Download Ch 2 - Business Competitive Environment

What’s Happening?!
You will be color coded when you make a reservation
on an airline.
Bush proposal regarding illegal immigrants has hyped a big
“made in America” and job security debate.
After all, it is an election year!
ATP Assignments
Djurovic, Michael
Tekle, Michael
Braff, Sam
Agilent
Agilent
Apple Computer
Javaid, Raheed
Levchenko, Steven
Martin, Brandi
Cisco
Cisco
Cisco
Stefanek, Tera
Vissell, Mira
Hanson, Nathan
Lalonde, Eric
Cisco
Cisco
Dell
Dell
Lau, Simon
Rosander, Emily
Ward, Devon
Dell
Dell
Dell
ATP Assignments
Corona, Allen
Lee, Vitaliy
Intel
Intel
Li, Xuemei
Lin, Victoria
Patel, Hemal
Intel
Intel
Intel
Poblete, Andrew
Mathur, Navneet
Watt, Elizabeth
Wong, Cindy
Intel
Oracle
Oracle
Oracle
Bains, Satender
Shusta, Alexander
Sun Microsystems
Sun Microsystems
The Plan!?
Start researching material immediately.
•
Read syllabus regarding the assignment.
•
Look at the Boeing paper in the textbook plus the
Wal-Mart paper on the course web page.
•
Use links on web page for your company.
Key Factors
1. Industry definition.
2. “Big Picture” data regarding the industry.
3. Business and IT leaders.
4. Porter Competitive Model analysis.
5. Business Strategy Model.
6. Identifying strengths and weaknesses of the company.
7. Figuring out who runs the business on a day-to-day basis
and the relationship with the person running the IS
organization.
8. Concluding what the company changed through the use
of Information Systems.
Chapter 1 Summary
Business and Information
Systems Management Challenges
Overview of Chapter 1
Three Necessary Perspectives
 Simultaneous Revolutions in the Business
Environment
 Systematic Approach to IS
 Three Roles of IS

Three Necessary Perspectives
•Business Environment
Specific Industry
•Enterprise Environment
The Company Itself
•IT Environment
Creates a Competitive Advantage
*Must understand the Business and
Enterprise Environment first*
Business
Success
Simultaneous Revolutions
New
Competitors
New Rules
of Competition
Industry Structure
Changes
New Regulatory
Environment
New Political
Agendas
The
Business
New Technologies
New Employees
and New Values
Increasing
Customer Expectation
Systematic Approach to IS
Vision
Strategy
Tactics
Business Plan
•Competitive Options
•Roles, Roles, and Relationships
•Redefine/Define
•Telecommunications as the Delivery Vehicle
•Success Factor Profile
Three Roles of IS
 Efficiency
 Effectiveness
 Competitive Advantage
Three Roles of IS
 Efficiency

Doing things better overall
 Effectiveness

Doing better things within the organization
 Competitive Advantage

Doing better and new things for the
customer
In Conclusion….

Three Necessary Perspectives
– Business / Enterprise / Information Technology

Simultaneous Revolutions
– Competitors / Rules / Structure / Regulatory / Customer
Expectation / Employees / Technology / Politics

Systematic Approach to IS
– Separate Business from IT

Three Roles of IS
– Efficiency
– Effectiveness
– Competitive Advantage
Chapter 1 Questions

Why is it important to know the business
environment and enterprise environment
before addressing the IT environment?

Identify and explain the three roles of
Information Systems including a specific
company example that emphasizes each of
the roles?
Chapter 2
Business Competitive
Environment
“The global market will come to you, if you don’t
come to it.”
Competition Can Be…
Local
 Regional
 National
 International

Going to be taking a look at competition,
defining it and then focusing on global
competition.
Why Do We Care?
What Is Competitiveness?
“The degree to which a nation can, under free and fair market
conditions. Produce goods and services that will meet the test
of international markets while simultaneously maintaining or
expanding the real income of its citizens”
Three Inputs to improving domestic performance
 Human Resources
 Capital
 Technology
Competitiveness: A Link to National Goals
Human
Resources
Capital
Technology
Trade
Policy
Improved
Domestic
Performance
New
Competition
Decreased
Budget
Deficit
Increased
World Market
Competitiveness
Reduced
Trade
Deficit
Stronger
National
Security
More and
Better Jobs
Increased
Standard of
Living
Figure 2-1
How does a company gain a
competitive advantage?

