SGMT2

Strategic International Management

• Integrated, coordinated actions to exploit core competencies for competitive advantage.

Strategy Concepts

• Competitive Advantage: Creating superior customer value that competitors can't easily replicate.
• Sustainability of Competitive Advantage: How quickly competitors can imitate a firm's advantage.
• Above-Average Returns: Earnings exceeding what investors expect for a given risk level.
• Risk: An investor's uncertainty regarding potential economic gains or losses.
• The strategic management process requires commitments, decisions, and actions to achieve competitiveness and above-average returns.

Competitive Landscape

• Globalization: Increasing economic interdependence through flows of products, capital, and knowledge.
• New Markets: Expansion into emerging economies like China and India to reach new customers.
• New Sources: Accessing global supply chains for cheaper materials, labor, and talent.
• Greater Interdependence: Businesses are more economically linked, so crises in one country can affect global firms.
• Novel Risks: Companies face issues like political instability, trade restrictions, and cultural differences.
• Technology: Transforming businesses by driving competition, innovation, and value delivery.
• Increased Speed: Digital tools and automation enable faster product development and real-time decisions.
• Perpetual Innovation: Continuously innovate to keep up with changing customer expectations.
• Digitization: Businesses are moving towards digital models using e-commerce, AI, and cloud computing.
• Negative Externalities arise from technology, such as cybersecurity risks and data privacy concerns.
• Sustainability: Avoiding depletion of natural resources for long run survival.

Industrial Organization (I/O) Model

• This suggests that profitability is mainly determined by the external environment. Emphasizes industry structure and market forces.
• Key assumption: Industry structure dictates successful strategies.

Resource Similarity Across Firms (I/O Model)

• Most firms in an industry have access to similar resources and capabilities.
• This means that no single firm can gain a long-term advantage purely through unique resources.

Resource Mobility (I/O Model)

• Competitors can quickly imitate or aquire similar resources if one firm gains a competitive advantage,
• Thus, any advantage is temporary unless external factors create a barrier to imitation.

Profit-Maximizing, Rational Decision-Making

• Firms rationally choose strategies that maximize profits based on industry conditions.
• Managers make data-driven choices to align with industry profitability trends.

Industry Characteristics Shaping Profitability

• Economies of Scale: Large firms have cost advantages from mass production.
• Barriers to Entry: High startup costs make it hard for new competitors to enter.
• Product Differentiation: Branding creates market power.
• Concentration of Firms: Fewer competitors in an industry lead to higher profit potential.

Steps to Earn Above-Average Returns (I/O Model)

• Study the External Environment
• Identify an Attractive Industry using Porter's Five Forces.
• Develop a Strategy aligned with the Industry - either Cost Leadership or Differentiation.
• Acquire Necessary Resources and Skills.
• Implement the Strategy to Achieve Superior Returns.

Resource-Based View (RBV)

• Argues that internal resources and capabilities are the primary drivers of strategy and competitive advantage.
• Unlike the I/O model, which focuses on industry structure.

Key Points of RBV

• The RBV model views organizations as collections of unique resources and capabilities that determine their success.
• Firms have unique resources that differentiate them from competitors.
• Competitive advantage is built by developing internal capabilities over time.
• Not all resources create a sustainable advantage—only those described by the VRIN framework.

Inputs that a Firm uses in its Production Process

• Physical Resources
• Human Resources
• Organizational Capital

Capabilities

• Integrate and use resources effectively to complete tasks.
• They arise when resources are usefully combined to create value.

Core Competency - Capability for Competitive Advantage

• Creates superior value for customers.
• Is difficult for competitors to imitate.
• Forms the foundation of a firm's competitive strategy.

Vision, Mission, and Values

• Vision: A picture of what the firm wants to be (future-oriented).
• Mission: Specifies the businesses in which the firm intends to compete (current business focus).
• Values: Define what should matter most to managers and employees.

Stakeholders

• Individuals or groups affected by a firm's performance.
• Effective management is crucial for long-term strategic success.

Capital Market Stakeholders

• Provide financial capital and expect a return on it.
• Shareholders - Expect stock price growth and dividends.
• Banks and Creditors - Lend capital and expect timely interest payments and financial stability.

Product Market Stakeholders

• They have a direct relationship with the company and its products or services.
• Customers - Expect high-quality products at fair prices.
• Host Communities - Expect firms to create jobs, pay taxes, and contribute to development.
• Suppliers - Want long-term contracts and fair payment terms.
• Unions - Represent employees and demand fair wages and working conditions.

