Chapter Two Theoretical Foundations

Chapter Two Theoretical Foundations

MKT568

Global Marketing Management

Dr. Fred Miller

Sample Essay Questions

1. Given the following production data, which country(ies) enjoy an absolute advantage and in what commodity? Which enjoy a comparative advantage and in what commodity? Using the Cappuccino Trail video as an example, explain the difficulties of basing competitive advantage on locational factors such as climate and growing conditions.

2. Using the Cappuccino Trail video as an example; 1) explain how a country might use Porter’s Diamond model to create a competitive advantage in beans/brands and 2) explain how Café Direct/Nescafe/Starbucks might use Porter’s Value Chain model to establish a competitive advantage in the retail coffee market.

Theories of International Production

Country specific advantages - (CSA’s)absolute and comparative, locational

International product life cycle

Porter’s diamond factors, interaction, government, man-made

New trade theory firm specific advantages (FSA’s)

Eclectic theory – matching CSA’s & FSA’s

Absolute and Comparative Advantage

200100100Totals1758590Totals

1000100Wool853550Wool

1001000Wine905040Wine

TotalsPortugalEngland TotalsPortugalEngland 

Absolute Advantage

18080100Totals1707595Totals

1000100Wool8535 (70%) 50Wool

80800Wine8540 (88%)45Wine

TotalsPortugalEngland TotalsPortugalEngland 

Comparative Advantage

Cappuccino Trail Video

What CSA’s give equatorial countries comparative advantage in coffee production?

What are the benefits of relying on locational factors for comparative advantage?

What are the dangers of relying on locational factors for comparative advantage?

Cappuccino Trail Video

1608575Totals

853050Brands

755025Beans

TotalsBA 

200100100Totals

1000100Brands

1001000Beans

TotalsPeruSwitzerland 

Based on the video, which country is Peru and which is Switzerland?

In this scenario, who benefits from specialization and trade? By how much?

Cappuccino Trail Video

In this situation, which of the following are true?1. Switzerland has an absolute advantage in beans2. Switzerland has a comparative advantage in brands3. Peru has an absolute advantage in brands2. Peru has a comparative advantage in beans

1606595Totals

752550Brands

854045Beans

TotalsPeruSwitzerland 

Cappuccino Trail Video

In this scenario, who benefits from specialization and trade? By how much?

18080100Totals

1000100Brands

80800Beans

TotalsPeruSwitzerland 

1606595Totals

752550Brands

854045Beans

TotalsPeruSwitzerland 

Porter’s DiamondCompetitive AdvantageAdvantage for Countries

Porter’s DiamondCompetitive AdvantageAdvantage for Countries

Firm strategy, structure and rivalry

Related and supporting industries

Demandconditions

Factorconditions

Source: Adapted and reprinted with the permission of the Free Press, a division of Simon and Schuster, from The Competitive Advantage of Nations, by Michael E. Porter. Copyright © 1990 by Michael E. Porter

Porter’s DiamondCompetitive Advantage for Countries

Porter’s DiamondCompetitive Advantage for Countries

Firm Strategy, Structure and Rivalry

Related and Supporting Industries

Demand ConditionsFactor Conditions

How would you revise this strategy to one supporting firms strong in developing coffee brands?

Consumer Electronics

Strong firmsCompetitive features

Components Innovative buyersDesign Engineers Knowledgeable

Media suppliersRetail infrastructure

Fashion Apparel

Innovative designersCompetitive styles

Fabric suppliers Stylistic buyersFashion designers Fashion conscious

Specialty retailingPromotional Media

Beer

Large, diverse brewersComplex positioning

Hops, barley, yeast Social acceptanceBrewers Knowledgeable

Advertising industry Hospitality infrastructure

Beans or Brands?

Multiple cooperativesDiverse growing strategies

Skilled farmers KnowledgeableRegional system Selective

Transportation infrastructure Agricultural supports

FSA’s and Marketing Strategy

Production-based vs marketing specific advantageProduct price focus vs market satisfaction focus

Market orientation vs knowledge/resource-based orientation

Who can we serve? vs Who needs our skills?

The value chain and internationaliztionJohanssen’s model, Porter’s model

Foreign entry, local marketing & global management

Value-Added Analysis for Consumer Electronic Products

Value-Added Analysis for Consumer Electronic Products

Panasonic Radio Shack

Components Assembly Marketing, sales, and distribution

Retailing

Source: Reprinted from “Designing Global Strategies: Comparative and Competitive Value-Added Chains,” by Bruce Kogut, Sloan Management Review, Summer 1985, pp. 27-38 by permission of publisher. ©1985 by the Sloan Management Review Association. All rights reserved

Porter’s Value ChainCompetitive Advantage for Companies

  

Radio Shack

Inventory Mgt

Retail Mgt

Location

Cu

stom

erSe

rvic

e

Ad

sIn

vent

ory

Product Suppliers

Panasonic

Product Design

Engineering

Production

On

lin

eSu

ppor

t

Ad

sSa

les

Components

Pro

duct

ion

Coffee producers

Café Direct

Nescafe

Starbucks

Internationalization Theory

Modes of entryinternalization of FSA’s - export, foreign direct investment (FDI)

externalization of FSA’s – licensing, alliances

Transaction cost theory

The Competitive EnvironmentRivalry, new entrants, substitutes, buyer and supplier power

Global competitorsStrength, repertoire, rivalry, hypercompetition

Cappuccino Trail Video

What firm specific advantages does CafeDirect seek in serving consumer coffee markets? Is it working?

What firm specific advantages does Nestle’s seek in serving consumer coffee markets? Is it working?

How has Starbucks responded to criticism of its use of Ethiopian place names in its branding strategies?

CaféDirect’s Competitive Advantage

PeruMexico

Tanzania

Uganda

Fair Trade and LocalProduction as Competitive Advantages

Fair Trade products include:Fresh fruitCocoa and chocolateCoffee and teaHoneyWine and spiritsSports ballsFlowers and cosmeticsSugar and confectionaryFruit juice and yogurtHerbs and spicesNuts and snacksCotton productsRice and quinoa

Fair trade productshave up to 15% share of some UKmarket sectors

Ethiopia and Starbucks

WSJ article discussing the issues

YouTube video for Oxfam’s position

Starbuck’s response

Oxfam’s comments on the resolution of the dispute

Ethiopia’s Branding Strategy

Chapter Two Theoretical Foundations

Chapter Two Theoretical Foundations

MKT568

Global Marketing Management

Dr. Fred Miller