Provide a value to customers
– Real
– Perceived
• Knowing/Understanding
- Products
- Customers
- Competitors
International Competitive Advantage
The way companies achieve competitive
advantage in the global industry is based on
the role played by the home nation.
The Diamond National Advantage
Chance
Firm Strategy,
Structure and
Rivalry
Factor
Demand
Conditions
Conditions
Related and
Supporting
Industries
Government
Fig. 2-2
The Government’s Role

Catalyst

Challenger
Overview
What competitiveness is.
 How a company can gain competitive
advantage.
 How to gain an international competitive
advantage
 The government’s role in fostering home-based
companies.

“All good things take time.”
Chapter 2
Business Competitive
Environment
Position Some Important Factors
1. The definition of competitiveness.
2. The key elements of competitive advantage.
3. The role of the nation relative to companies
that compete successfully on a global basis.
4. The role of government within a nation.
While contemplating the idea that information
technology could make a difference.
Competitiveness is the Pivotal
Business Issue
in the 21st Century
Global Economy
Why the emphasis on globalization and
the importance of global competition?
Business Environment
The global market will come to
you, if you don’t go to it.
An Essential Roadmap?
Do nations, companies and individuals need to build
wealth in a knowledge-based global economy?
How significant in creating wealth are breakthrough
technologies in microelectronics, biotechnology, new
materials, telecommunications, robotics, and
computers?
Do these factors explain why relatively new
industries are growing explosively and existing
industries are being transformed?
US Status
• In the 1990s the US was the run away leading performer
in the industrial world.
• The US claimed nine of the ten largest companies in the
world by 1998 compared to only two in 1990.
• Nine of the fifteen most profitable banks are in the US
compared to none in 1990.
• The wealthiest man in the world is an American.
• American billionaires measure in the hundreds.
• US stock markets remain relatively high.
• Interest rates are at a forty year low.
• Inflation has been a minor issue.
Some Important Questions
• Is the relatively unique US prosperity sustainable?
• Is global integration a boon or a threat to this prosperity?
• Will the forces that sparked the Asian meltdown provoke an
era of stagnation or worse?
• Should global integration be slowed?
• What rules should be applied to the creation and protection
of new ideas. (intellectual property rights)
• Can nations create a social system in which entrepreneurial
spirit can flourish without also creating income and wealth
inequities that threaten the system?
• What skills are needed to succeed in this new economy?
Global (International) Trade
Not in isolation to the rest of the world!
The US has truly become a global economy.
1950 - Global trade represented 10% of the US
economy.
2000 - Global trade was nearly 25% of a much bigger
US economy.
Foreign Direct Investment
Since 1985 foreign direct investment in the US has
increased five-fold.
Five percent of the total labor force works for
companies that are wholly or partially foreign owned.
Employees of companies that work for companies that
export earn more than those that do not.
Forty percent of productivity improvements are in
exporting companies.
What Countries “Own”:
• Nokia
• Finland
• Burger King
• UK
• Chrysler
• Germany
• Airbus
• France, Spain, UK, Germany
• Benetton
• Italy
• Gillette
• US
• Shell
• Netherlands
A Complex Political Environment
Three of five American registered voters approve of free
trade.
Most agree that imports give them a larger selection of
goods to choose from and that foreign competition
forces US companies to be more competitive.
They also feel that imports help lower income families
afford a higher standard of living by lowering prices.
They have concerns regarding the environment, human
rights, jobs, taxes, societal problems and sovereignty.
Trade Issue Attitudes
Attitudes lie along income, education, age and gender
divides.
Free trade proponents tend to be those that see themselves
benefiting from globalization: men, those that are better
educated, richer and live in cities.
Those who question globalization include women, the
elderly, those who are less well educated or poorer and those
that live in rural areas.
How Trade Works
General Agreement on Tariffs and Trade (GATT)
A loose agreement that had a restricted scope and limited
powers based on an agreement that was originally signed
in the late 1940s.
World Trade Organization (WTO)
Created in 1995, the WTO has the job of administering
trade agreements, resolving trade disputes and conducting
future trade negotiations.
WTO
WTO members must abide by the group’s rulings.
The most important of which is to give every
