competitve advantages of a nation

8/14/2019 Competitve Advantages of a Nation

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ANALYSIS OF EXTERNAL INFLUENCE

SESSION 2:

Dr. Sasmita Palo


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Today's agenda

What is the external environment?Key components of external environmentAnalysis of external environmentTechniques of scanning of general environmentPEST AnalysisSWOT AnalysisCASE STUDY ANALYSIS


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3

What is external environment?


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A Ptolemaic view


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Alternative Models of SuperiorAlternative Models of SuperiorReturnsReturns

The Industrial Organization model

suggests that above-average returns for

any firm are largely determined by


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1.1. Strategy dictatedStrategy dictatedby the firms uniqueby the firms unique

resources andresources andcapabilitiescapabilities

2.2. Find anFind an

environment inenvironment inwhich to exploitwhich to exploit

Resource-based Model of Above-Average Returns:barney, Wernerfelt

1. Firms Resources1. Firms Resources

The Firm


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Alignment ofFirm-Strategy-Environment

Resources &Capabilities

Valuable, rare, hardto imitate

Value chain, culture,control systems

CoreCom etencies

Resource-BasedModel--Internal

Leadership,Governance

Integrat

Social,

Political,

Economic,

Technological,

Industry Forces

I/O modelExternalAnalysis

CompetitiveArena

Intent, Mission, CoreStrategy, Goals,

Effectiveness

FIRMEnvironment

Alignment/ Fit

Strategy

Position


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External Analysis:I ntifi ti n f rt niti

Opportunities Threats


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Layers of the Business


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Components of

Scanning: collecting information

Monitoring: detecting the trend

Forecasting: anticipating the future Assessing: impact on the firm


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What is Environmentalnnin

Environmental scanning is theacquisition and use of information

about various events in anorganization's external environment,the knowledge of which would assistmanagement in planning the

organization's future course of action.


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Objectives Of An Environmental

detecting scientific, technical, economic, social,and political trends and events important to theinstitution,

defining the potential threats, opportunities, orchanges for the institution implied by thosetrends and events, and

env. scanning is an important componentof the organization's strategic planningprocess, improving the org 's ability toreact to and implement change inresponse to external factors.


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Competitor intelligence

Competitive intelligence

Business intelligence Environmental scanning


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External Audit

PESTEL

SWOT Analysis


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Macro-environment


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POLITICAL/ GOVERNMENT

political stability and riskpolitical climate - amount of government activityPolitical party in power and its philosophy


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Economy

GNP or GDP per capitaGNP or GDP growthunemployment rateinflation rate

consumer and investor confidenceDisposable incomecurrency exchange ratestrading partnersbalance of paymentsgovernment debt

budget deficit or surplusfuture trends


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Technology

efficiency of infrastructure, including: roads, ports, airports,hospitals, education, healthcare, communication, etc.industrial productivitynew manufacturing processes

new products and services of competitorsnew products and services of supply chain partnersany new technology that could impact the companycost and accessibility of electrical power


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Ecology

Environmental lawsecological concerns that affecto the firms production processeso customers' buying habitso customers' perception of the company or product


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Ke As ects of PESTEL

Not just a list of influences

Need to understand keydrivers of change

Focus is on future impact ofenvironmental factors

Combined effect ofsome of

the factors likely to be mostimportant


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Issues Priority Matrix

HighPriority

HighPriority

HighPriority

MediumPriority

MediumPriority

MediumPriority

Probable Impact on Corporation

LowPriority

LowPriority

LowPriority

LowMediumHigh


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Issues Priority Matrix

HighPriority

HighPriority

HighPriority

MediumPriority

MediumPriority

MediumPriority

Probable Impact on Corporation

LowPriority

LowPriority

LowPriority

LowMediumHigh


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Internal Audit Techniques:W T 1

After an environmental scan, a SWOTwill help analyze your results

Internal EnvironmentlStrengths Weaknesses

External EnvironmentlOpportunities Threats


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The SWOT analysis


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The SWOT analysis


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External Factor Analysis Summary

External

Weight RatinWeightedScore Comment

1 2 3 4

1

Opportunities

Threats

Total Weighted Score

otes: 1. List opportunities and threats (510 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding)to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain each factorsweighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weightedscore for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment. A weighted scoreof 3.0 means average performance.Source: T. L. Wheelen and J. D. Hunger, External Strategic Factors Analysis Summary (EFAS). Copyright 1991 by Wheelen and Hunger Associates.

