Sources and Impediments to Global Competition

Firms can participate in international activities through three basic mechanisms: licensing, export, and foreign direct investment. Usually a firm‘s first foray overseas involves export or licensing, and only after it has gained some international experience will it consider foreign direct investment. Export or foreign direct investment will be present in industries where competition is

Evolution to Global Industries

Few industries begin as global industries, but they tend to evolve into them over time. A number of triggers most common in creating global industries will be discussed. They involve either establishing or enhancing the sources of global competitive advantage or reduc-ing or eliminating impediments to global competition. The latter will not lead to

Competition in Global Industries

Competition in global industries presents some unique strategic issues compared to domestic competition. Although their resolution depends on the industry and the home and host countries involved, the following issues must be confronted in some way by global com-petitors. Industrial Policy and Competitive Behavior. Global industries are characterized by the presence of competitors operating

Strategic Alternatives in Global Industries

There are a number of basic strategic alternatives in a global in-dustry. The most fundamental choice a firm must make is whether it must compete globally or whether it can find niches where it can build a defensible strategy for competing in one or a few national markets. The alternatives are the following. Broad

Trends Affecting Global Competition

In the context of our discussion, there appear to be a number of trends that hold great importance for competition in existing global industries and for the creation of new ones. Reduction in Differences Among Countries. A number of ob-servers have pointed out that the economic differences among devel-oped and newly developed countries may

Strategic Benefits and Costs of Vertical Integration

Vertical integration has important generic benefits and costs which need to be considered in any decision but whose significance will depend on the particular industry. They apply to both forward and backward integration, with the necessary changes in perspective. I will discuss these generalized benefits and costs here, saving for la-ter sections an examination

Particular Strategic Issues in Forward Integration

In addition to the benefits and costs of integration previously discussed, there are some particular issues raised by forward integra-tion. Improved Ability to Differentiate the Product. Forward inte-gration can often allow the firm to differentiate its product more successfully because the firm can control more elements of the pro-duction process or the way the

Particular Strategic Issues in Backward Integration

As with forward integration, there are some particular issues that must be examined in considering backward integration. Proprietary Knowledge. By producing its needs internally, the firm can avoid sharing proprietary data with its suppliers, who need it to manufacture component parts or raw materials. Often the exact specifications for component parts reveal the key

Long-Term Contracts and the Economics of Information

It is essential to recognize the possibility that some economies of integration could be gained by the right type of long-term or even short-term contract between independent firms. For example, proc-ess savings could conceivably be gained by locating the plants of two independent entities right next to each other. Metal container plants are sometimes

Illusions in Vertical Integration Decisions

There are some common misperceptions about the benefits of vertical integration that must be guarded against: A strong market position in one stage can automatically be extended to the other. It is often said that the firm with a strong position in its base business can integrate into a more competitive adjacent business and

Elements of the Capacity Expansion Decision

The mechanics of making a capacity expansion decision in the traditional capital budgeting sense are quite straightforward—any finance textbook will supply the details. Future cash flows resulting from the new capacity are forecasted and discounted to weigh them against the cash outflows required for the investment. The resulting net present value ranks the capacity

Causes of Overbuilding Capacity Preemptive Strategies

Causes of Overbuilding Capacity There seems to be a strong tendency toward overbuilding of ca-pacity, particularly in commodity businesses, that goes far beyond that due to mistaken attempts at preemption. Since overbuilding is a key problem in capacity expansion, we must explore its causes in some detail. The risk of overbuilding is most severe

Entry through Internal Development Entry through Acquisition

1. Entry through Internal Development Entry through internal development involves the creation of a new business entity in an industry, including new production capa-city, distribution relationships, sales force, and so on. Joint ventures raise essentially the same economic issues because they are also new-ly started entities, although they create complicated questions about the division

Sequenced Entry into new businesses

Any decision to enter an industry must include a target strategic group. However, the discussion in Chapter 7 combined with the analysis earlier in this chapter suggests that a firm can adopt a se-quential strategy of entry involving initial entry into one group and subsequent mobility from group to group. For example, Procter and

Portfolio techniques in competitor analysis

Since the late 1960s a number of techniques have been developed for displaying a diversified firm‘s operations as a “portfolio” of busi-nesses. These techniques provide simple frameworks for charting or categorizing the different businesses in a firm‘s portfolio and deter-mining the implications for resource allocation. Techniques for portfolio analysis have their greatest applicability in

How to conduct an industry analysis

How should one go about analyzing an industry and competi–tors? What types of data does one look for and how can they be or-ganized? Where does one look for these data? This appendix deals with these questions and some of the other practical problems in-volved in conducting an industry analysis. There are basically two

The Value Chain and Competitive Advantage of the firm

Every firm is a collection of activities that are performed to design, produce, market, deliver, and support its product. All these activities can be represented using a value chain, shown in Figure 2-2. A firm’s value chain and the way it performs individual activities are a reflection of its history, its strategy, its approach

Linkages within The Value Chain of the firm

1. Linkages within the Value Chain Although value activities are the building blocks of competitive advantage, the value chain is not a collection of independent activities but a system of interdependent activities. Value activities are related by linkages within the value chain. Linkages are relationships between the way one value activity is performed and

Competitive scope and the value chain of the firm

Competitive scope can have a powerful effect on competitive advantage, because it shapes the configuration and economics of the value chain. There are four dimensions of scope that affect the value chain: Segment Scope. The product varieties produced and buyers served. Vertical Scope. The extent to which activities are performed in-house instead of by

The value chain and organizational structure

The value chain is a basic tool for diagnosing competitive advantage and finding ways to create and sustain it, the subject that will dominate the chapters that follow. However, the value chain can also play a valuable role in designing organizational structure. Organizational structure groups certain activities together under organizational units such as marketing