IBUS2101 International Business Strategy Final Exam Slides PDF

Welcome! Dr. Wu Zhan - Course Coordinator IBUS2101 International Business Strategy Room N4133, H70 Overview and...

Welcome! Dr. Wu Zhan - Course Coordinator IBUS2101 International Business Strategy Room N4133, H70 Overview and Email: [email protected] Overview andIntroduction Introduction Phone: 90317402 Consultation hour: by email Dr. Wu Zhan The University of Sydney Business School Agenda What is International Business? International business (IB) refers to business 1. Welcome to the unit activities that involve the transfer of resources, goods, services, knowledge, skills, 2. Introduction to the unit or information across national boundaries. 3. Learning and teaching model 4. International Business Strategy Framework 5. Lecture IB uses raw materials, capital and people to 6. Assessment accomplish these goals. 7. Video case study https://www.youtube.com/watch? v=XSjNrhJkhR4  Several Scenarios for IB An Example: ATKearney Scenario 1: Ford establishes manufacturing facilities in China. http://www.atkearney.com.au/news-media/videos Scenario 2: Australian BHP exports iron ore to China. Scenario 3: Motorola out-sources its after- sale services from India. Scenario 4: Toshiba and Phillips establish strategic alliance in R&D. Why Study IB? What is Strategy? ❑ Expertise in global strategy is highly sought after Key Questions in Strategic Management ❑ Preparation for international assignments 1. Why do some firms succeed while others ❑ Needed for advancing to the top ranks of large and fail? medium-sized firms 2. Why do some firms enjoy sustainable ❑ Necessary knowledge for people working in smaller competitive advantage while others don’t? companies 3. How to make a choice (formulation of ❑ Good for non-business school students as well strategy) and make it happen http://www.hcamag.com/news/aussie-managers-do-they-innovate-and- (implementation of strategy)? think-globally-enough/122714/  Objective of the Unit What is International Business Strategy? How to COMPETE and WIN in global markets? How to conceptualize the global economy? Frameworks to understand and deal with economic, political, legal and cultural differences Which country to enter and how? What are the fundamentals of strategy and should they be different in foreign countries? How to organize and control our operations across national borders? What and how to learn from our global operations and manage our What Determines the International Success knowledge in the organization? or Failure of Firms? How to capture the markets in newly emerging markets? How to compete with MNCs from emerging Markets? Purpose of the Unit Process To let the participants: “Action Learning” - Develop the understanding of the broader global environment in which international business is conducted, including economic, political, ▪ Application oriented cultural, and institutional environments. ▪ Participative - Develop the understanding of the essential components of international business strategy, such as international entry strategy, ▪ Interactive international strategic alliance, organization and structure of global operation, and management of global knowledge and innovation. - Understand the uniqueness & challenges of the emerging markets Interactive Lectures + Interactive Tutorials + (including transition economies) and design corresponding strategies to be successful. Assessments Teaching & Learning Model Module 1: Globalization and International Business Text Case Reading - What is globalization? What is the implication of globalization for firm? Lecture - What is international business? Why do firms conduct international business? Assessment - What are Multinational Corporations (MNCs)? What are the Tutorial characteristics of MNCs from developed countries and emerging markets? - What is internationalization? What is international orientation? Experience Interaction Research International Business Strategy: Module 2:Strategy and Global Strategy A Framework Module 1: Globalization and International Business -What is strategy? What is global strategy? What are the fundamental issues in strategy? Module 3: International Business Strategy - How can we account for the competitive advantage of firms? - What are the three perspectives in strategy explaining the behavior of firms and sources of competitive advantage of firms Module 2:Strategy and Global Strategy  Module 3:International Business Strategy Multiple Learning Paths ▪ International Entry Strategy I & II As an individual: 1. Lectures and readings 2. Lecture participation - Please access the weekly lecture recording. 