!or &oor"!nat!on
! A)o!"s transa&t!ons &osts of #ar7et &ontra&ts !n s!tat!ons
*$ere t$ere are:
33 s#all n#+ers of f!r#s
33 transa&t!on3s2e&!f!& !n)est#ents
33 o22ortn!s# an" strateg!& #!sre2resentat!on
33 ta<es an" reglat!ons on #ar7et transa&t!ons
T$e Costs an" Benef!ts of Vert!&al
Integrat!on: C(STS
T$e Costs an" Benef!ts of Vert!&al
Integrat!on: C(STS
! D!fferen&es !n o2t!#al s&ale of o2erat!on +et*een "!fferent
stages 2re)ents +alan&e" VI
! Strateg!& "!fferen&es +et*een "!fferent )ert!&al stages &reate
#anage#ent "!ff!<!es
! In$!+!ts "e)elo2#ent of an" e<2lo!tat!on of &ore
&o#2eten&!es
! 5!#!ts fle<!+!l!ty 33 !n res2on"!ng to "e#an" &y&les
33 !n res2on"!ng to &$anges !n te&$nology4
&sto#er 2referen&es4 et&'
-Bt4 VI #ay +e &on"&!)e to system;wide flexi$ility8
! Co#2on"!ng of r!s7
D$en !s Vert!&al Integrat!on More Attra&t!)e
t$an (tsor&!ngC
D$en !s Vert!&al Integrat!on More Attra&t!)e
t$an (tsor&!ngC
Ho* #any f!r#s are a)a!la+le T$e fe*er t$e &o#2an!es
to n"erta7e t$e a&t!)!t!esC t$e #ore attra&t!)e !s VI
Is transa&t!on3s2e&!f!& !n)est#ent If yes4 VI #ore attra&t!)e
nee"e"C
Does l!#!te" !nfor#at!on 2er#!t VI &an l!#!t o22ortn!s#
&$eat!ngC
Are ta<es or reglat!on !#2ose" VI &an a)o!" t$e#
on transa&t!onsC
Do t$e "!fferent stages $a)e s!#!lar Greater t$e s!#!lar!ty4 t$e
o2t!#al s&ales of o2erat!onC #ore attra&t!)e !s VI
Are t$e t*o stages strateg!&ally Greater t$e strateg!&
s!#!larC s!#!lar!ty 333t$e #ore attra&t!)e !s VI
Ho* great t$e nee" for entre2reners$!2 Greater t$e nee"4 t$e greater
6 &ont!nal 2gra"!ng of &a2a+!l!t!es t$e "!sa")antages of VI
Ho* n&erta!n !s #ar7et "e#an"C Greater t$e n2re"!&ta+!l!ty
3333t$e #ore &ostly !s VI
Are r!s7s &o#2on"e" +y VI !n&reases r!s7'
l!n7ages +et*een )ert!&al stages
Iron ore
#!n!ng
Steel
2ro"&t!on
Steel str!2
2ro"&t!on
Can
#a7!ng
T$e )ale &$a!n for steel &ans
MARFET
C(NTRACTS
VERTICA5
INTEGRATI(N
MARFET
C(NTRACTS
Cann!ng of
foo"4 "r!n74
o!l4 et&'
VERTICA5
INTEGRATI(N4
AND MARFET
C(NTRACTS
>hat factors explain why some stages are vertically integrated9
while others are linked $y market transactionsG
Des!gn!ng Vert!&al Relat!ons$!2s: 5ong3Ter#
Contra&ts an" :as!3Vert!&al Integrat!on
Des!gn!ng Vert!&al Relat!ons$!2s: 5ong3Ter#
Contra&ts an" :as!3Vert!&al Integrat!on
! Inter#e"!ate +et*een s2ot transa&t!ons an" )ert!&al
!ntegrat!on are se)eral ty2es of )ert!&al relat!ons$!2s
333s&$ relat!ons$!2s #ay &o#+!ne +enef!ts of +ot$ #ar7et
transa&t!ons an" !nternal!=at!on
! Fey !sses !n "es!gn!ng )ert!&al relat!ons$!2s
33 Ho* !s r!s7 allo&ate" +et*een t$e 2art!esC
33 Are t$e !n&ent!)es a22ro2r!ateC
Re&ent Tren"s !n Vert!&al Relat!ons$!2s
