How Companies Succeed in International Markets Growing Business internationally • Around the world, companies that have achieved international leadership employ strategies that differ from each other in every respect.

• Some innovations create by perceiving an entirely new market opportunity or by serving a market segment that others have ignored.

• Companies achieve competitive advantage through acts of innovation. They approach innovation in its broadest sense, including both new technologies and new ways of doing things.

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• Some innovations create competitive advantage by perceiving an entirely new market opportunity or by serving a market segment that Absolute Advantage vs Comparative Advantage others have ignored.

• Absolute advantage refers to differences in productivity of nations, while • In international markets, innovations that yield competitive advantage comparative advantage refers to differences in opportunity costs. anticipate both domestic and foreign needs.

• AA-he producer that requires a smaller quantity inputs to produce a good

• CA-ability of a party to produce a particular good or service at a lower opportunity cost than another

• i.e Output per day

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The Diamond of National Advantage The Porter Diamond Model – Analysis of national competitiveness • Why are certain companies based in certain nations capable of consistent innovation?

• Why do they ruthlessly pursue improvements, seeking an ever more sophisticated source of competitive advantage?

• Why are they able to overcome the substantial barriers to change and innovation that so often accompany success?

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1 International advantage • The Porter Diamond model offers an effective way for analysing the national competitiveness. Based on the characteristics of the home country, it is possible to assess • The Porter Diamond Model suggests that the national the international success of the firm. home base of an organization plays an important role in the creation of advantages on a global scale. • Businesses within clusters usually stimulate each other to increase productivity, foster innovation and improve • This home base provides basic factors that support an business results. organization, including government support but they can also hinder it from building advantages in global competition. • In addition, they have the advantage that they can move very well on the international market and that they can maintain their presence and handle international competition.

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Driver of Development Source of competitive advantage Examples Porter conducted a comprehensive study on 10 leading nations to learn what leads to Factor Condition •Basic factors of CANADA, production AUSTRALIA, competitive advantage of nation’s. i.e., Natural Resources, SINGAPORE, Geographic Locations, SOUTH KOREA before 1980 Unskilled Labour

Investment •Investment in Capital JAPAN during 1960’s equipment. • United States • Japan •Transfer of technology. SOUTH KOREA during 1980’s •Presence of national • Germany • Korea consensus in favour of investment over • Italy • Denmark consumption • Sweden • Singapore Innovation All four determinants of national JAPAN since late 1970’s • United Kingdom • Switzerland advantage interact to drive the creation of new technology ITALY since early 1970’s

Wealth Emphasis on managing existing UK during post war period wealth USA Competitive Advantage Switzerland since 1980

How Japanese companies dominate the Auto market

• The primary role of a nation is to provide ‘home base’ • More dynamic Rivals-. . i.e , , to a firm. • Initially penetrated foreign markets with small, inexpensive compact cars of adequate quality and competed on the basis of lower labor costs • Home base is the nation in which the essential • invested aggressively to build large modern plants to reap economies of scale competitive advantages are created and sustained. • became innovators in process technology, pioneering just-in-time production and a host of other quality and productivity practices.. • Japanese automakers have advanced to the vanguard of product • Usually home base will be the location of most technology and are introducing new, premium brand names to productive jobs, core technologies and the most compete with the world’s most prestigious passenger cars advanced skills.

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2 What is Japanese Global Strategy • describes four keys to a nation’s competitive advantage in relation to other countries • Locate production or R&D facilities in other – Factor Conditions nations to take advantage of lower wage rates – Demand conditions to gain or improve market access, or to take – Related and supporting industries advantage of foreign technology. – Firm Strategy, Structure and Rivalry.

• Creating more sustainable advantages often means that a company must make its existing advantage obsolete

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Porter’s Diamond Factor Conditions: Determinants of National Competitive Advantage

• BASIC FACTORS – Natural resources, climate, location and demographics Firm Strategy, • ADVANCE FACTORS – Communication Infrastructure, skilled labour, Structure and Research facilities and so on. Rivalry • Basic factors can provide only an initial advantage

• They must be supported by advanced factors to maintain success. Factor Conditions Demand Conditions E.g.

Related and Supporting • Switzerland was the First country to experience labour shortages. They Industries abandoned labour-intensive watches and concentrated on innovative/high-end watches. PGDBFS 202-FSG 15 PGDBFS 202-FSG 16

Demand Conditions: • Japan has high priced land and so its factory space is at a premium. This led to just-in-time inventory techniques. Home country Demand plays an important role in producing competitiveness.

• Sweden has a short building season and high construction costs. Enables better understand the needs and desires of the customers These two things combined created a need for pre-fabricated houses. It shapes the attributes of domestically made products and creates pressure for innovation and quality.

