What’s Happening? ! You will be color coded when you make a reservation on an airline. Bush proposal regarding illegal immigrants has hyped a big “made in America” and job security debate. After all, it is an election year!
ATP Assignments Djurovic, Michael Tekle, Michael Braff, Sam Javaid, Raheed Agilent Apple Computer Cisco Levchenko, Steven Martin, Brandi Stefanek, Tera Vissell, Mira Hanson, Nathan Lalonde, Eric Lau, Simon Rosander, Emily Ward, Devon Cisco Dell Dell
ATP Assignments Corona, Allen Lee, Vitaliy Li, Xuemei Lin, Victoria Intel Patel, Hemal Poblete, Andrew Mathur, Navneet Watt, Elizabeth Wong, Cindy Bains, Satender Shusta, Alexander Intel Oracle Sun Microsystems
The Plan!? Start researching material immediately. • Read syllabus regarding the assignment. • Look at the Boeing paper in the textbook plus the Wal-Mart paper on the course web page. • Use links on web page for your company.
Key Factors 1. Industry definition. 2. “Big Picture” data regarding the industry. 3. Business and IT leaders. 4. Porter Competitive Model analysis. 5. Business Strategy Model. 6. Identifying strengths and weaknesses of the company. 7. Figuring out who runs the business on a day-to-day basis and the relationship with the person running the IS organization. 8. Concluding what the company changed through the use of Information Systems.
Chapter 1 Summary Business and Information Systems Management Challenges
Overview of Chapter 1 Three Necessary Perspectives n Simultaneous Revolutions in the Business Environment n Systematic Approach to IS n Three Roles of IS n
Three Necessary Perspectives • Business Environment ØSpecific Industry • Enterprise Environment ØThe Company Itself • IT Environment ØCreates a Competitive Advantage *Must understand the Business and Enterprise Environment first* Business Success
Simultaneous Revolutions New Competitors New Rules of Competition Industry Structure Changes New Regulatory Environment New Political Agendas The Business New Technologies New Employees and New Values Increasing Customer Expectation
Systematic Approach to IS Vision Strategy Tactics Business Plan • Competitive Options • Roles, and Relationships • Redefine/Define • Telecommunications as the Delivery Vehicle • Success Factor Profile
Three Roles of IS § Efficiency § Effectiveness § Competitive Advantage
Three Roles of IS § Efficiency § Doing things better overall § Effectiveness § Doing better things within the organization § Competitive Advantage § Doing better and new things for the customer
In Conclusion…. n Three Necessary Perspectives – Business / Enterprise / Information Technology n Simultaneous Revolutions – Competitors / Rules / Structure / Regulatory / Customer Expectation / Employees / Technology / Politics n Systematic Approach to IS – Separate Business from IT n Three Roles of IS – Efficiency – Effectiveness – Competitive Advantage
Chapter 1 Questions n Why is it important to know the business environment and enterprise environment before addressing the IT environment? n Identify and explain the three roles of Information Systems including a specific company example that emphasizes each of the roles?
Chapter 2 Business Competitive Environment “The global market will come to you, if you don’t come to it. ”
Competition Can Be… Local n Regional n National n International n Going to be taking a look at competition, defining it and then focusing on global competition.
Why Do We Care?
What Is Competitiveness? “The degree to which a nation can, under free and fair market conditions. Produce goods and services that will meet the test of international markets while simultaneously maintaining or expanding the real income of its citizens” Three Inputs to improving domestic performance n Human Resources n Capital n Technology
Competitiveness: A Link to National Goals Human Resources Capital Technology Trade Policy Improved Domestic Performance New Competition Decreased Budget Deficit Increased World Market Competitiveness Reduced Trade Deficit Stronger National Security More and Better Jobs Increased Standard of Living Figure 2 -1
How does a company gain a competitive advantage? n Provide a value to customers – Real – Perceived • Knowing/Understanding - Products - Customers - Competitors
International Competitive Advantage The way companies achieve competitive advantage in the global industry is based on the role played by the home nation.
