Module 2
Module 2 – Competitiveness, Global Strategies, Processes and Structure
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Competitiveness and Strategy
Firm Competitiveness and International Impacts
Value Chain
VRIO
Porter’s Competitiveness Framework
Trade Fundamentals and Advantage
Becoming International
Managing and Succeeding Internationally
Making Alliances Work
This module will look at the international dynamics for start-ups and entrepreneurial companies as well as large international and MNCs.
Critical to this module will be a deeper understanding of:
Competitiveness
Trade
Alliances as a tool to enable global growth
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Processes
How to think about strategy?
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Strategy
Resources
Organisation
Strategy
Strategy is about choice
Simplicity is better
Be strategy driven – what are you trying to achieve?
What is your starting point?
From the competitiveness tools
Do not invert the pyramid
Set Strategy
Determine key processes (and resultant behaviours)
Determine relative resources – Capital, People/Talent, Technology and Capability
THEN, set the organisation structure
Source: Arthur D. Little
2.1 Global Competitiveness
How competitive are you?
Are you struggling at home?
Are you profitable?
Is there innate interest?
Changing Global Dynamics
What changes as you go global?
Can you extend those things that make you competitive at home?
Are you “ready” to be global?
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Are you ready to compete?
Are you ready to compete internationally?
2.1 Global Competitiveness – Greenhouse Tomato Industry
Greenhouse
We are looking at the cherry tomato sector
From lab to store
Each team will play various roles in the context of understanding competitiveness:
Team 1 – Lab/Genetics
Team 2 – Seeds/Plant Materials
Team 3 – Greenhouse
Team 4 – Distributor
Team 5 – Farmers Market Store
Team 6 – Costco
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2.1 Global Competitiveness – Resources and Capabilities
Resources
Tangible and intangible assets
Financial
Cash and Balance sheet strength
Cost of Capital
Fixed Assets
Plant, Equipment and Distribution
Raw materials and processing capacity
Technology – all aspects of IPR including trade secrets and corporate processes
People – trained and competent staff, aligned and mobile executive
Capability
Unique ability to utilize resources available for enhanced competitiveness
Financial
Investor relations
Capital raising prowess
Innovative use of financial structures
Branding
Create and grow brand(s)
Project Management
Ability to execute including proprietary processes for PM
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Globally competitive firms (organisations) have both a resource base and a capability base which are competitive and readied for execution.
2.1 Global Competitiveness – Exercise
Example – Greenhouse
You are running a large greenhouse that produces tomatoes.
You have lots of land, a large greenhouse building and permits to grow tomatoes.
Your tomatoes are a variety that is proprietary and you can also create other varieties from that genetic stock because of your partnership with a lab.
You also have automated the greenhouse so that the labor costs are low and the risk of damage to the crops is very low.
You are a preferred provider to Costco and Superstore today.
Capability
For each segment, discuss the difference between resources and capabilities.
Resources are what you “have”
What are your resources?
Capabilities are what you are “good at doing”
What are you good at doing?
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2.1 Global Competitiveness – Value Chain Considerations
What is a Value Chain?
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Increasingly, value chains crisscross the globe.
Any of these activities can be done in NA or globally?
IT Infra
Human Resources
Logistics & Supply Chain
Finance
Raw Materials
R&D / Design
Manufacturing or Production
Packaging
Market-ing
Functional Activities
Core Activities
Where is most of the money made in this business?
Does this change in other countries?
Bain & Co. introduced the idea of value chain mapping and profit pools.
2.1 Global Competitiveness – Value Chain Considerations
Fully Integrated In House Value Chain
Outsource Value Chain
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Increasingly, value chains crisscross the globe.
Any of these activities can be done in NA or globally?
