position some important factors

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 might make a difference.

Competitiveness is the Pivotal Issue

Until and In the 21st Century

For Whom?

Presidential CommissionLetter 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. YoungChairmanPresident’s Commissionon 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 testof 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

HumanResources

Capital

Technology

ImprovedDomestic

Performance

More andBetter Jobs

IncreasedStandard of

Living

StrongerNational Security

DecreasedBudgetDeficit

TradePolicy

NewCompetition

Increased Competitivenessin World Market

ReducedTrade Deficit

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.

The Best Alternative 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.

Business Environment

The global market will come to you, if you don’t go to it.

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. Why did this happen?2. What should companies and countries do about it?


Why are companies in a particular nation able to gain a dominant competitive position in a specificindustry against the world’s best competitors?


• From what country is future competition likely to come from?

• What types of companies will be primary competitors?

• What will be their primary competitive strategies?

Organizations Compete

Within Industries

Role of the Nation?

• How Measure Success?• Basis of Analysis?

Previous Basis of Competitive Analysis

• Porter Companies and Industries• Economists Unit Cost of Labor Adjusted

for Inflation• Politicians Balance of Payment• Companies The Right Strategies to

Compete in Global Markets

To Understand Competition

• 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.

The role of the nation has increased as competition has

shifted more to the creation and assimilation of knowledge.

A Major Message

Competitiveness of Nations• Denmark: Copenhagen School of Economics

• Germany: Deutsche Bank

• Italy: Ambrosetti Group (transportation company)

• Japan: MITI, Hitotsubashi University and Industrial Bank of Japan

• Korea: Seoul National University

• Singapore: Economic Development Board

• Sweden: Institute of International Business, Stockholm School of Economics

• Switzerland: University of Basel, University of St. Gallen, Union Bank of Switzerland

• United Kingdom: The Economist

• 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 MachineryX-ray Equipment

ItalyCeramic TilesDance Club and Theater EquipmentDomestic AppliancesEngineering/ConstructionFactory Automation EquipmentFootwearPackaging and Filling EquipmentSki BootsWool Fabrics JapanAir Conditioning MachineryHome Audio EquipmentCar Audio EquipmentCarbon FibersContinuous Synthetic WeavesFacsimile EquipmentForklift TrucksMicrowave and Satellite Communications Equip.Musical InstrumentsOptical Elements and Instruments

RoboticsSemiconductorsSewing MachinesShipbuildingTires for Trucks and BusesTrucksTypewritersVideocassette RecordersWatches

KoreaApparelAutomobilesConstructionFootwearPianosSemiconductorsShipbuildingSteelTravel GoodsVideo and Audio Recording TapeWigs

SingaporeAirlinesApparelBeveragesShip RepairTrading

SwedenCar CarriersCommunication ProductsEnvironment Control EquipmentHeavy TrucksMining EquipmentNewsprintRefrigerated ShippingRock DrillsSemihard Wood FlooringTeller-operated Cash Dispensers

SwitzerlandBankingChocolateConfectioneryDyestuffsFire Protection EquipmentFreight ForwardingHearing AidsHeating ControlsInsuranceMarine EngineersPaper Product Mfg. EquipmentPharmaceuticalsSurveying Equipment

Textile MachineryTradingWatches

United StatesAdvertisingAgricultural ChemicalsCommercial AircraftCommercial Refrigeration and Air-ConditioningComputer SoftwareConstruction EquipmentDetergentsEngineering and ConstructionMotion PicturesPatient Monitoring EquipmentSyringesWaste 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.

• Natural Resources

• Labor Pool

• Interest Rates and Currency Value

• Economies of Scale

Competitive Success Is Not Determined By:

. . . Traditional Economic Thinking

Factor Conditions

The nation’s position in factors of productionthat are prerequisites to compete in a specificindustry.

• Infrastructure• People Skills and Training• Factors Unique to a Specific Industry

A nation does not inherit but creates the most important factors.

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

Factor Conditions

. . .Quality of life--to live and to work.

Capital Resources: (Amount and cost of

money)

Factor Conditions

•Secured Debt

•Unsecured Debt

•Equity and Venture Capital

•Savings Rate

•Tax Incentives•Fiscal and Monetary Policies

Knowledge Resources: Scientific, technical and

market knowledge that pertains to goods and

services.