Re&ent Tren"s !n Vert!&al Relat!ons$!2s
! 0ro# competitive contracting to supplier partnerships9 e'g'
!n atos
! 0ro# )ert!&al !ntegrat!on to otsor&!ng -not ,st
&o#2onents4 also IT4 "!str!+t!on4 an" a"#!n!strat!)e
ser)!&es/'
! D!ffs!on of fran&$!s!ng
! Te&$nology 2artners$!2s -e'g' IBM3 A22leQ Canon3 HP/
! Inter3f!r# net*or7s
&eneral conclusion: +on"ar!es +et*een f!r#s an"
#ar7ets +e&o#!ng !n&reas!ngly +lrre"'
Patterns of Internat!onal!=at!on
Patterns of Internat!onal!=at!on
Tra"!ng Glo+al
In"str!es In"str!es
33aeros2a&e 33ato#o+!les
33#!l!tary $ar"*are 33o!l
33"!a#on" #!n!ng 33se#!&on"&tors
33agr!<re 33&ons#er ele&tron!&s
Do#est!& Mlt!"o#est!&
In"str!es In"str!es
33ra!lroa"s
33lan"r!es8"ry &lean!ng 33reta!l +an7!ng
33$a!r"ress!ng 33$otels
33#!l7 33&onslt!ng
I
n
t
e
r
n
a
t
!
o
n
a
l
T
r
a
"
e
0ore!gn D!re&t In)est#ent
5
(
D
5(D
H
I
G
H
HIGH
I#2l!&at!ons of Internat!onal!=at!on
for In"stry Analys!s
I#2l!&at!ons of Internat!onal!=at!on
for In"stry Analys!s
IND9STR1 STR9CT9RE
! 5o*er entry +arr!ers aron" nat!onal #ar7ets
! In&rease" !n"stry r!)alry 333 lo*er seller &on&entrat!on
333 greater "!)ers!ty of &o#2et!tors
! In&rease" +yer 2o*er: *!"er &$o!&e for "ealers 6 &ons#ers
C(MPETITI(N
! In&rease" !ntens!ty of &o#2et!t!on
PR(0ITABI5IT1
! (t$er t$!ngs re#a!n!ng eBal4 !nternat!onal!=at!on ten"s to
re"&e an !n"stry.s #arg!ns 6 rate of retrn on &a2!tal
C(MPETITIVE
ADVANTAGE
THE IND9STR1
ENVIR(NMENT
Fey S&&ess 0a&tors
0IRM RES(9RCES
6 CAPABI5ITIES
33 0!nan&!al resor&es
33 P$ys!&al resor&es
33 Te&$nology
33 Re2tat!on
33 0n&t!onal &a2a+!l!t!es
33 General #anage#ent
&a2a+!l!t!es
THE NATI(NA5 ENVIR(NMENT
33 Nat!onal resor&es an" &a2a+!l!t!es -ra* #ater!alsQ
nat!onal <reQ $#an resor&esQ trans2ortat!on4
&o##n!&at!on4 legal !nfrastr&tre
33 Do#est!& #ar7et &on"!t!ons
33 Go)ern#ent 2ol!&!es
33 E<&$ange rates
33 Relate" an" s22ort!ng !n"str!es
Co#2et!t!)e A")antage *!t$!n an Internat!onal
Conte<t: T$e Bas!& 0ra#e*or7
Co#2et!t!)e A")antage *!t$!n an Internat!onal
Conte<t: T$e Bas!& 0ra#e*or7
Nat!onal Inflen&es on
Co#2et!t!)eness: T$e T$eory of
Co#2arat!)e A")antage
Nat!onal Inflen&es on
Co#2et!t!)eness: T$e T$eory of
Co#2arat!)e A")antage
A &ontry $as a relat!)e eff!&!en&y a")antage !n t$ose 2ro"&ts
t$at #a7e !ntens!)e se of resor&es t$at are relat!)ely
a+n"ant *!t$!n t$e &ontry' E'g'
! P$!l!22!nes relat!)ely #ore eff!&!ent !n t$e 2ro"&t!on of
foot*ear4 a22arel4 an" asse#+le" ele&tron!& 2ro"&ts t$an !n
t$e 2ro"&t!on of &$e#!&als an" ato#o+!les'
! 9'S' !s relat!)ely #ore eff!&!ent !n t$e 2ro"&t!on of
se#!&on"&tors an" 2$ar#a&et!&als t$an s$oes or s$!rts.
