Course Syllabus

Competitive Strategy (02819880)

Instructor: Weiru ChenProgram：MBA

Semester: Fall 2008 Time: Tue/Thurs evenings

Credit Hour：30 Credits：2

Prerequisite：StrategyLocation: 120/219

Contact Information: weiru.chen@gmail.comOffice Hours: please make appointment by email

Brief Course DescriptionThis course is an advanced strategy course providing new and articulate strategy concepts, analytical frameworks, and hands-on tools for participants to execute industry analyses and develop competitive strategies in their long-term career. Building on economics and strategy foundations, it helps analyze the competitive behavior of firms (including pricing, market positioning, product development, investment, expansion, entry and deterrence) under various economic conditions of industry structure. We study pertinent issues in a broad range of industries (e.g. airline, automobile, biotech, chemicals, consumer electronics, entertainment, internet, luxury, music, photography and service...etc) and geographic areas (Europe, America, and Asia) and emphasize on dynamic analysis (evolution, uncertainty, and sustainability).

This course is recommended for participants pursuing careers requiring the analysis and formulation of strategic directions for companies (strategy consulting, general management, business development), or the assessment of long-term profit opportunities across industries (investment banking, private equity, venture capital).

Course ObjectivesThe first module (Constructing Sustaining Competitive Advantage) advances the industry and competitive analysis with greater conceptual rigor and broader applications. The emphasis throughout is on how firms create and appropriate value through positioning, value innovation, and managing vertical chain players. We examine how firms gain and sustain competitive advantages by building and exploiting strategic positions and capabilities. We learn how to identify value opportunities in the chain and design strategies to capture the value.

The second module (Creating and Exploiting Powerful Market Positions) studies the creation and exploitation of powerful market positions and platform leadership. Market power allows firms to shape market structure and to capture value from the supply chain and customers. We will illustrate several approaches to gain and defend dominant positions: analyzing competitive interactions, extending power to other businesses, planning for market preemption, leveraging network externality effects, and coordinating for platform adoption by complementors.

This whole course aims to provide participants a more forward-looking, action-oriented, and dynamic view of competitive strategies.

Detailed course plan (Outline of Sessions)

Module I: Constructing Sustainable Competitive AdvantagesOctober 21 TuesdaySession 1: Understanding Industry Profitability

Read: “Economics of Strategy”: Chapter 10: Industry Analysis Porter (1979) “How Competitive Forces Shape Strategy”, HBR

Case: The European Airline Industry on a Collision Course (INSEAD) 2005 China Hainan Airlines (Darden) 2005

Subjects: Airline industry, industry analysis, industry evolution Synopsis: We introduce the frameworks in analyzing industry profitability. Using

airline industry as an example, we analyze the economics of an industry with attention to other participants in the supply chain that capture value. Then we discuss the competition among different business models, such as network carriers (e.g. Lufthansa, British Airway, and Air France) and low-cost carriers (e.g. Ryanair and EasyJet) and how they develop their own competitive strategies. We will see such battles coming into Chinese aviation market soon.

Key Questions:Why is airline industry unprofitable? How to improve?

October 23 ThursdaySession 2: Creating a Sustainable Business

Case: De Beers Consolidated Mines ltd. (A) (HBS) 1990, 1998 Subjects: Mining industry, market power, industry analysis, value appropriation,

value chain managementSynopsis: De Beers had, since its formation in 1888, exercised a large measure of

control over the world supply of diamonds. In 1983, the company itself mined over 40% of the world's natural diamonds and, through marketing arrangements with other producers, distributed over 70%. For 50 years up to 1983 the company had never lowered its prices and, overall, had raised them significantly ahead of the rate of inflation. However, in 1983 the

company was faced with a series of problems that threatened the structure it had so carefully built. Should De Beers abandon the business strategy it had pursued for nearly a century?

Key Questions:How does De Beers shape the diamond industry? Should De Beers stop the CSO’s stockpiling strategy in facing the 1983 crisis?

October 28 TuesdaySession 3: Managing Vertical Boundary

Read: “Economics of Strategy”: Chapter 3: The Vertical Boundaries of the FirmStuckey and White (1993) “When and When Not to Vertically Integrate”, Sloan Management Review, pp. 71-83.

Lecture: Determining Vertical Integration-ETP frameworkCase: Nucleon, Inc. (HBS) 1991, 1994Subjects: Biotech industry, vertical integration, value proposition, growth strategySynopsis: We discuss the considerations in determining business scope in the

vertical chain configuration. Specifically we focus on a typical issue facing by young R&D-intensive entrepreneurial ventures. Nucleon is a small biotechnology company whose first potential product is about to enter clinical testing. Before Nucleon can begin clinical trials, however, its management must decide how and where to manufacture the product. Three options are being contemplated: 1) build an in-house pilot plant, 2) contract production to a third-party, 3) license the development, manufacturing, and marketing rights to a corporate partner. Should it consider building in-house manufacturing capabilities while its current competence is on very distinctive and specialized R&D capabilities?

Key Questions:Do you recommend Nucleon to build an in-house manufacturing plant, subcontract or license its R&D output for Phase I and Phase II clinical trials?