Factor Conditions

•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 explain international success.

Factor Conditions

The availability of factors

is not enough to explain

competitive success.

Factor Conditions

Competitive advantage from factors depends on how effectively and efficiently they are mobilized by a company and deployed in the economy.

Factor Conditions

The Japanese created and expanded needed factors at a rate far exceeding that of all other nations.

Demand Conditions

• The sophistication of customer demand.

• The more demanding the local buyers the better to hone the global competitiveness of home-based 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.

Firm Strategy, Structure and Rivalry

The way in which companies are

created, managed and choose to

compete domestically is affected

by national circumstances.

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.

Firm Strategy, Structure and RivalryGermany• The preeminent trading nation when considering the entire

postwar period.

• They compete in highly sophisticated products and segments rather than high-volume ones.

• International success is built on many small and medium sized companies

• 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 does not dominate them as does the U.S. or Japan.

• Have a very international orientation and export early.

• The economy is extensively clustered.

• There is wide-spread private and state ownership.

• The structure of companies tends to be hierarchical and patriarchal.

• Pragmatism characterizes German management.

• Managers and workers are well trained in their industries.

• 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.

• They maintain an enduring relationship with employees.

• Particularly adept at complex production processes.

• Selling is technical versus advertising or intangible appeals.

• Complex product service requirements.

• Customers tend to be conservative and cautious about new products.

• High levels of customer loyalty.

• Labor is very organized and is represented on company boards.

• New business formulation is weak.

• 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 70.4%

• Potassium Sulfate 59.4%

• Reciprocating Pumps 58.1%

• High Pressure Steel Conduit 55.4%

• Fresh Milk and Cream 54.5%

• Rotary Printing Presses 51.1%

• Iron, High Carbon Steel Coil 49.8%

• Synthetic Luminophores 47.1%

• Spinning, Reeling Machines 42.7%

• Clothes Dryers 41.3%

• Aircraft over 15,000 kg 38.1%

•Jukeboxes 36.5%

•Polyvinyl Chloride Plates 35.9%

•Rubber, Plastics Machines 35.5%

•Combine Harvester-Threshers 35.3%

•Packaging, Bottling Equip. 34.1%

•Sewing Machine Needles 33.2%

Seventeen industries where Germany has 33% or more of the world’s export market.

GermanyBASF 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 KGaA - Detergents and Chemicals (1876)

Hoechst AG - Chemicals (1863)

Friedrich Krupp GmbH - Steel, Engineering, Trading (1587)

Mannesmann AG - Steel Tubes, Auto Parts, Etc. (1885)

Robert Bosch GmbH - Electronic Auto Equipment (1886)

Siemens AG - Electrical and Electronics (1847)

Volkswagen AG - Automobiles (1937)


Italy• Joined the ranks of advanced nations in the past two decades.

• Overall growth in world export share is second only to Japan.

• Clearly contradicts its image as a country.

• Achieved advantage based on segmentation, differentiation and process innovation.

• Illustrates the power of a growing alignment between national circumstances and the shifting demands of modern global competition.

• Remains a study in contrasts--industry successes and failures.

• Successful industries are highly clustered including geography.

• The world’s leading exporter in textile/apparel, household goods and personal products and third in food and beverages.

• 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.

• 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.

• Companies tend to be highly specialized and compete through constant model changes and innovation.

• Deal with customers on a family-like and personal basis.

• Combine product design with innovations in process technology.

• Are generally not successful where standardization, high-volume mass production, or heavy investments in fundamental research are involved.

• Most companies are privately owned and owners, managers and workers are closely attached to an industry.

• These factors lead to a long-term orientation and a commitment to sustained investment.

• Business is important and a magnet for talented individuals.

• Entreprenuership thrives in Italy--they are risk takers who are individualistic and desire independence.

• Benefited from a shift from standardized, mass-produced products toward more customized, higher-style, higher-quality goods. In many cases style was combined with investment with state-of-the-art production equipment.

