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Chapter Two Theoretical Foundations
Chapter Two Theoretical Foundations
MKT568
Global Marketing Management
Dr. Fred Miller
Sample Essay Questions
1. Given the following production data, which country(ies) enjoy an absolute advantage and in what commodity? Which enjoy a comparative advantage and in what commodity? Using the Cappuccino Trail video as an example, explain the difficulties of basing competitive advantage on locational factors such as climate and growing conditions.
2. Using the Cappuccino Trail video as an example; 1) explain how a country might use Porter’s Diamond model to create a competitive advantage in beans/brands and 2) explain how Café Direct/Nescafe/Starbucks might use Porter’s Value Chain model to establish a competitive advantage in the retail coffee market.
Theories of International Production
Country specific advantages - (CSA’s)absolute and comparative, locational
International product life cycle
Porter’s diamond factors, interaction, government, man-made
New trade theory firm specific advantages (FSA’s)
Eclectic theory – matching CSA’s & FSA’s
Absolute and Comparative Advantage
200100100Totals1758590Totals
1000100Wool853550Wool
1001000Wine905040Wine
TotalsPortugalEngland TotalsPortugalEngland
Absolute Advantage
18080100Totals1707595Totals
1000100Wool8535 (70%) 50Wool
80800Wine8540 (88%)45Wine
TotalsPortugalEngland TotalsPortugalEngland
Comparative Advantage
Cappuccino Trail Video
What CSA’s give equatorial countries comparative advantage in coffee production?
What are the benefits of relying on locational factors for comparative advantage?
What are the dangers of relying on locational factors for comparative advantage?
Cappuccino Trail Video
1608575Totals
853050Brands
755025Beans
TotalsBA
200100100Totals
1000100Brands
1001000Beans
TotalsPeruSwitzerland
Based on the video, which country is Peru and which is Switzerland?
In this scenario, who benefits from specialization and trade? By how much?
Cappuccino Trail Video
In this situation, which of the following are true?1. Switzerland has an absolute advantage in beans2. Switzerland has a comparative advantage in brands3. Peru has an absolute advantage in brands2. Peru has a comparative advantage in beans
1606595Totals
752550Brands
854045Beans
TotalsPeruSwitzerland
Cappuccino Trail Video
In this scenario, who benefits from specialization and trade? By how much?
18080100Totals
1000100Brands
80800Beans
TotalsPeruSwitzerland
1606595Totals
752550Brands
854045Beans
TotalsPeruSwitzerland
Porter’s DiamondCompetitive AdvantageAdvantage for Countries
Porter’s DiamondCompetitive AdvantageAdvantage for Countries
Firm strategy, structure and rivalry
Related and supporting industries
Demandconditions
Factorconditions
Source: Adapted and reprinted with the permission of the Free Press, a division of Simon and Schuster, from The Competitive Advantage of Nations, by Michael E. Porter. Copyright © 1990 by Michael E. Porter
Porter’s DiamondCompetitive Advantage for Countries
Porter’s DiamondCompetitive Advantage for Countries
Firm Strategy, Structure and Rivalry
Related and Supporting Industries
Demand ConditionsFactor Conditions
How would you revise this strategy to one supporting firms strong in developing coffee brands?
Consumer Electronics
Strong firmsCompetitive features
Components Innovative buyersDesign Engineers Knowledgeable
Media suppliersRetail infrastructure
Fashion Apparel
Innovative designersCompetitive styles
Fabric suppliers Stylistic buyersFashion designers Fashion conscious
Specialty retailingPromotional Media
Beer
Large, diverse brewersComplex positioning
Hops, barley, yeast Social acceptanceBrewers Knowledgeable
Advertising industry Hospitality infrastructure
Beans or Brands?
Multiple cooperativesDiverse growing strategies
Skilled farmers KnowledgeableRegional system Selective
Transportation infrastructure Agricultural supports
FSA’s and Marketing Strategy
Production-based vs marketing specific advantageProduct price focus vs market satisfaction focus
Market orientation vs knowledge/resource-based orientation
Who can we serve? vs Who needs our skills?
The value chain and internationaliztionJohanssen’s model, Porter’s model
Foreign entry, local marketing & global management
Value-Added Analysis for Consumer Electronic Products
Value-Added Analysis for Consumer Electronic Products
Panasonic Radio Shack
Components Assembly Marketing, sales, and distribution
Retailing
Source: Reprinted from “Designing Global Strategies: Comparative and Competitive Value-Added Chains,” by Bruce Kogut, Sloan Management Review, Summer 1985, pp. 27-38 by permission of publisher. ©1985 by the Sloan Management Review Association. All rights reserved
Porter’s Value ChainCompetitive Advantage for Companies
Radio Shack
Inventory Mgt
Retail Mgt
Location
Cu
stom
erSe
rvic
e
Ad
sIn
vent
ory
Product Suppliers
Panasonic
Product Design
Engineering
Production
On
lin
eSu
ppor
t
Ad
sSa
les
Components
Pro
duct
ion
Coffee producers
Café Direct
Nescafe
Starbucks
Internationalization Theory
Modes of entryinternalization of FSA’s - export, foreign direct investment (FDI)
externalization of FSA’s – licensing, alliances
Transaction cost theory
The Competitive EnvironmentRivalry, new entrants, substitutes, buyer and supplier power
Global competitorsStrength, repertoire, rivalry, hypercompetition
Cappuccino Trail Video
What firm specific advantages does CafeDirect seek in serving consumer coffee markets? Is it working?
What firm specific advantages does Nestle’s seek in serving consumer coffee markets? Is it working?
How has Starbucks responded to criticism of its use of Ethiopian place names in its branding strategies?
CaféDirect’s Competitive Advantage
PeruMexico
Tanzania
Uganda
Fair Trade and LocalProduction as Competitive Advantages
Fair Trade products include:Fresh fruitCocoa and chocolateCoffee and teaHoneyWine and spiritsSports ballsFlowers and cosmeticsSugar and confectionaryFruit juice and yogurtHerbs and spicesNuts and snacksCotton productsRice and quinoa
Fair trade productshave up to 15% share of some UKmarket sectors
Ethiopia and Starbucks
WSJ article discussing the issues
YouTube video for Oxfam’s position
Starbuck’s response
Oxfam’s comments on the resolution of the dispute
Ethiopia’s Branding Strategy
Chapter Two Theoretical Foundations
Chapter Two Theoretical Foundations
MKT568
Global Marketing Management
Dr. Fred Miller
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