IT Infra
Human Resources
Logistics & Supply Chain
Finance
Company Activities
Outsourced Activities
Raw Materials
R&D / Design
Manufacturing
Packaging
Market-ing
IT Infra
Human Resources
Logistics
Finance
Raw Materials
R&D / Design
Manufacturing
Packaging
Market-ing
IT Infra
Human Resources
Finance
Raw Materials
R&D / Design
Manufacturing
Packaging
Market-ingv
Supply Chain
Exxon Mobil
Apple
Yeezy – Adidas and Kanye
Logistics
Supply Chain
2.1 Global Competitiveness – Value Chain Example
Fully Integrated In House Value Chain
Company Profile
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Hanky Panky Limited –
Look at breaking down the value chain and where the cash sits.
Design led
Wholesale history
Strong reliance on one supplier – little understanding of global quotas, tax and tariffs
Cuts and some sewing in-house
Wholesale is “outsourced customers”
DTC growing fast
International has never been a focus – distributors and agents
2.1 Global Competitiveness – Value Chain Example
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2.1 Exercise – Value Chain
Tomato Industry
Seed Genetics (R&D)
Seed Distribution
Greenhouse Operations
Vegetable Marketing / Wholesale Distribution
Retail Farmer’s Market Store
Costco
Break into your [five] teams
Consider the tomato retail price of $4.99 per box of mini-tomatoes
Sketch the value chain back
Where do you think the most money is made? Cash resides? Why?
How would that change in other global markets? Pick an alternative market and compare
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2.1 VRIO – A framework for thinking through global competitiveness.
VRIO Framework
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Exploited (Exploitable)
Is the firm organized (or capable of being organized) to exploit the other three levers?
How can a firm be organized to develop and leverage the full potential of its resources and capabilities?
Paradoxically, it is both simple and complex. Apple’s appeal is simple but the combination of all these measures requires a consciously complex approach to sustaining advantage.
Imitable (Ease of Imitation / Replication)
If it is valuable and scarce, can competitors replicate what you have? Over what time frame?
It is incredibly important that the differentiation be clearly understood and articulated within the firm’s strategy and ethos – e.g.) GE management cadre / Harvard MBA – truly believed they are the best and so did everyone else
E.g.) shale oil in the US and Canada – unique combination of factors which make it incredibly hard to replicate elsewhere (but may not be valuable if prices stay low)
Rare
Is it valuable?
Is the rarity innate (scarcity) or erodible? E.g.) rare earths are innate but battery innovation will reduce premium and control
Can it be created and sustained? E.g.) new airplane design
Are the skills and people protectable? E.g.) Google coders – how to retain them, Tesla design and electrical engineers
Valuable
Does the firm, product, activity add value?
Where in the value chain is the value created? (Profit Pools – Bain Methodology)
Commoditization of the product or activity over time e.g.) patent positions
Or WORSE, value erosion e.g.) Transmission Grids, Department stores
2.1 VRIO – The benefits compound both the competitive advantage and, ultimately, returns.
VRIO Framework
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2.1 Exercise 2 – VRIO
Tomato Industry
Seed Genetics (R&D)
Seed Distribution
Greenhouse Operations
Vegetable Marketing / Wholesale Distribution
Retail Farmer’s Market Store Farmer’s Market
Costco
Break into up to six teams
Apply VRIO to your segment?
Does it have extendable global competitiveness (using VRIO)?
Which of these segments has the most extendable competitive global advantage using VRIO?
Where would you rather play? Why?
Is that different than in the domestic context?
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2.1 Porter Industry Competitiveness
Four Measures
Bargaining Power of Suppliers
Extent of suppliers ability to dictate price and terms?
Can they forward integrate?
Threat of Substitutes
How quickly and strongly can substitute products come into the market?
Be clear that substitutes are different than New Entrants
Bargaining Power of Buyers
How many and how strong are the buyers? Can they control the price and terms? Are certain aspects controlled by regulation, etc.?
Threat of New Entrants
How easily and quickly can competitors enter the market?
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How does this change in a new global market?
Bargaining Power of Suppliers
Are suppliers protected or preferentially enabled (licenses, domestic production, etc.) – bad
Is there more competition? (good)
Threat of Substitutes
Is there anything different in this market that could change the industry product/service mix?
Bargaining Power of Buyers
Again, what changes in the buying structure in the new market?
Threat of New Entrants
Is there a more open or favorable market for new entrants in this new market?