The Diamond National Advantage Chance Firm Strategy, Structure and Rivalry Factor Demand Conditions Related and Supporting Industries Government Fig. 2 -2
The Government’s Role n Catalyst n Challenger
Overview What competitiveness is. n How a company can gain competitive advantage. n How to gain an international competitive advantage n The government’s role in fostering home-based companies. n “All good things take time. ”
Chapter 2 Business Competitive Environment
Position Some Important Factors 1. The definition of competitiveness. 2. The key elements of competitive advantage. 3. The role of the nation relative to companies that compete successfully on a global basis. 4. The role of government within a nation. While contemplating the idea that information technology could make a difference.
Competitiveness is the Pivotal Business Issue in the 21 st Century
Global Economy Why the emphasis on globalization and the importance of global competition?
Business Environment The global market will come to you, if you don’t go to it.
An Essential Roadmap? Do nations, companies and individuals need to build wealth in a knowledge-based global economy? How significant in creating wealth are breakthrough technologies in microelectronics, biotechnology, new materials, telecommunications, robotics, and computers? Do these factors explain why relatively new industries are growing explosively and existing industries are being transformed?
US Status • In the 1990 s the US was the run away leading performer in the industrial world. • The US claimed nine of the ten largest companies in the world by 1998 compared to only two in 1990. • Nine of the fifteen most profitable banks are in the US compared to none in 1990. • The wealthiest man in the world is an American. • American billionaires measure in the hundreds. • US stock markets remain relatively high. • Interest rates are at a forty year low. • Inflation has been a minor issue.
Some Important Questions • Is the relatively unique US prosperity sustainable? • Is global integration a boon or a threat to this prosperity? • Will the forces that sparked the Asian meltdown provoke an era of stagnation or worse? • Should global integration be slowed? • What rules should be applied to the creation and protection of new ideas. (intellectual property rights) • Can nations create a social system in which entrepreneurial spirit can flourish without also creating income and wealth inequities that threaten the system? • What skills are needed to succeed in this new economy?
Global (International) Trade Not in isolation to the rest of the world! The US has truly become a global economy. 1950 - Global trade represented 10% of the US economy. 2000 - Global trade was nearly 25% of a much bigger US economy.
Foreign Direct Investment Since 1985 foreign direct investment in the US has increased five-fold. Five percent of the total labor force works for companies that are wholly or partially foreign owned. Employees of companies that work for companies that export earn more than those that do not. Forty percent of productivity improvements are in exporting companies.
What Countries “Own”: • Nokia • Finland • Burger King • UK • Chrysler • Germany • Airbus • France, Spain, UK, Germany • Benetton • Italy • Gillette • US • Shell • Netherlands
A Complex Political Environment Three of five American registered voters approve of free trade. Most agree that imports give them a larger selection of goods to choose from and that foreign competition forces US companies to be more competitive. They also feel that imports help lower income families afford a higher standard of living by lowering prices. They have concerns regarding the environment, human rights, jobs, taxes, societal problems and sovereignty.
Trade Issue Attitudes lie along income, education, age and gender divides. Free trade proponents tend to be those that see themselves benefiting from globalization: men, those that are better educated, richer and live in cities. Those who question globalization include women, the elderly, those who are less well educated or poorer and those that live in rural areas.
How Trade Works General Agreement on Tariffs and Trade (GATT) A loose agreement that had a restricted scope and limited powers based on an agreement that was originally signed in the late 1940 s. World Trade Organization (WTO) Created in 1995, the WTO has the job of administering trade agreements, resolving trade disputes and conducting future trade negotiations.
WTO members must abide by the group’s rulings. The most important of which is to give every member the same set of low tariffs and other favorable trade rules. The most significant recent development was the admission of China to the WTO in 2000.
Michael Porter Contributions • 1985 - Presidential Commission and Competitiveness Definition • 1987 - Competitive Model and Value Chain • 1990 - Competitiveness of Nations Study • Present - Institute for Strategy and Competitiveness, Harvard Business School
Presidential Commission Letter to President Reagan Mr. President, it has been a great honor to serve you and the Nation. The competitive challenge calls for the leadership only you can provide. We thank you for your vision, interest and initiatives in making competitiveness a priority on our national agenda. John A. Young Chairman President’s Commission on Industrial Competitiveness
Competitiveness Definition The degree to which a nation can, under free and fair market conditions, produce goods and services that will meet the test of international markets while simultaneously maintaining or expanding the real income of its citizens. Source: President’s Commission on Industrial Competitiveness
Competitiveness: A Link to National Goals Human Resources Capital Technology Trade Policy Improved Domestic Performance New Competition Decreased Budget Deficit Increased World Market Competitiveness Reduced Trade Deficit Stronger National Security More and Better Jobs Increased Standard of Living Figure 2 -1
Presidential Commission Recommendations: 1. Create, apply and protect technology. 2. Spur new industries and revive old ones. 3. Pursue productivity gains through technology. 4. Reduce the cost of capital to American industry. Increase the supply of capital available for investment, reduce its cost and improve its ability to flow freely to its most productive uses.