3. Individual assessment: - Tutorial CONTRIBUTION! As a group: - Group assessment: Consulting Project – IBD Project Cases at ATKearney: China Solution Group Assessment & Performance - A leading European household goods manufacturer looked to Asia for global growth and expansion. A.T. Kearney assessed the various market opportunities in Weight Asia, defined and identified the best mode of entry and implemented a winning business model. This resulted in a successful launch, expansion and building of a brand in the bourgeoning Chinese marketplace. Individual work: - A multinational packaged food company had aspirations to reach $300 million in Tutorial participation & contribution 15 % sales revenues in Asia. A.T. Kearney assesses the marketplace and recommended acquisition as the most effective entry strategy to meet the client's aggressive growth Mid-term exam 15 % goals. From more than one thousand companies in Asia, A.T. Kearney identified seven Chinese acquisition targets that would increase the client's sales revenue by a factor of four. Final exam 50 % - For an integrated international apparel retailer, A.T. Kearney conducted a market entry assessment of China and 10 other markets. The project analyzed products and segments, selling and merchandising practices, key competitors, consumer usage, Group work: and local cost structure for each market. Prospects for return on direct investment and strategies for acheiving them were developed as part of an overall market entry Consulting project – presentation 20 % implementation plan. ONLY 100 % TOTAL  Before each lecture… Assessment I: Group Project Consulting Project – IBD Project ✓ Read the book chapters You need to help your “clients” to design an international expansion strategy ✓ Read through the lecture notes posted on including: Assess the attractiveness of this country market Canvas Existing and potential competitors analysis Evaluate your firm’s competitiveness within the industry in the home country, ✓ Read the complementary readings or Food for around the world, and in the target country Thought (FFT) (two or three articles per week) – The value proposition of the product or service Discuss options of entry modes and select one highly recommended! Should your entry mode involve an alliance, specify desired partner and governance attributes Select a location within the target country Identify key operational issues including the relationship with the host government, structuring and control of foreign subsidiaries, etc. Others Where are my lecture readings? Assessment I: Group Project Textbook: Note: Mike Peng, “Global Strategy” China is just a context. You could replace Non-textbook readings: China with any country in which you are Check announcement and email regularly. interested (e.g., India, US, France, etc.) but the requirements will remain the same!!!  Assessment I: Group Project Important Deadlines Words from one of previous students Consulting project - Final group presentation in tutorials in Week 12 and Week 13 (Detailed “I wanted to say that I have very much requirements to be given in advance) enjoyed the course; I am starting with - NO written report required! Boston Consulting Group (BCG) next year and found the Group Assignment a great Tutorial contribution experience in terms of preparing me for - Ongoing evaluation by your tutor some of the sots of work I might be engaged in, which was really exciting.” Mid-term exam - In Week 8 lecture. Details to follow. Assessment II: Tutorial Contribution What should you do? - Go to Canvas and read up. Excellent class participation: The student consistently attends class, submits tutorial reading summary, consistently contributes to - Think about teams to be formed in the first discussions, and consistently demonstrates superior understanding tutorial for group project and start ASAP! and insights. - Start collecting reading material off the web. Good class participation: The student consistently attends class, submits tutorial reading summary, consistently contributes to - Read all the documents provided CAREFULLY! discussions, and occasionally demonstrates superior understanding - Contact me if you have comments or questions and insights. but make sure that you could NOT find the Poor class participation: The student inconsistently attends class, submits tutorial reading summary, inconsistently contributes to answers from all the documents provided! discussions, and rarely demonstrates superior understanding and insights.  