member the same set of low tariffs and other
favorable trade rules.
The most significant recent development was the
admission of China to the WTO in 2000.
Michael Porter Contributions
• 1985 - Presidential Commission and
Competitiveness Definition
• 1987 - Competitive Model and Value Chain
• 1990 - Competitiveness of Nations Study
• Present - Institute for Strategy and Competitiveness,
Harvard Business School
Presidential Commission
Letter to President Reagan
Mr. President, it has been a great honor to serve
you and the Nation. The competitive challenge
calls for the leadership only you can provide.
We thank you for your vision, interest and
initiatives in making competitiveness a priority
on our national agenda.
John A. Young
Chairman
President’s Commission
on Industrial Competitiveness
Competitiveness Definition
The degree to which a nation can, under
free and fair market conditions, produce
goods and services that will meet the test of
international markets while simultaneously
maintaining or expanding the real income
of its citizens.
Source: President’s Commission
on Industrial Competitiveness
Competitiveness: A Link to National Goals
Human
Resources
Capital
Technology
Trade
Policy
Improved
Domestic
Performance
New
Competition
Decreased
Budget
Deficit
Increased
World Market
Competitiveness
Reduced
Trade
Deficit
Stronger
National
Security
More and
Better Jobs
Increased
Standard of
Living
Figure 2-1
Presidential Commission
Recommendations:
1. Create, apply and protect technology.
2. Spur new industries and revive old ones.
3. Pursue productivity gains through technology.
4. Reduce the cost of capital to American industry. Increase the
supply of capital available for investment, reduce its cost and
improve its ability to flow freely to its most productive uses.
Who is going to make it happen?
1. Government cannot legislate competitive
success.
2. Government should highlight the importance
of competitiveness.
3. Everyone must recognize the competitive
challenge and its significance.
How Does a Company Compete?
If the bottom line to a business is
profit, then the top line is value to
customer.
A Good Optional Strategy?
To produce quality products and
services through effective leadership
of skilled employees using advanced
methods through the innovative use
of technology.
A Good Competitor:
1. Knows its products and services.
2. Knows its customers.
3. Knows its competitors.
Competitiveness of Nations
The striking internationalization of competition
in the decades after World War II has been
accompanied by major shifts in the economic
fortunes of nations and their firms.
1. How did this happen?
2. What can one learn from this?
3. What can companies and countries do with this
knowledge?
Competitiveness of Nations
Why (how) are companies in a
particular nation able to gain a
dominant competitive position in
a specific industry against the
world’s best competitors?
Competitiveness of Nations
The point of all of this:
• Helps to anticipate from which country future
competition is likely to come from?
• Helps to understand at least in basic terms the
types of companies that will be primary
competitors?
• Could help to anticipate what could be their
primary competitive strategies?
Nations do not compete!
Organizations Compete
Within Industries
What is the role of the nation?
Previous Basis of Competitive Analysis
• Porter
• Economists
• Politicians
• Companies
Companies and Industries
Unit Cost of Labor Adjusted
for Inflation
Balance of Payment
The Right Strategies to
Compete in Global Markets
To Understand Competitiveness
• The industry was the basic unit of
analysis.
• Industries are organizations that
directly compete with each other.
• Some industries are well-defined,
while others are not.
A Major Message
The role of the nation has
increased as competition has
shifted more to the creation and
assimilation of knowledge.
Competitiveness of Nations Study
1. Denmark
• Copenhagen School of Economics
2. Germany
• Deutsche Bank
3. Italy
• Ambrosetti Group (transportation company)
5. Korea
• MITI, Hitotsubashi University and Industrial Bank
of Japan
• Seoul National University
6. Singapore
• Economic Development Board
4. Japan
7. Sweden
8. Switzerland
• Institute of International Business, Stockholm School
of Economics
• University of Basel, University of St. Gallen, Union
Bank of Switzerland
9. United Kingdom • The Economist
10. United States
• Harvard Business School
Industry Case Studies
Denmark
Agriculture Machinery
Building Maintenance
Services
Consultancy Engineering
Dairy Products
Food Additives
Furniture
Pharmaceuticals
Specialty Electronics
Telecommunications
Equipment
Waste Treatment
Equipment
Germany
Automobiles
Chemicals
Cutlery
Eyeglass Frames
Harvesting/Threshing
Combines
Optical Instruments
Packaging, Bottling
Equipment
Pens and Pencils
Printing Presses
Rubber, Plastic Working
Machinery
X-ray Equipment
