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International Business

Explore Michael Porter's theory of national competitive advantage in industries, revealing key decisions in global corporate strategy. Learn how creating value through low-cost and differentiation strategies drives profitability, tied to the interplay of factor conditions, demand, supporting industries, and firm rivalry.

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International Business

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

  2. Global Corporate Strategy • The key issues: • What are the big decisions in international business? • How do we make them wisely for our firms?

  3. 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’)

  4. 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

  5. Porter says industries succeed when they can… • innovate, • upgrade, constantly offering more and better to customers

  6. Therefore, industries succeed where 4 factors are favorable

  7. 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

  8. 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

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

  10. 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

  11. 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

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

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