>hen exchange rates are well;$ehaved9 comparative
advantage $ecomes competitive advantage.
Re)eale" Co#2arat!)e A")antage for
Certa!n Broa" Pro"&t Categor!es
Re)eale" Co#2arat!)e A")antage for
Certa!n Broa" Pro"&t Categor!es
9SA Cana"a D' Ger#any Italy Ta2an
0oo"4 "r!n7 6 to+a&&o 'A? '2L 3'AJ 3'29 3'LM
Ra* #ater!als 'KA 'M? 3'MM 3'A0 3'LL
(!l 6 ref!ne" 2ro"&ts 3'JK 'AK 3'I2 3'IK 3'99
C$e#!&als 'K2 3'?J '20 3'0J 3'ML
Ma&$!nery an" trans3 '?2 3'?9 'AK '22 'L0
2ortat!on eB!2#ent
(t$er #anfa&trers 3'JL 3'0I '0? '29 'K0
*ote: Re)eale" &o#2arat!)e a")antage for ea&$ 2ro"&t gro2
!s #easre" as: -E<2orts less I#2orts/8 Do#est!& 2ro"&t!on
Porter.s Co#2et!t!)e A")antage
of Nat!ons
Porter.s Co#2et!t!)e A")antage
of Nat!ons
E<ten"s an" a"a2ts tra"!t!onal t$eory of &o#2arat!)e
a")antage to ta7e a&&ont of t$ree fa&tors:
?
Internat!onal &o#2et!t!)e a")antage !s a+ot companies
not countriesHt$e role of t$e nat!onal en)!ron#ent !s
2ro)!"!ng a home $ase for t$e &o#2any'
?
Ssta!ne" &o#2et!t!)e a")antage "e2en"s 2on dynamic
fa&tors33 innovation an" t$e upgrading of resor&es an"
&a2a+!l!t!es
?
T$e &r!t!&al role of t$e nat!onal en)!ron#ent !s !ts !#2a&t
2on t$e "yna#!&s of !nno)at!on an" 2gra"!ng'
0ACT(R C(NDITI(NS
DEMAND
C(NDITI(NS
RE5ATING AND
S9PP(RTING
IND9STRIES
STRATEG14 STR9CT9RE4
AND RIVA5R1
Porter.s Nat!onal D!a#on" 0ra#e*or7
Porter.s Nat!onal D!a#on" 0ra#e*or7
?' 0ACT(R C(NDITI(NS;IHome grownF resor&es8&a2a+!l!t!es #ore !#2ortant
t$an natural endowments.