Italy
Ceramic Tiles
Dance Club and Theater
Equipment
Domestic Appliances
Engineering/Construction
Factory Automation
Equipment
Footwear
Packaging and Filling
Equipment
Ski Boots
Wool Fabrics
Japan
Air Conditioning Machinery
Home Audio Equipment
Car Audio Equipment
Carbon Fibers
Continuous Synthetic
Weaves
Facsimile Equipment
Forklift Trucks
Microwave and Satellite
Communications Equip.
Musical Instruments
Optical Elements and
Instruments
Robotics
Semiconductors
Sewing Machines
Shipbuilding
Tires for Trucks and
Buses
Trucks
Typewriters
Videocassette Recorders
Watches
Korea
Apparel
Automobiles
Construction
Footwear
Pianos
Semiconductors
Shipbuilding
Steel
Travel Goods
Video and Audio
Recording Tape
Wigs
Singapore
Airlines
Apparel
Beverages
Ship Repair
Trading
Sweden
Car Carriers
Communication
Products
Environment Control
Equipment
Heavy Trucks
Mining Equipment
Newsprint
Refrigerated Shipping
Rock Drills
Semihard Wood
Flooring
Teller-operated Cash
Dispensers
Textile Machinery
Trading
Watches
United States
Advertising
Agricultural Chemicals
Commercial Aircraft
Commercial
Refrigeration and
Air-Conditioning
Computer Software
Construction Equipment
Detergents
Engineering and
Construction
Motion Pictures
Switzerland
Patient Monitoring
Banking
Equipment
Chocolate
Syringes
Confectionery
Waste Management
Dyestuffs
Services
Fire Protection Equipment
Freight Forwarding
Hearing Aids
Heating Controls
Insurance
Marine Engineers
Paper Product Mfg.
Equipment
Pharmaceuticals
Surveying Equipment
US Industries
Advertising
Agricultural Chemicals
Commercial Aircraft
Commercial
Refrigeration and
Air-Conditioning
Computer Software
Construction Equipment
Detergents
Engineering and
Construction
Motion Pictures
Patient Monitoring
Equipment
Syringes
Waste Management
Services
The ways that firms achieve and
sustain competitive advantage in
global industries provide the necessary
foundation for understanding the role
of the home nation in the process.
Diamond of National Advantage
Chance
Firm Strategy,
Structure and
Rivalry
Factor
Demand
Conditions
Conditions
Related and
Supporting
Industries
Government
Competitive Success Is Not the Direct Result of:
• Natural Resources
• Labor Pool
• Interest Rates and Currency Value
• Economies of Scale
. . . Traditional Economic Thinking
Factor Conditions
The nation’s position in factors of production
that are prerequisites to compete in a specific
industry.
• Infrastructure
• People Skills and Training
• Factors Unique to a Specific Industry
A nation usually does not inherit but creates
the most important factors.
Factor Conditions
Physical Resources:
• Abundance, quality, accessibility and cost of
land, water, minerals, timber, hydroelectric
power, etc.
• Climatic conditions.
• Location and geographic size.
• Time zone re: global communication.
Factor Conditions
Infrastructure: Type, quality, and user cost.
• Transportation
• Communication
• Mail/freight Delivery
• Health Care
• Schools
• Housing Stock
. . .Quality of life--to live and to work.
Factor Conditions
Capital Resources: (Amount and cost of
money)
• Secured Debt
• Unsecured Debt
• Equity and Venture Capital
• Savings Rate
• Tax Incentives
• Fiscal and Monetary Policies
Factor Conditions
Knowledge Resources: Scientific, technical and
market knowledge that pertains to goods and
services.
•Universities
•Government Research Facilities
•Private Research Facilities
•Business and Scientific Literature
•Market Research Databases
•Trade Associations
Factor Conditions
Human, knowledge and capital
factors are mobile.
Other elements of the diamond
are more important to explain
international success.
Therefore
Competitive advantage from
factor conditions depends on
how effectively and efficiently
they are mobilized and
deployed in the economy.
Study Conclusion
The Japanese created and
expanded needed factors at a
rate far exceeding that of all
other nations.
Factor Conditions:
US Semiconductor Industry
• Universities to train engineers and other
professional technical employees.
• Economic space for manufacturing facilities.
• Good transportation facilities.
• Good communications system.
• Access to raw materials.
• Water.
Brazilian Chicken Industry
• Second largest chicken producer after the US.
• Two large poultry companies: Perdigao and Sadia.
• Has factor condition advantages:
• A large domestic market that allows an
economy of scale.
• A large number of farmers to raise chickens.
• Cheap, abundant corn and soya for feed.
Demand Conditions
• The sophistication of customer demand.
• The more demanding the local buyers the
better to hone the global competitiveness of
home-based companies..
• The local market provides an early picture of
the emergence of buyer needs.
• This factor is a major positioner for success.
Related and Supporting
Industries
Successful companies need suppliers who are:
1. Home-based.
2. Competitive on an international level.