Demanding buyers pressure companies to innovate faster and achieve more sophisticated competitive advantages than their foreign rivals.

Local buyers can help a nation’s companies gain advantage if their needs anticipate or even shape those of other nations—if their needs provide ongoing “early-warning indicators” of global market trends

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3 E.g. 3 • Italian ceramic Industry after the world war II • There was a postwar housing BOOM !! The French wine industry. The French are sophisticated wine consumers. • Consumers wanted cool floors because of Hot climatic These consumers force and help French wineries to produce high quality conditions wines. France is one of the largest wine producers in the world.

Japan’s knowledgeable buyers of cameras made that industry to innovate and grow tremendously

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Related and Supporting Industries:

• Benefits of investment in advanced factors by Suppliers and related industries is significant • Creates clusters of supporting industries, thereby achieving a strong competitive position internationally. • Japanese dominance in electronic musical E.g.1 keyboards grows out of success in acoustic • The enamel production unit was available. instruments combined with a strong position in • The glazes production was also favorable. • These two were the main composition of producing tiles. consumer electronics. • This reduces the Transportation cost.

E.g. 2 • Switzerland success in pharmaceutical industry is closely related to its international success in technical dye industry. PGDBFS 202-FSG 21 PGDBFS 202-FSG 22

Firm Strategy, Structure & Rivalry: • Long term corporate vision (Strategy) is a determinant of success The role of Government

• The way in which companies are established, set goals and are managed is critical to success on international markets • The government can have strong influence on the international competitiveness of a firm. • Presence of domestic rivalry improves a company’s competitiveness • The government of a country can either promote or hinder export. • i.e BMW, Mercedes-Benz and Audi would not be such successful brands if they did not have to compete against each other. E.g. • It can influence the supply conditions of key production factors. • Low entry barriers to market in the tile industry • Rivalry became very intense • Breakthroughs in both product and process technologies • It can shape the demand conditions in the home market, as well as the competition between firms. E.g. 2 • Japan has high priced land and so its factory space is at a premium • These interventions can occur at local, regional, national, or even • This led to just-in-time inventory techniques supranational level. • They innovated traditional inventory techniques.

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4 Chance Germany’s Luxury Car Manufacturing Industry

• Chance refers to random events that are beyond the control of the company

• It starts with the question of who comes up with a major new idea first, which may very much be the result of a random event.

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The car manufacturing industry in German has a Demand Conditions regional advantage because it satisfies the four key There are certain demand conditions amongst the factors in Porter’s Diamond. homebuyers. In parts of Germany, there are no speed limits, so the sophisticated homebuyers want more powerful cars. Consequently, the industry aims to cater • Firm strategy and rivalry, for this particular need by developing innovative engines.

There is strong rivalry amongst lots of car Related and supporting industries manufacturers and so they compete intensely and keep developing more innovative and quality There are also related and supporting industries such products. as the iron and steel industry which provide materials for car manufacturers, high level of education and training in the workforce, banks for capital, component suppliers and IT infrastructure.

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Factor Conditions How IKEA used diamond model for national • There are also factor conditions, which include skilled competitive advantage engineers from renowned German universities and the government’s focus on scientific research, which • IKEA, is a multinational group, headquartered in the Netherlands, helps to push the car manufacturing industry. that designs and sells ready-to-assemble furniture, kitchen appliances and home accessories. It has been the world's largest The government furniture retailer since at least 2008.

• The government has played a major role in creating • IKEA owns and operates 392 stores in 48 countries. the regional advantage as it supported and funded scientific research and launched the construction of • year 2016, €36.4 billion worth of goods were sold more roads and canals in the 19th century. By, satisfying all these factors in Porter’s Diamond it, • There were over 2.1 billion visitors to IKEA's websites in the year therefore, helps to explain why Germany’s luxury high power car manufacturing industry has a regional advantage.

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5 Factor Conditions Demand Conditions

• HR, Knowledge & Infrastructure, still are vital • Enthusiasm & loyalty of its Swedish customer factors of production to the IKEA. lay the foundation IKEA need for expansion.

• Employees need to know Scandinavian culture • Use Domestic customer feed back very actively & values , Further they should speak Swedish for their product innovations

• The values of simplicity & humbleness have turned out to be significant advantage

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Firm Strategy, Structure & Rivalry: Related and Supporting Industries:

• IKEA has very distinct Scandinavian mgt style. • Due to impaired cartel activities in the Sweden, IKEA forced to go for international find suppliers & • Uses its core values actively in everyday life & easy manufactures. problem solving • They have long term contracts mainly in Europe & Asia • Non hierarchic organization which better suited for retail industry to customer treatment than formal organization with formal rules.

• Entrepreneurial spirit & strong shop keeping behavior which can found in Sweden with the founder of IKEA “Ingvar Kamprad”

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