International Business Strategy: Please remember A Framework - Check announcement or email once a day! Module 1: Globalization & International Business - Mark your diary for ALL deadlines! - Feel free to contact me if you need Module 3: International Business Strategy any help. - Enjoy the challenging yet rewarding learning journey – IBUS2101! Module 2: Strategy & Global Strategy Agenda IBUS2101 International Business Strategy 1. Globalization and implication 2. International business & motives Overview Globalization, and Introduction International Business and MNCs 3. Multinational Corporations (MNCs) 4. Success triangle Dr. Wu Zhan 5. Video case study The University of Sydney Business School  An Age of Globalization The Implication of Globalization Value of world exports in 2000 tripled between More choices 1980 and 2000. Foreign investment grow Lower prices more than twenty-fold. Blurred national identity for products and Firms without international goals may services find their domestic markets under threat Career choices and progression from foreign competition. 51 of top 100 economic entities (countries or companies) are MNCs Estimates of Gross Domestic Products (GDP), 2003–2020 The global top 20 countries Based on estimates from Economist, 2003, Bergernomics, in The World in 2003 (p. 30), London: The Economist. 2020 GDP estimates are based on 4 percent annual growth for the US, EU, and Japan, and 9 percent for China. The size of food items is proportional to the size of the economies.  Globalization index rankings Globalization: For & Against  Allegedly at the cost of poorer nations.  Higher among the G-7, but some (e.g. Japan) are low on globalization  Some emerging economies (Czech Republic) are quite high  Developing countries exceeded the global average in trade growth Drivers of Globalization Globalization: For & Against  Common complaint that globalization hurts - Economic drivers the environment  Argued that firms relocate to escape tough - Technological drivers pollution rules at home - Political drivers  Many firms adhere to strict codes of - Cultural drivers environmental protection, and engage in cleanup of locations  Environment is just one factor in location decision  Globalization: For & Against Globalization and International Business  Carries promises and threats at the Globalization does not mean the advance national, regional, organizational, and of a homogeneous civilization and uniform individual level. business system.  Makes less regulated, emerging Growing interaction makes people more economies vulnerable to volatilities. aware of the differences among them.  Exposes national economies to the uncertainties of the global economy. Semi-globalization?  Could offer advantages to participating economies. http://www.youtube.com/watch?v=u95c_xKN Vvw Globalization: For & Against What is International Business? Globalization infrastructure The business activities that involve the transfer of resources, goods, services – Institutional frameworks and market efficiency knowledge, skills or that support fair and transparent transactions information across of products or services national boundaries. – Streamlines flows of commodities, capital, May involve – Individuals labor, knowledge, and information. – Companies – Government bodies – International institutions  International vs. Domestic Business International vs. Domestic Business International business is the outgrowth of http://www.tmf-group.com/en/media- domestic business. centre/resources/top- Most major corporations started their challenges/emea/russia operations in the domestic market. International entrepreneurs http://www.youtube.com/watch?v=Iw7Q1LiN – Individuals or companies that invest and Xig operate in another country without a home base http://www.youtube.com/watch?v=Nt9GmfIX A7s International vs. Domestic Business Why Do Firms Expand Internationally? Significantly different due to differences in: Firms expand internationally for various – Environmental Dynamics motives: Currency, inflation, interest rates, accounting – Market motives practices, cultures, social customs, laws, political – Economic motives stability – Operational Nature – Strategic motives Communication, coordination, motivation, Motives vary from one business activity to differences in organizational principles and another. management philosophies  Market Motive Economic Motive Economic Motives: Market Motives: – Increase return through higher revenues and/or lower – Offensive motive – seize market opportunities costs. in foreign countries through trade or – Enables the company to benefit from the differences investment. in: Costs of labors – Defensive motive – to protect and hold a Natural resources firm’s market power or position in the face of Capital threats from domestic rivalry or changes in Differences in regulatory treatment government policy. Amway gains market position in China. Scania moves production to Mexico to lower costs. Honda protects market share by building cars in the USA. Michelin improves by building tires in Canada. Strategic Motive Success Tri-angle Strategic Motives: – Capitalize on distinctive resources or capabilities already developed at home – Be the first mover in a target foreign market IQ – Benefit from vertical integration involving different countries – Follow the company’s major customers S abroad Exxon drills for oil in Asia and the Middle East. EQ GL Procter and Gamble sell food in China.  