Re rinted b ermission.


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Internal Factor Analysis Summary

Internal Weight RatinWeightedScore Comment

1 2 3 4 5

1

Strengths

Weaknesses

Total Weighted Score

otes: 1. List st and wea(510 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on thatrelevance of the factor to the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) inColumn 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain each factors weighted score inColumn 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for thecompany in Column 4. This tells how well the company is responding to the strategic factors in its external environment A weighted score of 3.0 meansaverage performance..

Source: T. L. Wheelen and J. D. Hunger, External Strategic Factors Analysis Summary (EFAS). Copyright 1991 by Wheelen and Hunger Associates.Re rinted b ermission.


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grow and build : market penetration, marketdevelopment, and product development) orintegrative (backward integration, forwardintegration, and horizontal integration) (intensive

strategy)

hold and maintain - Market penetration and productdevelopment

harvest or divest - Liquidations, retrenchment anddivestiture ( defensive strategy)


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The Ansoff Matrix

The Product/Market direction of the firm can bemodelled around the Ansoff Matrix. It identifies fourbasic business strategies for the firm:

Market Penetration

Market Development

Product Development

Diversification


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The Ansoff Matrix

Present

Present

New

Market Penetration ProductConsolidation DevelopmentContraction

MarketDevelopment Diversification


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Market Penetration

Objective of this strategy is to increasemarket share. This is done in thefollowing ways:

Increase the number of users attract users from competitors

convert non-users into users

Increase the frequency of purchase Increase the volume of product

purchased


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Product Development

This strategy is aimed at creating newproducts aimed at existing customers.Possibilities are:

Product reformulation strategies

Product quality improvement

Product line extensions

Product feature enhancements

New product development


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Market Development

The strategy here is to increase thesales of present products by tapping

new markets:Two Approaches:

Geographic market expansion

Using new distribution channels to reach unserved customers


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Diversification - Types

Two basic types of diversification can be identified: Concentric Diversification: diversification into related business

areas

q Vertical integration

n Full integration (100% suppliers +controls distributors)n Taper integration (


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Integration:

Integration

Backwards tosources of supply

Forwards to thecustomer

Vertical


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Diversification is a strategic moveDiversification is a strategic moveinto a new product/market activityinto a new product/market activity

that requires the development ofthat requires the development of

new competencies or thenew competencies or theaugmentation of existing ones. augmentation of existing ones.


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Harvest strategy: Limits investment and optimizes cash flow.

Divestiture: Company exits the industry by selling out early toothers, avoiding liquidation.Daimler Chrysler selling Chrysler after a failed merger

Liquidation - Arthur Andersen after conviction for evidencedestruction which was later overturned.Retrenchment - specific examples in the construction industrydue to the collapse of the housing market


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SWOT Matrix

Strengths-Opportunities (SO)

Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of


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SOStrategies

Use a firmsinternal

strengths

to takeadvantageof external

opportunities

SOStrategies

StrengthsWeaknesses

OpportunitiesThreats

SWOT


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WOStrategies

Improvinginternal

weaknesses by

takingadvantageof external

opportunities

WO

Strategies

StrengthsWeaknesses


SWOT


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STStrategies

Use a firmsstrengths

to avoid or

reduce theimpact

of externalthreats

ST

Strategies

StrengthsWeaknesses


SWOT


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WTStrategies

Defensivetactics

aimed atreducing

internalweaknesses &avoiding

environmentalthreats

WTStrategies

StrengthsWeaknesses


SWOT


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SWOT Matrix


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COMPETITVE ADVANTAGES

OF A NATION


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Porters Diamond

PESTEL factors differ from country tocountry their competitive impactwill differ from country to country

Porters (1990) suggests reasons whysome countries are more competitivethan others


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Porters Diamond

Model: The Determinants of National

Source:M. Porter, Competitive Advantage of Nations, Macmillan, 1990.


