International Business take-home exam

Advantage at Home

BUAD 841 Fall 2017

Kurt Norder, Ph.D.

Diamond and Swatch

Agenda

2

Today we will… Brief recap Discuss Porter’s Diamond Consider how home country affects Ex/Im Apply Diamond to Swatch

Diamond and Swatch

Building competitive advantage

3

Diamond and Swatch

Economic contribution

4

difference between the product’s value and its cost to the firm

Diamond and Swatch

Strategy Making Process External Analysis • Political, Social, Regulatory • Competitive conditions

Internal Analysis • Resources and capabilities • Sources of competitive adv.

Company’s Strategic Situation Strategic

Alternatives • TOWS

Strategy

5

Opportunities and Threats

Key Success Factors

Diamond and Swatch

What’s happening today… Technology changing the way we do most things … internet, robots Globalization vs. nationalism

Faster growth from emerging markets, job tensions Interconnected global capital and markets

Currency wars / printing, sovereign debt, slowing economies Demographics … Aging populations, immigration Scarcity … clean water, food, energy, etc. Energy … rapid tech advances … fracking, solar, etc. … OPEC glut War, Terror, & Ugliness … pushing the boundaries Knowledge economy driving continuous learning … less disclosure

Instability, hypercompetition, need for flexibility

Diamond and Swatch

Global Trends 2030

Align with the trends Shape the “worlds”

Diamond and Swatch

Industry/Organization (I/O) Model

Suppliers

Substitutes

Buyers

Potential Entrants

Industry Rivalry

ManyMany

Few

Diamond and Swatch

Industry Globalization Potential Market Factors

Competitive Factors

Governmental Factors

Cost Factors IGP

• Homogenous needs • Global customers • Global channels • Transferrable marketing

• Interdependence of countries

• Competitors globalize or might globalize

• Favorable trade policies • Compatible technical

standards • Common marketing

regulations

• Economies of scale and scope • Learning and experiences • Sourcing efficiencies • Favorable logistics Differences in

country costs & skills • Product development costs

Diamond and Swatch

How does IGP connect to competitive advantage?

IGP provides industry opportunities and threats Market factors value, price (what and how delivered) Cost factors cost, price (standard, central, investment) Competitive factors cost, price, retention, imitation Governmental factors cost, price, retention, imitation

Diamond and Swatch

Strategy Making Process External Analysis • Political, Social, Regulatory • Competitive conditions

Internal Analysis • Resources and capabilities • Sources of competitive adv.

Company’s Strategic Situation Strategic

Alternatives • TOWS

Strategy

11

Opportunities and Threats

Key Success Factors

Diamond and Swatch

Strategy Making Process External Analysis • Political, Social, Regulatory • Competitive conditions

Internal Analysis • Resources and capabilities • Sources of competitive adv.

Company’s Strategic Situation Strategic

Alternatives • TOWS

Strategy

12

Strengths and Weaknesses

Diamond and Swatch

Resource-based (RBV) Model

Resources Physical, human, and organizational capital (tangible and intangible)

Capability An integrated set of resources

Core competence A source of competitive advantage

Diamond and Swatch

Value Chain Analysis Support Activities

Primary Activities

Firm Infrastructure Human Resource Management

Systems & Solutions Materials & Equipment

Product Design

Operations Distrib. (Outbound Logistics)

Marketing

& Sales Service

14

Diamond and Swatch

Resource-based (RBV) Model … VRIN

Costly to imitate

Rare

Nonsubstitutable

Valuable How resources become core competencies

Diamond and Swatch

Strategy Making Process External Analysis • Political, Social, Regulatory • Competitive conditions

Internal Analysis • Resources and capabilities • Sources of competitive adv.

Company’s Strategic Situation Strategic

Alternatives • TOWS

Strategy

16

Diamond and Swatch

Where to go and how to go there?

