GLOBAL INDUSTRIES Chapter 5 Lecture 1

1. GLOBAL INDUSTRIESChapter 5 Lecture 1

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

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. 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. Table 5.1 Examples of Multidomestic to Fully Global Industries

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

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

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

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

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

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

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. “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. What Does the Future Hold? • Consider any given industry

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. 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. Intellect Unleashed With • Trust • Empowerment • Teams • Encouragement

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

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

28. Process Examples • Core Competencies • Learning • Strategy • Worldwide integration • Multilocal strategy

29. 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

30. Structure Examples • Networks • Hybrids • Combining hierarchies and flat organizations • Alliances

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

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. 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)