2' RE5ATED AND S9PP(RTING IND9STRIES;Fey role of O!n"stry &lstersP
A' DEMAND C(NDITI(NS;D!s&ern!ng "o#est!& &sto#ers "r!)e Bal!ty 6 !nno)at!on
K' STRATEG14 STR9CT9RE4 RIVA5R1' E'g' "o#est!& r!)alry "r!)es 2gra"!ng'
Cons!sten&y Bet*een Strategy
an" Nat!onal Con"!t!ons
Cons!sten&y Bet*een Strategy
an" Nat!onal Con"!t!ons
In glo+ally3&o#2et!t!)e !n"str!es4 f!r# strategy nee"s to
ta7e a&&ont of nat!onal &on"!t!ons:
& 9'S' te<t!le #anfa&trers #st &o#2ete on t$e +as!s of
a")an&e" 2ro&ess te&$nolog!es an" fo&s on $!g$ Bal!ty4
less 2r!&e3sens!t!)e #ar7et seg#ents
& In t$e se#!&on"&tor !n"stry4 CA3+ase" f!r#s &on&entrate
#a!nly 2on "es!gn of a")an&e" &$!2s4 Malays!an f!r#s
&on&entrate 2on fa+r!&at!on of $!g$ )ol#e4 less
te&$nolog!&ally a")an&e" !te#s -e'g' DRAM &$!2s/
& D!s2ers!on of )ale &$a!n to e<2lo!t "!fferent nat!onal
en)!ron#ents -e'g' N!7e &on"&ts R6D !n 9S4 &o#2onents !n
Forea an" T$a!lan"4 asse#+ly !n In"ones!a4 C$!na4 an" In"!a4
#ar7et!ng !n Ero2e an" Nort$ A#er!&a/
Internat!onal 5o&at!on of Pro"&t!on
Internat!onal 5o&at!on of Pro"&t!on
& *ational resource conditions: D$at are t$e #a,or
resor&es *$!&$ t$e 2ro"&t reB!resC D$ere are t$ese
a)a!la+le at lo* &ostC
& Firm;specific advantages: to *$at e<tent !s t$e
&o#2any.s &o#2et!t!)e a")antage +ase" 2on f!r#3
s2e&!f!& resor&es an" &a2a+!l!t!es4 an" are t$ese
transfera+leC
& Trada$ility issues: Can t$e 2ro"&t +e trans2orte" at
e&ono#!& &ostC If not4 or !f tra"e restr!&t!ons e<!st4 t$en
2ro"&t!on #st +e &lose to t$e #ar7et'
T$e Role of 5a+or Costs
T$e Role of 5a+or Costs
Hourly ,ompensation for #roduction >orkers9
:: 6@8Ger#any 2J'9A
Ta2an 20'L9
9'S' ?9'20 0ran&e ?9'9L 9'F' ?J'MJ
S2a!n ?2'??
Forea J'IM Me<!&o 2'?2
=2T4 *ages are only one ele#ent of &osts:
,ost of #roducing a ,ompact !utomo$ile
9'S' Me<!&o Parts 6 &o#2onents I4IM0 L4000 5a+or
I00 K0 S$!22!ng &ost A00 ?4000 In)entory 20
K0 T(TA5 L4II0 94?L0
5o&at!on an" t$e Vale C$a!n
5o&at!on an" t$e Vale C$a!n
Co#2arat!)e a")antage !n te<t!les an" a22arel +y stage of 2ro&ess!ng
Hong Fong ? 30'9J
2 30'L?
A 30'K?
K E0'IM
Italy ? 30'MK
2 E0'?L
A E0'?K
K E0'I2
Ta2an ? 30'AJ
2 E0'KL
A E0'KL
K 30'KL
9'S'A' ? E0'9J
2 E0'JK
A E0'22
K 30'IA
,ountry "tage %ndex of ,ountry "tage %ndex of
of Revealed of Revealed
#rocessing ,omparative #rocessing ,omparative
!dvantage !dvantage
*ote:
? > 2ro"&t!on of f!+er -natral 6 synt$et!&/ 2 > 2ro"&t!on of s2n yarn
A > 2ro"&t!on of te<t!les K > 2ro"&t!on of &lot$!ng
T$e o2t!#al lo&at!on
of a&t!)!ty S &ons!"ere"
!n"e2en"ently
DHERE T( 5(CATE
ACTIVIT1 SC
T$e !#2ortan&e of l!n7s
+et*een a&t!)!ty S an"
ot$er a&t!)!t!es of t$e f!r#
D$ere !s t$e o2t!#al lo&at!on
of S !n ter#s of t$e &ost an"
a)a!la+!l!ty of !n2tsC
D$at go)ern#ent !n&ent!)es8 2enalt!es
affe&t t$e lo&at!on "e&!s!onC
D$at !nternal
resor&es an" &a2a+!l!t!es "oes t$e f!r#