A Global Leadership Case http://www.youtube.com/watch?v=SF3W2 vCH9dU IBUS2101 International Business Strategy Q: What is global leadership? Overview Strategy, and Introduction Global Strategy & Industry-Based View As: - Cultural Intelligence (CQ) Dr. Wu Zhan - Strategic thinking The University of Sydney Business School - Global perspective - Other dimensions? International Business Strategy: Some Recommended Books A Framework www.amazon.com Module 1: Globalization and International Business - The world is flat - The world is not flat Module 3: International Business Strategy - World 3.0 - Redefining global strategy Module 2: Strategy & Global Strategy  What Makes a Successful Strategy? Agenda 1. Strategy and levels of strategy Successful strategy 2. Evolution of strategy 3. Fundamental issues in strategy 4. Three theoretical perspectives in strategy EFFECTIVE IMPLEMENTATION 5. Global strategy Long-term, simple Profound Objective and agreed understanding of the appraisal of objectives competitive resources environment 5 5 The Basic Framework Strategy: What is Strategy? the Link between the Firm and its Environment From military strategy to strategic management – Strategy as a plan – Grand Strategy B.H. Liddell Hart, British military strategist THE FIRM THE Strategy as action – operational strategy INDUSTRY Goals & Strategy as theory Values ENVIRONMENT – Integrating both planning and action schools Resources & STRATEGY STRATEGY Competitors – Leveraging the concept of “theory” Capabilities Customers – Requiring replications and experimentations Structure & Suppliers Systems – Understanding the difficulty of strategic change FIT 6 6  Strategic Misfit and Strategic Failure What is Strategy? - Misfit with external environment Distinguishing strategy from tactics: Why all Japanese brands have – Strategy is the overall plan for deploying resources disappeared in the mobile phone to establish a favorable position. – Tactic is a scheme for a specific maneuver. industry in China and Motorola as an early-mover is struggling? Why Nokia is dead? Characteristics of strategic decisions: - Misfit with internal environment – Important. – Involve a significant commitment of resources. Why Hyundai’s ambitious plan to enter – Not easily reversible. luxury automobile segment (i.e., compete with BMW) is questionable and 7 9 9 dangerous? The Evolution of Strategic Management Sources of Superior Profitability 1950s 1960s & early 1970s INDUSTRY Financial budgeting: Corporate planning: ATTRACTIVENESS Operational budgeting Corporate plans based on 5-10 yr economic Capital budgeting (the forecasts Which wonders of DCF) CORPORATE Diversification RATE OF PROFIT businesses STRATEGY ? 1990s & early 2000s 3 key changes: 1. Changing concept of strategy ABOVE THE COST OF CAPITAL should we be in? 2. Changing processes of strategy Quest for Shareholder Value: formulation Late 1970s & 1980s How do we Refocusing, outsourcing, delayering, cost Emergence of Strategic cutting 3. New tools of strategy analysis make Management: money? Quest for Competitive Advantage: COMPETITIVE Industry analysis ADVANTAGE Emphasis on resources & Competitive positioning capabilities Strategic priorities: locating Flexibility & innovation BUSINESS in attractive industries & How should we Collaboration—alliances, networks STRATEGY establishing market compete? Succeeding in dynamic (Schumpeterian) leadership 8 8 10 10 markets  Describing Strategy: Competing for the Present; Four Fundamental Issues Preparing for the Future. STATIC DYNAMIC Where are we competing? What do we want to become? - Why do firms differ? - Product market scope - Vision statement - Geographical scope What do we want to achieve? - How do firms behave? - Vertical scope - Mission statement - Performance goals - What determines the scope of the firm? How are we competing? How will we get there? - What is the basis of our - Guidelines for development - What determines the international success competitive advantage?) - Priorities for capital expenditure, R&D or failure of firms? - Growth modes: organic growth, M&A, alliances COMPETING FOR THE PREPARING FOR THE PRESENT FUTURE 11 11 The Essence of Strategy How Do Firms Behave?  