sample - amazon s3...korea maintained strict quotas on imported rice. it has now replaced a quota...
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Protectionism
4.1GlobalisationSAMPLE
What you need to know
• a)Tariffs• b)Importquotas• c)Othertradebarriers:
– government legislation– domestic subsidies
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Conceptlinks
ProtectionismEmergingmarkets
Globalisation
InternationalTrade
Marketdevelopment
MNCs
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WhatisFree(Open)Trade?
Free(open)tradeisaneconomicpolicyofnotdiscriminatingagainstimportsfrom
andexportstoothercountries.Buyersandsellersfromseparateeconomiesmaytradewithoutthedomesticgovernmentapplyingtariffs,quotas,subsidiesorprohibitionson
theirgoodsandservices.
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KeyBenefitsofFreeTrade(note:thesealsoargumentsagainstProtectionism)
• Countriescanbenefitfromcomparativeadvantage
• Businessescanbetterachieveeconomiesofscale
• Encouragescompetitionandeconomicefficiency
• Enablesbusinessestogrowbeyondtheirdomesticborders
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TheWorldTradeOrganisation(WTO)
TheWorldTradeOrganization(WTO)istheonlyinternationalorganisationdealingwiththeglobalrulesoftradebetweennations.Itsmainfunctionistoensurethattradeflowsassmoothly,predictablyandfreelyaspossible.
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WhatisProtectionism?
Protectionisminvolvesanyattemptbyacountrytotoimposerestrictionsontradeingoodsandservices.Themainaimofprotectionismistocushiondomestic
businessesandindustriesfromoverseascompetitionandpreventtheoutcome
resultingsolelyfromtheinterplayoffreemarketforcesofsupplyanddemand.
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ThreeMainKindsofProtectionism
ImportQuotas
Tariffs
Domestic&ExportSubsidies
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Protectionism- Tariffs
Atariffataxordutythatraisesthepriceofimportedproductsandcausesareductionindomesticdemandandanexpansionindomesticsupply.Forexample,untilrecently,Mexicoimposeda150%tariffonBrazilianchicken.TheUnitedStateshasan11%importtariffonimportsofbicyclesfromtheUK!
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Protectionism– ImportQuotas
Quotasarevolumelimitsonthelevelofimportsallowedoralimittothevalueofimportspermittedintoacountryinagiventimeperiod.Forexample,until2014,SouthKoreamaintainedstrictquotasonimportedrice.IthasnowreplacedaquotawithimporttariffsdesignedtoprotectSouthKoreanricefarmers.Quotasdonotnormallybringinanyimmediatetaxrevenueforthegovernmentalthoughiftheycausedomesticproductionandincomestoexpand,therewillbeabeneficialimpactontaxespaid.
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Protectionism– Subsidies
Asubsidyisapaymenttoencouragedomesticproductionbyloweringtheircosts.WellknownsubsidiesincludeCommonAgriculturalPolicyintheEU,orcottonsubsidiesforUSfarmersandfarmsubsidiesintroducedbycountriessuchasRussia.In2012,theUSgovernmentimposedtariffsonChinesemanufacturersofsolarpanelcells,judgingthattheybenefitedfromunfairexportsubsidiesafterareviewthatsplittheUSsolarindustry.
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OtherMoreSpecialisedMethodsofProtectionism
Importlicensing:inthiscase,governmentsgrantimportersthelicensetoimportgoods– thesecanberestricted
Exchangecontrols:Thisformofprotectionisminvolveslimitingcurrenciesthatcanmovebetweencountries(alsoknownascapitalcontrols)
Intellectualpropertylaws e.g.patentsandcopyrightprotectionprotectingdomesticideasandproducts
Technicalbarrierstotrade:theseincludeproductlabelingrulesandstringentsanitarystandards.Technicalbarrierstotradeincreaseproductcompliancecostsandimposemonitoringcostsonexportagencies.