IGP gave potential for global integration Country selection

Scan, then detailed analyses CAGE provides a way to compare two countries ID important metrics, prioritize (sum=1), assess Visit the locations

Strategic approaches AAA Integration-Responsiveness Value Chain integration provides different tactics

Entry modes … Ex/Im this week, others next week

Diamond and Swatch

Yip’s Model for “Total Global Strategy”

Diamond and Swatch

Porter’s Diamond of National Advantage Demand Conditions

Firm Strategy, Structure, Rivalry

Factor Conditions

Related & Supporting Industries

Change is Good

• Picky customers and difficult environments make you innovate to become better (price- quality relationship)

• Competition driving evolution through innovation

• Stocks of needed resources (land, labor, capital, raw materials) at reasonable prices

• Do we have sufficient support that enables us to specialize (can outsource for good quality)

• Global suppliers to help share knowledge and team up

• Even potential to integrate forward increases pressure to stay ahead

Diamond and Swatch

Industry/Organization (I/O) Model

Suppliers

Substitutes

Buyers

Potential Entrants

Industry Rivalry

ManyMany

Few

Diamond and Swatch

Porter’s Diamond Assumptions

Still specific to an industry Competition is good to drive innovation

But bad for profitability in Porter’s 5 forces Assumes country markets are more self-contained

Global demand/availability Multi-location supplies of factors … $$ and HR are mobile Transport limits dependency on related & supporting @ home Global rivals may be more challenging

Assumes innovation occurs at home Neglects “reverse” innovation except to deliver at home

Diamond at home increases exporting Risk is not considered very well

Diamond and Swatch

Porter’s Diamond take-aways

Your MNE has a “Diamond” at home = better opportunity Need to leverage that advantage to compete abroad Strong home helps you exploit weak locations

Your MNE does NOT have a “Diamond” at home Expand into “Diamond” country to build capabilities Create a “Global Diamond” … fill the gaps across borders

Reinforce a dynamic “Diamond” Competition good or bad?

Balance pressures for innovation with profitability Use innovation to create barriers, limit rivals, be first-mover Not all picky customers, optimize price-quality

Diamond and Swatch

Varieties of Capitalism … interactive institutions

Corporate governance: -Capital Markets

- Employee Representation -Organization of Mgmt

Inter-company relations: -Customer -Suppliers

-Competitors

Innovation System: -Education

-Vocational Training -Technology

Industrial-relations system: -Wage

- Working Conditions

Figure 2: Generalized Sphere Interactions

Employee-Firm Relations:

-Cooperation -Competencies

Strategic Management -Vitols ‘01: -Shareholder vs. Stakeholder

-Risky investment/profits vs. other goals

-Weak employee strength -Performance incentives vs. job

stability -Strong mgmt vs. consensus

decision-making 1. Competitive vs.

Collaborative capital

2a. Competitive vs. Collaborative

2b. Job Stability & Social Protection

3. Skill formation (Estevez et al, ‘01)

4. Level of Interdependency

5. Degree of Employee Representation

6. Organization of Management

7. Firm Strategy

Diamond and Swatch

Diamond and Swatch

Varieties of Capitalism … interactive institutions

Liberal Market Economies (LMEs)

Short term More equity financing TMT makes decisions Labor is fluid: weak unions, labor protection Layoffs enable more risk Build general skills Radical or tech changing innovations

Coordinated Market Economies (CMEs)

Long term More debt financing Cross-own; Insider info Labor integrated in decisions, strong unions, councils Resist layoffs mean less risk Build industry- or firm- specific skills Incremental innovations

Diamond and Swatch

World Trade 1960-2010

Diamond and Swatch

Exports and Imports

Exports are goods or services sold from one country to another Exporting as a mode assumes the buyer is outside the firm boundaries

Possible to sell goods from one subsidiary to another

Diamond and Swatch

Approaches to Exporting Direct exporting

Sell to channels in other countries Independent representatives, distributors, or retailers outside of the exporter’s home country

Indirect exporting Domestically sell, but buyers export and use/sell abroad products are sold to an intermediary in the domestic market, which then exports them

Diamond and Swatch

Exports and Imports - OLI

Ownership advantages the firm’s core competencies

Location advantages the combination of sales opportunity and investment risk that creates favorable locations in foreign markets

Internalization advantages reflect companies’ response to market imperfections that often create uncertainties

Diamond and Swatch

Team application exercise… The exercise:

Apply the Diamond framework to Switzerland What can Swatch do to “exploit” the Diamond (or overcome the lack-there-of if no Diamond)?

Diamond and Swatch

Parting thoughts for the day

I’m available by email or stop by Lerner 209 For next class…

Mainly Textbook Ch 14 (again) and Ch 15 Root (Canvas) for decisions between modes Maynooth Granite case (HBS)

Quiz 4 should be open at 9 pm today… until start of class for Week 5 (i.e. before I see you again)