International Business

1. International Business Global Corporate Strategy: Porter’s theory of national competitive advantagein industries

2. Why I’m still learning to teach this course • Prof. Hill makes a powerful argument in favor of globalization • The text I used to use was wishy-washy • I don’t know if I like globalization as much as Prof. Hill • I’m awed and excited by progress in China, India, Vietnam and other places • But globalization seems to have very negative impacts, too

3. I felt we’d learn more from a text with a strong point of view • My goal is to get you to understand globalization and the global economy • If you believe in globalization, you’ll understand how to work with it • But I also want to give you tools to challenge globalization • to work to make things better if you don’t believe in globalization

5. Global Corporate Strategy • The key issues: • What are the big decisions in international business? • How do we make them wisely for our firms? • Global Corporate Strategy includes from the last half of last week’s session through (most of) the first half of the next session

7. Value Creation • The way to increase profitability is to create more value • The amount of value a firm creates is measured by the difference between its costs and the value that consumers perceive in its products • Michael Porter states that there are two basic strategies for creating value • Low-cost strategy suggests that a firm has high profits when it creates more value for its customers and does so at a lower cost • Differentiation strategy focuses primarily on increasing the attractiveness of a product (getting customers to think it’s different and better than competitors’)

8. But to create value, you must think about who you’ll work with • Porter’s study of national competitive advantage provides the business contextfor the big decisions

10. Videos can be borrowed … • From the Instructional Resource Center, near the North 6th St. entrance to campus • (next to the old library - Clark Hall)

12. Porter says industries succeed where 4 factors are favorable

13. Factor conditions • Not the factors economists used to care about (Labor, land, capital, etc.) • Specialized factors that people create • Labor with specialized skills • Unique resources (phone systems built for Strategic Air Command in Omaha, Neb.) • Innovations to cope with a weakness can produce long-term strength • Dutch bringing flowers indoors to cope with bad weather

14. Demand conditions (at home) • Demanding customers in the home market lead to competitive industries • If local customers need innovations, you can often sell those innovations in the world market • Germans need washing machines with powerful spin cycles due to damp weather • They sell them elsewhere

15. Related and supporting industries • Good local suppliers repeatedly help you innovate

16. Firm strategy, structure, and rivalry • Strategy: Ambitious firms become world leaders • Structure: Industries succeed where local norms are in tune with industry needs • Italian shoe makers benefit from preference for family firms in Italy • German appliance firms gain from preference for big, disciplined organizations

17. Rivalry: To succeed internationally, you need strong local competition • When local competitors do better than you, “you get mad” • Pressure on firms in the local environment contributes to success

18. The 4 elements in the diamond work together as a system Each element can contribute to making the other elements strong