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Porter, M. E. 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. The Free Press.

Chapter 13: Competition in Global Industries

Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

Porter's Competitive Strategy Main Page

Chapter 13: Competition in Global Industries p. 275

A global industry is an industry where the strategic position of the competitors in the major geographic and national markets are affected by their overall global position, i.e., an industry where firms must compete on a worldwide basis to avoid strategic disadvantages. Industries with multinational competitors who need not compete internationally to be successful are not classified as global industries. Differences between competing globally rather than nationally include: factor cost differences among countries, different circumstances in foreign markets, different roles of foreign governments, and competitors' different goals, resources and ability to monitor foreign competitors. This chapter draws on the five competitive forces described in Chapter 1 to examine the economic and competitive issues related to global competition. The purpose of the chapter is to develop the structural conditions that promote, as well as impede global competition, to provide alternative strategies for competing in global industries, and to examine trends that may affect global competition including the circumstances related to competition from newly developed countries (NDC's) like Korea and Singapore.

Sources and Impediments to Global Competition p. 277

Participation in international markets includes licensing, export, and foreign direct investment. Export and foreign investment are present in global industries where investment includes establishing independent subsidiaries in foreign countries. The decision to compete globally involves analyzing a number of sources of strategic advantage, as well as a number of impediments to achieving them.

Sources of Global Competitive Advantage p. 278

There are a number of causes of global competitive advantage:

Comparative Advantage - Significant factor cost or quality advantages used in product production.

Production Economies of Scale - Economies of scale in production or service extending beyond national markets, including vertical integration.

Global Experience - Selling similar products in many countries can result in significant cost advantages resulting from proprietary experience.

Logistical Economies of Scale - Competing on a global basis spreads the fixed cost of logistics and allows the company to use specialized systems that achieve cost savings, e.g. specialized cargo ships.

Marketing Economies of Scale - Scale advantages can be obtained in some industries by using a common sales force (e.g., aircraft, turbine generators), and proprietary marketing techniques (e.g., the Timex torture test).

Economies of Scale in Purchasing - Scale advantages in purchasing raw materials can result from producing a larger volume of product than needed in an individual national market.

Product Differentiation - Competing in different global markets can provide an advantage in reputation and credibility.

Proprietary Product Technology - Cost advantages come from applying the proprietary technology in many national markets.

Mobility of Production - Advantages are obtained when the production of a product or service is mobile (e.g., heavy construction crews, oil rigs, oil tankers).

Impediments to Global Competition p. 281

There are a variety of impediments that can prevent firms from achieving the advantages mentioned above and in some cases keep an industry from becoming global.

Economic Impediments: p. 282

Transportation and Storage Costs - For some products, transportation and storage cost can cause competition to remain on a market-by-market basis, (e.g., pre-stressed concrete, hazardous chemicals, and fertilizer).

Differing Product Needs - Because of differences in culture, economic development, income levels, climate, legal restrictions, building codes, and technical standards, different markets may require different product variations. These differences make it more difficult to achieve economies of scale or learning, unless the product differences are merely cosmetic.

Established Distribution Channels - Difficulty in gaining access to distribution channels can impede global competition.

Sales Force - Where products require a local direct sales force, an international competitor faces a potential barrier.

Local Repair - The need to provide local repair service presents a barrier similar to the sale force requirement.

Sensitivity to Lead Times - Delays resulting from the distance between markets can cause unacceptable delays in responding to a market's needs.

Complex Segmentation within Geographic Markets - Complex price-performance differences among brands increases the need for product lines with many varieties and custom products. This can provide local firms with a competitive advantage.

Lack of World Demand - Demand may be too low to support global competition because the product has a narrow focus group, or because it is in the early stage of its product life cycle. Some degree of industry maturity may be necessary for an industry to become global.

Managerial Impediments: p. 285

Differing Marketing Tasks - Distribution channels, marketing media, and customer bias can create difficulties in reaching the buyers in foreign markets.

Intensive Local Services - Local marketing, responsive service, and the need for quick turnaround can create situations where local firms have the advantage.

Rapidly Changing Technology - Similar to the problems mentioned above, frequent product and process design associated with local markets presents a problem for firms competing in foreign markets.

Institutional Impediments: p. 286

Government Impediments - Government impediments include tariffs, duties, quotas, preferential treatment for local firms, government insistence on local R&D, or locally produced products, preferential tax treatment, labor policies, bribery laws, etc.

Perceptual or Resource Impediments - Managers may lack the skills, vision and resources needed to compete in global markets. Investments to build world scale facilities, and the managerial technical skills needed to manage them provide significant impediments to becoming a global competitor.

Evolution to Global Industries p. 287

Global industries tend to evolve when one or more firms make a strategic innovation that makes the industry global. There are a number of triggers that either enhance the sources of global competitive advantage, or reduce the impediments to global competition.