2.1 Exercise – Porter
Tomato Industry
Seed Genetics (R&D)
Seed Distribution
Greenhouse Operations
Vegetable Marketing / Wholesale Distribution
Retail Farmer’s Market Store
Costco
Break into five teams
Think about the vegetable production business.
Are there any of the components where the industry rivalry may be less intense and, therefore, more attractive?
Pick a country and compare that to Canada. Is the competitive intensity greater or lesser?
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Team Exercise – Comparing Competitiveness Tools
For your company,
Use ALL FOUR competitive analytical tools to examine your business
Prepare a summary of the competitiveness of your business
So What?
What does that mean or imply about your ability to grow internationally?
What are the gaps and opportunities? How would you address them?
What would be the implementation steps you would take to fill the gaps or address opportunities?
Prepare a slide deck.
One summary slide
Four competitive analysis slides
One implications slide
One implementation slide
Prepare to present
Presentation tomorrow morning.
10 marks – will adjust from final project.
Remember the pyramid thinking structure
Use good ppt practices
TWU – MBA 662: R. Ian Angell Oct. 2020
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2.2 International Trade Fundamentals
Classical Trade Theories
Mercantilism
Trade is good and generates foreign currency…
…but self reliance is better as it preserves reserves
Absolute Advantage
Nations are endowed with resources and have natural advantages
Comparative Advantage
Nations are relatively better off to trade even if they are not the “best” in the world in a given resource or activity
Encourages optimization – produce as much of you can of that which you are best at and then produce alternatives
What is the country endowed with? People, manufacturing capacity, PhD’s, etc.
Modern Trade Theories
Product Life Cycle
Creation and innovation is an endowment (New Products)
Demand is satiated in home country (Mature Product)
As a product commoditizes, production shifts elsewhere, as does demand (Standard Product)
E.g.) clothes washing machines
Does this still work as a construct?
Basic Android phones
Trade in used clothing and vintage market development
Strategic Trade
Industrial policy actively encourages investment in innovation and the control of the “next” segment
Governments are notoriously bad a predicting winners and losers and which segments will emerge
National Competitive Advantage
See next page
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2.2 International Trade Fundamentals (cont’d)
National Competitive Advantage
Factor Conditions – Endowments
Basic – Natural Resources, Unskilled Labor
Advanced – Specialist Education, Unique Capital structures (VC)
Demand Conditions
Local demand drives innovation; nurturing and growing demanding customers is GOOD
Firm Structure and Rivalry
Internal competitiveness creates innovation, drives down costs and creates efficiency
Protection, licenses and monopolies do not help
Related and Supporting Industries
Multiple options along the supply chain; part of the innovation
Government
Contrary to popular belief, regulation and related pressures HELP drive innovation
Centres of Excellence, Consolidation of certain services (testing, science centers, labs, infrastructure, etc.)
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Source: Competitive Advantage of Nations – Michael Porter
2.2 Porter National Competitiveness – Example
National Competitive Advantage – Dairy Sector
Factor Conditions – Endowments
Low-cost land and competitive feed costs
Demand Conditions
Small and complacent demand market
Emphasis on minimum health and quality
Firm Structure and Rivalry
Limited competition, regional monopolies
Farm sector operates on quotas limiting supply but maintaining viability of the farm
Related and Supporting Industries
Allied sector have few innovative customers (farms) to supply to
Government
Strong commitment to managed supply
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Source: Competitive Advantage of Nations – Michael Porter
National Competitive Advantage – Dairy Sector
Factor Conditions – Endowments
Potential in cold climates and related facility intensive geographies
Demand Conditions
Inabiity to understand the benefits of scale
Struggle with more sophisticated/diverse customer base – ie.) cheeses, etc.
Firm Structure and Rivalry
Again, limited competitiveness
May be able to play in global consolidation plays from strong cash/balance sheet positions
Related and Supporting Industries
Few innovations that can be used to “tag along” globally
Government
Most global governments are not protecting via supply management
2.2 Investment and Going Global
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Key Concepts – National Level
Foreign Direct Investment- brings in cash to a country/region
Vertical (Upstream, downstream) and Horizontal Investment (adjacent markets – segments or geographies. Typically less attractive.)
