GLOBAL INDUSTRIES Chapter 5 Lecture 1

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GLOBAL INDUSTRIESChapter 5 Lecture 1
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Global Industries

• Borders are blurred
• Among nations
• Between competitors collaborators
• Between and among industries
• Industries are permeable

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Industries are Described and Classified in Myriad
Ways

• By industry type product or service
• By value high value-added to low value-added
• By durability consumer durable (autos) or
  nondurable (shampoo)
• By cyclical use used all the time or just in
  particular seasons
• Whatever the classification, a commonality among
  industries is that all are increasingly global

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Ways to Examine an Industry and its Global
Characteristics

• amount of industry factors shaped outside
  domestic markets
• a high industry trade ratio (Porter, 1980)
  ranging from about 30 to 55 (see Roth and
  Morrison, 1990, footnote 2)
• percentage of a firm's sales derived from abroad
• according to whether they are
• multidomestic
• simple global
• integrated global
• fully global (Makhija, Kim, and Williamson, 1997)

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Table 5.1 Examples of Multidomestic to Fully
Global Industries
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Ways that Industries Alter

• Convergence
• Disintermediation
• Integration
• consolidation via mergers and acquisitions
• alliances
• forging new links with buyers and suppliers
• Contraction
• Dissolution

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Sources of Industry Change

• Outside the industryborrowing from other
  industries
• Inside the industrykeeping up with what other
  firms are doing

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For Global Enterprises

• A main question in any industry, but especially
  global ones is
• What are the sources of organizational advantage?

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Concepts of Strategy

• The idea at the industry level is to generate a
  business strategy that creates a sustainable
  organizational advantage
• Within industries, businesses usually pursue one
  of three approaches vis-à-vis competitors (this
  is guided by industry norms and firm enterprise
  and corporate strategies)
• Compete
• Collaborate
• They do both simultaneously

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Strategy

• In the Postwar period, business scholars began to
  examine strategies of businesses
• How do businesses compete?
• How and why are they successful?
• Looks at the big picture of how companies and
  industries operate
• Draws from many disciplines

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Five Major Ways that Organizations use to
Identify a Distinctive Advantage

• Industry analysis
• Diagnosing industry globalization
• Anticipating the future
• Revolutionizing the industry
• Reshaping the organization

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Potential Entrants
Threat of New Entrants
Suppliers
Buyers
Industry Competitors
Rivalry Among Existing Firms
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products or Services
Substitutes
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Porter

• This is the industrial organization economics
  model of competition
• Companies gain advantage by
• reducing buyer power
• reducing supplier power
• creating entry barriers
• neutralize rivals
• eliminate substitutes

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Diagnosing Industry Globalization

• market globalization
• cost globalization
• government globalization
• and competitive globalization
• Yip (1995), Total Global Strategy

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Could look at Cost Drivers to Diagnose Industry
Globalization

• Scale Economies
• Steep Experience Curves
• Sourcing Efficiencies
• Favorable Logistics
• Differences in Country Costs
• High Product Development Costs
• Fast-Changing Technologies
• George Yip (1995) in Total Global Strategy

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Perspectives on the Future

• The trick is to see the future before it arrives
  (Hamel and Prahalad)
• The challenge for managers is to look ahead and
  assess what the firm needs to do to be an
  industry leader in the futureto anticipate

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How Can We See the Future?

• Devote time and intellectual energy to
  understanding forces shaping the future
• Factors that shape your future are those we study
  when we study globalization

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The Experts Speak

• This telephone has too many shortcomings to be
  seriously considered as a means of communication.
  The device is inherently of no value to
  usWestern Union memo, 1876

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• I think there is a world market for maybe five
  computersThomas Watson, Chairman of IBM, 1943

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• A cookie store is a bad idea. Besides, the
  market research reports say America likes crispy
  cookies, not soft and chewy cookies like you
  make.Response to Debbie Fields idea of
  starting Mrs. Fields Cookies

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• The concept is interesting and well-formed, but
  in order to earn better than a C, the idea must
  be feasibleA Yale University management
  professor in response to Fred Smiths paper
  proposing reliable overnight delivery
  serviceSmith later founded Federal Express

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What Does the Future Hold?

• Consider any given industry

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As a Manager, Anticipating the Future Requires

• Intellectual capacity and will
• Equality of participants
• Time commitment
• Willingness to cope with complexity
• Foresight
• Creativity and imagination

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Intellectual Capacity

• Unlike factors of capital, equipment, raw
  materials, etc., the organization does not own,
  control, and cannot monopolize intellect
• Intellect is owned by individuals

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Intellect Unleashed With

• Trust
• Empowerment
• Teams
• Encouragement

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Revolutionizing the Industry

• Re-conceive a product or service
• Redefine a market space
• Redraw industry boundaries
• Hamel, 1996

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Sustainable Advantage Can Come From

• Processes
• Structures
• People
• Or combinations of them

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Process Examples

• Core Competencies
• Learning
• Strategy
• Worldwide integration
• Multilocal strategy

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Global Presence and Strategy Combine
Extent of Global Presence
High
Low
Strategy
Experiment
Shape
IPTN Unimarc Trading Doc
Martens
Coca-Cola Acer
Worldwide Integration
Adapt
Opportunistic
Multilocal
Hansons PLC Ticketmaster Fiat
Nestlé Unilever
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Structure Examples

• Networks
• Hybrids
• Combining hierarchies and flat organizations
• Alliances

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People Examples

• Superior employees
• Managing diversity
• Organizational Culture
• Human resource development

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Achieving Sustainable Advantage Through People

• High wagesyou get what you pay for
• Incentive payshared gains
• Information sharing
• Cross-utilization and -training
• Long-term perspective
• An overarching philosophy
• Jeffrey Pfeffer (1994)

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Is it Nations or Companies that Should Compete?

• Globalists think that nations must be involved
  with businesses to keep important ones in their
  own nations. This is encouraged by things like
• World Competitiveness Reports
• Determinants of National CompetitivenessPorters
  Competitive Diamond of
• Availability of productive factors
• Demand
• Proximity of reported or support industries
• Firm strategy, structure, rivalry consistent with
  national norms
• Institutionalists believe businesses compete more
  than nations
• National focus on competitiveness reinforces
  belief in winners and losers
• Encourages a sense of zero sum opportunities
  leads to bad economic policies (Krugman, 1994)
• One nations prosperity need not come from
  anothers opportunities (Turner, 2001)