• A close relationship with suppliers contributes
to innovation and upgrading of products.
• Prompts a range of interconnected suppliers
that are all internationally competitive.
First Strategy, Structure and
Rivalry
The way in which companies are
created, managed and choose to
compete domestically.
Firm Strategy, Structure and Rivalry
Study Findings:
• Company and individual goals vary.
• No one management style is universally
appropriate.
• Differences in background of CEO and
different company structures.
• Company structures are different.
• Contrasts in people motivation to work and
learn.
• Career choices of the best students varies.
Country Examples
• Germany
• Italy
• Japan
Firm Strategy, Structure and Rivalry
Germany
• The preeminent trading nation when considering the entire
postwar period.
• Have a very international orientation and export early.
• International success is built on many small and medium
sized companies.
• They compete in highly sophisticated products and segments
rather than high-volume ones.
• The breadth and success of German industries can only be
understood in a historical context--achieved over decades.
• Industry success includes a wide range of industries but
Germany does not dominate them as does the U.S. or Japan.
• The economy is extensively clustered.
• There is wide-spread private ownership.
• The structure of companies tends to be hierarchical and
patriarchal.
• Managers and workers are well trained in their industries.
• Pragmatism characterizes German management.
• Discipline and order is evident in the way that companies are
managed.
• Owners often have a deep involvement in all aspects of the
business, especially in technical areas.
• Managers maintain an enduring relationship with employees.
• Companies are particularly adept at complex production
processes.
• Selling is technical versus advertising or intangible appeals.
• Complex product are supported by similar service requirements.
• Achieve high levels of customer loyalty.
• Labor is very organized and is represented on company boards.
• New business formulation has traditionally been weak but has
changed in the past decade.
• Most executives have technical or scientific backgrounds.
• Have a stubborn desire to achieve technical and quality
excellence.
• Invariably compete on the basis of differentiation versus cost.
• Unrelated diversification is rare.
• Do not hesitate to invest abroad.
• Industry is prestigious and attracts outstanding people.
• The unique strength of the German economy is its capacity to
upgrade its advantage by increasing the quality of human and
technical resources.
Germany Share of Total World Exports
•
•
•
•
•
•
•
•
•
•
•
Bisquettes of Coal, Coke
Potassium Sulfate
Reciprocating Pumps
High Pressure Steel Conduit
Fresh Milk and Cream
Rotary Printing Presses
Iron, High Carbon Steel Coil
Synthetic Luminophores
Spinning, Reeling Machines
Clothes Dryers
Aircraft over 15,000 kg
70.4%
59.4%
58.1%
55.4%
54.5%
51.1%
49.8%
47.1%
42.7%
41.3%
38.1%
•Jukeboxes
•Polyvinyl Chloride Plates
•Rubber, Plastics Machines
•Combine Harvester-Threshers
•Packaging, Bottling Equip.
•Sewing Machine Needles
36.5%
35.9%
35.5%
35.3%
34.1%
33.2%
Seventeen industries where Germany has 33% or
more of the world’s export market.
German Companies
BASF AG - Chemicals (1861)
Bayer AG - Chemicals (1863)
Bayerische Motoren Werke AG - Autos, Motorcycles (1913)
Bertelsmann AG - Publishing (1835)
Daimler-Benz AG - Autos and Aerospace (1882)
Henkel KGaA - Detergents and Chemicals (1876)
Hoechst AG - Chemicals (1863)
Friedrich Krupp GmbH - Steel, Engineering, Trading (1587)
Mannesmann AG - Steel Tubes, Auto Parts, Etc. (1885)
Robert Bosch GmbH - Electronic Auto Equipment (1886)
Siemens AG - Electrical and Electronics (1847)
Volkswagen AG - Automobiles (1937)
Firm Strategy, Structure and Rivalry
Italy
• Joined the ranks of advanced nations in the past two decades.
• Overall growth in world export share was second only to
Japan.
• Illustrates the power of a growing alignment between national
circumstances and the shifting demands of modern global
competition.
• Benefited from a shift from standardized, mass-produced
products toward more customized, higher-style, higherquality goods.
• In many cases style was combined with investment in stateof-the-art production equipment.
• Achieved advantage based on segmentation, differentiation
and process innovation.
• The world’s leading exporter in textile/apparel, household goods
and personal products and third in food and beverages.
• Are generally not successful where standardization, high-volume
mass production, or heavy investments in fundamental research
are involved.
• Companies tend to be highly specialized and compete through
constant model changes.
• Companies tend to be medium to small that compete primarily
through export with limited direct foreign investment.
