Download Summary Chap 8 – Linn

Summary Chap 8 – Linn
The chapter focuses on:
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Nature of Global Competition
Various ways to gain competitive advantage for a firm exposed to global
competition
Information Technology and Global Competition
Geographical distance less important in designing the global strategy because of 3
things:
1. From WWII: Development of transportation technology (jet planes, large ocean
carriers etc)
2. From 80s: Explosion of Information Technology (telecommunications)
a. Recently: E-commerce
E-commerce
 The fastest growing marketing channel
Has significantly reduced the problems of marketing to foreign markets, as it is no
longer hampered by geographical distance and the lack of sufficient information, this
has made the product life cycle shorter (p. 249 last part).
(Generally this part contains a large amount of numbers on how fast the Internet has
grown in different markets in the last decade, I find it non-important but if you want to
look into it it’s on p 250.)
Real Time Management
The importance of managers being updated as close to real time as possible on sales,
emerging events and trends, etc.
Example: Volvo in the mid 1990’s found itself with an excess inventory of green cars.
Sales respond by developing deals, discounts and rebates to push them through the
distribution channel. Manufacturing noticed the increased sales of green cars, but were
unaware of the current push for green cars, and thus responded by increasing
production of green cars. By the end of the year the company found itself with an even
larger surplus of green cars.
 Lesson: Use IT to share real-time data/knowledge with all parts of the organization.
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Combination of IT, access tools, and telecommunication has squeezed out a large
chunk of organizational slack due to increased speed of information flow.
Ordering now done through EDI (Electronic Data Interchange), eliminating
considerable amount of paperwork.
Online Communication
 Enables Sales to stay updated via laptops, faxes, and satellite uplinks
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Multiple sites around the world can work on the same problem (send whats
finished that day to another office in another time zone)
Teaching/meetings via conference calls, no need for travelling!
E-company
The discussion on what IT will do to companies’ organizational structures. Information
flows faster across the organization, mainly because the number of “filtering” points are
reduced in between the source of info (e.g. point-of-sale) and the user (manager), and
thus changes the organizational chart. Example being Siemens who has put a “Buy from
Siemens” button on its website, meaning the demand chain goes from customers
through Siemens, to its suppliers.
Faster Product Diffusion
Fast information flow  Simultaneous product lunch over many markets at the same
time in order not to lose market share to other companies.
Global Citizenship
 English the language of international business
 Integration of euro in the EU
 In order to stay competitive, a firm needs to “adopt a geocentric orientation that
views the entire world as a potential market and integrates firm activities on a global
basis.”
Global Strategy
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Global Strategy: “To array the competitive advantages arising from location,
world-scale economies, or global brand distribution by building global presence,
defending domestic dominance, and overcoming country-by-country
fragmentation.”
Global Industry
 Global Industry: “One in which a firm’s competitive position in one country is
affected by its positions in other countries, and vice versa”.
 First question faced by marketers in building strategies: To what extent is my
company’s industry globalized?
 Industry Globalization Drivers (NB! More examples in the book! P. 254):
o Market Drivers: depend on nature of customer behavior and structure of
distribution channels.
 Convergence of per capita income in industrialized nations
 Emergence of rich consumers in emerging markets (e.g. China)
 Increased international travels
 Spread of global and regional media (MTV, CNN etc.)
o Cost Drivers: depend on the economics of the business.
 Accelerating technological innovations
 Advances in transportation (e.g FedEx)
 Emergence of NIC’s with productive capabilities and low labour
costs (e.g. India).
o Government Drivers: involve rules that can affect the use of global
strategic decision making.
 Changes in Tariff/Non-tariff barriers
Creation of trading blocs (e.g The EU)
Shift to open markets from closed communist systems (Eastern
Europe, China etc.)
o Competitive Drivers: raise the globalization potential of their industry.
 Increased ownership of corporations by foreign investors
 Growth of Global Networks
 Globalization of financial markets
 Rise of new competitors intent on becoming global competitors
(India/China in 2000s, probably Russia in 2010s)
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Difference between multi domestic and global strategy: multi domestic handled
as a portfolio with subsidiaries somewhat independent of each other, global
integrates the activities of the company to try and capture linkages between
countries and treat the world as a single market.
Competitive Structure
“A firm has a competitive advantage when it is able to deliver the same benefits as
competitors but at a lower cost, or deliver benefits that exceed those of competing
products.” Or: “Competitive advantage is a temporary monopoly period that a firm can
enjoy over its competitors.”
Building competitive advantage on…:
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Economies of scale = cost leadership strategy
o Economies of scale is caused by two things: 1. Less cost/unit in larger
volumes 2. Learning effects (experience curves)
Innovation = product differentiation strategy
o Some customers are willing to pay premiums for product features, e.g.
BMW and Volvo maintained there competitive advantages in Europe over
Japanese manufacturers that used a cost leadership strategy.
Limited highly specialized segments = niche strategy
o E.g Rolls Royce
Potential Entrants: Threat of entrants depending on barriers of entry. Classic example
being airline industry or electricity supply, where economies of scale makes it very
costly for new companies to enter the market (consider investing in 20 airplanes).
Electricity supply has been deregulated, and thus barriers of entry have been lowered
(easier to enter).
Bargaining Power of Buyers: Power depends on for example how many buyers there
are. If a firm is selling to just one buyer, that buyer becomes very powerful, as it knows
how important it is to the firm, and vice versa.
Bargaining Power of Suppliers: Basically the other way around: few suppliers of
products high in demand = high supplier power. Example: Intel in the computer
business.
Threat of Substitutes: If a new product enters the market that has very similar or
identical benefits to the customer.