Organizational Stakeholders

• Operate within the firm and directly impact strategic direction.
• Employees - Want job security, fair wages, and career development.
• Managers - Responsible for executing strategy and achieving financial targets.

Strategic Leaders

• Make decisions that align with a firm’s vision, mission, and values.
• They play a crucial role in guiding the company toward long-term success.
• They are Decisive, Nurture Those Around Them, and Create Value.
• Organizational culture refers to shared ideologies, symbols, and core values within a firm that influence how the firm conducts business.

Strategic Management Process - Structured Approach

• Define vision and mission.
• Analyze internal and external environments.
• Implement strategies that lead to above-average returns.

Analysis - Understanding Environment and Capabilities

• External Environment Analysis is outside the firm and can impact strategy.
• Internal Organization Analysis - assess resources, capabilities, and core competencies.
• Resource-Based View (RBV) identifies unique internal strengths.
• VRIN Framework tests if resources are Valuable, Rare, costly to Imitate, and Non-substitutable.

PESTEL Analysis

• Political
• Economic
• Social
• Technological
• Environmental
• Legal factors

Porter's Five Forces

• Identifies industry competition, supplier power, buyer power, substitutes, and new entrants.

Four Steps of External Environmental Analysis - INFA Framework

• Scanning
• Monitoring
• Forecasting
• Assessing

General Environment

• Composed of dimensions in the broader society that influence an industry and the firms within it

Industry Environment

• The set of factors that directly influences a firm and its competitive actions and responses.
• This includes the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry.

Competitor Analysis

• Firms gather and interpret information about competitors.

Factors Used for External Environmental Analysis

• To anticipate industry disruptions and prepare in advance.
• To align strategy with market trends to gain a competitive edge.
• To optimize resource allocation based on future demand predictions.
• To ensure long-term sustainability by adapting to environmental shifts.

What Constitutes Opportunities vs Threats

• Opportunity is a condition that, if exploited effectively, helps a company reach strategic competitiveness.
• Threat is a condition that may hinder a company's efforts to achieve strategic competitiveness.

Economic Segment (General Environment) Aspects

• GDP & GDP per capita
• Saving rate
• Interest rates
• Inflation rate
• Trade surplus/deficit

Demographic Segment (General Environment) Aspects

• Population size & growth
• Age structure
• Fertility rate
• Ethnic mix
• Income distribution

Political/Legal Segment (General Environment) Aspects

• Taxation laws
• Antitrust laws
• Deregulation
• Labor training laws
• Educational policies

Technological Segment (General Environment) Aspects

• Product innovations
• Application of knowledge
• Private & government R&D support
• Advancement in digital technologies

Sociocultural Segment (General Environment) Aspects

• Women in the workforce
• Workforce diversity
• Work-life balance
• Career preference shifts
• Shifts in product & service preferences

Sustainable Physical Environment Segment (General Environment) Aspects

• Energy consumption
• Development of energy sources
• Environmental footprint
• Natural & man-made disasters

Global Segment (General Environment) Aspects

• Emerging markets
• Political events
• Cultural differences

Industry Environment

• An industry is a group of firms producing products that are close substitutes.
• Industry environment refers to the set of competitive forces that directly affect a firm's profitability and strategic choices.
• Porter's Five Forces shape the intensity of competition and profit potential within a specific market.

Porter's Five Forces

• Threat of New Entrants
• Bargaining Power of Suppliers
• Bargaining Power of Buyers
• Threat of Substitute Products
• Rivalry Among Competitors

Impact on Profitability for Threat of New Entrants and Bargaining Power of Suppliers

• HIgh threat --> Lower profitability.
• HIgh supplier power --> High costs for firms

Impact on Profitability for Bargaining Power of Buyers, Threat of Substitute Products, and Rivalry Among Competitors.

• High buyer power --> Lower firm profitability.
• High substitution risk --> Lower profitability.
• High rivarly --> Price wars that can lower margins.

Dimensions of Rivalry Among Competing Firms

• Number & Composition of Competitors: more firms = higher rivalry.
• Industry Growth: slow growth = intensified competition.
• Switching Costs: low switching costs = more rivalry.
• Strategic Stakes: high stakes = greater rivalry.
• Exit Barriers: high exit barriers = increased competition.
• Basis of Competition: competing on price leads to more rivalry.

Dimensions of Threat of New Entrants

• Economies of Scale: high production volumes that can lower costs.
• Product Differentiation: strong brands attract customers.
• Capital Requirements: discourage new competitors.
• Switching Costs: customers resist changing.
• Access to Distribution Channels: securing distribution is important.
• Government Policy: regulations make entry difficult.