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Porters Diamond

Factor conditions Education, infrastructure, cash, e.g.,Taiwan

Demand Conditions, e.g., Japanesedemand for quality.

Firm Strategy, Structure & Rivalry.

Supporting Industries, e.g Italy,leather, Silicon Valley computerrelated industry


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Strength of interaction

Industry clustering

Geographical location


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What is competitiveness?

competitiveness as the set oinstitutions, policies, and factors thatdetermine the level of productivity o

a country. The level of productivity, in turn, sets

the sustainable level of prosperity

that can be earned by an economy.

N ti l l f


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Nations level of

A nations level of competitivenessreflects the extent to which it is ableto provide rising prosperity to its

citizens.

12 illars of


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12 illars of First pillar: Institutions- framework within which

individuals, firms, and governments interact to generateincome and wealth in the economy. It includes

Ways in which societies distribute the benefits

Influences investment decisions and the organization ofproduction.

Government attitudes toward markets and freedoms andthe efficiency of its operations, excessive bureaucracy andred tape, overregulation, corruption, dishonesty in dealing

with public contracts, lack of transparency andtrustworthiness, or the political dependence of the judicialsystem

Role of private institutions, - accounting and reportingstandards and transparency for preventing fraud and


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Second pillar: Infrastructure

Well developed infrastructure

quality and extensiveness ofinfrastructure networks such as

quality roads, railroads, ports, and airtransport

electricity supplies

solid and extensivetelecommunications network

Thi d ill M i


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Third pillar: Macroeconomict ilit

Inflation rate

interest payments on its past debts.

F th ill H lth d


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Fourth pillar: Health andrim r ti n

quantity and quality of basiceducation received by the population

Health services provided

Fifth ill Hi h d ti


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Fifth pillar: Higher educationn tr inin

measures secondary and tertiaryenrollment rates

the quality of education as assessed

by the business community. The extent of staff training -

importance of vocational and

continuous on-the-job training

Si th pillar Goods market


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Sixth pillar: Goods marketffi i n

Healthy market competition

government intervention in form ofdistortionary or burdensome taxes,

and by restrictive and discriminatoryrules on foreign ownership or foreigndirect investment (FDI).

demand conditions such as customerorientation and buyer sophistication

Seventh pillar Labor market


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Seventh pillar: Labor marketffi i n

Flexibility in the labour market

clear relationship between workerincentives and their efforts, as well

as the best use of available talent which includes equity in the businessenvironment between women and

men.


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capital available for private-sector investmentfrom such sources as loans from a soundbanking sector, well-regulated securitiesexchanges, venture capital, and other financial

products. ensuring that innovators with good ideas have

the financial resources to turn those ideas intocommercially viable products and services.

the banking sector needs to be trustworthy andtransparent.


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Ninth pillar: Technologicalreadiness

Tenth pillar: Market size

Eleventh pillar: Businesssophistication (quality of acountrys business networks andsupporting industries, which can

be captured by using variables onthe quantity and quality of localsu liers and the extent of their

12 illars of


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12 illars of


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United States - 1

Switzerland ------2Denmark 3Sweden 4Singapore 5Finland 6Germany 7Netherlands 8 Japan 9Canada 10Hong Kong SAR 11United Kingdom 12Korea, Rep. 13Austria 14Norway 15France


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CAGE FRAMEWORK


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Competitor Analysis What the competitor is doing and

can do, as revealed by its currentstrategy

What the competitor believes

about itself and the industry, asshown by its assumptions

What the competitors capabilities

are, as shown by its capabilities(its strengths and weaknesses)

Competitor Analysis Components


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competitve advantages of a nation

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