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1 GLOBAL INDUSTRIES Chapter 5 Lecture 1. 2 Global Industries Borders are blurred –Among nations –Between competitors & collaborators –Between and among.

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Presentation on theme: "1 GLOBAL INDUSTRIES Chapter 5 Lecture 1. 2 Global Industries Borders are blurred –Among nations –Between competitors & collaborators –Between and among."— Presentation transcript:

1 1 GLOBAL INDUSTRIES Chapter 5 Lecture 1

2 2 Global Industries Borders are blurred –Among nations –Between competitors & collaborators –Between and among industries Industries are permeable

3 3 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

4 4 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)

5 5 Table 5.1 Examples of Multidomestic to Fully Global Industries MultidomesticSimple GlobalIntegrated Global Fully Global Cutlery and hand toolAutomobilesEngines and turbinesIndustrial chemicals Structural metal productsMotorcyclesSpecialized industrial machinery Fertilizers and pesticides FurnitureWatchesOffice and computing machinery Resins and plastics Agricultural machineryRadio and telecommunications equipment Metal and woodworking machinery Shipbuilding Electrical industrial machinery Railroad Aircraft Photographic and optical goods

6 6 Ways that Industries Alter Convergence Disintermediation Integration –consolidation via mergers and acquisitions –alliances –forging new links with buyers and suppliers Contraction Dissolution

7 7 Sources of Industry Change Outside the industry—borrowing from other industries Inside the industry—keeping up with what other firms are doing

8 8 For Global Enterprises A main question in any industry, but especially global ones is: What are the sources of organizational advantage?

9 9 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

10 10 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

11 11 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

12 12 Potential Entrants Buyers Substitutes Suppliers Industry Competitors Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products or Services Bargaining Power of Suppliers Rivalry Among Existing Firms

13 13 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

14 14 Diagnosing Industry Globalization market globalization cost globalization government globalization and competitive globalization Yip (1995), Total Global Strategy

15 15 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

16 16 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 future—to anticipate

17 17 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

18 18 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 us”—Western Union memo, 1876

19 19 “I think there is a world market for maybe five computers”—Thomas Watson, Chairman of IBM, 1943

20 20 “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

21 21 “The concept is interesting and well-formed, but in order to earn better than a ‘C,’ the idea must be feasible”—A Yale University management professor in response to Fred Smith’s paper proposing reliable overnight delivery service—Smith later founded Federal Express

22 22 What Does the Future Hold? Consider any given industry

23 23 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

24 24 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

25 25 Intellect Unleashed With Trust Empowerment Teams Encouragement

26 26 Revolutionizing the Industry Re-conceive a product or service Redefine a market space Redraw industry boundaries Hamel, 1996

27 27 Sustainable Advantage Can Come From Processes Structures People Or combinations of them

28 28 Process Examples Core Competencies Learning Strategy –Worldwide integration –Multilocal strategy

29 29 Extent of Global Presence HighLow Strategy Worldwide Integration Multilocal Shape Coca-Cola Acer Experiment IPTN Unimarc Trading Doc Martens Adapt Nestlé Unilever Hansons PLC Ticketmaster Fiat Opportunistic Global Presence and Strategy Combine

30 30 Structure Examples Networks Hybrids –Combining hierarchies and flat organizations Alliances

31 31 People Examples Superior employees Managing diversity Organizational Culture Human resource development

32 32 Achieving Sustainable Advantage Through People High wages—you get what you pay for Incentive pay—shared gains Information sharing Cross-utilization and -training Long-term perspective An overarching philosophy –Jeffrey Pfeffer (1994)

33 33 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 Competitiveness—Porter’s 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 nation’s prosperity need not come from another’s opportunities (Turner, 2001)

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