Company Strategy

Competitive Advantage in
International Competition
 Competitive advantage grows
fundamentally out of improvement,
innovation, and change.
• Innovation can be manifested in a new product
design, a new production process, a new
approach to marketing, or a new way of
training or organizing.
• The home nation is integral to the process of
perceiving the opportunity for innovation and
successfully implementing it.
 Competitive Advantage in
International Competition
 Competitive advantage involves the entire
value system.
• The value system is the entire array of
activities involved in a product’s creation and
use, encompassing the value chains of the
firm, suppliers, channels, and buyers.
• Close and ongoing interchange with suppliers
and channels is integral to the process of
creating and sustaining advantage.
 Competitive Advantage in
International Competition
 Competitive advantage is sustained only
through relentless improvement.
• There are few competitive advantage that can
not be imitated.
• The need for continuous innovation runs
counter to organizational norms in most
companies, especially successful companies.
• A company must expose itself to external
pressures and stimuli that motivate and guide
the need to innovate.
 Competitive Advantage in
International Competition
 Sustaining advantage demands that its
sources be upgraded.
• Durable competitive advantage usually
depends on possessing advanced human
resources and internal technical capabilities.
• Sustaining advantage requires that a firm
continually move earlier than rivals to widen its
sources of advantage.
• Creating more sustainable competitive
advantages may well require that a company
make its less sustainable advantage obsolete
even while they are still advantages.
 Competitive Advantage in
International Competition
 Sustaining advantage ultimately requires a
global approach to strategy.
• A global approach supplements home-base
advantages and helps nullify home-base
disadvantage.
• Global strategy includes selling worldwide,
locating activities in other countries to capture
local advantage, and coordinating and
integrating activities on a worldwide basis to
gain economies of scale and to enjoy the
benefits of a consistent brand reputation
Context for Competitive Advantage
 Innovation grows out of pressure and
challenge.
 The most important challenge is
overcoming complacency and inertia
to act on the new opportunities and
circumstances.
 Pressures for Innovation
 Sell to the most sophisticated and
demanding buyers and channels.
 Seek out the buyers with the most difficult
needs.
 Establish norms of exceeding the toughest
regulatory hurdles or product standards.
 Source from the most advanced and
international home-based suppliers.
 Treat employee as permanent.
 Establish outstanding competitors as
motivators.
 Perceiving Industry Change
 Indentify and serve buyers and channels with
most anticipatory needs.
 Investigate all emerging new buyers or channels.
 Find the localities whose regulations foreshadow
those elsewhere.
 Discover and highlight trends in factor costs.
 Maintain ongoing relationships with centers of
research and the sources of the most talented
people.
 Study all competitors, especially the new and
unconventional ones.
 Bring some outsiders into the management team.
 Interchange within the National
Cluster
 It must be recognized that the home-
based buyers and suppliers are allies in
international competition.
 Senior management should be visiting
leading companies in related industries.
 A firm should locate activities and its
headquarters at those locations in the
nation where there are concentrations of
sophisticated buyers, important suppliers,
groups of competitors, or significant
factor-creating mechanism for its industry.
 Serving Home Buyers who are
international and multinational
 Companies should target such buyer
as domestic companies that have
international operations, individuals
who travel frequently to other
nations.
• They provide a base of demand in
foreign market.
• They are often sophisticated buyers who
can provide a window into international
market needs.
Improving the National Competitive
Environment
 Sustaining competitive advantage is not
only a function of making most of the
national environment but also a function
of actively improving their home base by
upgrading the national diamond.
 Since the investments required to improve
the home base often takes years or even
decades to bear fruit, it requires long-term
perspective.
Company’s Role in Factor Creation
 Company Investments in Factor Creation
• Firms must invest directly in factor creation
through their own training, research and
infrastructure building.
• Even though there is free rider problem, a firm
that bases its strategy on free riding on other’s
investment will ultimately lose because it will
always be behind.
• While a firm’s investments will always benefit
competitors to some extent, the short-term
cost of leakage is usually outweighed by the
faster rate of innovation through the
investments.
Company’s Role in Factor Creation
 Industry or Cluster Programs for
Factor Creation
• In addition to a company’s own internal
efforts at factor creation, the pool of
specialized factors available in the
nation is also important.
• Companies can influence the availability
of specialized factors through trade
associations.
Company’s Role in Factor Creation
 Influencing and Participating in
Government/Community Factor Creation
• Companies can influence factor creation
through active involvement in the efforts of
government, educational institutions, and local
community.
 Nestle’s support of Geneva-based IMI
 German chemical companies’ relationship with
German universities and research institutes
• Company must maintain regular contact with
all centers of research that bear on its
activities.
 Forming and Upgrading the
National Cluster
 Companies can and should play an active
role in the formation of clusters.
• Companies should help domestic buyers
upgrade their competitive position and become
international.
