GLOBAL ECONOMIC TRENDS

1
GLOBAL ECONOMIC TRENDS
2
Structure

• Extent of globalization
• New business models
• Competitive advantages and strategic positioning
• Individuals, organization and management in 21st
  century
• Complementary capabilities

3
Extent of Globalization international trade
In bn
World export
World import
Source World Development Indicators, 2005.
4
Extent of Globalization shares of countries and
regions in international trade
World share in export
in
Source International Trade Statistics 2004,
2004.
5
Extent of Globalization e-trade (B2B B2C)
in 2002 bn
Source Forrester (2004).
6
Extent of Globalization foreign direct
investments
Foreign direct investments 1992-2003
in of gross domestic investment
Source World Investment Report 2004, 2004.
7
Extent of Globalization capital flows

• Mobility of capital in historical perspective

Source Obsfeld, Taylor, 2002.
8
Extent of Globalization international
migrations
Average annual net migrations in the 1995-2000
period
in thousands
Source Global Policy Forum, 2005.
9
Structure

• Extent of globalization
• New business models
• Competitive advantages and strategic positioning
• Individual, organization and management in 21st
  century
• Complementary capabilities

10
New business models

• Old economy Firm-centric, Focus on
  Transformation Costs

Inputs
Transformation
Outputs
New Economy Net-centric, Focus on Transactions
Costs and Interaction Costs (Risks, Profits,
Volatility, )
Inputs
Transformation
Outputs
Transaction and interaction costs
Source Kleindorfer, 2005.
11
Partnerships and Value Constellations
12
Short Historical Overview of Business Models in
Last Two Decades

• Steps in reforming the traditional firm model
• Porters value chain
• TQM, JIT, ECR in CRM for supply chain
  rationalization
• Lean operation, lean production and lean
  consumption
• Focus on rationalization of the complete value
  chain (decrease of risk in the chain)

13
Porter Value Chain (1985)
14
Core Competency Theory and Process Management
Source Hamel and Prahalad, 1994.
15
Value Chain Restructuring in 1980-2010 period
2005 Global Fulfillment Architecture and Risk
Management
Suppliers
Producers
Distributors Retailers
Customers
1980s JIT
1990s ECR
2000s CRM
2010 Sustainable Management Lean Operations
Pervade and Permeate the Entire Life of the
Product, Including the Management of Product
Recovery and Reverse Flows
16
Some Emerging Net-centric Models

• The Strategic Partnership Model with Stable and
  Optimized Supply Chains (e.g., Contract
  Manufacturing in Electronics and Semiconductors)

• The Reconfigurable Model (possibly driven by a
  particular product or particular company)

17
Contract Manufacturing Models
All Value Chain Activities Outsourced
EMS Company
Products
Raw Materials
Parts of the Value Chain Outsourced
Outsourced
Outsourced
Outsourced
Products
Raw Materials
OEM, OED, OEB Functions and Competencies
18
The Reconfigurable Model

• Show up in apparel and pharmaceutical industry,
  advising and logistics
• Possible by B2B exchange and internet
• They can be completely based on oportunistic
  behavior or partly stable and supported by head
  organization
• They are characterised by netcentral operation,
  verification of credit risk, quality and other
  terms of the contract by the third party

19
e-markets as primary intermediators
Supplier
Supplier
Supplier
Supplier
Information
Third Party
Sources
B2B Market
Service Providers
Buyer
Buyer
Buyer
Buyer
Buyer
Buyer
Source Ravi Aron, 2003.
Buyers
20
Global Puzzle

• Company has to focus on what it is best at and
  let others fill
• other parts of the puzzle

21
Global Puzzle

• Company has to focus on what it is best at and
  let others fill
• other parts of the puzzle

22
Global Puzzle

• Company has to focus on what it is best at and
  let others fill
• other parts of the puzzle

23
Outsourcing and Networking
24
Consumer EmpowermentThe 5 Cs of Convergence
Marketing
Converging on Customerization and
Personalization Make it mine
Converging on Communities Let me be a part of it
Converging on ChoiceGive me tools to
makebetter decisions
Converging on ChannelsI want to call, click and
visit
Converging onCompetitive Value Give me more
for my money
Source Wind and Mahaja, 2001.
25
Summary Interconnected mega trends

• Globalisation
• growth of international trade
• growth of demand for international logistics
  and other sercives
• netcentric operation

• Tehnological drivers
• decision making facilities
• communication
• e-trade
• science

• Empowerment of the consumer
• integrated supply services
• connections with business process
• e-empowerment

• Deregulation
• increase in deregulation and liberalisation

Growth of supporting infrastructure for logistics
and contracting
Five key trends, fundamentals for future
development, firms and sectors profitability,
promoted by global reach
26
Structure

• Extent of globalization
• New business models
• Competitive advantages and strategic positioning
• Individual, organization and management in 21st
  century
• Complementary capabilities

27
Benchmarking and Strategic Management
BENCHARKING OF COMPETITIVE ADVANTAGE
BENCHARKING OF STRATEGIES
PROCESS BENCHARKING
PERFORMANCE BENCHARKING
Source Pranikar and others, 2005
28
Competitive Advantage and Value Creation