Who is going to make it happen? 1. Government cannot legislate competitive success. 2. Government should highlight the importance of competitiveness. 3. Everyone must recognize the competitive challenge and its significance.
How Does a Company Compete? If the bottom line to a business is profit, then the top line is value to customer.
A Good Optional Strategy? To produce quality products and services through effective leadership of skilled employees using advanced methods through the innovative use of technology.
A Good Competitor: 1. Knows its products and services. 2. Knows its customers. 3. Knows its competitors.
Competitiveness of Nations The striking internationalization of competition in the decades after World War II has been accompanied by major shifts in the economic fortunes of nations and their firms. 1. How did this happen? 2. What can one learn from this? 3. What can companies and countries do with this knowledge?
Competitiveness of Nations Why (how) are companies in a particular nation able to gain a dominant competitive position in a specific industry against the world’s best competitors?
Competitiveness of Nations The point of all of this: • Helps to anticipate from which country future competition is likely to come from? • Helps to understand at least in basic terms the types of companies that will be primary competitors? • Could help to anticipate what could be their primary competitive strategies?
Nations do not compete! Organizations Compete Within Industries What is the role of the nation?
Previous Basis of Competitive Analysis • Porter • Economists • Politicians • Companies and Industries Unit Cost of Labor Adjusted for Inflation Balance of Payment The Right Strategies to Compete in Global Markets
To Understand Competitiveness • The industry was the basic unit of analysis. • Industries are organizations that directly compete with each other. • Some industries are well-defined, while others are not.
A Major Message The role of the nation has increased as competition has shifted more to the creation and assimilation of knowledge.
Competitiveness of Nations Study 1. Denmark • Copenhagen School of Economics 2. Germany • Deutsche Bank 3. Italy 5. Korea • Ambrosetti Group (transportation company) • MITI, Hitotsubashi University and Industrial Bank of Japan • Seoul National University 6. Singapore • Economic Development Board 7. Sweden • Institute of International Business, Stockholm School of Economics • University of Basel, University of St. Gallen, Union 4. Japan 8. Switzerland Bank of Switzerland 9. United Kingdom • The Economist 10. United States • Harvard Business School
Industry Case Studies Denmark Agriculture Machinery Building Maintenance Services Consultancy Engineering Dairy Products Food Additives Furniture Pharmaceuticals Specialty Electronics Telecommunications Equipment Waste Treatment Equipment Germany Automobiles Chemicals Cutlery Eyeglass Frames Harvesting/Threshing Combines Optical Instruments Packaging, Bottling Equipment Pens and Pencils Printing Presses Rubber, Plastic Working Machinery X-ray Equipment Italy Ceramic Tiles Dance Club and Theater Equipment Domestic Appliances Engineering/Construction Factory Automation Equipment Footwear Packaging and Filling Equipment Ski Boots Wool Fabrics Japan Air Conditioning Machinery Home Audio Equipment Carbon Fibers Continuous Synthetic Weaves Facsimile Equipment Forklift Trucks Microwave and Satellite Communications Equip. Musical Instruments Optical Elements and Instruments Robotics Semiconductors Sewing Machines Shipbuilding Tires for Trucks and Buses Trucks Typewriters Videocassette Recorders Watches Korea Apparel Automobiles Construction Footwear Pianos Semiconductors Shipbuilding Steel Travel Goods Video and Audio Recording Tape Wigs Singapore Airlines Apparel Beverages Ship Repair Trading Sweden Carriers Communication Products Environment Control Equipment Heavy Trucks Mining Equipment Newsprint Refrigerated Shipping Rock Drills Semihard Wood Flooring Teller-operated Cash Dispensers Textile Machinery Trading Watches United States Advertising Agricultural Chemicals Commercial Aircraft Commercial Refrigeration and Air-Conditioning Computer Software Construction Equipment Detergents Engineering and Construction Motion Pictures Switzerland Patient Monitoring Banking Equipment Chocolate Syringes Confectionery Waste Management Dyestuffs Services Fire Protection Equipment Freight Forwarding Hearing Aids Heating Controls Insurance Marine Engineers Paper Product Mfg. Equipment Pharmaceuticals Surveying Equipment
US Industries Advertising Agricultural Chemicals Commercial Aircraft Commercial Refrigeration and Air-Conditioning Computer Software Construction Equipment Detergents Engineering and Construction Motion Pictures Patient Monitoring Equipment Syringes Waste Management Services
The ways that firms achieve and sustain competitive advantage in global industries provide the necessary foundation for understanding the role of the home nation in the process.