2ossess !n 2art!&lar lo&at!onsC
D$at !s t$e f!r#.s +s!ness strategy
-e'g' &ost )s' "!fferent!at!on a")antage/C
Ho* great are t$e &oor"!nat!on
+enef!ts fro# &o3lo&at!ng a&t!)!t!esC
Deter#!n!ng t$e (2t!#al 5o&at!on
of Vale C$a!n A&t!)!t!es
Deter#!n!ng t$e (2t!#al 5o&at!on
of Vale C$a!n A&t!)!t!es
Resource commitment
TRANSACTI(NS DIRECT INVESTMENT
S2ot
sales
E<2ort!ng
0ore!gn
agent 8
"!str!+tor
5!&ens!ng
0ran&$!s!ng
To!nt )entre
Mar7et!ng 6
D!str!+t!on
only
5ong3
ter#
&ontra&t
5!&ens!ng
2atents 6
ot$er IP
0lly
!ntegrate"
D$olly
o*ne"
s+s!"!ary
Mar7et!ng6
D!str!+t!on
only
0lly
!ntegrate"
5o* H!g$
Alternat!)e Mo"es of ()erseas Mar7et Entry
Alternat!)e Mo"es of ()erseas Mar7et Entry
All!an&es an" To!nt Ventres:
Manage#ent Isses
All!an&es an" To!nt Ventres:
Manage#ent Isses
! Benef!ts:
33Co#+!n!ng resor&es an" &a2a+!l!t!es of "!fferent &o#2an!es
335earn!ng fro# one anot$er
33Re"&!ng t!#e3to3#ar7et for !nno)at!ons
33R!s7 s$ar!ng
! Pro+le#s:
33Manage#ent "!fferen&es +et*een t$e t*o 2artners' Confl!&t
#ost l!7ely *$ere t$e 2artners are also &o#2et!tors'
! Benef!ts are sel"o# s$are" eBally' D!str!+t!on of +enef!ts
"eter#!ne" +y:
& Strateg!& !ntent of t$e 2artners3 *$!&$ 2artner $as t$e &learer
)!s!on of t$e 2r2ose of t$e all!an&eC
& A22ro2r!a+!l!ty of t$e &ontr!+t!on33 *$!&$ 2artner.s resor&es
an" &a2a+!l!t!es &an #ore eas!ly +e &a2tre" +y t$e ot$erC
& A+sor2t!)e &a2a&!ty of t$e &o#2any33 *$!&$ 2artner !s t$e
#ore re&e2t!)e learnerC
S9N9FI
IS9N9
T(1(TA
($# Kehicles
0td. 3D.=.5
GM
)ew Dnited .otor
.anufacturing
(nc. 3)D..(5
8
4
2
o
w
n
e
d
.
#
o
-
p
r
o
d
u
c
t
io
n
:
9
2
o
w
n
e
d
. #
o
-p
ro
d
u
c
tio
n
:42 investment
;42
owned
>42 owned
>42
owned
3.akes vans in D=5
3.akes cars in D+5
SAAB
>42
owned
0IAT
2
4
2
o
w
n
e
d
3
2
4
4
4
-
>
5
.
#
o
ll
a
b
o
r
a
t
io
n
o
n
t
e
c
h
n
o
l
o
g
y
a
n
d
c
o
m
p
o
n
e
n
t
s
09TI
242 ownedE joint production
DAED((
>
4
.
9
2
o
w
n
e
d
E
t
e
c
h
n
i
c
a
l
C
p
r
o
d
u
c
t
i
o
n
c
o
l
l
a
b
o
r
a
t
i
o
n
AVT(VAN
F
u
s
s
i
a
n
B
K
t
o
p
r
o
d
u
c
e
c
a
r
s
SAIC
B
K
t
o
p
r
o
d
u
c
e
c
a
r
s
i
n
#
h
i
n
a
General Motors. All!an&es *!t$ Co#2et!tors
General Motors. All!an&es *!t$ Co#2et!tors
Mlt!nat!onal Strateg!es:
Glo+al!=at!on )s' Nat!onal D!fferent!at!on
Mlt!nat!onal Strateg!es:
Glo+al!=at!on )s' Nat!onal D!fferent!at!on
! Nat!onal 2referen&es !n "e&l!ne;*orl" +e&o#!ng a s!ngle4
!f seg#ente"4 #ar7et
! A&&ess!ng glo+al s&ale e&ono#!es;!n 2r&$as!ng4
#anfa&tr!ng4 2ro"&t "e)elo2#ent4 #ar7et!ng'
! Strateg!& strengt$ fro# glo+al le)erage;a+!l!ty to &ross3
s+s!"!=e a nat!onal s+s!"!ary *!t$ &as$ flo*s fro#
ot$er nat!onal s+s!"!ar!es
! Nee" to a&&ess #ar7et tren"s an" te&$nolog!&al
"e)elo2#ents !n ea&$ of t$e *orl".s #a,or e&ono#!&
&enters3 N' A#er!&a4 Ero2e4 East As!a'
Ha#el 6
Pra$ala"
T$es!s
Fen!&$!