• A firms is said to have a competitive advantage
  in a market if it earns a higher rate of economic
  profit compared to the average economic profit in
  the industry
• Economic profit earned by a firm depends on the
  market conditions as well as the economic value
  created by the firm

29
Competitive Advantage and Value Creation
Source Besanko et al., 2003
30
Competitive Advantage and Value Creation

• Competitive Advantage and Profitability
  Evidence

31
How to Analyze Competitive Advantage
2 VIEWS ON ORGANIZATION
Resource-based view
Activity-based view
Organization as a collection of
resources Attributes of the firm that could not
be varied in the short run
Organization as a system of activities Processes
that deliver value to customers
Procurement, logistics, production, marketing,
sales
Physical resources (plants, locations),
intangible assets (patents, brands), knowledge,
organizational culture, composite resources
Where is the root of competitive advantage
companys resources or activities?
32
How to Analyze Competitive Advantage
Support Activities
Value What buyers are willing to pay
Primary Activities

• A distinct strategy is needed for each business
  activity.

33
HIT Case
Guests/Customers Purpose of visit ?potential of
Italian market bipolarity Low replacement cost,
high customer power? demand price sensitive
Competitors CaNoghera Casino Austria New
competitors (theme parks)
Threat of entry Limited No. of Concessions and
restricted investments (legislation) Low entry
barrier for getting a license Lower entry
barriers for narrowly focused guests High entry
barriers for widely focused guests (location)
Threat from competition
Economic power of customers
Power of the state
Threats from substitute products
Tax legislation in Slovenia Gaming
tax-proportional Concession fee-progressive?
negative impact on investment in expanding of
business Effective use of concession fee in
local community
Rivalry between firms Location Extent of
differentiation (purpose of visit) Benefit vs
price
Substitute products Broader all forms of free
time activities Narrow classical gambling,
gambling on the internet, slot machines outside
casinos
34
Effect of Casino Venice on competitiveness of HiT
Source Pranikar et al., 2002.
35
Zara Case
Source Zara Case, 2003.
36
Sustainable Competitive Advantage

• Competitive advantage is sustainable if it
  persists despite competitors efforts to
  duplicate it or neutralize it
• Sustainability can occur in two ways
• Firms may differ with respect to resources and
  capabilities and the differences persist
• Isolating mechanisms (analogous to barriers to
  entry) may work to protect the competitive
  advantage of firms

37
Sustainable Competitive Advantage

• DIFFERENCES OF RESOURCES AND
• CAPABILITIES
• Scarce resources and capabilities that are
  critical for value creation can be imperfectly
  mobile and cannot be acquired in the open market
• Resources may be non tradable
• (Example Customer loyalty built through a
  frequent flyer program)
• Resources may be relationship specific
• (Example Landing slots in an airlines hub,
  Location of retail outlets)

38
Sustainable Competitive Advantage

• ISOLATING MECHANISMS
• Isolating mechanisms are to firms what entry
  barriers are to industries
• Two distinct types of isolating mechanisms can be
  observed
• Impediments to imitation
• Early mover advantage

39
Sustainable Competitive Advantage

• IMPEDIMENTS TO IMITATION
• These mechanisms impede the potential entrants
  from duplicating the resources and capabilities
  of the incumbent firm
• Five important types of impediments exist
• Legal restrictions
• Superior access to inputs/customers
• Market size and scale economies
• Intangible barriers
• Strategic fit

40
Sustainable Competitive Advantage

• EARLY MOVER ADVANTAGE
• Four different isolating mechanisms fall under
  the category of early mover advantage
• Learning curve
• Network externalities
• Reputation and buyer uncertainty
• Switching costs

41
Sustainable Competitive Advantage

• Benchmarking of Competitive Advantages

42
How Managers Think About Competition
COMPETING TO BE THE BEST
COMPETING TO BE UNIQUE

• The worst error in strategy is to compete with
  rivals on the same
  dimensions

43
Recent Thinking on the Sustainability of
Competitive Advantage

• There are no sustainable competitive
• advantages anymore
• Any strategy can be imitated

• The only competitive advantage is
• the ability to learn and change
• No company can predict the future

44
Structure

• Extent of globalization
• New business models
• Competitive advantages and strategic positioning
• Individuals, organization and management in 21st
  century
• Complementary capabilities

45
Individuals

• Decentralisation of informations knowledge
  economy intangibles
• Knowledge is difficult to measure
• Knowledge is sticky
• Individualism is prevailing
• The best with the rest

46
Organization

• Organization is good in the exploatation and not
  in the creation
• Carrioca capitalism benchmarking leads to
  imitation
• Skill with the will
• Recruting is important
• Federal organization and employee empowerment

47
Management

• Te be flexible
• The speed of changes is increasing

48
Becoming flexibile . . .
49
The past is not prologue
Average correlation in earnings growth rates
over moving seven year intervals.
50
Becoming more flexible . . .
51
Generating options
52
Becoming even more flexible . . .
53
Allocational rigidities

• There are no slack resources.
• To lose resources is to lose political power.
• There is a monopsony for new ideas.
• The resource allocation process is biased against
  new ideas.

54
Becoming even more and more flexible
55
Structure

• Extent of globalization
• New business models
• Competitive advantages and strategic positioning
• Individual, organization and management in 21st
  century
• Complementary capabilities

Exercise session