Diamond of National Advantage Chance Firm Strategy, Structure and Rivalry Factor Demand Conditions Related and Supporting Industries Government
Competitive Success Is Not the Direct Result of: • Natural Resources • Labor Pool • Interest Rates and Currency Value • Economies of Scale. . . Traditional Economic Thinking
Factor Conditions The nation’s position in factors of production that are prerequisites to compete in a specific industry. • Infrastructure • People Skills and Training • Factors Unique to a Specific Industry A nation usually does not inherit but creates the most important factors.
Factor Conditions Physical Resources: • Abundance, quality, accessibility and cost of land, water, minerals, timber, hydroelectric power, etc. • Climatic conditions. • Location and geographic size. • Time zone re: global communication.
Factor Conditions Infrastructure: Type, quality, and user cost. • Transportation • Communication • Mail/freight Delivery • Health Care • Schools • Housing Stock. . . Quality of life--to live and to work.
Factor Conditions Capital Resources: (Amount and cost of money) • Secured Debt • Unsecured Debt • Equity and Venture Capital • Savings Rate • Tax Incentives • Fiscal and Monetary Policies
Factor Conditions Knowledge Resources: Scientific, technical and market knowledge that pertains to goods and services. • Universities • Government Research Facilities • Private Research Facilities • Business and Scientific Literature • Market Research Databases • Trade Associations
Factor Conditions Human, knowledge and capital factors are mobile. Other elements of the diamond are more important to explain international success.
Therefore Competitive advantage from factor conditions depends on how effectively and efficiently they are mobilized and deployed in the economy.
Study Conclusion The Japanese created and expanded needed factors at a rate far exceeding that of all other nations.
Factor Conditions: US Semiconductor Industry • Universities to train engineers and other professional technical employees. • Economic space for manufacturing facilities. • Good transportation facilities. • Good communications system. • Access to raw materials. • Water.
Brazilian Chicken Industry • Second largest chicken producer after the US. • Two large poultry companies: Perdigao and Sadia. • Has factor condition advantages: • A large domestic market that allows an economy of scale. • A large number of farmers to raise chickens. • Cheap, abundant corn and soya for feed.
Demand Conditions • The sophistication of customer demand. • The more demanding the local buyers the better to hone the global competitiveness of homebased companies. . • The local market provides an early picture of the emergence of buyer needs. • This factor is a major positioner for success.
Related and Supporting Industries Successful companies need suppliers who are: 1. Home-based. 2. Competitive on an international level. • A close relationship with suppliers contributes to innovation and upgrading of products. • Prompts a range of interconnected suppliers that are all internationally competitive.
First Strategy, Structure and Rivalry The way in which companies are created, managed and choose to compete domestically.
Firm Strategy, Structure and Rivalry Study Findings: • Company and individual goals vary. • No one management style is universally appropriate. • Differences in background of CEO and different company structures. • Company structures are different. • Contrasts in people motivation to work and learn. • Career choices of the best students varies.
Country Examples • Germany • Italy • Japan
Firm Strategy, Structure and Rivalry Germany • The preeminent trading nation when considering the entire postwar period. • Have a very international orientation and export early. • International success is built on many small and medium sized companies. • They compete in highly sophisticated products and segments rather than high-volume ones. • The breadth and success of German industries can only be understood in a historical context--achieved over decades. • Industry success includes a wide range of industries but Germany does not dominate them as does the U. S. or Japan.
