Introduction

Strategic Elements of Competitive Advantage

Global Marketing (Global Edition) Chapter 16
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Chapter topics: Industry analysis Factors that shape competition Competitive advantage at the industry and national levels Hypercompetition
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Industry Structure Types

Pure Monopoly Oligopoly Monopolistic Competition Pure Competition
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Industry Analysis: Porters Five Forces Model

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1: Potential New Entrants

Barriers to Entry
Economies of Scale Refers to the decline in p per-unit p product costs as the absolute volume of production per period increases Product P d t diff differentiation ti ti The extent of a products perceived uniqueness Capital requirements Required investment for manufacturing, R&D, advertising, ad e t s g, field e d sa sales es a and d se service, ce, etc etc. Switching costs Costs related to making g a change g in suppliers pp or products
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New entrants mean downward pressure on prices and reduced profitability Barriers to entry determine the extent of f th threat t of f new i industry d t entrants t t 16-5
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Barriers to Entry
Distribution channels Are there current distribution channels available with capacity? it ? Government policy Are there regulations in place that restrict competitive entry? Cost advantages independent of scale economies Is there access to raw materials, large pool of lowcost labor, favorable locations, and government subsidies? b idi ? Competitor response How will the market react in anticipation of increased competition within a given market? 16-7
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Barriers and Profitability

Exit barriers
Low High

E y Bar Entry rriers s

Low

Low, stable returns High, stable returns

Low, risky returns High, i h risky i k returns

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High

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2: Threat of Substitute Products

Availability of substitute products places li it on the limits th prices i market k t leaders l d can charge High prices induce buyers to switch to the substitute

3: Bargaining Power of Buyers

Buyers = manufacturers and retailers, not co su e s consumers Buyers seek to pay the lowest possible price Buyers have leverage over suppliers when:
They purchase in large quantities (enhances supplier pp dependence p on buyer) y ) Suppliers products are commodities Product represents significant portion of buyers costs Buyer is willing and able to achieve backward integration
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4: Bargaining Power of Suppliers

When suppliers have leverage, they can raise prices high enough to affect the profitability of their customers Leverage accrues when
Suppliers are large and few in number Supplier Suppliers s products are critical inputs inputs, are highly differentiated, or carry switching costs Few substitutes exist Suppliers are willing and able to sell product themselves
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5: Rivalry Among Competitors

Refers to all actions taken by firms in the industry to improve their positions and gain advantage over each other
Price competition Advertising battles Product positioning Differentiation

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Competitive Advantage
Achieved when there is a match between a firms distinctive p and the factors critical for competencies success within its industry Two ways to achieve competitive advantage
Low-cost Low cost strategy Product differentiation
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Generic Strategies for Creating Compet. Advantage

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Cost Leadership
Based on a firms position as the industrys l low-cost t producer d Must construct the most efficient facilities Must obtain the largest market share so that per unit cost is the lowest in the industry y its p Only works if barriers exist that prevent competitors from achieving the same low costs
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Product Differentiation
Product that has an actual or perceived uniqueness in a broad market has a differential advantage Extremely effective for defending market position Extremely effective for obtaining aboveaverage financial returns; unique products command a premium price
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Cost Focus
Firms lower cost position enables it to offer ff a narrow t target t market k tl lower prices than the competition Sustainability is the central issue for this gy strategy
Works if competitors define their target market more broadly y Works if competitors cannot define the segment g even more narrowly y
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Focused Differentiation
The product not only has actual uniqueness, but it also has a very narrow target market Results from a better understanding g of customers wants and desires Ex: High High-end end audio equipment
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Generic Strategies and Industry Forces

The Flagship Firm: Business Network with Five Partners

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Network Relationships

Commercial Relationships 16-20

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Creating Comp. Advantage via Strategic Intent

Building layers of advantage Searching for loose bricks Changing the rules of engagement Collaborating

Building Layers of Advantage

A company p y faces less risk if it has a wide portfolio of advantages Successful companies build portfolios by establishing layers of advantage on top of one another Illustrates how a company can move along the value chain to strengthen competitive advantage

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Searching for Loose Bricks

Search for opportunities in the defensive walls of competitors whose attention is narrowly focused
Focused on a market segment Focused on a geographic area to the exclusion of others 16-23
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Changing the Rules of Engagement

