Chapter 3

1. Chapter 3 Competitive Advantages Productivity Rationalization

2. Competitive Advantage • The ultimate goal for international companies and is achieved when a country or company outperform their competition around the world by… • Superior products • Better pricing • Higher quality • Better service • Uniqueness • Higher profits

3. How do you measure competitive advantage? • Market share = your sales/total market sales Apple iPhone $ sales/cellular phone sales • Customer demand • Customer loyalty • Partnerships with suppliers

4. Real World Examples • Companies with sustained Competitive Advantage • Strong Research and Innovation – Apple and Sony • Brand Popularity – Coca Cola • Top 10 Brands 2012 • Corporate Reputation – Bershire Hathaway and Price Waterhouse • Superior Product or Customer Support – IKEA • Flexibility – Microsoft – abilityto change swiftly • Low Pricing – Wal-Mart • Superior Database Management – Google, Facebook • Speed and Time – FedEx and Domino Pizza

5. Achieving Competitive Advantage • A company with a competitive advantage provides a product/service with greater economic UTILITY (usefulness) than their competition. • Form Utility – Created when raw materials are converted to finished products. Eg. Flour has form utility more than wheat • Place Utility – A product that is in the right place for consumption. Eg. Coke in vending machine

6. Factors Affecting Canada’s Competitiveness • Quantity/Quality of NATURAL RESOURCES • Abundance of oil, fish, forests, gold, diamonds, natural gas, potash, fresh water • Ready, large, accessible market in USA • Disadvantage: Expensive to extract, far from European and Asian markets – delivery costs are high • Strength of a Country’s Currency - Historical Foreign Exchange Data

7. Infrastructure – Strong Transportation and Communication – CIA Factbook • Canada – airports 1,453 (4th top in the world) • Russia – 1,218 (5th) Argentina – 1,149 • Canada Railway – 46,552 km (5th top in the world) • Russia – 87,157 km (2nd) Argentina – 36,966 • Canada - 9 Ports Russia 7 Ports • Roadways – 1,042,300 km (6th top in the world) • Russia – 982,000 (9th) Argentina – 231,374 • Canada Cellular Phones – 27.387 million (37th in the world) • Russia – 236.7 million (6th) Argentina – 55 million

8. R&D – In Canada R&D focuses on Technology and Telecommunications • Workforce Characteristics • High Literacy Rates • OECD stats – 88% of Canadians between 25-64 have a high school diploma (77% OECD average) • PISA Scores – Average Canadian Student 527, OECD Average = 497 • Sick Days – 2010 Stats Canada – Average Full time employees lost 9.1 days for sickness and personal leave which equates to 100 million work days. This is down from 2009 (9.5) but up from 2000 (8.0) • UK results – 131 million or 4.5 days on average per employee – what could cause stats to be lower?? • UK number may include ALL workers not just Full time • Workforce in Canada could have an older average age (Older workers take more sick days) • Workforce in Canada may have more women in workforce (Need to take more days to look after sick children)

9. Societal Characteristics – Value citizens place on quality and productivity at work, tolerance and diversity • Entrepreneurship – Entrepreneurs provide business solutions to meet global needs and wants. Remember that Canada had the highest number of entrepreneurs per capita in the world. Think Canada source • Government Involvement – tax environment, free trade agreements and willingness to expand trade partnerships. • Think Canada places Canadian Corporate tax at lowest in G7 • The focus of Ed Fast (Minister of International Trade) is to secure free trade agreements with the EU, India and Japan. • Free Trade Agreements for Canada

10. Absolute and Comparative Advantage • Opportunity Cost • The value of the next best alternative investment OR the value of the sacrifice when a decision is made • Example: The opportunity cost of going to university or college = • The cost of tuition+books+accomodations+meal plan + Salary you would have made if you had worked instead • Note: An accountant would only add the first 4 costs but an economist would add all 5 • Absolute vs Comparative Advantage: Can two countries benefit from trade even if 1 of the 2 is more efficient?? • Youtube Lesson: Absolute and Comparative Advantage

11. Productivity • Define:: The amount of work that is accomplished in a given time using the factors of production • Land • Labor • Capital • Technology • Entrepreneurship • Measured in Dollars earned/hour worked

12. What influences Productivity • Efficient use of human and physical resources • Labor costs – wages benefits • Accessibility to natural resources • Quality of Technology • Quality of education • General WORK ETHIC and HEALTHY LIFESTYLES • Size of domestic and foreign market • Support for R&D

13. Why does Productivity Matter? • Standard of Living and Quality of Life are determined by PRODUCTIVITY • Think about diamond mining in Canada vs Sierra Leone • Efficient uses of resources, quality of technology, support for R&D to name a few were are at opposite ends of the spectrum. • High rates of productivity are reflected in • Higher wages • Incrased profits • More taxes collected for public services (health, education) • One of the BEST INDICATORS of economic performance

14. Rationalization • Definition – process used by a company to change its structure, product line or production process to become more efficient. • Easy Changes • Combine departments • Combine product lines • Downsizing • Closing down product lines

15. Larger Changes • Building new factories • Develop new technologies • Acquiring a new business • Closing factories/divisions • Example of Rationalization – Privatization – ownership moves from government ownership to a private company. • Air Canada • Petro Canada sold to Suncor • Liquor Stores – LCBO – owned by government but in some provinces there are private liquor stores • Supporters of Privatization say… • What may be wrong with Privatization?

16. Kraft Rationalization • Kraft purchased Cadbury in 2010 for 20 billion • Kraft split this new company into 2 separate companies • Restructing Plan • Job Losses • Kraft Foods – N. American groceryKraft Grocery Brands • Mondelez International – Global snacking • Mondelez brands