($#ae.s
OTr!a"
Po*erP
T$es!s
Te"
5e)!tt
OGlo+al!=3
3at!on of
Mar7etsP
T$es!s
T$e &ase for a glo+al strategy:
Glo+al!=at!on 6 Glo+al Strategy ;D$at are t$eyC
Glo+al!=at!on 6 Glo+al Strategy ;D$at are t$eyC
! G5(BA5INATI(N C
33So#et$!ng to "o *!t$ !n&reas!ng !nter"e2en"en&e
+et*een &ontr!es'
! G5(BA5INATI(N C
33So#et$!ng to "o *!t$ !n&reas!ng !nter"e2en"en&e
+et*een &ontr!es'
! G5(BA5 STRATEG1
33At s!#2lest le)el: Treat!ng t$e *orl" as a s!ngle #ar7et
E'g' Ta2anese &o#2an!es "r!ng t$e ?9I0s 6 ?9L0s4
-1FF4 Hon"a/ stan"ar" 2ro"&ts4 "e)elo2e" 6
#anfa&tre" *!t$!n Ta2anQ "!str!+te" 6 #ar7ete"
*orl"*!"e
33At #ore so2$!st!&ate" le)el: Strategy t$at re&ogn!=es
an" e<2lo!ts l!n7ages +et*een &ontr!es -e'g' e<2lo!ts
glo+al s&ale4 nat!onal resor&e "!fferen&es4 strateg!&
&o#2et!t!on/
! G5(BA5 STRATEG1
33At s!#2lest le)el: Treat!ng t$e *orl" as a s!ngle #ar7et
E'g' Ta2anese &o#2an!es "r!ng t$e ?9I0s 6 ?9L0s4
-1FF4 Hon"a/ stan"ar" 2ro"&ts4 "e)elo2e" 6
#anfa&tre" *!t$!n Ta2anQ "!str!+te" 6 #ar7ete"
*orl"*!"e
33At #ore so2$!st!&ate" le)el: Strategy t$at re&ogn!=es
an" e<2lo!ts l!n7ages +et*een &ontr!es -e'g' e<2lo!ts
glo+al s&ale4 nat!onal resor&e "!fferen&es4 strateg!&
&o#2et!t!on/
Dorl" as
s!ngle #7t'
Dorl" as
se2arate
nat!onal #7ts'
glo$al strategy
Dorl" as !nter3
relate" #7ts'
multidomestic strategy
Analy=!ng +enef!ts8&osts of a glo+al strategy
Analy=!ng +enef!ts8&osts of a glo+al strategy
Forces for localization J national
differentiation
MARFET DRIVERS
33D!fferent langages
33D!fferent &sto#er 2referen&es
33Cltral "!fferen&es
C(ST DRIVERS
33Trans2ortat!on &osts
33Transa&t!on &osts
33E&ono#!& 6 2ol!t!&al r!s7
33S2ee" of res2onse
G(VERNMENT DRIVERS
33Barr!ers to tra"e 6 !n*ar" !n)'
33Reglat!ons
Forces for localization J national
differentiation
MARFET DRIVERS
33D!fferent langages
33D!fferent &sto#er 2referen&es
33Cltral "!fferen&es
C(ST DRIVERS
33Trans2ortat!on &osts
33Transa&t!on &osts
33E&ono#!& 6 2ol!t!&al r!s7
33S2ee" of res2onse
G(VERNMENT DRIVERS
33Barr!ers to tra"e 6 !n*ar" !n)'
33Reglat!ons
Forces for glo$alization
MARFET DRIVERS
33Co##on &sto#er nee"s
33Glo+al &sto#ers
33Cross3+or"er net*or7 effe&ts
C(ST DRIVERS
33Glo+al s&ale e&ono#!es
33D!fferen&es !n nat!onal
resor&e a)a!la+!l!ty
335earn!ng
C(MPETITIVE DRIVERS
33Potent!al for strateg!&
&o#2et!t!on -e'g' &ross3
s+s!"!=at!on/