• Large private firms tend to dominate the home market.
•
Successful industries are highly clustered including geography.
•
Remains a study in contrasts--industry successes and failures.
•
Clearly contradicts its image as a country.
•
•
•
•
•
•
•
•
Companies are often managed by a commanding leader
involved
in all activities.
Below the leader is often fluid, relatively unstructured
(chaotic?)
operation involving an interpersonal competition that would be
rare in Japan.
Managers are resourceful improvisers and able to adjust to
changes, to circumvent constraints and to adapt to new rules.
Most companies are privately owned and owners, managers and
workers are closely attached to an industry.
Deal with customers on a family-like and personal basis.
Business is important and a magnet for talented individuals.
Entreprenuership thrives in Italy--they are risk takers who are
individualistic and desire independence.
These factors lead to a long-term orientation and a commitment
Italy Share of Total World Exports
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Meal and Pellets of Wheat
Worked Building Stone
Aperitifs
Glazed Ceramic Sets
Precious Metal Jewelry
Fresh Stone Fruit
Rubber and Plastic Footwear
Fabrics of Combed Wool
Domestic Washing Machines
Steel High Pressure Conduits
Sweaters of Synthetic Fibers
Handbags
Woolen Sweaters
Leather Footwear
69.5%
62.2%
58.1%
56.6%
49.6%
45.5%
41.9%
41.8%
38.2%
35.9%
34.0%
33.7%
33.1%
32.8%
Fourteen industries with one third of world’s export market.
Italian Companies
•
•
•
•
•
•
•
•
•
•
•
•
Fiat SpA - Autos and Farm Equipment (1899)
Olivetti - computers and office equipment (1908)
IRI Holding Co. (state owned) - 541 companies 5% of GNP
Ente Nazionale Idrocarburi - Petroleum & Petrochemical (1953)
Perelli SpA - Power Transmission, T/C Cables, Tires (1872)
Benetton - clothes manufacturer (1955)
Luxotica - frame manufacturers (NY Stock Exchange)
Gewiss - electrical fittings
Marposs - precision measuring equipment
Safilo - frame manufacturers
Persol - frame manufacturers
Iris - ceramics
Small Businesses in Italy
•
•
•
•
•
•
•
(Less than 100 employees)
Exemplify flexibility and thrive in niche markets.
Provide more than 2/3 of private-sector industrial
employment.
Escape many of Italy’s oppressive labor laws.
Exports increased 20% during a down economy.
99% of Italy’s small businesses are owned by one or two
families.
To survive Asian competition they concentrate on a higher
level of specialization and devote more time to quality and
innovation versus price.
Many companies were founded following the end of WWII.
Firm Strategy, Structure and Rivalry
Japan
• Not far behind Germany in becoming a world economic
power.
• Lacked Germany’s historical position.
• Achieved competitive advantage in some industries and failed
in others.
• The role of the government and management practices does
not explain the success of Japanese industries.
• Has an extraordinarily high share of world exports in many
industries with a complete absence of a natural resource
intensive industry.
• There is a unique ability in Japan for the “diamond” to
function as a system.
• Possesses a large pool of literate, educated and increasingly
skilled human resources.
• Created and upgraded needed factors that far exceeded that of all
other nations.
•
Benefit from a large pool of trained engineers.
•
A technical orientation is pervasive and many managers have
engineering backgrounds.
• Japanese companies are hierarchical and disciplined.
• Cooperation and subordination are the norm with a unique
ability to coordinate across functions.
• Relationships between labor and management are respectful and
strikes are rare.
• Many of the talented people flow to industry.
• An international outlook promoted by the amount of domestic
rivalry is the single biggest explanation for the success of
Japanese industries.
• Japanese companies often define their goals in terms of volume
and market share.
• Strategies often follow a path of standardization and mass
production with a major emphasis on quality.
• Companies relentlessly upgrade their competitive advantage.
• Ownership of companies is predominantly held in institutions
and other companies.
• Workers define their status on how well the company is doing.
• Continual learning is emphasized and accepted.
• More willing to form new companies.
Japan Share of World Exports
•
•
•
•
•
•
•
•
Motorcycles
TV Image and Sound Recorders
Dictating Machines
Calculating Machines
Mounted Optical Elements
Photo & Thermocopy Apparatus
Still Cameras and Flash Equip.
Cash Registers and Accounting
82.0%
80.7%
71.7%
69.7%
67.5%
65.9%
62.2%
Machines
62.0%
• Outboard Marine Piston Engines 61.0%
• Electric Gramophones
59.0%
•
•
•
•
Microphones, Loudspeakers and Amplifiers 55.7%
Motorcycle Parts & Accessories
53.4%
Track-Laying Tractors
51.8%
Pianos & Musical Instruments
51.0%
•
•
•
•
•
•
•
