Global Strategic Analyses:
Frameworks and Approaches
How do firms identify their core
competencies and competitive
advantages?
“With whom and how does our
company compete?”
In an older era, a company’s competition was
relatively easy to define: firms with similar
performance and capabilities at a national level.
Now, with technological innovations in the way of
transportation and communications, competitive
environments have expanded greatly.
Our challenge will be developing processes to
identify global competitors and to be prudent in
keeping up with the times
Keep you thumb on the pulse of your industry
Seven Theoretical Perspectives
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Resource Based View
Core Competence
Competitive Advantage of Nations
Strategic Groups (I-O Economics)
Cognitive Communities
Network Approaches
Competing for the Future
Resource Based View
• RBV (resource based view) comes from
Michael Porter’s five forces model
– The firm is a collection of capabilities
– Based on the idea of economic rent
– Economic rent, or Economic Value Added (EVA), is
what companies earn over and above the
company’s cost of capital
• In other words, it’s the company’s competitive
advantage
What makes a core competency?
• Provides access to a wide variety of markets.
• Contributes to perceived customer benefits of
the end product.
• Difficult for competitors to imitate.
Real Life Examples of Core
Competencies
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Walmart
Southwest Airlines
Google
Others?
Determinants of National Advantage
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1. Factor Conditions
2. Demand Conditions
3. Related and Supporting Industries
4. Firm Strategy, Structure, and Rivalry
Factor Conditions
• What is a nation’s quantity and quality of
production factors?
• -Human resources
• -Physical resources
• -Advanced factors (knowledge, capital,
infrastructure)
Demand Conditions
• -Demand for products greater than in other
countries.
• -Domestic firms can benefit from the presence
of demanding customers.
• -Needs of domestic buyers anticipate the
needs of foreign buyers.
Related and Supporting Industries
• Presence of supporting industries allows
organizations to coordinate a strategy.
• What are some examples?
Firm Strategy, Structure, and Rivalry
• National performance correlates with
strategies and structure of firms in a particular
segment.
• Domestic competition is usually more intense
and has more effect than foreign competition.
Domestic Competition
Can it lead to competitive advantage??
•Rivals push for innovation
•Improve quality and characteristics of their products
•Firms expand into foreign market
•Lobby their govt. to take actions that benefit the
industry as a whole
-Open foreign markets
-Subsidies, tax breaks, direct investment
Competition and Strategic Groups
•Similar firms, same industry – similar competitive
strategies
•Similar performance levels
->>Structure of industry -> strategic behavior of firms ->
performance
Example: Automotive industry study by Norhia and Garcia-Pont
- 11 strategic groups based on 6 factors : size,
market share, product line, technological sophistication,
organizational capability and labor costs
-Major US (Ford , GM), Sec. (Chrysler), Major
Japanese (Toyota , Nissan) Secondary US( Honda,
Mitsubishi)
-Small (Hyundai, Daewoo ); Sports (Ferrari , Lamborghini) etc
Competition and Strategic Groups
•Findings
-US and Japanese medium and large groups
compete in some but not all markets
-Sports cars -> carved a niche and do not face
competition from outside their strategic group.
Strategic Groups are useful for
determining relative performance and
appropriateness of a firm’s strategy!!
Competition and Strategic Groups
Another approach to indentify groups
•Psychology and focuses on cognitive processes of
managers - Their thought regarding firms
capabilities
•Managers develop a mental map of firms position
through – trial and error, observation and
interaction with others in industry
-This common set of belief about the nature of
industry results in ‘Cognitive community’
Example – Scottish knitwear industry
•Border towns of Galashiels and Hawick produce
high quality by combining yarns of different colors
on knitting machine
•Opposite to the cut-and-sew technique used
elsewhere, though cheaper, lacks in quality
Competition and Strategic Groups
•Scottish knitwear industry competitors groups based on
- financial and economic assets, public or private,
output volume
- Also based on network of relationships with other
firms and managers social networks
Each of these perspectives provide a different view of
the strategic dynamics within the Scottish knitwear
industry
Strategic Groups & Cognitive approach
• Strategic group approach – begins at industry level and
work downwards and groups together the firms that
appears similar using a set of criteria
•Cognitive approach – begins at firm level and moves
upwards using managers mental models to identify firms
whose managers have similar thoughts regarding
industry structure and rivalries
Challenge• Managers are not likely to discuss openly with
competitors regarding market competitive dynamics
•Lack statistical modeling skills
Solution Board meetings, conferences, trade association
meetings
Interorganizational Networks in Cooperation
and Competition
•Difficult for a single firm to succeed alone
•Global Firms are creating alliance and joint ventures
•Often created with current and potential competition
•Gaining of Knowledge
•Compete more effectively
Network Approaches to Studying
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The idea of asking who competes with whom and how, recently new idea
Managers can build a more accurate picture of the competition
At the same time can build upon the idea of how companies within a industry
can collaborate
Network strategy is used in the forming of alliances, join ventures, equity
sharing, collaborative research pacts
Allow the forming of new skills, leverage, or to compensate for weaknesses
Strategic networks can include
•Suppliers, Competitors, and Customers
•Gaining of new markets, new technology, or benefits
from economies of scale
•Sharing of Risk
•While keeping certain resources separate and secret
Examples of Cooperation
Industries include
Auto, Movie, Textile, Biotechnology, Mining, Energy
Chryser and Mitsubishi; Ford and Mazda; GM, Isuzu, and Suzuki
Firms frequently share parts, product designs, and production facilities
•Mitsubishi Eclipse and Plymouth Laser
•Dodge Viper and Mitsubishi 30000GT
Cooperation in Pharmaceuticals
Biotech start-ups and Major Pharmaceuticals
•Gain access to capital, production, distribution
•Gain access to new technologies and innovation
Different Competencies
Merck and Johnson & Johnson Alliance
R&D and OTC Marketing
•Pepcid to OTC
Possible Limitations to Networks
•Constraints if Environment suddenly Changes
•Alliance can lead to not being able to adapt
•Significant Cost
•One partner may take advantage of the other
However
•The correct alliance should outweigh these costs
•Partners can provide clues about the competition and their intent
Competing in the Future
Firms Successful in the Future
•Compete for the opportunity to define the structure
•In Nascent Markets (New Markets) must compete
for opportunity share and not simply market share
•A single firm is unlikely to succeed alone
•Coalitions and Joint Ventures must be created
10 to 15 Years
•Time develop Leadership in new industry
Competition in New Markets
Develops in three stages
First Stage
•Identify the opportunities available
Second Stage
•Firms compete to shape the direction of industry development
•Accumlatoin of necessary competencies
•Testing of product and services
•Attracting partners
Final Stage
•Firms will compete for market position and market share
•Questions of technology platforms, products, and distribution
channels have been resolved
Weaknesses to Developing new Markets
•Can shift attention away from existing markets
•Time Lag
• Risk of focusing large amounts of time
10 to 15 years to dominate new market
•Can miss what opportunities exist in current
developed market
Dominating a new market can have an enormous payoff, but there are risk
“Each perspective contains elements of the other, and all must
be considered in order to respond effectively to the demands
of the globally competitive environment”