Forces for glo$alization
MARFET DRIVERS
33Co##on &sto#er nee"s
33Glo+al &sto#ers
33Cross3+or"er net*or7 effe&ts
C(ST DRIVERS
33Glo+al s&ale e&ono#!es
33D!fferen&es !n nat!onal
resor&e a)a!la+!l!ty
335earn!ng
C(MPETITIVE DRIVERS
33Potent!al for strateg!&
&o#2et!t!on -e'g' &ross3
s+s!"!=at!on/
=enefits of national differentiation
=enefits
of
glo$al
integration
Ce#ent
Tele&o#
eB!2#ent
Tet eng!nes
Cons#er
ele&tron!&s
Atos
0neral
ser)!&es
Reta!l
+an7!ng
In)est#ent
+an7!ng
Ato
re2a!r
Restarant
&$a!ns
Steel
(nl!ne C2C a&t!ons
Beer
Dry
&lean!ng
=enefits of national differentiation
=enefits
of
glo$al
integration
Ce#ent
Tele&o#
eB!2#ent
Tet eng!nes
Cons#er
ele&tron!&s
Atos
0neral
ser)!&es
Reta!l
+an7!ng
In)est#ent
+an7!ng
Ato
re2a!r
Pos!t!on!ng !n"str!es !n ter#s of +enef!ts of
glo+al!=at!on an" nat!onal "!fferent!at!on
Pos!t!on!ng !n"str!es !n ter#s of +enef!ts of
glo+al!=at!on an" nat!onal "!fferent!at!on
T$e E)olt!on of Mlt!nat!onal Strateg!es an"
Str&tres: -?/ ?9003?9A9;Era of t$e Ero2eans
T$e E)olt!on of Mlt!nat!onal Strateg!es an"
Str&tres: -?/ ?9003?9A9;Era of t$e Ero2eans
The 'uropean M*, as )ecentralized Federation :
! Nat!onal s+s!"!ar!es self3sff!&!ent an" atono#os
! Parent &ontrol t$rog$ a22o!nt#ent of s+s!"!ar!es sen!or
#anage#ent
! (rgan!=at!on an" #anage#ent syste#s refle&t &on"!t!ons of
trans2ort an" &o##n!&at!ons at t$e t!#e e'g' 9n!le)er4 P$!ll!2s4
Cortal"s4 Royal Dt&$8S$ell'
T$e E)olt!on of Mlt!nat!onal Strateg!es
an" Str&tres: -2/ ?9KM3?9I0;9'S' Do#!nan&e
T$e E)olt!on of Mlt!nat!onal Strateg!es
an" Str&tres: -2/ ?9KM3?9I0;9'S' Do#!nan&e
!merican M*,As as ,oordinated Federations :
! Nat!onal s+s!"!ar!es fa!rly atono#os
! Do#!nant role as 9'S' 2arent33 es2e&!ally !n "e)elo2!ng
ne* te&$nology an" 2ro"&ts
! Parent3s+s!"!ary relat!ons !n)ol)e" flo*s of te&$nology
an" f!nan&e4 an" a22o!nt#ent of to2 #anage#ent' e'g'
0or"4 GM4 Co&a Cola4 IBM
T$e E)olt!on of Mlt!nat!onal
Strateg!es an" Str&tres:
-A/ ?9I0s an" ?9L0s;T$e Ta2anese C$allenge
T$e E)olt!on of Mlt!nat!onal
Strateg!es an" Str&tres:
-A/ ?9I0s an" ?9L0s;T$e Ta2anese C$allenge
The Kapanese M*, as ,entralized Hu$
! Prs!t of glo+al strategy fro# $o#e +ase
! Strategy4 te&$nology "e)elo2#ent4 an" #anfa&tre
&on&entrate" at $o#e
! Nat!onal s+s!"!ar!es 2r!#ar!ly sales an" "!str!+t!on
&o#2an!es *!t$ l!#!te" atono#y' e'g' Toyota4 NEC4
