Chapter 15 Strategic Elements of Competitive Advantage

1. Chapter 15Strategic Elements of Competitive Advantage Heather Blalock Jennifer Hauge Kendol Hoagland Tiago Ruffoni

2. INDUSTRY ANALYSIS: WHAT DRIVES COMPETITION Threat of New Entrants New Approaches to satisfy customer Needs Prices are affected Profits are reduced

3. 8 BARRIERS WITH NEW PRODUCT ENTRY: Economies of Scale- Products cost go down while production increases Product Differentiation- Uniqueness of product Capital Requirements- R&D, advertisement, field sales and service, customer credit, working capital Switching Costs- Caused by changing suppliers and products

4. Distribution Channels- Cost of entry can be costly if channels are full or not available Government Policy- Major entry barriers, due to government restrictions based on Control Cost Advantages Independent of Scale Economies- Access to raw materials, low cost labor, desired locations Competitor Response- Competitors belief of a difficult entry into a market

5. THREAT OF SUBSTITUTE PRODUCTS Limits prices that market leaders charge High prices can turn customers to your competition

6. BP of Buyers Buyer�s mean Manufactures Goal is to pay lowest price to obtain product and services that are required Buyers drive down profits in supply industry by leveraging vendors Buy large quantities which causes dependence Buyer power ( Walmart changing lyrics in music)

7. BP OF BUYERS Suppliers leverage allows them to change cost which effect customers profits Develop own brand name and product Leverage is gained by largeness and Suppliers are scarce

8. RIVALRY AMONG COMPETITORS Firms actions in an industry to improve positions and have advantage over one another Price competition, Advertising battles, Product positioning, set themselves apart from competitors Less profit to establish themselves

9. COMPETITIVE ADVANTAGE Competitive advantage is a �position a firm occupies against its competitors� There are two ways to achieve competitive advantage: Offer the �same� product at lower cost than competitors (Low-cost strategy) Offer �better� products or �greater� service than competitors (Differentiation strategy) Customer perception decides the quality of a firm�s strategy

10. PORTER�S GENERIC STRATEGIES

11. FLAGSHIP MODEL �Long-term competitiveness in global industries is less a matter of rivalry between firms and more a question of competition between business system� (Alan Rugman and Joseph D�Cruz)

12. THE FLAGSHIP MODEL

13. CREATING COMPETITIVE ADVANTAGE VIA STRATEGIC INTEND �Few competitive advantages are long lasting. Keeping score of existing advantages is not the same as building new advantages. The essence of strategy lies in creating tomorrow�s competitive advantages faster than competitors mimic the ones you possess today. An organization�s capacity to improve existing skills and learn news ones is the most defensible competitive advantage of all� (Gary Hamel)

14. 4 SUCCESSFUL APPROACH USED BY JAPANESE COMPETITOR Layer of Advantages: A firm�s products have a few advantages to its competitors Loose Bricks: A firm takes advantage by marketing its products on areas that were overlooked by competitors Changing Rules: A firm decides to adopt its own marketing strategies instead of imitating the market leader Collaborating: A firm uses the know-how developed by other companies

15. Global Competition Occurs when a firm takes a global view of competition and sets about maximizing profits worldwide, rather than on country-by-country basis Brand-name muscle and quality packaging can overwhelm local competition in global markets Detergents � Colgate, Unilever, Proctor & Gamble Automobiles

16. ADVANTAGES AND DISADVANTAGES OF GLOBAL COMPETITION Effects have been highly beneficial to consumers Expands range of products, can lower prices, increase likelihood consumers get what they want Can potentially take away jobs and profits from domestic suppliers

17. National Advantage

18. Factor Conditions A country�s endowment with resources; may be created or inherited Basic factors can be replicated and are not sustainable sources of national advantage Specialized factors are more advanced and provide more sustainable source for advantage Porter�s 5 categories of factor conditions Human Physical Knowledge Capital Infrastructure

19. Demand Conditions Factors that either train firms for world-class competition or that fail to adequately prepare them to compete in global marketplace Characteristics Composition of Home Demand � how firms perceive, interpret, and respond to buyer needs Size and Pattern of Growth of Home Demand � only important if composition of home demand anticipates foreign demand Rapid Home Market Growth � incentive to invest in and adopt new technologies faster Means by Which a Nation�s Products and Services are Pushed/Pulled into Foreign Countries

20. RELATED AND SUPPORTING INDUSTRIES Country has an advantage when it is home to globally competitive companies in business sectors that are related and supporting industries Globally competitive supplier industries provide inputs to downstream industries, which are likely to be globally competitive in terms of price and quality Results in competitive advantage Advantage is the result of the contact and coordination with the suppliers; coordinating and sharing value chain activities