• The economy is extensively clustered. • There is wide-spread private ownership. • The structure of companies tends to be hierarchical and patriarchal. • Managers and workers are well trained in their industries. • Pragmatism characterizes German management. • Discipline and order is evident in the way that companies are managed. • Owners often have a deep involvement in all aspects of the business, especially in technical areas. • Managers maintain an enduring relationship with employees. • Companies are particularly adept at complex production processes. • Selling is technical versus advertising or intangible appeals. • Complex product are supported by similar service requirements.
• Achieve high levels of customer loyalty. • Labor is very organized and is represented on company boards. • New business formulation has traditionally been weak but has changed in the past decade. • Most executives have technical or scientific backgrounds. • Have a stubborn desire to achieve technical and quality excellence. • Invariably compete on the basis of differentiation versus cost. • Unrelated diversification is rare. • Do not hesitate to invest abroad. • Industry is prestigious and attracts outstanding people. • The unique strength of the German economy is its capacity to upgrade its advantage by increasing the quality of human and technical resources.
Germany Share of Total World Exports • • • Bisquettes of Coal, Coke Potassium Sulfate Reciprocating Pumps High Pressure Steel Conduit Fresh Milk and Cream Rotary Printing Presses Iron, High Carbon Steel Coil Synthetic Luminophores Spinning, Reeling Machines Clothes Dryers Aircraft over 15, 000 kg 70. 4% 59. 4% 58. 1% 55. 4% 54. 5% 51. 1% 49. 8% 47. 1% 42. 7% 41. 3% 38. 1%
• Jukeboxes • Polyvinyl Chloride Plates • Rubber, Plastics Machines • Combine Harvester-Threshers • Packaging, Bottling Equip. • Sewing Machine Needles 36. 5% 35. 9% 35. 5% 35. 3% 34. 1% 33. 2% Seventeen industries where Germany has 33% or more of the world’s export market.
German Companies BASF AG - Chemicals (1861) Bayer AG - Chemicals (1863) Bayerische Motoren Werke AG - Autos, Motorcycles (1913) Bertelsmann AG - Publishing (1835) Daimler-Benz AG - Autos and Aerospace (1882) Henkel KGa. A - Detergents and Chemicals (1876) Hoechst AG - Chemicals (1863) Friedrich Krupp Gmb. H - Steel, Engineering, Trading (1587) Mannesmann AG - Steel Tubes, Auto Parts, Etc. (1885) Robert Bosch Gmb. H - Electronic Auto Equipment (1886) Siemens AG - Electrical and Electronics (1847) Volkswagen AG - Automobiles (1937)
Firm Strategy, Structure and Rivalry Italy • Joined the ranks of advanced nations in the past two decades. • Overall growth in world export share was second only to Japan. • Illustrates the power of a growing alignment between national circumstances and the shifting demands of modern global competition. • Benefited from a shift from standardized, mass-produced products toward more customized, higher-style, higherquality goods. • In many cases style was combined with investment in state-of -the-art production equipment. • Achieved advantage based on segmentation, differentiation and process innovation.
• The world’s leading exporter in textile/apparel, household goods and personal products and third in food and beverages. • Are generally not successful where standardization, high-volume mass production, or heavy investments in fundamental research are involved. • Companies tend to be highly specialized and compete through constant model changes. • Companies tend to be medium to small that compete primarily through export with limited direct foreign investment. • Large private firms tend to dominate the home market. • Successful industries are highly clustered including geography. • Remains a study in contrasts--industry successes and failures. • Clearly contradicts image as a country.
• • Companies are often managed by a commanding leader involved in all activities. Below the leader is often fluid, relatively unstructured (chaotic? ) operation involving an interpersonal competition that would be rare in Japan. Managers are resourceful improvisers and able to adjust to changes, to circumvent constraints and to adapt to new rules. Most companies are privately owned and owners, managers and workers are closely attached to an industry. Deal with customers on a family-like and personal basis. Business is important and a magnet for talented individuals. Entreprenuership thrives in Italy--they are risk takers who are individualistic and desire independence. These factors lead to a long-term orientation and a commitment
Italy Share of Total World Exports • • • • Meal and Pellets of Wheat Worked Building Stone Aperitifs Glazed Ceramic Sets Precious Metal Jewelry Fresh Stone Fruit Rubber and Plastic Footwear Fabrics of Combed Wool Domestic Washing Machines Steel High Pressure Conduits Sweaters of Synthetic Fibers Handbags Woolen Sweaters Leather Footwear 69. 5% 62. 2% 58. 1% 56. 6% 49. 6% 45. 5% 41. 9% 41. 8% 38. 2% 35. 9% 34. 0% 33. 7% 33. 1% 32. 8% Fourteen industries with one third of world’s export market.