•
•
Self-Propelled Dozers
Color TV Receivers
Portable Radio Receivers
Other Radio Receivers
Special-Purpose Vessels
Electric Typewriters
Steam Boiler Plants & Parts
Motor Vehicle Radio Receivers
TV Picture Tubes
50.6%
49.5%
48.4%
47.9%
46.8%
45.0%
42.8%
42.5%
42.2%
•Prepared Sound Recording Equipment.
•Photo Chemical Products
•Metalworking Lathes
•Coarse Ceramic Housewares
•New Bus or Truck Tires
•Buses
•Sewing Machines
•Iron, Steel Seamless Tubes
41.5%
41.5%
39.7%
39.3%
39.1%
38.7%
38.7%
38.7%
•Self-Propelled Shovels, Excavators
•Computer Peripheral Units
•Lorries and Trucks
•Other Electronic Tubes
38.4%
37.9%
37.5%
36.5%
•Metal Cutting Machine Tools
•Generating Sets with Piston Engine
•Other Cargo Vessels
•Iron, Simple Steel Rolled Plate
•Continuous Synthetic Weaves
•Clocks, Watch Movements
•Rolling Mill Parts and Rolls
•Liquid Dieletic Transformers
33.4%
36.5%
36.1%
35.7%
35.2%
34.7%
33.8%
33.4%
Forty-three industries with over one third of the
world’s export market share.
Japanese Companies
•
•
•
•
•
•
•
•
•
•
•
•
•
Honda Motor - Autos and Motorcycles
Sony Crop. - Consumer Electronics
Bridgestone Corp. - Tires
Matsushita Electric - Consumer Electronics
Toyota Motor Corp. - Automobiles
Nissan Motor Corp. - Automobiles
Nomura Securities - Brokerage
Hitachi - Computers and Electronics
NEC - Computers and Electronics
Fujitsu - Computers and Electronics
Mitsui Group - Trading and Holding Co.
Sumitomo Group - Trading and Holding Co.
Mitshubishi Group - Trading and Holding Co.
Study Postscript
What happened to Japan since 1990?
1. The second largest economy in the world.
2. Arrogance based on what they had accomplished
including an assumption that the only way their economic
endeavors go is up.
3. A rigidity in approach that takes too long in a fast paced,
global economy.
Forget the North Pole!
Santa’s Workshop is in China
Ironic
What makes Christmas festive for Americans is produced
in the world’s officially atheistic country whose human
rights abuses are deplored by officials of the US
government.
What this picture provides is a lesson in globalization and
an example of how trade and tradition have brought
together China and the US in a mutually beneficial
relationship.
Minimal Inflation in the US?
Because of China!
Imports from China
Based on the first eight months of 2000
Artificial Christmas Trees - $78 million
Christmas Tree Ornaments - $535 million
Christmas Lights
- $211 million
Stuffed Toys
- $755 million
Dolls
- $639 million
Electric Trains
- $32 million
Puzzles
- $21 million
If not available, over half of this type of merchandise in
US stores would disappear.
U.S. Merchandise Trade with China: 1988-2001
Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
U.S. Exports
5.0
5.8
4.8
6.3
7.5
8.8
9.3
11.7
12.0
12.8
14.3
13.1
15.0
22.0
U.S. Imports
8.5
12.0
15.2
19.0
25.7
31.5
38.8
45.6
51.5
62.6
71.2
81.8
100.0
102.2
U.S. Trade Balance
-3.5
-6.2
-10.4
-12.7
-18.2
-22.8
-29.5
-33.8
-39.5
-49.7
-56.9
-68.7
-83.8
-83.1
It is getting worse!
2002
2003
40
170
-120 billion
-130 billion
US exports to the rest of the world went down 10% while
China’s increased 66%.
Unlike Japan in the past, China has not closed its borders to
US imports.
It is the fastest growing export market for US companies.
Meanwhile a number of unfair trade accusations are being
thrown around.
China Trade Barriers
China remains a difficult market to penetrate, due largely to
Chinese government policies, which attempt to protect and
promote domestic industries.
Goods and services not considered to be high priority, or
which compete directly with domestic Chinese firms, often
face an extensive array of tariff and non-tariff barriers.
China Trade Barriers
• Tariffs
• Quotas
• Non-Tariff Regulations
• Distribution rights
• Investment restrictions
Competitiveness of Nations
It is helpful to ask what companies
need to do and where does government
need to play a key role?
Role of Government
Serve as a challenger and catalyst to companies to
compete successfully:
• Focus on specialized factor creation.
• Avoid intervening in capital factor and currency markets.
• Enforce strict product, safety and environmental
standards.
• Limit cooperation among industry rivals.
• Promote goals that lead to sustained investment.
• Deregulate competitors.
• Enforce domestic antitrust policies.
• Reject managed trade.
Singapore
• An economic powerhouse.
• Three million people on a small island.
• Passed the US in average income in 1999.
• World’s best infrastructure!?
• Safe, clean (smoggy).
• Interesting racial, religious and language mix.
• Could go from great to awesome.
Singapore Model
• Strong Government (The smartest and most
capable should govern)
• Long Term Planning
• Foreign Investment
• Clean Administration
• Education for All
• No Welfarism
• Family Values
• Law and Order
• Communal Harmony
Kenya
From whiskey to cooking fat to batteries to clothes,