Bargaining Power of Suppliers

• Fewer suppliers = higher bargaining power.
• Unique, differentiated products = higher supplier power.
• Key dependence on a supplier creates more power.

Aspects of Bargaining Power of Suppliers

• High switching costs = more supplier power.
• Suppliers that enter the industry themselves increase power.

Aspects of Bargaining Power of Buyers

• Fewer buyers = higher buyer power.
• Standardized products = higher buyer power.
• Importance of buyer to the supplier creates more power.
• Low switching costs = higher buyer power.
• Buyers that start producing their own supplies, reduce the power of the supplier.

Considerations for Product Substitutes as Rivals

• Substitutes can perform the same or similar functions offered by industry firms.
• Readily available substitutes limit pricing power, and reduce profitability.

Attractive Industry (Soft Drinks) and Porter's Force

• Threat of New Entrants - Low
• Bargaining Power of Buyers - Medium/Low
• Rivalry Among Competitors - Low
• Threat of Substitutes - Low
• Bargaining Power of Suppliers / Low
• This results in existing firms maintenance, pricing control, and strong profit margins enabling company cost control.

Unattractive Industry (Airlines) and Porter's Force

• Threat of New Entrants - High
• Bargaining Power of Buyers - High
• Rivalry Among Competitors - High
• Threat of Substitutes - Medium
• Bargaining Power of Suppliers - High
• This Results in price wars, reduced margins, and little conrol of airlines over cost.

Strategic Group

• A set of firms using similar dimensions and strategy.

Competitor Analysis

• Identify opportunities, threats, and potential responses from competitors.
• Understand their strategies, objectives, and weaknesses to develop stronger competitive positioning.

Competitor Analysis Questions

• Future Objectives
• Current Strategy
• Assumptions
• Capabilities

Competitive Intelligence

• Collect public records, financial statements, company websites, marketing materials, trade shows, conferences, customer feedback, and job postings.

Internal Organization

• Consists of resources, capabilities, and core competencies.
• Unlike external factors, the internal organization's stregnths can be leveraged to create a sustainable competitive advantage.

Organization and Rapid Change

• Uncertainty comes from rapid change and new tech in external environment
• Includes: technological disruptions, economic & political shifts, and changing consumer preferences
• Complexity arises when internal and external factors interact

Common Cause of Internal Conflict

• Disagreement on Strategy - Which markets/products to focus on?
• Power Struggles - Resource contention.
• Cultural Resistance to Change - Discomfort with new strategies.

Resources

• Inputs into a firm's production process.
• Broad in scope: including physical, human, and organizational assets.

Resource-Based View (RBV)

• Views firms as bundles of resources.

Converting Resources to Value

• By themselves resources do not create competitive advanatge, they must be combined to form capabilities
• Firms transfer resources into capabilities to improve operational efficiency, innovation, and customer value.

Tangible Resources

• Assets that can be seen, measured, and quantified. Provide a structural based for operation but are easier to imitate.
• Financial resources
• Organizational resources
• Physical resources
• Technological resources

Intangible Resources

• Non-physical assets embedded in culture.
• More difficult to imitate, key to competitive advantage.
• Human resources
• Innovation resources
• Reputational resources
• They have a significant impact on long-term success.

Capabilities

• Ability to coordinate resources to perform a task.
• Emerge when tangible and intangible resources are bundled together.
• Dynamic capabilities: the ability to adapt and innovate in response to evolving markets.

Core Competencies and Value

• They allow firm to have a distinct competitive advantage, and should always be re-evaluated.
• To maintain a sustainable competitive advantage it is important to have capabilities described in the VRIN Framework.

Aspects of Sustainable Competitive Advantage (VRIN)

• Valuable: allowing firms to exploit market opportunities.
• Rare: when only a few competitors possess the capability.
• Costly to Imitate: tough to copy/acquire.
• Nonsubstitutable: No alernative ways to achive same result.

Value Chain Analysis

• Helps analyze cost structure and find activities for competitive benefit.
• Divided into support functions, and primary activities for cost analysis and finding activities beneficial for operations.

Primary Activities (Value Chain Analysis)

• Activities That create, deliver, and service products.
• Inbound logistics
• Operations
• Outbound logistics
• Marketing and sales
• Sevice

Support Functions

• These are supportive actions that enhance effciency and provide assistance to a main activity
• The activities that support the primary activities
• Firm infrastructure
• Human resource management
• Technology development
• Procurement

Value Creation System

• Requires all parts of system to function with a dependency on each other for creation of value.