Rivalry: The amount of rivalry within an industry affects the attractiveness of it. PC
industry is considered to have high rivalry, and in the European market (at least) also
the telecom industry (aggressive marketing campaigns, deals, rebates, “switch now and
we’ll buy you the entrance fee”, etc)
Gaining Competitive Advantage
Hypercompetitive environment: Firm competes on basis of price: quality, timing, and
know-how which create strongholds in the market it operates in and consequently
financial resources to outlast the competition.
 No competitive advantage can last, it is bound to become eroded.
First-Mover Advantage Vs. First-Mover Disadvantage
Advantages: Discusses importance of timing when introducing new technological
advances in the market, and to focus on always moving forward directly afterwards.
Firms that are able to continue to create a series of temporary advances are the ones who
will survive. Sony is a good example of a company that strives to stay ahead with
products like Trinitron colour television, Walkman, and DVD.
Disadvantages: Citigroup in alliance with Chinese bank to target Chinese credit card
market. Since the country has no nationwide credit rating system or adequate risk
management technology, the move was considered very risky.
 General Conclusion; stable markets favour first-mover strategy, while market and
technology turbulence favour the follower strategy (advantage of hindsight and learning
from others mistakes).
In order to compete on the edge (competitive advantage), firms need to understand:
1. Advantage is temporary (continuous creativity required)
2. Strategy is diverse, emergent, and complicated.  Rely on several different
strategic moves.
3. To keep pace with changing market place; Reinvent, reinvent, reinvent.
4. Live in the present, stretch out the past, reach into the future.  Experiment, but
also use past experience to create new opportunities.
5. Strategy grown and driven from the business level.
6. To stay ahead in a changing environment, managers need to recognize patterns
in the firm’s development and articulate semicoherent direction.
 Strategic flexibilities!
Competitor- Vs. Customer-Focused Approach
Competitor approach: compare costs, prices, technology, market share, and profitability
with competitors. You stay ahead, but might miss out on listening to your customers
Customer approach: Analyze customer benefits to be delivered. Listening too closely
might make you miss out on new innovations, as customers might not want innovations
that require them to change how they operate. Success story is Estée Lauder, the
company created products to whiten the skin for Asian markets (identify need by
listening).
Interdependency: Firms are increasingly relying on outside technologies to be able to
build state-of-the-art products. E.g. computer and cell phone industry. Components are
alike or the same, it’s only the outside (design) that differs.
Global Marketing Strategy
Product design, product and brand positioning, brand name, packaging, pricing,
advertising strategy and execution, promotion, and distribution.
 All these elements of a global marketing strategy can be candidates to
standardization. Standardization however is not something that a company necessarily
has to do, it is a part of the global marketing strategy as any other, and it may or cannot
be used.
 A global marketing strategy in turn is but one component in a global strategy, and the
amount of standardization consequently has to match not only the entire marketing
strategy, but the entire strategy, as links in between the company’s different resources
have to be organized according to it (e.g degree of standardized packing, has to work
with the production facilities around the world).
Benefits of Global Marketing
Four major categories where global marketing can achieve benefits:
+ Cost Reduction
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Personnel costs reduced when consolidating marketing functions
Global marketing materials and campaigns
Standardized packaging
Online marketing (own website)
+ Improved Quality of Products and Programs
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Good ideas are scarce  globalization program that allows the spread of a good
idea (R&D traditionally located in HQs, danger is that you miss out on ideas
around the world)
Example: P&G has set up major R&D facilities in three biggest markets: N.
America, Japan, Western Europe.
+ Enhanced Customer Preferences
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If the customer is aware of a product on a worldwide basis, that increases its
value. Global marketing builds on that through reinforcement.
+ Increased Competitive Advantage
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If you focus your resources on a smaller amount of programs, you become more
efficient in those, thus allowing a smaller firm to compete with a bigger one (that
might have more resources, but is also spread out over more programs).
Most important; get the entire organization behind one single idea.
o Avis: “We are number two, therefore we try harder”, a message
communicated to both customers and employees!
Increased flow of information throughout the firm due to coordination of
activities to support. Firm becomes more informed about itself as well as its
environment.
Limits to Global Marketing
- The conflict in between unification (one message) and fragmentation (firm’s
tendency to adapt to local markets).
o Also called globalization vs localization, or scale vs sensitivity, etc.
 Left side refers to the supply side of the argument, right side the
demand side.
- NB! Check p. 268 for a chart on degree of standardizability.
Regionalization of Global Marketing Strategy
Sometimes a global marketing strategy is not optimal for a company. It may be that
cultural, political, economic, and/or organizational realities just make it non-desirable.
 In finding the balance, companies make use of regional strategies.
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Has been promoted in Europe and N. America through creation of trade blocs.
Cross-Subsidization of Markets
Refers to multinationals using profits gained in a stronghold market to strengthen their
competitive positions in another market where they are weaker.
 Example: Michelin attacking Goodyear’s home market (US) by launching products to
a lower price.
Identification of Weak Market Segments
Find a segment that is not covered by a competitor in its home market.
 Japanese firms used small-screen portable TVs in the US.
Use of the Lead Market Concept
“A lead market is a market where unique local competition is nurturing product and
service standards to be adopted by the rest of the world over time.”
 Its about identifying a market where there is demand for a certain product, launch it
and then let that market “lead by example”.
Marketing Strategies for Emerging Markets
- Avoid self referencing; middle class in Europe/N. Am is considered upper class in
the 10 Big Emerging Markets (BEMs) in terms of purchasing power.
- Consumers in BEMs are increasingly aware of global brands – but unwilling or
unable to pay global prices.