What Determines the International More info Success or Failure of Firms? Acquiring and leveraging competitive http://www.atkearney.com.au/latest-article/- advantage /asset_publisher/lON5IOfbQl6C/content/the- history-of-strategy-and-its-future- – The Key: Sustaining such an advantage over prospects/10192 time and across countries (regions) through replication and innovation. https://www.youtube.com/watch?v=43kZDnyDX Oc Global Strategy: Traditional vs. New Perspectives Traditional “global strategy” – Only relevant for MNCs from developed economies IBUS2101 International Business Strategy The same as “international” (non-U.S.) strategy – Everything becomes “global”? Our definition of global strategy: Overview and Industry-Based Introduction View and OT Analysis – Strategies of firms around the globe Both international and non-international (domestic) Dr. Wu Zhan Both developed and emerging economies The University of Sydney Business School  International Business Strategy: A Framework “To assure victory, always Module 1: Globalization and International Business carefully survey the field before battle.” - Sun Tzu Module 3: International Business Strategy The Art of War Module 2: Strategy & Global Strategy 2-4 Agenda SWOT ANALYSIS Strengths and 1. Industry-based view of strategy Weaknesses – internal assessment of the 2. Generic strategy organization leading to management decisions. 3. Strategic group analysis & competitor analysis 4. Blue Ocean Strategy (BOS) Opportunities and Threats – external assessment of the business environment to identify the uncontrollable events that might impact management decisions. 5 Industry Competition and the IO Model Five Forces Model and Firm Strategy Industry: Although firms benefit from a favorable – A group of firms producing products (goods and/or Five Forces environment in their industry, services) that are similar to each other. they are not simply passive recipients of Structure-Conduct-Performance (SCP) model those competitive forces. – The primary contribution of the Industrial Organization (IO) economics model – Firms can use the Five Forces Model to Structure: Structural attributes of an industry evaluate what new industries to enter. Conduct: The firm’s actions – Firms can also use the Five Forces Model to Performance: The result of the firm’s conduct in response to industry structure compete more effectively within their industry Five Forces Model and Firm Strategy The Threats of Five Forces The Five Forces Framework – “Translated” and extended from the SCP model in 1980 by Michael Porter. – A key proposition: The focal firm performance critically depends on the degree of competitiveness of the five forces within an industry. The stronger and more competitive these forces are, the less likely the focal firm is able to earn above-average return, and vice versa.  Threats of the Five Forces Threats of the Five Forces (cont’d) Threats indicative of strong competitive forces that can Five forces depress industry profitability Threats indicative of strong competitive forces that can Rivalry among  A large number of competing firms Five forces can depress industry profitability competitors  Rivals are similar in size, influence, and product offerings  High-price, low-frequency purchases Threat of Substitutes superior to existing products in quality and  Capacity is added in large increments of substitutes quality and function  Industry slow growth or decline Switching costs to use substitutes are low  High exit costs Threat of  Little scale-based low-cost advantages potential entry (economies of scale)  Little non-scale-based low-cost advantages  Insufficient product differentiation  Little fear of retaliation  No government policy banning or discouraging entry Threats of the Five Forces (cont’d) Lessons from the Five Forces Framework Threats indicative of strong competitive forces that can Not all industries are equal in terms of their Five forces depress industry profitability potential profitability. Bargaining power A small number of suppliers The task for strategists is to assess the of suppliers Suppliers provide unique, differentiated products opportunities (O) and threats (T) underlying Focal firm is not an important customer of suppliers Suppliers are willing and able to vertically integrate forward each competitive force affecting an industry, and then estimate the likely profit potential of the Bargaining power A small number of buyers industry. of buyers Products provide little cost savings or quality of life enhancement The key is “to stake out a position that is less Buyers purchase standard, undifferentiated products vulnerable to attack from head-to-head from focal firm opponents, whether established or new, and Buyers are having economic difficulties Buyers are willing and able to vertically integrate backward less vulnerable to erosion from the direction of buyer, suppliers, and substitutes.  