Kenya is being swamped with counterfeit goods.
Some are made locally but most are imported.
Kenya
Focus on the negative impact of counterfeit goods
in usually on wealthy nations where products are
most often designed and developed.
The effects can be even more devastating in poor
and developing countries where profits of any kind
are harder to come by, smuggling is more easily
accomplished and enforcement is weak or nonexistent.
Kenya
Kenyan manufacturers are estimated to be
losing hundreds of millions of dollars in
revenue.
This also costs the government $16 million in
annual taxes.
Eveready Batteries
Employs 350 people in Kenya.
40% of Eveready batteries sold in Kenya are
counterfeit.
If this continues, the company will terminate its
operation in Kenya.
Kenya
80% of counterfeit goods are estimated to come
from China.
The business community blames much of their
troubles on high costs, such as power and water,
and government corruption.
The government run port of Mombasa is notorious
for bribery and kick-backs.
Kenya
If the business opportunity exists, would you
want to do business in Kenya?
Companies gain an advantage
against competitors by responding
to pressures and challenges.
The Company Agenda
1. Creating pressure within the company for innovation.
2. Seeking out the best, most successful competitors
3. View as a positive factor the presence of domestic
competition.
4. Staying alert to customer, market and competitor trends.
5. Emphasizing the home base as the place to strengthen
competitiveness.
6. Selectively pursuing international advantage opportunities.
7. As a company, playing a role in strengthening the national
competitive diamond.
Conclusions
• Today’s competitive realities demand leadership.
• Leaders believe in change.
• They energize their people to innovate
continuously.
• They recognize the need for pressure and
challenges to accomplish this.
Not Everyone Agrees
Kenichi Ohmae: The Borderless World
The key global economic entity
is the true multinational company.
Ohmae Contentions
Four factors are usurping economic power
once held by nations:
1. Capital.
2. Corporations.
3. Consumers.
4. Communication.
Putting Global Logic First
Although political leaders will resist
acknowledging the demise of the nationstate, only those who can accept it and
promote region-states within and across
their borders will be able to provide the
best quality of life for their constituents.
Kenichi Ohmae
Global Competitiveness Ranking
Criteria:
1. Quality of national business environment.
2. The set of institutions, market structures and economic
policies supportive of high level of prosperity.
3. Company operations and strategy ranking.
Michael Porter, Institute for Strategy and Competitiveness, Harvard
Business School
World Economic Forum web page.
Global Competitiveness Ranking
2002
1. US (2)
11. Japan (15)
21. Norway (19)
2. Finland (1)
12. Austria (13)
22. New Zealand (20)
3. UK (7)
13. Belgium (14)
23. Korea (26)
4. Germany (4)
14. Australia (9)
24. Italy (24)
5. Switzerland (5)
15. France (12)
25. Spain (23)
6. Sweden (6)
16. Taiwan (21)
26. Malaysia (37)
7. Netherlands (3)
17. Iceland (16)
27. Slovenia (32)
8. Denmark (8)
18. Israel (17)
28. Hungary (27)
9. Singapore (10)
19. Hong Kong (18) 29. South Africa (25)
20. Ireland (22)
30. Estonia (28)
10. Canada (11)
Global Competitiveness Ranking
33. Brazil (30)
37. India (36)
38. China (47)
48. Poland (42)
55. Mexico (52)
61. Philippines (53)
58. Russia (58)
60. Vietnam (62)
79. Bolivia (75)
80. Haiti
1998 Rankings
1. Singapore
2.16
11. Ireland
1.05
2. Hong Kong
1.91
12. Japan
.97
3. US
1.41
13. New Zealand
.84
4. UK
1.29
14. Australia
.79
5. Canada
1.27
15. Finland
.70
6. Taiwan
1.19
16. Denmark
.61
7. Netherlands
1.13
17. Malaysia
.59
8. Switzerland
1.10
18. Chile
.57
9. Norway
1.09
19. Korea
.39
10. Luxembourg
1.05
20. Austria
.37
Source: World Economic Forum
Major Points
It is no longer possible for a country to insulate itself from the
rest of the world.
The possible decline of the industrialized world is merely the
narrowing of the gap between it and third world countries.
The accelerated pace of change is what disturbs the
pessimists, because they can see it happening.
It took Britain 60 years to double its output, the US 50 years
but developing countries are doubling output every 12 years.
China has actually doubled its GDP in seven years.
In many respects the developing world is unknown economic
and financial territory.
Conclusions
• The diamond of national advantage makes sense as a
means of understanding global economic success.
• Domestic success does prepare companies to compete
globally.
• Major European and an increasing number of Asian
countries are capable of competing on a global basis.
• The global marketplace is only going to get tougher
based on more, tougher competitors.
• The diamond can help to anticipate new competitors.