Trade Surplus / Deficit (Income Statement)
Investment Surplus / Deficit (Balance Sheet)
Advantages of Investment
Ownership
Location
Internalization
Licensing and Support
2.3 Becoming International – Strategic Assessment and Options
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How to assess whether and how to go global?
Basics apply to any growth or expansion strategy?
Information is scarce.
Key factors are new to the management team (and you).
Domestic or regional markets are almost always unknown and misunderstood.
This gets us to yes/no and, broadly as to how
(capital exposed or not?)
Source: International Management, Helen Deresky, p. 250
2.3 Becoming International – Entry Modes
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A Vast Array of Options
Entry can be mind-boggling to mature businesses, let alone start-ups or domestic firms
Each has trade-offs and risks
* BOOT – Build, Own, Operate and Transfer (Can be any combination almost)
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Offsets and Countertrade
2.3 Becoming International – Entry Modes
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Offsets and Countertrade
Kaodim Interview – Fui Yu-Choong, Founder of Kaodim, Lawyer and Start-Up Ecosystem Enthusiast.
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Global, Regional and Local Market Contexts for Consumer Start-Ups.
Tell us a bit about yourself and your career track?
Tell us about Kaodim. Where did the idea come from? What is the unmet need that you are serving?
Where does the company operate today? Where did you start?
Do you think this is an ubiquitous global offering or regional offering or does it vary by country or by other segmentation?
As you look at growing Kaodim, how do you assess countries or regions or new segments to enter?
What are your observations regarding expansion success factors? Put another way, what would you have done differently if you knew then what you know now?
Tell us about financing start-ups in SE Asia. Do you think this varies differently in SEA or is it largely similar to anywhere globally?
2.4 International Management Topics – Competition and Collusion
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Topics
Marketing Coordination – 5Cs
Competition – unfettered competition
Coordination – loose relationships, cooperate where helpful
Collusion – formal or informal but ongoing understandings
Cartels or Marketing Agencies – Canpotex experience
Communications – use of press, industry forums, intermediaries, banks, etc. to send a message
Dynamics of Competition
Large players vs Small Players
High margin vs Low Margin
Home country advantage vs New-Comer
Marginal Cost Pricing vs Full Cycle Pricing
Insurgency
State Resources and SOEs
Infrastructure
Capital Structures and Financing
Collaboration
Collaboration enables adaptation which is consistent with nature’s models of competition
Tesla (Musk’s open-source mentality)
2.5 Making Alliances Work
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A Continuum
Relationships typically evolve over time (decades)
Power dynamics (including external factors) often dictate decisions
Transactional vs Relational
Hybrids
Hybrids
2.5 Alliance Evolution – Case Study
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Canadian Oil Company and Japanese Trading House
Talisman Confirms PNG Strategy Acquiring Rift Oil and Others
Pandora field was “stranded” – sell or grow
Numerous transactions lined up like dominoes
Talisman developed a strategic plan (mid-scale export LNG) and required partners to execute plan
Global partnership search short-listed a few players – Mitsubishi selected
3 years and $280 million +++ received
Progress made swiftly thereafter
MC to market LNG, JV structure over-arching including secondees, working and steering committees and deadlock voting procedures
Ultimately, unsuccessful in exploration to progress and Mitsubishi and Talisman (Repsol) sold
2.6 Strategy in the International Context
How does the strategy process vary from domestic business to international?
What are the different options for strategy to underpin international growth?
What are the advantages and disadvantages of these various options?
What are the organisation structures which are more “naturally” aligned with the strategic internationalisation planning constructs?
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2.6 Global growth strategy – inherently more complex
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Degrees of complexity
Sheer numbers of regions and markets to assess
Tendency to simplify is greatest risk – e.g.) GDP per capital, size of market, language, etc.