Italy Share of Total 1985 World Exports

• Meal and Pellets of Wheat 69.5%

• Worked Building Stone 62.2%

• Aperitifs 58.1%

• Glazed Ceramic Sets 56.6%

• Precious Metal Jewelry 49.6%

• Fresh Stone Fruit 45.5%

• Rubber and Plastic Footwear 41.9%

• Fabrics of Combed Wool 41.8%

• Domestic Washing Machines 38.2%

• Steel High Pressure Conduits 35.9%

• Sweaters of Synthetic Fibers 34.0%

• Handbags 33.7%

• Woolen Sweaters 33.1%

• Leather Footwear 32.8%

Fourteen industries with one third of world’s export market.

Italy• Fiat SpA - 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 SpA - 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

• 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 1993’s down economy.

• 99% of Italy’s businesses are owned by one or two families.

• To survive Asian competition they will have to concentrate on a higher level of specialization and devote more time to quality and innovation versus price.

• Many were founded following the end of WWII.

(Less than 100 employees)

Olsa• A Bertuzzi family-owned company with a head office

in Milan and a factory in Bergamo.

• Produces plant and equipment for the chemical, pharmaceutical and cosmetics industries but thrives in niche markets.

• Niche products include a liquorice extractor and a special sterilization autoclave for candied-fruit that are made to order.

• Employ 80 people.

• 1994 Sales of $9.5 million with 70% from exports.

• Primary competitors are Swiss and German.


Japan• Not far behind Germany in becoming a war 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.

• Benefit from a large pool of trained engineers.

• Created and upgraded needed factors that far exceeded that of all other nations.

• 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.

• A technical orientation is pervasive and many managers have engineering backgrounds.

• Strategies often follow a path of standardization and mass production with a major emphasis on quality.

• Ownership of companies is predominantly held in institutions and other companies.

• Japanese companies often define their goals in terms of volume and market share.

• Workers define their status on how well the company is doing.

• Continual learning is emphasized and accepted.

• Adopt an international outlook promoted by the amount of domestic rivalry which is the single biggest explanation for the success of Japanese industries.

• More willing to form new companies.

• Companies relentlessly upgrade their competitive advantage.

Japan Share of 1985 World Exports

• Motorcycles 82.0%

• TV Image and Sound Recorders 80.7%

• Dictating Machines 71.7%

• Calculating Machines 69.7%

• Mounted Optical Elements 67.5%

• Photo & Thermocopy Apparatus 65.9%

• Still Cameras and Flash Equip. 62.2%

• Cash Registers and Accounting

Machines62.0%

• 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 50.6%

• Color TV Receivers 49.5%

• Portable Radio Receivers 48.4%

• Other Radio Receivers 47.9%

• Special-Purpose Vessels 46.8%

• Electric Typewriters 45.0%

• Steam Boiler Plants & Parts 42.8%

• Motor Vehicle Radio Receivers 42.5%

• TV Picture Tubes 42.2%

•Prepared Sound Recording Equipment. 41.5%

•Photo Chemical Products 41.5%

•Metalworking Lathes 39.7%

•Coarse Ceramic Housewares 39.3%

•New Bus or Truck Tires 39.1%

•Buses 38.7%

•Sewing Machines 38.7%

•Iron, Steel Seamless Tubes 38.7%

•Self-Propelled Shovels, Excavators 38.4%

•Computer Peripheral Units 37.9%

•Lorries and Trucks 37.5%

•Other Electronic Tubes 36.5%

•Metal Cutting Machine Tools 36.5%

•Generating Sets with Piston Engine 36.1%

•Other Cargo Vessels 35.7%

•Iron, Simple Steel Rolled Plate 35.2%

•Continuous Synthetic Weaves 34.7%

•Clocks, Watch Movements 33.8%

•Rolling Mill Parts and Rolls 33.4%

•Liquid Dieletic Transformers 33.4%

Forty-three industries with over one third of theworld’s export market share.

Japan• 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.


It is helpful to ask what companies need to do and where does government need to play a key role?

Role of GovernmentServe 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.

Companies gain an advantage against competitors by responding to pressures and challenges.

The Company Agenda1. 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.

:

Conclusion

• 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 entityis 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 resistacknowledging the demise of the nation-state, only those who can accept it andpromote region-states within and acrosstheir borders will be able to provide thebest quality of life for their constituents.

Kenichi Ohmae