ADM 3318 Lecture Notes - Lecture 5: Factor Endowment, Comparative Advantage
16 Jun 2018
School
Department
Course
Professor
Strategy
Making Global Expansion Profitable
Advantages of Experience (effects)
The Experience Curve
Learning effects
Initial advantages
®
Doing things faster
®
Cost comes down
®
After a while all advantages disappears
®
□
Economies of scale
Spreading of fixed, R&D costs, marketing costs
®
Use of specialization, skills, specialized machines
®
Economies of scope?
®
□
The significance
Moving down the curve -> lower cost -> more profit ->
more profitability -> competitive advantage and
sustainability for the firm at a global level
®
Largely plant based and hence single plant location
serving world markets is optimal in today's scenario
®
□
§
○
Leveraging Core Competencies
What are they?
Any part of the value chain as identified
□
Transferable skills and "leveraging" them across markets
□
Leveraging includes "monetising" them and using them to
open, enter global markets
□
Supports premium pricing or value creation
□
§
Transferring subsidiary skills
From other to the principal
□
External skills transferring to internal
□
Product, process, design, skills
□
Bottom line - Lower cost, increased value create
□
Companies believe that they understand the market and
consumers all over the world
When companies expand to a new country, they
continue to do things the same way and usually fail
®
Companies have to hear what locals say to be successful
®
□
§
○
•
Global competitive pressures
Cost reduction
Challenging in commoditized products and services
With staple products the price can only reduce to a certain
extent
□
§
○
Local responsiveness
Every one wants things made into their own countries' standards
§
Local tastes
§
Product uses and preferences
§
Commerce practices, channel
The channel of distributions in different countries may be
very different
□
In North America the channels are well defined, while in other
countries the channels may be in different states
□
§
Infrastructure constraints
Roads might not be there□
Phones might not work □
§
Local regulations
If there are any local regulations, companies' have to follow
them of they won't be able to sell any products
□
§
Trade tariffs and barriers
Tax, tax, tax □
§
Government policy on technology transfer, indigenisation
§
○
•
Making a choice of strategy on a global level
Global strategy (High Cost Pressure, Low Pressure for Local
Responsiveness)
Global production
One product, or a few products, is made for the whole world□
The product is standardized for everyone□
§
Global integration
Most countries would get the few products that the company
creates
Like Apple, there may be a little different from country
to country, but they will be the same product overall
®
□
§
Intense R&D centralized
§
○
Transnational strategy (High Cost Pressure, High Pressure for Local
Responsiveness)
Transportable skills across locations
§
Responsiveness
§
Global learning
§
Non-threatening
§
Secure relationships
§
Can be category dependent
§
○
International strategy (Low Cost Pressure, Low Pressure for Local
Responsiveness)
Transfer skills, resources, capabilities, products, services
§
Centralized designed, production, quality to preserve "value"
§
○
Mutli-domestic or local strategy (Low Cost Pressure, High Pressure for
Local Responsiveness)
Low on cost responsiveness
§
High on customisation
§
Retail trade
§
Replication of key functions across markets
Not as free and easy □
§
○
•
Global Alliances
Path to profits
At a firm level, these are arrangements, agreements between
competitors, potential or otherwise
§
Companies have to create a template to "win" when entering a new
country
§
When the agreement is made between the two companies, they are
"partners" but without sharing any equity
§
○
Damages that can be caused
Skills migration
All the skills of the foreign company is shared with the local
company
This may cause the local company to use those skills
and start competing with them
®
It may cause the company to need to leave the country
®
□
§
Market closure
When entering a country, a company can never be too sure if
they will be successful in the new market
□
If the market isn't strong enough it might shut down□
§
Credibility in the marketplace
If the company doesn’t do well in the new market, it is
possible that it loses its credibility
□
It could also affect the company on a foreign market level □
§
○
Making it work
Proper partner selection
Selecting the right partner can make a big difference□
If a company selects a partner that is weak, they will suffer
the consequences
□
Both companies have to make sure that they have to same…
Skills
®
Goals
®
Costs
®
Competencies
®
□
§
Structuring a mutually beneficial alliance
When choosing a partner, there is no point in choosing a
partner who is considered weaker
□
Both companies should be getting around the same benefits
when working with each other
□
If one company is winning and the other is losing, there will
be some dynamic problems
□
Ensuring equal stakes in the partnership □
§
Managing the partnership
This is the toughest issues□
Since this is a partnership, both companies need to work
together
□
Even if one company is bigger than the other, they aren’t able
to take control over both companies
□
This is an equal partnership and respect is needed between
both companies
□
There is a big cultural wall between both companies□
At the beginning there is an issue of credibility and trust □
Both companies have to have a mutual learning□
§
○
•
Trade Theory
Some theories and economists
Adam Smith on free trade and prior to that - David Hume on anti
mercantilism (and zero sum game)
○
David Ricardo on comparative advantage
○
Heckscher & Ohlin add an emphasis on factor endowments
○
•
Class 5 -Jan. 22nd
Monday, January 22, 2018
09:59
Strategy
Making Global Expansion Profitable
Advantages of Experience (effects)
The Experience Curve
Learning effects
Initial advantages
®
Doing things faster
®
Cost comes down
®
After a while all advantages disappears
®
□
Economies of scale
Spreading of fixed, R&D costs, marketing costs
®
Use of specialization, skills, specialized machines
®
Economies of scope?