Refuse to play by the rules set by industry leaders
Ex: Xerox and Canon
Xerox employed a huge direct sales force; Canon chose to use product d l dealers Xerox built a wide range of p ; Canon copiers; standardized machines and components Xerox leased machines; Canon sold machines

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Collaborating

Global Competition and National Comp. Advantage

Global competition p occurs when a firm takes a global view of competition and sets about g profits p worldwide maximizing The effect is beneficial to consumers because prices generally fall as a result of global competition While creating value for consumers, consumers it can destroy the potential for jobs and profits
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U Use the th know-how k h developed by other companies Licensing agreements, agreements joint ventures, or partnerships

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National Diamond

Factor Conditions
Human Resources the quantity of workers available skills possessed by those workers, available, workers wage levels, and work ethic Physical Resources the availability availability, quantity, quantity quality, and cost of land, water, minerals, and other natural resources Knowledge Resources the availability within a nation of a significant population having scientific, technical, and market-related g knowledge
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Factor Conditions
Capital Resources the y amount, cost, and availability, types of capital available; also g rate, interest includes savings rates, tax laws, and government deficit Infrastructure Resources this includes a nation nations s banking, healthcare, transportation, and communication systems 16-29
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Demand Conditions
Composition of Home Demand determines how firms perceive, interpret, and respond p to buyer y needs Size and Pattern of Growth of Home Demand large home markets offer opportunities to achieve economies of scale and learning in familiar, comfortable markets
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Demand Conditions
Rapid Home Market Growth another i incentive ti to t i invest ti in and d adopt d t new technologies faster and build large, efficient ffi i t f facilities iliti g pushed p or pulled p do a Products being nations people and businesses go abroad and then demand the nations products and services in those second countries?
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Related and Supporting Industries

The advantage that a nation g gains by y being g home to internationally competitive industries in fields that are related to, or in direct support of, of other industries
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Firm Strategy, Structure, and Rivalry

Domestic rivalry in a single national market is a powerful influence on competitive advantage
The absence of significant domestic rivalry can lead to complacency in the home firms and eventually cause them to become noncompetitive in the world markets Differences in management styles, organizational skills, kill and d strategic i perspectives i also l create advantages and disadvantages for firms competing in different types of industries
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Other Forces Acting on the Diamond

Chance Occurrences that are beyond the control of firms, industries & usually governments Government Buyer of products and services Policy maker of policies on labour, capital formation and product standards Other non-market factors Interest groups, activists and the public
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Dimensions of Global Competition

C ha nce F irm S trategy , S tructure, a n d R ivalry

Battlefields & Boardrooms

Marketing warfare (Ries & Trout, 1986) Karl von Clausewitz, Prussian general (1832) -- greatest marketing strategist The Art of War (Sun Tzu) 400-320 BC (oldest known military treatise in world) He who has a thorough g knowledge g of himself and the enemy y is bound to win in all battles. He who knows himself but not the enemy, has only an even chance of winning. He who knows not himself and the enemy is bound to p perish in all battles.
Mao Zedong: Know your enemy, know yourself; hundred battles, hundred victories.

F actor C on ditio ns

D em a n d C on ditions

R elated a nd S up pp po rting g In du stries

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G ov ern m ent

similarities wrt whats (i.e., what matters is to win a war) differences in hows (i.e., how to win a war) win by using absolute forces vs. gain victory without fighting
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Current Issues in Competitive Advantage

Todays business environment, and market k t stability, t bilit is i undermined d i d by: b
Short product life cycles Short product design cycles New technologies g Globalization

Current Issues in Competitive Advantage

Hypercompetition is a term used to describe a dynamic competitive world in which no action or advantage can be sustained for long Competition unfolds in a series of dynamic strategic interactions in four areas: cost vs vs. quality quality, timing and know-how, know how entry barriers, and deep pockets
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Result is an escalation and acceleration of competitive forces

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Current Issues in Competitive Advantage

In todays world, in order to achieve a sustainable advantage, companies must pursue a series of unsustainable advantages The role of marketing is innovation and the creation of new markets Innovation begins with abandonment of the old and obsolete
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Hypercompetition
I do dont tt think were e e moving o g to towards a ds a hypercompetitive world in which there are no trade-offs There are more customer segments than ever before, more technological options, more distribution channels. That ought to create t l lots t of f opportunities t iti f for unique i positions. iti
Michael Porter
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