Outsourcing

• When firms lack internal expertise or resources and thus outsource tasks to others
• This ensures they can obatin capabilities without the cost and time otherwise required

Benefits of Outsourcing

• Increased flexibility
• Risk mitigation
• Reduced capital investment
• Focus on core competencies

Challenges and Risk with Outsourcing

• Loss of innovation
• Loss of Human Capital
• Supplier Dependency

Outsourcing vs Offshoring

• Outsourcing - delegate business processes to an external company.
• Offshoring - relocating business operations to another country.

Strategic Formulation

• Selecting a competitive strategy.
• Involves Business-Level and Corporate-Level planning.

How a Firm Competes Within an Industry (Strategic Formulation)

• Business-Level Strategy
• Cost Leadership
• Differentiation
• Corporate level is different depending on global, multi-domestic and transactional approaches given market differences

External Environmental Analysis

• The external environment consists of factors outside the firm that influence its strategy. PESTEL Analysis Political, Economic, Social, Technological, Environmental, and Legal factors.

Core Strategy and Objective

• Business-Level Strategy defines how a company competes within a specific market.
• Concerns day-to-day competition in product or service market
• Objective is how company positions itself competitively versus others.

Market Segmentation

• Segment customer base and understand needs and preferences.
• Allows groupings based on identifiable charactersisics.

Target Customer Characteristics

• Demographics (age, income)
• Socioeconomics (social class)
• Geographic (Regional)
• Psychological (lifestyle)
• Consumption (Heavy or light use)
• Perceptual Factors (Brand Loyalty)

Industrial Customer Characteristics

• End use segments (SIC)
• Product segments
• Geographic
• Common Buying Factors
• Customer Size

What Customer Needs Come Down To

• Specific features
• High equality
• Branding
• Low Costs
• Longevity

Three Main Factors to Serving Customers

• Leverage resources, capabilities, and create products and services that align with the market
• Innovate continuously to maintain and beat out competition.
• Tailor products and services to meet or exceed expectations.

Business Frameworks

• Define how firm creates, delivers, and shares value for its shareholders.
• tied to business level startegies, providing an overview of strategic options.
• It is dynamic and relies on external and internal market evaluations.

Typical Business Models

• Franchise
• Subscription
• Digital Platform

A company picks five business-level strategies to build tactical positioning

• Either cost or differentiation focused to target markets.
• Can be Broad Market, Narrow Market Segment or something else

Cost Leadership

• Focuses on minimizing production and maximizing products at low prices.
• Keeps cost low via constant re-evaluation
• Key component is innovation through products and processes, that is sourcing lowest cost supplies.

Differentiation Strategy

• Offering unique features and innovating product lines constantly to keep up with the changes
• Brand loalty reduce price comparison

Risks of Being Stuck In Middle with Cost Leadership and Differentiation

• Being in the middle is failing to provide enough differentiation or costing.
• Requires long-term investment in process improvements to stay competitive.

Sources of Rivalry

• Competitors
• Bargaining Power
• New Entrants vs Substitutes

Competitive Dynamics

• Firms that are competitors in a given market offering similar features and customers are able to create above average
• Competition is due actions and competitive responses, where the strategy of the company is crucial to success.

Competitive Behavior

• a set of responses that a form does to defend or to build marktet positioning
• This is known as multipoint competition that depends on reactions.

Competitive Action

• Action a firm takes, whehter tactical or strategic, to build up advantages and improve positioning.
• Competitive Response: How a firm counters a competitor's positioning and effects

Strategic and Tactical Competitive Action

• Strategic - involved with a signficant commitment of resources in market base
• Tactical - Market base movement to "finetune" a strategy to get more resources and ease implementation,

Competitive Analysis

• Is it the market that competes with the same objectives and customer
• It requires monitoring of each other in order to maintain brand integrity.

Drivers of Competitive Behavior

• Awareness
• Actions and Repsponses
• Actions are market based moves
• Resource Similarity

Competitive Rivalty

• Shaped by a firms strategical tactical actions which determine thier abiltiy to defend competitivness.
• First movers
• Market Leaders
• Innovation

Strategic Actions and Attacks

• First Movers
• New Loyalty

Competitive Attack

• Reduce risk, and see trends and how to act based on consumer or stakeholder decisions.
• Late Movers can identify niche markets and leverage cost advantages. ==End of transcript processing==

Explore the I/O model's determinants of firm profitability and key assumptions. Understand how external factors drive strategy and the importance of industry attractiveness. Learn about value creation systems, support functions and sustainability.