Three Generic Strategies: Five Forces Model and Firm Strategy Cost Leadership Although firms benefit from a favorable Cost leadership centers on low costs and Five Forces environment in their industry, prices. they are not simply passive recipients of – A high-volume, low margin approach. those competitive forces. Firms undertaking this strategy are often very innovative on the production process side of the – Firms can use the Five Forces Model to business. evaluate what new industries to enter. – The advantage for a cost leader is to minimize the threats from the five forces. – Firms can also use the Five Forces Model to – Many companies try to become cost leaders, compete more effectively within their industry however, only a few succeed. Three Generic Strategies: Three Generic Strategies Cost Leadership Drawbacks: – The danger of being outcompeted on costs. This forces the leader to continuously search for ways to further reduce costs. In the relentless drive to cut costs, a cost leader may make trade-offs that compromise the value customers perceive in its products or services and hurt sales.  Three Generic Strategies: Three Generic Strategies: Differentiation Focus Strategy Differentiation: Focus strategy: – Strategically focusing on how to deliver – Serving the needs of a particular segment or products that perceive to be valuable and niche of an industry such as a geographical different. market, type of customer, or product line. A low-volume, high-margin approach in targeting A specialized differentiator has a smaller, narrower, smaller, well-defined customer segments willing to and sharper focus than a large differentiator pay premium prices. A specialized cost leader deals with a narrower Research/development and marketing/sales are segment compared with the traditional cost leader. important functional areas. – Focusing may be successful when a firm The less a differentiator resembles its rivals, the possesses intimate knowledge about a more protected its products are. particular segment. Three Generic Strategies: Lessons from the Three Generic Strategies Differentiation Drawbacks: The essence of the three strategic choices: – A differentiator can have difficulty sustaining – Whether to perform activities differently or to the basis of its differentiation over the long run. perform different activities relative to competitors. Customers may decide that the price differential between the differentiator’s and cost leader’s There are two fundamental strategic products is not worth paying for. dimensions: cost and differentiation The differentiator also has to confront relentless – The key is to choose one dimension and efforts of competitive imitation. execute on it consistently. – As the overall quality of the industry increases, Companies that are “stuck in the middle” either brand loyalty to differentiators may decline. have no strategy or are drifting strategically.  Case Study: Singapore Airlines Strategic Group Analysis - Strategic group: the group of firms in an industry following the same or a similar strategy along the strategic dimensions - Strategic dimension: variables that best distinguish the business strategies and competitor positioning of the firms within an industry Debates and Extensions Strategic Group Analysis  Clear versus blurred boundaries of industry  Threats versus opportunities  Five forces versus a sixth force (complementors)  Industry rivalry versus strategic groups  Integrating versus outsourcing  Stuck in the middle versus all rounder  Positioning versus hypercompetition  Industry- versus firm- and institution-specific determinants of firm performance Subgroups Within the Mass Market Strategic Group in the US Automobile Industry Strategic Groups in the Pharmaceutical Industry Subgroups Within the Mass Market Strategic Group in the US Automobile Industry Strategic Group Analysis: Implication for Strategy - Competition mainly from the same strategic group - Performance difference persist across different groups - Mobility barriers lead to the persistent difference - Help understand the competitive responses by different firms within an industry - Potential migration from one group to another!!! - Industry structure & strategy group evolve!!! - Sub-group and segment analysis useful Q: Is it good to be far away from other members within the group?  