®
□
The significance
Moving down the curve -> lower cost -> more profit ->
more profitability -> competitive advantage and
sustainability for the firm at a global level
®
Largely plant based and hence single plant location
serving world markets is optimal in today's scenario
®
□
§
○
Leveraging Core Competencies
What are they?
Any part of the value chain as identified□
Transferable skills and "leveraging" them across markets□
Leveraging includes "monetising" them and using them to
open, enter global markets
□
Supports premium pricing or value creation□
§
Transferring subsidiary skills
From other to the principal□
External skills transferring to internal □
Product, process, design, skills□
Bottom line - Lower cost, increased value create
□
Companies believe that they understand the market and
consumers all over the world
When companies expand to a new country, they
continue to do things the same way and usually fail
®
Companies have to hear what locals say to be successful
®
□
§
○
•
Global competitive pressures
Cost reduction
Challenging in commoditized products and services
With staple products the price can only reduce to a certain
extent
□
§
○
Local responsiveness
Every one wants things made into their own countries' standards
§
Local tastes
§
Product uses and preferences
§
Commerce practices, channel
The channel of distributions in different countries may be
very different
□
In North America the channels are well defined, while in other
countries the channels may be in different states
□
§
Infrastructure constraints
Roads might not be there
□
Phones might not work
□
§
Local regulations
If there are any local regulations, companies' have to follow
them of they won't be able to sell any products
□
§
Trade tariffs and barriers
Tax, tax, tax
□
§
Government policy on technology transfer, indigenisation
§
○
•
Making a choice of strategy on a global level
Global strategy (High Cost Pressure, Low Pressure for Local
Responsiveness)
Global production
One product, or a few products, is made for the whole world
□
The product is standardized for everyone
□
§
Global integration
Most countries would get the few products that the company
creates
Like Apple, there may be a little different from country
to country, but they will be the same product overall
®
□
§
Intense R&D centralized
§
○
Transnational strategy (High Cost Pressure, High Pressure for Local
Responsiveness)
Transportable skills across locations
§
Responsiveness
§
Global learning
§
Non-threatening
§
Secure relationships
§
Can be category dependent
§
○
International strategy (Low Cost Pressure, Low Pressure for Local
Responsiveness)
Transfer skills, resources, capabilities, products, services
§
Centralized designed, production, quality to preserve "value"
§
○
Mutli-domestic or local strategy (Low Cost Pressure, High Pressure for
Local Responsiveness)
Low on cost responsiveness
§
High on customisation
§
Retail trade
§
Replication of key functions across markets
Not as free and easy □
§
○
•
Global Alliances
Path to profits
At a firm level, these are arrangements, agreements between
competitors, potential or otherwise
§
Companies have to create a template to "win" when entering a new
country
§
When the agreement is made between the two companies, they are
"partners" but without sharing any equity
§
○
Damages that can be caused
Skills migration
All the skills of the foreign company is shared with the local
company
This may cause the local company to use those skills
and start competing with them
®
It may cause the company to need to leave the country
®
□
§
Market closure
When entering a country, a company can never be too sure if
they will be successful in the new market
□
If the market isn't strong enough it might shut down□
§
Credibility in the marketplace
If the company doesn’t do well in the new market, it is
possible that it loses its credibility
□
It could also affect the company on a foreign market level □
§
○
Making it work
Proper partner selection
Selecting the right partner can make a big difference□
If a company selects a partner that is weak, they will suffer
the consequences
□
Both companies have to make sure that they have to same…
Skills
®
Goals
®
Costs
®
Competencies
®
□
§
Structuring a mutually beneficial alliance
When choosing a partner, there is no point in choosing a
partner who is considered weaker
□
Both companies should be getting around the same benefits
when working with each other
□
If one company is winning and the other is losing, there will
be some dynamic problems
□
Ensuring equal stakes in the partnership □
§
Managing the partnership
This is the toughest issues□
Since this is a partnership, both companies need to work
together
□
Even if one company is bigger than the other, they aren’t able
to take control over both companies
□
This is an equal partnership and respect is needed between
both companies
□
There is a big cultural wall between both companies□
At the beginning there is an issue of credibility and trust □
Both companies have to have a mutual learning□
§
○
•
Trade Theory
Some theories and economists
Adam Smith on free trade and prior to that - David Hume on anti
mercantilism (and zero sum game)
○
David Ricardo on comparative advantage
○
Heckscher & Ohlin add an emphasis on factor endowments
○
•
Class 5 -Jan. 22nd
Monday, January 22, 2018 09:59
Document Summary
Moving down the curve -> lower cost -> more profit -> more profitability -> competitive advantage and sustainability for the firm at a global level. Largely plant based and hence single plant location serving world markets is optimal in today"s scenario. Any part of the value chain as identified. Leveraging includes monetising them and using them to open, enter global markets. Bottom line - lower cost, increased value create. Companies believe that they understand the market and. Companies believe that they understand the market and consumers all over the world. When companies expand to a new country, they continue to do things the same way and usually fail. Companies have to hear what locals say to be successful. With staple products the price can only reduce to a certain extent. Every one wants things made into their own countries" standards. The channel of distributions in different countries may be very different.
