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Presentation on theme: "COURSE: GLOBAL BUSINESS MANAGEMENT MGT610"— Presentation transcript:


2 Unit 4: MNC Strategy “Outside-In” Training Material: Textbook (103-109, Ch4 & Ch5)

3 Business Strategy

4 Michael Porter Michael E. Porter is the C. Roland Christensen Professor of Business Administration at Harvard Business School and Director, Institute for Strategy and Competitiveness He is the author of many seminal books on competition and strategy, including On Competition, The Competitive Advantage of Nations, Competitive Advantage: Creating and Sustaining Superior Performance, etc

5 21st Century Competitive Landscape
Fundamental nature of competition is changing: The pace of change is relentless.... and increasing Rapid technological changes Traditional industry boundaries are blurring, such as in ... Rapid technology diffusions Dramatic changes in information and communication Computers Telecommunications Television Information Visual Arts Increasing importance of knowledge

6 How Environment Affects Industry and Competition
Socio-Cultural Demographic Political/Legal Industry Environment (5 Forces) Competitive Environment Global Economic Technological 10

7 Porter’s 5 Forces Model of Competition

8 The Five Forces Model of Competition
Supplier Power Few concentrated suppliers Low importance of buyer to supplier Differentiated products Product is important to the buyer High switching costs Scarcity of substitute products Degree of Rivalry Declining industry Undifferentiated products Numerous competitors Switching costs Exit barriers High strategic stakes Threat of Substitutes Price differences Performance of substitutes Switching costs Appeal of substitutes Threat of Entry Cost advantages Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Competition Intensity Determinants of Buyer Power Bargaining leverage Price sensitivity Buyer concentration Price/Total Purchases Buyer volume Impact on quality Buyer information Product differences Buyer switching cost Brand identity Degree of differentiation of products

9 Barriers to Entry Economies of Scale Government policy Switching costs
- Bureaucracy, licensing and permit requirements that may be forbidding to new entrants (closed professions) -Regulation / Deregulation of industries (telecoms, power, water etc) Switching costs - Customers may be loyal to existing businesses due to favorable prices, psychological contract, or technology compatibility.

10 Barriers to Entry (cont)
Capital Requirements Facilities, Inventories, Marketing activities (sales, advertisement, distribution), Availability of capital Expected retaliation Responses by existing competitors may depend on a firm’s present stake in the industry (available business options). Established firms may retaliate through advertizing campaigns, price wars, political lobbying, monopolization of distribution channels (e.g. 3E), battle for the super market selves, slander (e.g. British Airways vs. Virgin) etc.

11 Substitute products Existence of similar products Switching costs
For example, digital encyclopedias (Wikipedia, Encarta, Magenta) have posed a threat to traditional paper publishers Switching costs Switching costs of industrial customers may involve production redesign and retraining their workforce. Consumers’ preference to substitutes Preferences of consumers are dependent upon prices and performance of substitutes (e.g. e-readers & tablets vs. paper books).

12 Bargaining Power of Suppliers
Suppliers exert power in the industry by: Threatening to raise prices or to reduce quality Bargaining Power of Suppliers Suppliers are powerful if: * Supplier industry is dominated by a few firms (ore suppliers vs. steel customers) * Buyer is not an important customer to supplier * Suppliers’ product is an important input to buyers’ product Powerful suppliers can squeeze client industry profitability if firms are unable to absorb cost increases * Suppliers’ products have high switching costs * E.g. it is very difficult for a PC manufacturer to switch from Microsoft Windows to Linux (suppliers) * Suppliers’ products are differentiated Suppliers’ goods have few substitutes * The reverse also applies ( ) * Supplier poses credible threat of forward integration, thus competing customers (e.g. establishing super markets) 16

13 Bargaining Power of Buyers
Buyer groups are powerful if: * Buyers are concentrated, or volume of purchases is large compared to seller’s overall sales * Purchase accounts for a significant fraction of supplier’s sales (Carrefour, Tesco) Buyers compete with supplying industry by: Bargaining down prices * Products are undifferentiated (cement) * Buyers face few switching costs * Buyers’ industry earns low profits * Buyer presents a credible threat of backward/vertical integration (glass producers vs. glass frame manufacturers) *Industrial buyers may be dependent on the technology of suppliers Forcing higher quality Playing firms off of each other Buyer has full information on supplier’s costs and transactions The reverse also applies ( ) 18

14 Intensity of Rivalry Among Competitors
Industry rivalry increases when: There are numerous or equally balanced competitors Industry growth slows or declines There are high fixed costs or high storage costs → low profit margins Products are undifferentiated Switching costs are low Strategic stakes are high (e.g. energy) High exit barriers prevent competitors from leaving the industry

15 Intensity of Rivalry Rivalry is generally stronger when:
Rivals are active in making fresh moves to increase sales and market share Buyer demand is declining The number of rivals is large Rivals are of roughly equal size and capability Buyer costs to switch brands are low One or more rivals is dissatisfied with their current position and market share and make aggressive moves to improve their market prospects When one or two rivals have powerful strategies and other rivals are scrambling to stay in the game The “Weapons” of Competitive Rivalry Lower prices More appealing features Better product performance Higher quality Strong brand image and appeal Better customer service Wider product selection Bigger/better sales network Stronger product innovation capabilities Longer warranties Higher levels of advertising Rivalry among Competing Sellers Efforts of rivals to gain better market position, higher sales and market share, and competitive advantage Rivalry is generally weaker when: Firms draw sales and market share away from rivals Buyer demand is growing rapidly Buyer costs to switch brands are high gl

16 Interpreting Industry Analyses
Low entry barriers Suppliers and buyers have strong positions Unattractive Industry Strong threats from substitute products Intense rivalry among competitors Low profit potential

17 Interpreting Industry Analyses
High entry barriers Suppliers and buyers have undefined positions Attractive Industry Few threats from substitute products Moderate rivalry among competitors High profit potential

18 Competitor Analysis Response: Future objectives Response
Current strategy Response: What will our competitors do in the future? Where do we hold an advantage over our competitors? How is our relationship with competitors formed? Assumptions Capabilities

19 Competitor Analysis Components

20 Competitive Industries of Selected Nations


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