Italian Companies • • • Fiat Sp. A - Autos and Farm Equipment (1899) Olivetti - computers and office equipment (1908) IRI Holding Co. (state owned) - 541 companies 5% of GNP Ente Nazionale Idrocarburi - Petroleum & Petrochemical (1953) Perelli Sp. A - Power Transmission, T/C Cables, Tires (1872) Benetton - clothes manufacturer (1955) Luxotica - frame manufacturers (NY Stock Exchange) Gewiss - electrical fittings Marposs - precision measuring equipment Safilo - frame manufacturers Persol - frame manufacturers Iris - ceramics
Small Businesses in Italy • • (Less than 100 employees) Exemplify flexibility and thrive in niche markets. Provide more than 2/3 of private-sector industrial employment. Escape many of Italy’s oppressive labor laws. Exports increased 20% during a down economy. 99% of Italy’s small businesses are owned by one or two families. To survive Asian competition they concentrate on a higher level of specialization and devote more time to quality and innovation versus price. Many companies were founded following the end of WWII.
Firm Strategy, Structure and Rivalry Japan • Not far behind Germany in becoming a world economic power. • Lacked Germany’s historical position. • Achieved competitive advantage in some industries and failed in others. • The role of the government and management practices does not explain the success of Japanese industries. • Has an extraordinarily high share of world exports in many industries with a complete absence of a natural resource intensive industry. • There is a unique ability in Japan for the “diamond” to function as a system.
• Possesses a large pool of literate, educated and increasingly skilled human resources. • Created and upgraded needed factors that far exceeded that of all other nations. • Benefit from a large pool of trained engineers. • A technical orientation is pervasive and many managers have engineering backgrounds. • Japanese companies are hierarchical and disciplined. • Cooperation and subordination are the norm with a unique ability to coordinate across functions. • Relationships between labor and management are respectful and strikes are rare. • Many of the talented people flow to industry.
• An international outlook promoted by the amount of domestic rivalry is the single biggest explanation for the success of Japanese industries. • Japanese companies often define their goals in terms of volume and market share. • Strategies often follow a path of standardization and mass production with a major emphasis on quality. • Companies relentlessly upgrade their competitive advantage. • Ownership of companies is predominantly held in institutions and other companies. • Workers define their status on how well the company is doing. • Continual learning is emphasized and accepted. • More willing to form new companies.
Japan Share of World Exports • • Motorcycles TV Image and Sound Recorders Dictating Machines Calculating Machines Mounted Optical Elements Photo & Thermocopy Apparatus Still Cameras and Flash Equip. Cash Registers and Accounting 82. 0% 80. 7% 71. 7% 69. 7% 67. 5% 65. 9% 62. 2% Machines 62. 0% • Outboard Marine Piston Engines 61. 0% • Electric Gramophones 59. 0%
• • Microphones, Loudspeakers and Amplifiers 55. 7% Motorcycle Parts & Accessories 53. 4% Track-Laying Tractors 51. 8% Pianos & Musical Instruments 51. 0% • • • Self-Propelled Dozers Color TV Receivers Portable Radio Receivers Other Radio Receivers Special-Purpose Vessels Electric Typewriters Steam Boiler Plants & Parts Motor Vehicle Radio Receivers TV Picture Tubes 50. 6% 49. 5% 48. 4% 47. 9% 46. 8% 45. 0% 42. 8% 42. 5% 42. 2%
• Prepared Sound Recording Equipment. • Photo Chemical Products • Metalworking Lathes • Coarse Ceramic Housewares • New Bus or Truck Tires • Buses • Sewing Machines • Iron, Steel Seamless Tubes 41. 5% 39. 7% 39. 3% 39. 1% 38. 7% • Self-Propelled Shovels, Excavators • Computer Peripheral Units • Lorries and Trucks • Other Electronic Tubes 38. 4% 37. 9% 37. 5% 36. 5%
• Metal Cutting Machine Tools • Generating Sets with Piston Engine • Other Cargo Vessels • Iron, Simple Steel Rolled Plate • Continuous Synthetic Weaves • Clocks, Watch Movements • Rolling Mill Parts and Rolls • Liquid Dieletic Transformers 36. 5% 36. 1% 35. 7% 35. 2% 34. 7% 33. 8% 33. 4% Forty-three industries with over one third of the world’s export market share.