In most cases, single product/service analyses is insufficient
Intelligence gathering, even with internet, is mammoth
More steps…
…more risks
Source: International Management, Helen Deresky, p. 248. 245
Growth Strategies
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Home Replication Strategy
Most standard place to start
Exports and / or agents
Hard to unravel
Global Standardization of Products/Services
Works well for ubiquitous ideas and where segments or niches are large enough to justify a global footprint
Lends itself well to centres of excellence or specialities
Consistent with web and social media sales – @tinydogpaintings
Localization – or multi-local
Nothing wrong with this
Brand-driven but tailored for taste, practice, religion, etc.
E.g.) MacDonalds
Transnational Strategy – “best of all worlds”
Ubiquity around processes, functions and economies of scale
Key products are global for technological or proprietary reasons
Localization around customer-centricity and regulatory requirements
Typically achievable among only the largest firms
Considerations – Advantages and Disadvantages
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2.7 Strategy and Structure Considerations
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International Division
Separate focus for emerging international activities
Global Product or Service Structure
Supports global segments with limited differentiation locally
Kotter view of the world
Geographic or Regional Structure
Multi-local structure views every region as different
Global Matrix – “best of all worlds”
Matrix structures with attendant complexity
Exploring and Understanding the importance of structure – “The International Division”
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Structure Benefits and Constraints – International Division Structure
Mysterious “rest of world” focus, often leads to out-of-sight, out-of-mind mentality which fosters neglect, maverick behaviours, deals that are hard to get out of, etc.
Kindergarten organisation structure – good for nascent or immaterial international segments
International division managers often rotate through this to “tick-the-box” on career development which can lead to them “playing to HQ” as objectives are often not clear or important
International customers often feel inferior leading to limited success in overseas markets (chicken and egg challenge)
Overseas staff and suppliers/partners feel like second-class citizens
Exploring and Understanding the importance of structure – “Geographic Organisation”
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Structure Benefits and Constraints – Geographic Organisation Structure
Creates adequate focus on the importance of international markets
Creates internal competition for funds, people, product, etc. and resultant “fiefdoms” and over-reliance on regional chiefs
Allows for regional (and national) differentiation
Assumes heterogeneity among countries and / or segments in each region – major flaw
Exploring and Understanding the importance of structure – “Global Product Structure”
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Structure Benefits and Constraints – Global Product Structure
Very common in technical companies where there is little/no commonality across divisions
Local or regional cooperation is limited
Customers and Distribution in countries often send confusing messages impacting branding
Margin and market share
Customer friendliness and positioning
Regulatory and other related postures
Ascendant structure even amongst global firms
Importance of understanding the “segment”
Very strong amongst conglomerate or mutli-product businesses like GE and Honeywell
Exploring and Understanding the importance of structure – “The Matrix Structure”
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Structure Benefits and Constraints – International Division Structure
Matrix structures are inherently complex
Necessity to have strong “ligaments” (processes or principles)to reinforce the “bones” (matrix)
Criticality elements
Transfer pricing
Rules of engagement and behaviours
Common language and alignment around strategy and objectives
Follow the money – capital allocation, profitability/cash flow and bonuses
E.g. ) Schlumberger
Management by Objectives Culture
Material bonuses associated with both dimensions of the matrix
Competitiveness and Structure Assignment
Part 2 In-Class or Take-Home Assignment – Use the Coe’s Mexico Case Study to answer.
Select 1 of the first FOUR of the following questions/areas of enquiry and prepare a commentary using and EMAIL format. And, answer #5.
Assume that your boss has asked you to assess the competitiveness of Coe’s and suggest the corporate organizational structure which may be best. (300 words max.)
Resources vs Capabilities
What are the resources Coe’s may use? • What are their capabilities? • How can they best exploit both?
Value Chain
Sketch out the international value chain for Coe’s. Summarize where the “cash” resides. What can we learn?
VRIO
Do a VRIO table and summary note for Coe’s. What can we learn from there VRIO positioning?
Porter’s Competitive Analysis • Look at Coe’s through a Porter Competitive Strategy lens? Explain.
Corporate/Organisation Structure
Which organisation structure do you think works best for Coe’s as they expand? Why ?
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Select One
Must Do
