1

Schedule

Today Fax Global Industry7-31 Philips and Matsushita8-1 EuroDisney8-5 P&G 8-6 P&G Cont. Summary Evaluations 8-7 ClipIt! discussion8-8 Presentations8-12 Final in Class

CH-ZWA645-005jsmGB

Competitive Advantage of Nations

James OldroydKellogg Graduate School of ManagementNorthwestern University

j-oldroyd@northwestern.edu801-422-7888650 TNRB

CustomerDrivers

Competitive Drivers

GovernmentDrivers

CostDrivers

• Trade policies• Technical standards• Regulations

• Common customer needs• Global customers• Global channels• Transferable marketing know-how and global brands

• Global competitors• Competitors leveraging global position (i.e. cross subsidizing).

• Location of strategic resources• Differences in country costs• Potential for economies of scale, innovation, flexibility• Cost of shipping (value/bulk)

Industryglobalization

potential

Assessing Industry Globalization Potential

Source: Jeff Dyer BYU 2001

4

Porter’s Diamond Model

Firm strategy,structure, and

rivalry

Firm strategy,structure, and

rivalry

Related andsupportingindustries

Related andsupportingindustries

FactorConditions

FactorConditions

DemandConditions

DemandConditions

GovernmentGovernment

Competitive Advantage of Nations(National Perspective)

Firm strategy,structure, and

rivalry

Related andsupportingindustries

FactorConditions

DemandConditions

Source: M. Porter

Skilled designers,engineers

Fax demand- language - lack substitutes - control subs

Copier companiesSemiconductor companiesThermal print componentsLaser printersThermal paper

Strong rivalryInnovation focus

JAPANESEFACSIMILEINDUSTRY

Government - NTT promotion - “legal” docs

Location-Specific Advantage

Issue: Competitive vs Comparative advantage• Competitive advantage is a firm’s ability to transform inputs into goods and services at a

maximum profit on a sustained basis, better than competitors• Comparative advantage

– What sources of potential advantage reside in geographic locations (factor endowments)?– How can firms derive advantage based on the created endowments within a particular

country (created endowments)?Traditional view

• Focus on national factor endowments– Countries differ in factor endowments and countries should produce goods in which their

factor endowments offer a comparative advantage.

Globalizing for Competitive Advantage(Utilizing country comparative advantages)

• Land: supply, usability, location (geography)

• Natural resources: abundance, type

• Labor : plentiful (cheap)• Size of local population: size

of home market

• Skilled labor: effective education systems and productive workforce

• Technology/knowledge base• Government support:

Financial, stable economic and political environment

• Culture: costs of transacting, demanding users, inventiveness of human resources

Factor Endowments Created Endowments

Selected Top Export Industries

United StatesPop: 250mm

• Automobiles

• Aerospace/aircraft

• Computer equip./ software

• Pharmaceuticals

• Medical Equipment

• Entertainment (motion pictures)

• Food Processing/ consumer pdts.

• Waste management

JapanPop: 125mm

• Automobiles & motorcycles

• Consumer electronics

• Computer equip./ semiconductors

• Robotics

• Cameras/watches

• Musical instruments

• Machine tools

• Shipbuilding/steel

GermanyPop: 61mm

• Automobiles (Performance)

• Machine Tools

• Printing presses

• Chemicals

• Surgical Instruments

• Cutlery

• Pens & pencils

• Optical instruments

ItalyPop: 57mm

• Ceramic tiles

• Knitwear/textiles

• Leather goods and footwear

• Ski Boots

• Jewelry

• Lighting/glass

• Furniture

Sources of Competitive AdvantageImplication of Location/Country

Efficiency• Firm’s ability to perform activities at lowest cost or highest efficiency• Optimize where individual tasks are located

Flexibility• Firm’s ability to respond to substantial, uncertain, and rapid changes

in its environment• Optimize location and flows of products or components

Innovation/Learning• Firm’s ability to sense and respond to market, technological

opportunities• Optimize flows of information and/or technology and tap into leading

edge resources to determine how a task should be performed (e.g., best practices)