Japanese Companies • • • • Honda Motor - Autos and Motorcycles Sony Crop. - Consumer Electronics Bridgestone Corp. - Tires Matsushita Electric - Consumer Electronics Toyota Motor Corp. - Automobiles Nissan Motor Corp. - Automobiles Nomura Securities - Brokerage Hitachi - Computers and Electronics NEC - Computers and Electronics Fujitsu - Computers and Electronics Mitsui Group - Trading and Holding Co. Sumitomo Group - Trading and Holding Co. Mitshubishi Group - Trading and Holding Co.
Study Postscript What happened to Japan since 1990? 1. The second largest economy in the world. 2. Arrogance based on what they had accomplished including an assumption that the only way their economic endeavors go is up. 3. A rigidity in approach that takes too long in a fast paced, global economy.
Forget the North Pole! Santa’s Workshop is in China
Ironic What makes Christmas festive for Americans is produced in the world’s officially atheistic country whose human rights abuses are deplored by officials of the US government. What this picture provides is a lesson in globalization and an example of how trade and tradition have brought together China and the US in a mutually beneficial relationship.
Minimal Inflation in the US? Because of China!
Imports from China Based on the first eight months of 2000 Artificial Christmas Trees - $78 million Christmas Tree Ornaments - $535 million Christmas Lights - $211 million Stuffed Toys - $755 million Dolls - $639 million Electric Trains - $32 million Puzzles - $21 million If not available, over half of this type of merchandise in US stores would disappear.
U. S. Merchandise Trade with China: 1988 -2001 Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 U. S. Exports 5. 0 5. 8 4. 8 6. 3 7. 5 8. 8 9. 3 11. 7 12. 0 12. 8 14. 3 13. 1 15. 0 22. 0 U. S. Imports 8. 5 12. 0 15. 2 19. 0 25. 7 31. 5 38. 8 45. 6 51. 5 62. 6 71. 2 81. 8 100. 0 102. 2 U. S. Trade Balance -3. 5 -6. 2 -10. 4 -12. 7 -18. 2 -22. 8 -29. 5 -33. 8 -39. 5 -49. 7 -56. 9 -68. 7 -83. 8 -83. 1
It is getting worse! 2002 2003 40 170 -120 billion -130 billion US exports to the rest of the world went down 10% while China’s increased 66%. Unlike Japan in the past, China has not closed its borders to US imports. It is the fastest growing export market for US companies. Meanwhile a number of unfair trade accusations are being thrown around.
China Trade Barriers China remains a difficult market to penetrate, due largely to Chinese government policies, which attempt to protect and promote domestic industries. Goods and services not considered to be high priority, or which compete directly with domestic Chinese firms, often face an extensive array of tariff and non-tariff barriers.
China Trade Barriers • Tariffs • Quotas • Non-Tariff Regulations • Distribution rights • Investment restrictions
Competitiveness of Nations It is helpful to ask what companies need to do and where does government need to play a key role?
Role of Government Serve as a challenger and catalyst to companies to compete successfully: • • Focus on specialized factor creation. Avoid intervening in capital factor and currency markets. Enforce strict product, safety and environmental standards. Limit cooperation among industry rivals. Promote goals that lead to sustained investment. Deregulate competitors. Enforce domestic antitrust policies. Reject managed trade.
Singapore • An economic powerhouse. • Three million people on a small island. • Passed the US in average income in 1999. • World’s best infrastructure!? • Safe, clean (smoggy). • Interesting racial, religious and language mix. • Could go from great to awesome.
Singapore Model • Strong Government (The smartest and most capable should govern) • Long Term Planning • Foreign Investment • Clean Administration • Education for All • No Welfarism • Family Values • Law and Order • Communal Harmony
Kenya From whiskey to cooking fat to batteries to clothes, Kenya is being swamped with counterfeit goods. Some are made locally but most are imported.
Kenya Focus on the negative impact of counterfeit goods in usually on wealthy nations where products are most often designed and developed. The effects can be even more devastating in poor and developing countries where profits of any kind are harder to come by, smuggling is more easily accomplished and enforcement is weak or nonexistent.