Competitor Analysis A Question t - Objectives What are competitor’s current goals? Can you sustain your competitive advantage - - Is performance meeting its goals? How are its goals likely to change? or is it worthwhile to do so? Strategy http://en.wikipedia.org/wiki/Hypercompetition Predictions - How is the firm competing? - What strategy changes will the competitor initiate? - How will the competitors respond to our strategic Assumptions initiatives? - What assumptions does the competitor hold about the industry and itself? http://www.youtube.com/watch?v=fNbIWLT_ HV4 Resources and Capabilities - What are the competitor’s key strengths and weaknesses? A Question A Question Can firms succeed not by battling What is your strategy in environment competitors but by creating new uncontested characterised by uncertainty, fast pace, risk, space by value creation – create powerful non-linear change, etc.? leaps in value for both the firm and the customers, thereby rendering rivals obsolete http://www.youtube.com/watch?v=Hkuys- and unleashing new demand??? OaHHU http://www.blueoceanstrategy.com/teaching- materials/ http://www.youtube.com/watch?v=h3KVpah5sx http://www.youtube.com/watch?v=clp- Y IMpuwaQ  Industry-based View: Implication for Strategy For strategic practice, the industry competition-based view provides: IBUS2101 International Business Strategy – A systematic foundation for industry analysis and competitor analysis Overview and Resource-based View &Introduction Dynamic Capabilities – A set of answers to the four fundamental questions in strategy – Evidence that industry-specific conditions play Dr. Wu Zhan an important role in determining firm The University of Sydney Business School performance Industry-based View: A Summary International Business Strategy: A Framework  Industry is the battle field for firms competing for survival and profit!  Key to survival and profit is beyond MERE analysis and Module 1: Globalization and International Business prediction but more about creating and sustaining Strategic Position and change the industry structures to YOUR advantage through Game-changing Strategy or Strategic Innovation!  Firms are expected not to just follow the industry structure Module 3: International Business Strategy passively but to actively figure out the strategy to win!  Even within some less attractive industries, some firms still stand out. Why? Strategy as intent, as stretch, and as leverage!  Industries are in constant evolution or revolution. As a result, Module 2: Strategy & Global Strategy your strategy meed to co-evolve to achieve the dynamic fit!  Could you create a new industry or a segment as the first mover and set the new rule? Strategy as imagination and creativity!  Agenda Competing on Resource/Capabilities/Competence Situation: – Consider the intense competitive conditions in the airline 1. Core competence industry. – The industry-based view suggests that all firms “stuck” in this 2. Resource-based View (RBV) of strategy industry are likely to suffer. Question: 3. Dynamic Capabilities (DC) perspective – How can firms like Ryanair and Southwest Airlines consistently do so well in such an unattractive industry even during periods of 4. Case study recession? Answer: – There must be resources and capabilities specific to successful firms like Southwest and Ryanair that are not shared by their unsuccessful competitors. This insight has been developed into a resource-based view, which has emerged as one of the three leading perspectives on strategy. Opening Case Competing on Resource/Capabilities/Competence Focus of the industry-based view: Opening Case: IBM at 100 (versus Kodak’s last moment) – How “average” firms within an industry – Consider the intense competitive conditions in the IT compete. industry. – The industry-based view suggests that all firms “stuck” Focus of the resource-based view: in this industry are likely to suffer. – How individual firms differ from each other Question: within an industry and can outperform the – How can firms like IBM (Opening Case) consistently industry average consistently and do so well in 100 years? (at least three countries—the significantly. former Soviet Union, Czechoslovakia, and Core Competence: Yugoslavia—did not last that long) http://www.youtube.com/watch?v=oVugEBoJFSE Generic Building Blocks of Competitive Advantage Resource-based View (RBV) The Resource-based View – A firm consists of a bundle of productive resources and capabilities. Resources – The tangible and intangible assets a firm uses to choose and implement its strategies. Capabilities – The skills a firm can use to bring its resources to bear. “resources” and “capabilities,” interchangeably and often in parallel Resource-based View: A Framework Resources and Capabilities Tangible Intangible – Resources and – Resources and capabilities that are capabilities not easily observable and easily observed or difficult (or quantified impossible) to quantify – Broadly organized in – Examples include: four categories: Human Financial Innovation Physical Reputation Technological Organizational  Resources and Capabilities FOUR Qs Do resources or capabilities add value? Are they rare? How imitable are certain resources and capabilities? How is the firm organized to deliver superb performance? © M. W. Peng (www.mikepeng.com) 13 The VRIO Framework: The VRIO Framework Features of a Resource or Capability VRIO – An matrix analysis of the “sticky” nature of resources and capabilities of a firm and the difficulty of their replication elsewhere. Two Key Assumptions: – Resource heterogeneity Each firm has a unique combination of resources and capabilities such that no two firms are “twins.” – Resource immobility Resources and capabilities unique to one firm cannot easily migrate to competing firms.  