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GLOBAL INDUSTRIESChapter 5 Lecture 1

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Global Industries

• Borders are blurred

–Among nations

–Between competitors & collaborators

–Between and among industries• Industries are permeable

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Industries are Described and Classified in Myriad Ways

• By industry type: product or service• By value: high value-added to low value-added• By durability: consumer durable (autos) or

nondurable (shampoo)• By cyclical use: used all the time or just in

particular seasons• Whatever the classification, a commonality among

industries is that all are increasingly global

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Ways to Examine an Industry and its Global Characteristics

• amount of industry factors shaped outside domestic markets

• a high industry trade ratio (Porter, 1980) ranging from about 30 to 55% (see Roth and Morrison, 1990, footnote 2)

• percentage of a firm's sales derived from abroad• according to whether they are

– multidomestic– simple global– integrated global – fully global (Makhija, Kim, and Williamson, 1997)

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Table 5.1 Examples of Multidomestic to Fully Global

Industries

Photographic and optical goods

Aircraft

RailroadElectrical industrial machinery

ShipbuildingMetal and woodworking machinery

Radio and telecommunications equipment

Agricultural machinery

Resins and plasticsOffice and computing machinery

WatchesFurniture

Fertilizers and pesticidesSpecialized industrial machinery

MotorcyclesStructural metal products

Industrial chemicalsEngines and turbinesAutomobilesCutlery and hand tool

Fully GlobalIntegrated Global

Simple GlobalMultidomestic

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Ways that Industries Alter

• Convergence• Disintermediation• Integration

– consolidation via mergers and acquisitions– alliances– forging new links with buyers and suppliers

• Contraction • Dissolution

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Sources of Industry Change

• Outside the industry—borrowing from other industries

• Inside the industry—keeping up with what other firms are doing

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For Global Enterprises

• A main question in any industry, but especially global ones is:

What are the sources of organizational advantage?

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Concepts of Strategy

• The idea at the industry level is to generate a business strategy that creates a sustainable organizational advantage

• Within industries, businesses usually pursue one of three approaches vis-à-vis competitors (this is guided by industry norms and firm enterprise and corporate strategies)

• Compete• Collaborate• They do both simultaneously

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Strategy

• In the Postwar period, business scholars began to examine strategies of businesses

• How do businesses compete?

–How and why are they successful?

• Looks at the big picture of how companies and industries operate

• Draws from many disciplines

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Five Major Ways that Organizations use to Identify a

Distinctive Advantage

• Industry analysis

• Diagnosing industry globalization

• Anticipating the future

• Revolutionizing the industry

• Reshaping the organization

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Potential Entrants

Buyers

Substitutes

Suppliers Industry Competitors

Threat of New Entrants

Bargaining Power of Buyers

Threat of Substitute Products or Services

Bargaining Power of Suppliers

Rivalry Among Existing Firms

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Porter

• This is the industrial organization economics model of competition

• Companies gain advantage by:– reducing buyer power

– reducing supplier power

– creating entry barriers

– neutralize rivals

– eliminate substitutes

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Diagnosing Industry Globalization

• market globalization

• cost globalization

• government globalization

• and competitive globalization

Yip (1995), Total Global Strategy

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Could look at Cost Drivers to Diagnose Industry Globalization

• Scale Economies• Steep Experience Curves• Sourcing Efficiencies• Favorable Logistics• Differences in Country Costs• High Product Development Costs• Fast-Changing Technologies

George Yip (1995) in Total Global Strategy

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Perspectives on the Future

• The trick is to see the future before it arrives (Hamel and Prahalad)

• The challenge for managers is to look ahead and assess what the firm needs to do to be an industry leader in the future—to anticipate

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How Can We See the Future?

• Devote time and intellectual energy to understanding forces shaping the future

• Factors that shape your future are those we study when we study globalization

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The Experts Speak

“This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us”—Western Union memo, 1876

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“I think there is a world market for maybe five computers”—Thomas Watson, Chairman of IBM, 1943

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“A cookie store is a bad idea. Besides, the market research reports say America likes crispy cookies, not soft and chewy cookies like you make.”—Response to Debbie Fields’ idea of starting Mrs. Fields’ Cookies

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“The concept is interesting and well-formed, but in order to earn better than a ‘C,’ the idea must be feasible”—A Yale University management professor in response to Fred Smith’s paper proposing reliable overnight delivery service—Smith later founded Federal Express

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What Does the Future Hold?

• Consider any given industry

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As a Manager, Anticipating the Future Requires

• Intellectual capacity and will

• Equality of participants

• Time commitment

• Willingness to cope with complexity• Foresight

• Creativity and imagination

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Intellectual Capacity

• Unlike factors of capital, equipment, raw materials, etc., the organization does not own, control, and cannot monopolize intellect

• Intellect is owned by individuals

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Intellect Unleashed With

• Trust

• Empowerment

• Teams

• Encouragement

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Revolutionizing the Industry

• Re-conceive a product or service

• Redefine a market space

• Redraw industry boundaries

• Hamel, 1996

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Sustainable Advantage Can Come From

• Processes

• Structures

• People

• Or combinations of them

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Process Examples

• Core Competencies

• Learning

• Strategy

–Worldwide integration–Multilocal strategy

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Extent of Global PresenceHigh Low

Strategy

Worldwide Integration

Multilocal

ShapeCoca-Cola Acer

ExperimentIPTN Unimarc Trading Doc Martens

Adapt

Nestlé Unilever

Hansons PLC Ticketmaster Fiat

Opportunistic

Global Presence and Strategy Combine

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Structure Examples

• Networks

• Hybrids

–Combining hierarchies and flat organizations

• Alliances

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People Examples

• Superior employees

• Managing diversity

• Organizational Culture

• Human resource development

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Achieving Sustainable Advantage Through People

• High wages—you get what you pay for

• Incentive pay—shared gains

• Information sharing

• Cross-utilization and -training

• Long-term perspective

• An overarching philosophy– Jeffrey Pfeffer (1994)

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Is it Nations or Companies that Should Compete?

• Globalists think that nations must be involved with businesses to keep important ones in their own nations. This is encouraged by things like:– World Competitiveness Reports – Determinants of National Competitiveness—Porter’s Competitive

Diamond of• Availability of productive factors• Demand• Proximity of reported or support industries• Firm strategy, structure, rivalry consistent with national norms

• Institutionalists believe businesses compete more than nations– National focus on competitiveness reinforces belief in “winners” and

“losers”• Encourages a sense of zero sum opportunities; leads to bad economic

policies (Krugman, 1994)• One nation’s prosperity need not come from another’s opportunities

(Turner, 2001)