Matss$!ta
Mar7et!ng Glo+al Strateg!es an" S!tat!ons to In"stry
Con"!t!ons: 0!r# S&&ess !n D!fferent In"str!es
Mar7et!ng Glo+al Strateg!es an" S!tat!ons to In"stry
Con"!t!ons: 0!r# S&&ess !n D!fferent In"str!es
,onsumer 'lectronics =randed9 #ackaged Telecommunications
,onsumer &oods '5uipment
3 Glo+al !n"stry 3 S+stant!al nat!onal 3 ReB!res +ot$ glo+al
3 Matss$!ta t$e #ost "!fferent!at!on4 fe* glo+al !ntegrat!on an" nat!onal
s&&essfl s&ale e&ono#!es "!fferent!at!on'
3 P$!l!2s t$e sr)!)or 3 Fao $as l!#!te" s&&ess 3 NEC only 2art!ally
3 GE sol" ot ots!"e Ta2an s&&essfl
3 9n!le)er an" P6G #ost 3 ITT sol" ot
s&&essfl 3 Er!&sson #ost
s&&essfl
lo&al res2ons!)eness lo&al res2ons!)eness lo&al res2ons!)eness
g
l
o
+
a
l
!
n
t
e
g
r
a
t
!
o
n
g
l
o
+
a
l
!
n
t
e
g
r
a
t
!
o
n
g
l
o
+
a
l
!
n
t
e
g
r
a
t
!
o
n
Matss$!t
a
P$!l!2s
General Ele&tr!&
Fa
o
P6G
9n!le)er
NEC
Er!&7son
ITT
Re&on&!l!ng Glo+al Integrat!on *!t$ Nat!onal
D!fferent!at!on: T$e Transnat!onal Cor2orat!on
Re&on&!l!ng Glo+al Integrat!on *!t$ Nat!onal
D!fferent!at!on: T$e Transnat!onal Cor2orat!on
The Transnational: an !ntegrate" net*or7 of "!str!+te" !nter"e2en"ent
resor&es an" &a2a+!l!t!es'
& Ea&$ nat!onal n!t an" sor&e of !"eas4 s7!lls an" &a2a+!l!t!es t$at &an
+e $arnesse" to +enef!t *$ole &or2orat!on'
& Nat!onal n!ts +e&o#e *orl" sor&es for 2art!&lar 2ro"&ts4
&o#2onents4 an" a&t!)!t!es'
& Cor2orate &enter !n)ol)e" !n or&$estrat!ng &olla+orat!on t$rog$
&reat!ng t$e r!g$t organ!=at!onal &onte<t'
T!g$t &o#2le<
&ontrols an"
&oor"!nat!on an" a
s$are" strateg!&
"e&!s!on 2ro&ess'
Hea)y flo*s of
te&$nology4
f!nan&es4 2eo2le4
an" #ater!als
+et*een
!nter"e2en"ent
n!ts.
?' (n *$at +as!s to organ!=e;2ro"&ts4 geogra2$y4 fn&t!onsC
33D$ere !s &oor"!nat!on #ost !#2ortantC
33Ho* glo+al !s t$e !n"stryC Ho* glo+al !s t$e f!r#.s
strategyC
2' If one "!#ens!on !s "o#!nant4 $o* to &oor"!nat!on along t$e
ot$er "!#ens!onsC
33Ma!nta!n s!ngle l!ne a&&onta+!l!ty
33(t$er "!#ens!ons of &oor"!nat!on &an +e O"otte" l!neP
relat!ons
A' D$at.s t$e role of H:C
33Control fn&t!on
33Coor"!nat!on fn&t!on
33E<2lo!t!ng s&ale e&ono#!es !n &entral!=e" 2ro)!s!on of
ser)!&es
K' T$e nee" for !nternal "!fferent!at!on
33By 2ro"&t8+s!ness
33By fn&t!on
33By &ontry
M' 0or#al 6 !nfor#al organ!=at!on
Des!gn!ng t$e MNC: Fey 5earn!ng
Des!gn!ng t$e MNC: Fey 5earn!ng
doc_465368403.ppt