21. FIRM STRATEGY, STRUCTURE, AND RIVALRY Domestic rivalry in a single national market is a powerful influence on competitive advantage Rivalry between Dell, HP, Gateway, Compaq, Apple, etc. forces them to develop new products, improve existing ones, lower costs/prices, develop new technologies, and improve quality and service Domestic rivals must fight for market share, R&D breakthroughs, employee talent, prestige in home market Rivalry with foreign firms may lack this intensity Absence of domestic rivalry can lead to complacency and cause them to be noncompetitive in world markets; the intensity and quality of competitors make the difference

22. Other External Variables Chance Shape competitive environment Go beyond control of firms, industries, governments Alters conditions in the �diamond� Create major discontinuities in technologies that allow nations/firms to leapfrog over old competitors and become competitors or leaders in the industry Examples: war, major technological breakthroughs, etc. Government Influences determinants by buying products/services, making policies, and regulating commerce Can improve or lessen competitive advantage, but can�t create it

23. CURRENT ISSUES IN CA: Hypercompetition- in a dynamic competitive environment, no action or advantage can be sustained in the long run. Microsoft & Gillette D�Aveni Model-competition in four areas: Cost/quality timing Know-how Entry barriers Deep pockets Cost/Quality- 7 dynamic interactions: continually changing the value marketplace by changing their position. Price wars Quality/price positioning Timing/Know-How Firms with first mover advantage (first to market) have a timing advantage. SONY- first pocket transistor radio, consumer VCR, and CD player, PlayStation. Threat of imitation Know-how- technological advantage. Can create a new product/market. Entry Barriers Aggressive competitors erode these traditional barriers. DELL- uses direct sales approach instead of the traditional distribution channels. The best entry strategy according to D�Aveni is to maintain the initiative- don�t spend time and money on defending your market position against new entrants. 8 interactions: Build a geographic stronghold. Target product markets strongholds of competitors in other countries. HONDA- started in Japan, began to target outside the country with motorcycles and automobiles. Competitors make short term counter-responses to the new entrant. May start price wars, or introduce new products Competitor realizes that they must respond with new strategies to make new hurdles New entrants react to the hurdles- US put import quotas on Japanese cars, so they built plants in the US Long term counter-responses either offensively or defensively Competition is exported back to the entrants home country- Japan was threatened to open their import market to allow US cars in (GM-developed Saturn) Final standoff of competitors in the arena. Cost/Quality- 7 dynamic interactions: continually changing the value marketplace by changing their position. Price wars Quality/price positioning Timing/Know-How Firms with first mover advantage (first to market) have a timing advantage. SONY- first pocket transistor radio, consumer VCR, and CD player, PlayStation. Threat of imitation Know-how- technological advantage. Can create a new product/market. Entry Barriers Aggressive competitors erode these traditional barriers. DELL- uses direct sales approach instead of the traditional distribution channels. The best entry strategy according to D�Aveni is to maintain the initiative- don�t spend time and money on defending your market position against new entrants. 8 interactions: Build a geographic stronghold. Target product markets strongholds of competitors in other countries. HONDA- started in Japan, began to target outside the country with motorcycles and automobiles. Competitors make short term counter-responses to the new entrant. May start price wars, or introduce new products Competitor realizes that they must respond with new strategies to make new hurdles New entrants react to the hurdles- US put import quotas on Japanese cars, so they built plants in the US Long term counter-responses either offensively or defensively Competition is exported back to the entrants home country- Japan was threatened to open their import market to allow US cars in (GM-developed Saturn) Final standoff of competitors in the arena.

24. INNOVATION The best defense is a good offense. Innovation begins with abandonment of the old and obsolete. D�Aventi urges that the flexible, unpredictable player may have an advantage over the inflexible, committed opponent. Porter�s take Core competencies Hypercompetition D�Aventi does not think that the 5 forces model is in stride with today�s markets. Porter: Core Competencies: The idea of core competencies is to have a series of things a firm does in a way that it is hard to replicate. Rivals have to match ALL of these, or they have nothing. Hypercompetition: Doesn�t believe that firms are moving into hypercompetitive markets. There are more customer segments than ever before, more options in technology and channels. MORE opportunity for different positions against rivals. D�Aventi does not think that the 5 forces model is in stride with today�s markets. Porter: Core Competencies: The idea of core competencies is to have a series of things a firm does in a way that it is hard to replicate. Rivals have to match ALL of these, or they have nothing. Hypercompetition: Doesn�t believe that firms are moving into hypercompetitive markets. There are more customer segments than ever before, more options in technology and channels. MORE opportunity for different positions against rivals.