The VRIO Framework: Value The VRIO Framework: Imitability The Question of Value The Question of Imitability – Only value-adding resources can lead to competitive – Valuable and rare resources and capabilities advantage, whereas non-value-adding capabilities may lead to competitive disadvantage. are a source of competitive advantage only if competitors have a difficult time imitating – If firms do not shed non-value-adding resources and them. capabilities, they are likely to suffer below-average performance or become extinct. Imitation of tangible resources (such as plants, software, or trucking fleet) is easy. Overall, the search for valuable resources and capabilities is an ever present challenge for Imitation of intangible resources (knowledge, managerial talents, and organizational culture) is virtually all firms. much more difficult. The VRIO Framework: Rarity The VRIO Framework: Imitability The Question of Rarity – Valuable common resources and capabilities can lead to competitive parity but no advantage. Why is imitation so difficult? – Valuable rare resources and capabilities can provide, – Time compression diseconomies at best, temporary competitive advantage. – Resources and abilities that add value in new areas – Path dependencies needed to keep up with the competition – Causal ambiguity (benchmarking). Once competitors develop equal abilities, then no unique and – Embeddedness distinctive capability remains on which to build a competitive advantage. – Any other reason???  The VRIO Framework: Organization Debates The Question of Organization Firm- versus Industry-Specific – How is a firm organized to develop and Determinants of Performance leverage the full potential of its resources and capabilities? Static Resources versus Dynamic A More Fundamental Question Capabilities – Why do firms exist? In other words, why do people organize firms? http://www.youtube.com/watch?v=SfU1YNR The resource-based view suggests that firms exist TqGM to develop and leverage resources and capabilities better than individuals could. Rent Generation versus Appropriation The VRIO Framework: Some Examples Dynamic Capabilities in Slow- and Fast-Moving Industries Example Source of Sustainability Competitive Advantage Microsoft Owns the standard High Coke Manage value chain Marriot Brand Medium Intel 2-year pro dev lead Commodity 10% cost advantage Low Lessons from the VRIO Framework Resource-based View: Implication for Strategy Build the firm’s resources and capabilities Why do firms differ? strengths before beginning the search for the – The assumption of resource heterogeneity, most attractive industry or segment. that is, every firm is unique in its bundle of Imitation is not a successful strategy—creating resources and capabilities, directly addresses new ways of adding value forces competitors to this question. play the best performing firm’s game. How do firms behave? Competitive advantage does not last forever— – The answer boils down to how they take strategic foresight is necessary to anticipate advantage of their strengths embodied in needs and move early to build resources and resources and capabilities and overcome their capabilities for future competition. Strategic weaknesses. insight is vital to deeply understand the implications of external and internal changes. Resource-based View: Implication for Strategy Resource-based View: Implication for Strategy The strategic imperative is to focus on identifying What determines the scope of the firm? the resources and capabilities that really count – Value chain analysis suggests that the scope of the and developing new ones. firm is determined by how a firm performs different value-adding activities relative to rivals. Strategists need to focus on when, where, and Managers often fail to assess them relative to competitors, how resources and capabilities are useful. resulting in an unnecessarily broad scope with some mediocre units. – A fundamental challenge is how to do this, not just What determines the international success and once or every now and then, but consistently. failure of firms? The resource-based view offers a set of answers – The resource-based view identifies firm-specific to the four fundamental questions in strategy. resources and capabilities as the determinants. http://www.booz.com/global/home/what-we- think/cds_home Institution-based View…