• Companies should work actively stimulate the
establishment of local suppliers of important
inputs.
 With home-based but international
suppliers, buyers, and related industries,
the risk of a cluster becoming insular is
reduced.
 The Importance of Domestic
Rivalry
 Companies tend to complain about
excessive competition.
 Companies argue the benefit of the
merger with domestic competitors in
terms of critical mass.
 However, tough domestic rivalry is a
national asset.
 The presence of active domestic rivalry
helps in sustaining international success.
 Where and How to Compete
 A firm’s home nation shapes where and
how it is likely to succeed in global
competition.
 The national diamond becomes central to
choosing the industries or segments of
industry to compete in as well as the
appropriate strategy.
 The home base is an important
determinant of a firm’s strengths and
weaknesses relative to foreign rivals.
Analyzing International Competitors
 Understanding the home base of foreign
competitors is essential in analyzing them.
 Goals: The national environment have important
influence on the goals of the competitors.
 Competitive advantages and disadvantages:
The diamond provides a framework for assessing
important areas of competitive strength and
weakness of competitors.
 Predicting probable behavior: National
characteristics provide important clues to
probable foreign competitors’ behavior.
Choosing Industries and Strategies
 A company’s home base defines partially
its competitive advantages and
disadvantages in global industries.
 The national circumstances most
significant for competitive advantage
depend on a firm’s industry and strategy.
• Resource- or basic factor-driven industry: a
supply of superior or low-cost factors
• Fashion-sensitive industry: the presence of
advanced and cutting-edge customers
• Heavily science-based industry: the quality of
factor creating mechanism
Choosing Industries and Strategies
 A firm can raise the odds of success
if it is competing in industries, and
with strategies, where the nation
provides unusually fertile
environment for competitive
advantage.
 Example: Ricola, Swiss herbal candy
company
 Diversification
 New industries for diversification should be
selected based on those where a favorable
national diamond is present or can be created.
 Diversification is most likely to succeed when it
follows or extends clusters where the firm already
competes.
 Internal development of new businesses is more
likely to create and sustain competitive
advantage.
 Diversification into businesses lacking common
buyers, channels, suppliers or close technological
connections, is not only likely to fail but also will
undermine the prospects for sustaining
advantage in the core business.
 Tapping Selective Advantages in
other Nations
 Sustaining competitive advantage in the
long run is difficult unless most of the
underpinnings of innovation are present at
home.
 The aim of company should always be to
upgrade domestic capabilities in order to
make the foreign activities only selective
and supplemental to overall competitive
advantage.
 Serving Sophisticated Buyers and
Markets
 A company must sell to nations that contain
advanced and demanding buyers in order to
sustain competitive advantage in global
industries.
• Example: Benetton, Wifag (Swiss printing press
company)
 Gaining access to sophisticated and demanding
buyers in other nations often requires
investment.
 Once a company has access to demanding
buyers, it must actively exploit the benefit such
as testing new product in the most advance
market.
 Global Production
 Particular activities in the value chain
should be dispersed to whatever
country enjoy advantage.
 The knowledge and capabilities to
design and upgrade the product and
to improve and operate the complete
production must be maintained at
home.
 Foreign Sourcing
 A company must be willing to source
product or equipment from foreign
firms if they are superior.
 The best form of loyalty to domestic
suppliers is to confront them with the
need to match their foreign
competitors in quality and
productivity in order to retain the
business.
 Technology Development Abroad
 To get the benefit of tapping foreign
technology development, the quality of
personnel stationed abroad must be
sufficient to understand and interpret local
research direction.
 A company must be willing to invest
money and personnel in local universities
and in local industry efforts to get some
benefit.
• Example: Novo Industri of Denmark in Japan
and U.S.A.
 Meeting the Best Foreign
Competitors
 Capable rivals provide the
benchmark for measuring
competitive advantage and the best
stimulus for innovation and change.
 Companies must meet the best rivals
in other nations as well.
 Example: Korean companies meeting
Japanese rivals
 Selective Foreign Acquisitions
 There are two directions for success in
foreign acquisitions.
• One direction is to make the acquired firm the
new global home base for the company in the
industry or its particular segment, and to
subordinate other units to it.
• The other approach is to identify those
particular activities where the acquired
company can contribute the most to overall
global position.
 Role of Alliances
 No company can depend on another
independent company for skills and asset
that are central to its competitive
advantage.
 The most serious risk of alliances is that
they deter the company’s own efforts at
upgrading.
 The best alliances are highly selective,
involving particular activities in the value
chain or specific product lines or markets.
 Locating the Home Base
 If a company tries to have many home bases for
specific industry, the chances are that it will fail
to reap the benefits of any.
 If the circumstances at home nation do not
support the innovation required for competitive
advantage, a firm should shift its home base to a
nation that provides the needed tools for
international success.
 The movement of home base implies that the
management team must be relocated and the
primary R & D and marketing resources must
move as well.