Kenyan manufacturers are estimated to be losing hundreds of millions of dollars in revenue. This also costs the government $16 million in annual taxes.
Eveready Batteries Employs 350 people in Kenya. 40% of Eveready batteries sold in Kenya are counterfeit. If this continues, the company will terminate its operation in Kenya.
Kenya 80% of counterfeit goods are estimated to come from China. The business community blames much of their troubles on high costs, such as power and water, and government corruption. The government run port of Mombasa is notorious for bribery and kick-backs.
Kenya If the business opportunity exists, would you want to do business in Kenya?
Companies gain an advantage against competitors by responding to pressures and challenges.
The Company Agenda 1. Creating pressure within the company for innovation. 2. Seeking out the best, most successful competitors 3. View as a positive factor the presence of domestic competition. 4. Staying alert to customer, market and competitor trends. 5. Emphasizing the home base as the place to strengthen competitiveness. 6. Selectively pursuing international advantage opportunities. 7. As a company, playing a role in strengthening the national competitive diamond.
Conclusions • Today’s competitive realities demand leadership. • Leaders believe in change. • They energize their people to innovate continuously. • They recognize the need for pressure and challenges to accomplish this.
Not Everyone Agrees Kenichi Ohmae: The Borderless World The key global economic entity is the true multinational company.
Ohmae Contentions Four factors are usurping economic power once held by nations: 1. Capital. 2. Corporations. 3. Consumers. 4. Communication.
Putting Global Logic First Although political leaders will resist acknowledging the demise of the nationstate, only those who can accept it and promote region-states within and across their borders will be able to provide the best quality of life for their constituents. Kenichi Ohmae
Global Competitiveness Ranking Criteria: 1. Quality of national business environment. 2. The set of institutions, market structures and economic policies supportive of high level of prosperity. 3. Company operations and strategy ranking. Michael Porter, Institute for Strategy and Competitiveness, Harvard Business School World Economic Forum web page.
Global Competitiveness Ranking 2002 1. US (2) 11. Japan (15) 21. Norway (19) 2. Finland (1) 12. Austria (13) 22. New Zealand (20) 3. UK (7) 13. Belgium (14) 23. Korea (26) 4. Germany (4) 14. Australia (9) 24. Italy (24) 5. Switzerland (5) 15. France (12) 25. Spain (23) 6. Sweden (6) 16. Taiwan (21) 26. Malaysia (37) 7. Netherlands (3) 17. Iceland (16) 27. Slovenia (32) 8. Denmark (8) 18. Israel (17) 28. Hungary (27) 9. Singapore (10) 19. Hong Kong (18) 29. South Africa (25) 20. Ireland (22) 30. Estonia (28) 10. Canada (11)
Global Competitiveness Ranking 33. Brazil (30) 37. India (36) 38. China (47) 48. Poland (42) 55. Mexico (52) 61. Philippines (53) 58. Russia (58) 60. Vietnam (62) 79. Bolivia (75) 80. Haiti
1998 Rankings 1. Singapore 2. 16 11. Ireland 1. 05 2. Hong Kong 1. 91 12. Japan . 97 3. US 1. 41 13. New Zealand . 84 4. UK 1. 29 14. Australia . 79 5. Canada 1. 27 15. Finland . 70 6. Taiwan 1. 19 16. Denmark . 61 7. Netherlands 1. 13 17. Malaysia . 59 8. Switzerland 1. 10 18. Chile . 57 9. Norway 1. 09 19. Korea . 39 10. Luxembourg 1. 05 20. Austria . 37 Source: World Economic Forum
Major Points It is no longer possible for a country to insulate itself from the rest of the world. The possible decline of the industrialized world is merely the narrowing of the gap between it and third world countries. The accelerated pace of change is what disturbs the pessimists, because they can see it happening. It took Britain 60 years to double its output, the US 50 years but developing countries are doubling output every 12 years. China has actually doubled its GDP in seven years. In many respects the developing world is unknown economic and financial territory.
Conclusions • The diamond of national advantage makes sense as a means of understanding global economic success. • Domestic success does prepare companies to compete globally. • Major European and an increasing number of Asian countries are capable of competing on a global basis. • The global marketplace is only going to get tougher based on more, tougher competitors. • The diamond can help to anticipate new competitors.
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