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KeyArgumentsinFavourofProtectionism
• Helpinfantorfledglingindustriesestablishthemselves,includingachievingeconomiesofscale
InfantIndustryProtection
• Protectjobs,skillsandcapabilitiesinkey(strategic)industriestoacountry
ProtectionofStrategicIndustries
• Dumpingisaformofpredatorypricingwhichcanseriouslydamagedomesticindustries
ProtectionAgainstImportDumping
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KeyArgumentsAgainstProtectionism
• Particularlyarisingfromimporttariffsorimportquotasthatrestrictmarketsupply
Higherpricesforconsumers
• Protectionistmeasuresoftenresultinretaliation- suchaspricewars
Retaliationfromothercountries
• Protectionismthatbecomeswidespreadinglobalindustriesincreasesthecostsfacingdomesticfirmstryingtoexport
Extracostsforexporters
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Porter’sStrategyMatrix
3.1BusinessobjectivesandstrategySAMPLE
What you need to know
• Theoriesofcorporatestrategy• a)Developmentofcorporatestrategy:• Porter’sStrategicMatrix
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Conceptlinks
Porter’sStrategies
Marketpositioning
Productdifferentiation
Mass&nichemarkets
Competitiveadvantage
Corporateobjectives
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TheChallengeFacingBusinessStrategy
Tofindawayofachievingasustainablecompetitiveadvantageovertheothercompetingproductsand
firmsinamarket
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Porter’sSuggestedApproachtoStrategicPositioning
• Portersuggestedtwooverallbusinessstrategiesthatcouldbefollowedinordertogaincompetitiveadvantage
• Porterarguedthatdifferentiation andlowcostareeffectivestrategiesforfirmstogaincompetitiveadvantage
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WhatisaCompetitiveAdvantage?
Anadvantageovercompetitorsgainedbyofferingconsumers
greatervalue,eitherbymeansoflowerpricesorbyproviding
greaterbenefitsandservicethatjustifieshigherprices
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Porter’sGenericStrategies
LowCost
Differentiation
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LowCostStrategy
Withthisstrategy,theobjectiveistobecomethelowest-costoperator.
Thistypicallyinvolvesproductiononalargescalewhichenablesthebusinesstoexploiteconomiesof
scale.
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WhyLowCostisaSourceofCompetitiveAdvantage
• Whyiscostleadershipimportant?– If selling prices are broadly similar, the lowest-
cost operator will enjoy the highest profits– Lowest-cost operator can also offer the lowest
prices (gain market share)• Suitablemarketsforthisstrategy?
– Standard product– Little product differentiation– Branding relatively unimportant
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LikelyFeaturesofaLowCostOperators
• Highlevelsofproductivity&efficiency• Highcapacityutilisation• Largescale=economies• Usebargainingpowertonegotiatelowestpricesfromsuppliers
• Leanproductionmethodsandculture• Accesstothewidestandmostimportantdistributionchannels
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ExamplesofLowCostStrategiesinAction
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StrategyofFocus&Differentiation
Withadifferentiationstrategy,aimstoofferaproductthatisdistinctivelydifferent fromthecompetition,withthecustomervaluingthatdifferentiation
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WaystoforaBusinesstoAchieveDifferentiation
• Superiorproductquality(features,benefits,durability,reliability)
• Branding (strongcustomerrecognition&desire;brandloyalty)
• Widedistributionacrossallmajorchannels(i.e.theproductorbrandisanessentialitemtobestockedbyretailers)
• Sustainedpromotion– oftendominatedbyadvertising,sponsorshipetc
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ExamplesofSuccessfulDifferentiationStrategies?
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“StuckintheMiddle”
LowCost
Differentiation
StuckintheMiddle
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ExamplesofStuckintheMiddle?
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HybridStrategies:DifferentiationAND LowCost
Value proposition = stylish furniture; good quality; low pricesAchieves its low prices via cost leadership:• Furniture is flat packed to reduce storage space• Large out of town retail units spread fixed costs• Products are made in China and Malaysia reducing unit costs• Low margins/ high volume allows economies of scaleDifferentiates using:• Unique / unusual design• Localisation of product range• Targeting (mainly) the young global middle class
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