Environmental Triggers to Globalization p. 287

Increased Scale Economies - Technological innovations that increase economies of scale in production, logistics, purchasing or R&D.

Decreased Transportation or Storage Costs - Lower transportation costs is a major stimulus to globalization.

Rationalized or Changed Distribution Channels - Distribution channels becoming more accessible to foreign firms serves as a trigger to global competition.

Changed Factor Costs - Increases in labor, energy, and raw materials costs changes the optimum production or distribution configuration to promote globalization.

Narrowed National Economic and Social Circumstances - As the differences between geographic markets decrease (e.g., cultural differences, income levels, etc.), global competition tends to increase.

Reduced Government Constraints - If governments remove constraints (e.g., tariffs, duties, quotas, preferential treatment for local firms), the potential for international trade and globalization increases.

Strategic Innovations Stimulating Globalization p. 289

Product Redefinition - Redesigning products or the marketing of products can make them acceptable in global markets.

Identification of Market Segments - Some market segments are more open to globalization because they are not served well by local firms or are less subject to the impediments to global competition mentioned above.

Reduced Costs of Adaptations - Innovations that modularize a product for easy adaptation to various technologies or that lower the cost of producing variations of products improve the prospect of global competition.

Design Changes - Design changes that standardize components have a similar influence on globalization.

Deintegration of Production - Local assembly can sometimes circumvent government requirements for local production of products allowing firms to obtain scale economies that stimulates globalization.

Elimination of Constraints from Resources or Perception - New entrants to an industry may not have or perceive the same resource constraints as firms who entered the industry early.

Access to the U.S. Market

U.S. government policy allowing foreign access to the U.S. market has stimulated globalization.

Competition in Global Industries p. 291

Unique strategic issues related to competition in global industries include:

Industrial Policy and Competitive Behavior - Competitor analysis in global industries must include an examination of the relationship between firms and their governments. These relationships include regulations, subsidies, and other assistance, e.g., help in financing sales through central banks, applying political leverage etc. In some cases, political considerations are as important as the differences between competing products, e.g., in aircraft and defense products.

Relationship with Host Governments in Major Market - Host governments can block global competition or create a number of strategic groups. For example, the industry might include one group of firms that compete globally, a second group that includes a number of multinational firms that follow a local responsiveness strategy, and a third group made up of local firms.

Systemic Competition - Systemic competition involves a coordinated pattern of investments and positions on a worldwide basis. A firm's competitive balance may require defensive investments in specific markets and locations to prevent competitors from gaining global advantages.

Difficulty in Competitor Analysis - An analysis of competitors using the guidelines in Chapter 3 is more difficult in global industries because data on foreign firms is less available and there are practices that are difficult for outsiders to understand, e.g., labor practices and management structures.

Strategic Alternatives in Global Industries p. 294

There are four choices based a fundamental choice of whether to compete globally, or in a few national markets.

Broad Line Global Competition - Compete worldwide with a full product line using either a low cost or differentiation strategy.

Global Focus - Target segments of the industry where the impediments to global competition are low using either a low cost or differentiation strategy.

National Focus - Compete in a particular national market serving its needs using a low cost or differentiation strategy.

Protected Niche - Compete in countries where governments preclude global competitors by requiring high local content. This strategy includes forming transnational coalitions or cooperative agreements between firms in different countries, e.g., GE-Snecma, Chrysler-Mitsubishi.

Trends Affecting Global Competition p. 295

Reduction in Differences Among Countries - Differences in incomes, factor costs, marketing practices, and distribution channels are narrowing between developed and newly developed countries.

More Aggressive Industrial Policy - Governments are taking an aggressive posture to stimulate some industries, e.g., Japan, South Korea, Singapore, and West Germany.

National Recognition and Protection of Distinctive Assets - Some governments are proactively exploiting distinctive assets such as oil, copper, tin, rubber, and abundant low-wage semiskilled and unskilled labor.

Freer Flow of Technology - Some firms are aggressively selling their technology abroad promoting global competition, e.g., Japanese firms.

Gradual Emergence of New Large-Scale Markets - China, Russia, and possibly India may emerge as huge markets in the future providing their firms with substantial global powers, and making access to these markets a critical strategic variable for other firms.

NDC Competition - Competition form newly developed countries will increase in industries that lack entry barriers such as: rapidly changing technology, highly skilled labor, sensitivity to lead times, complex distribution and service, high consumer marketing, and required complex technical sales.

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Go to the next Chapter. Porter. 1980. Competitive Strategy. Chapter 14: The Strategic Analysis of Vertical Integration. (Summary), or back to Porter's Competitive Strategy Summaries Main Page.

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