October 30 ThursdaySession 4: Creating Customer Value

Read: “Economics of Strategy”: Chapter 11: Strategic Positioning for Competitive AdvantageSilverstein and Fiske (2003) “Luxury for the Masses” HBR

Case: Shanghai Tang: The First Global Chinese Luxury Brand? (HKU) 2007Subjects: Luxury industry, value analysis, strategic positioning, sustainable

competitive advantages Synopsis: We discuss how competitive advantages come from through a lens of

value analysis. Specifically we focus on the creation of a luxury brand. When David Tang created Shanghai Tang in 1994, he intended to launch China’s first bona-fide luxury brand. The idea was to create the first global Chinese lifestyle brand by revitalizing Chinese designs—interweaving

traditional Chinese culture with the dynamism of the 21st century. In the beginning, the brand was unable to establish a core customer base outside its home market of Hong Kong. In 2005, under new leadership and revised creative direction, Shanghai Tang expanded into several regional markets worldwide, with a particular focus on Asia. But was the company on track to become the first global Chinese luxury brand? Would David Tang’s vision be realized?

Key Questions:How is a luxury brand different from a regular mass-market brand? How should Shanghai Tang position itself relative to other luxury brands?

November 4 TuesdaySession 5: Blue Ocean Strategy

Case: The Circus is Coming (news article) Subjects: Entertainment industry, value innovation Synopsis: Conventional strategy offers little practical guidance on systematically

going about designing innovative strategies. In this session, we will examine a set of recent tools and frameworks that help managers come up with novel strategies for profitable growth, often even in seemingly mature industries. During this session, we will draw upon examples from a range of industries to motivate a new way of thinking about strategy (called “Blue Ocean Strategy”), and a related set of tools (called “Value Innovation”) that help implement blue ocean thinking.

Key Questions:How to create your Blue Ocean Strategy and uncontested market?

Module II: Creating and Sustaining Dominant Market PositionsNovember 6 ThursdaySession 6: Leveraging Market Power to Grow

Read: “Economics of Strategy”: Chapter 9: Entry and ExitCase: Printer Wars: Dell and the Printer Business (INSEAD) 2005Subjects: Imaging printing industry, PC industry, competitive entry strategies,

growth strategy, milti-market competition, analysis of value creation and value capture

Synopsis: We discuss what expansion or diversification can lead to profitable growth. We focus on the case that examines whether a firm with a dominant position in an industry (Dell in PCs) can exploit its powerful position to enter into complementary products (desktop printers). The dominant incumbent in printers (HP) already competes with Dell in the PC market and to will definitely defend in the printer business. The main question is whether Dell can overcome the barriers in order to benefit from this profitable business, or deflate a profit pool from its rival.

Key Questions:Should Dell enter into printer business? How should Dell position itself in printer business?

November 11 TuesdaySession 7: Strategies for Winner-take-all Business

Read: Eisenmann, Parker, and Van Alstyne (2006), “Strategies for Two-sided Markets”, HBR

Case: Baidu.com vs. Google.cn: Battle for China’s Internet Market (INSEAD) 2008

Subjects: Online search industry, winner-take-all, two-sided market, competitive dynamics

Synopsis: This class explores how to develop, compete, and envelop a platform that appears winner-take-all effects when a consumer’s utility depends on how many others are using the same platform. In particular, the case describes the battle between world’s leading search engine Google and China’s local entrepreneurial firm Baidu.com in the country with second largest internet population in the world.

Key Questions:What are Baidu’s challenges ahead? How would Google.cn fight back?

November 13 ThursdaySession 8: Disruptive Strategy in Chinese Firms’ Internationalization

Read: “Economics of Strategy”: Chapter 6: Competitor and Competition Case: Chery Automobile Company: Evolution of the Chinese Automobile

Industry (HKU) 2007Subjects: Automobile industry, disruptive technology, competitive entry strategies,

internationalizationSynopsis: The class discusses whether Chinese firms can develop disruptive

business model to enter into global markets when they are mostly dominated by western multinationals. Specifically we discuss the strategies Chery can play a role in the global automobile market.

Key Questions:How should Chery enter into the global automobile market?

November 18 TuesdaySession 9: Multinationals’ Strategy in China

Case: McDonald’s and KFC in China (INSEAD) 2008Subjects: fast food industry, presumptive adaptation, foreign entry, global strategy Synopsis: McDonald’s and KFC are the two largest quick service restaurants in

the world, with 31,377 and 14,892 outlets respectively. Both chains have rigid management and supply chain systems and are renowned for their consistency in operation and attention to quality.  McDonald’s appears to

be a clear winner in its international expansion. However, it is a totally different picture in China. At the end of 2007, KFC has over 2000 outlets in China, with an average of nearly 20.1% profit margin; On the other hand, McDonald’s number of outlets in China is only at 800 outlets, with an estimated profit margin significantly less than KFC. What leads to the difference in expansion? How can McDonald’s, as a late comer and the second largest QSR player in China, catch up with KFC with its advantages from global leadership?

Key Questions:How should McDonald’s catch up with KFC in China’s fast food industry?

November 20 ThursdaySession 10: Student Group Project Presentations and Final Recap

Recap: Integrating theories, frameworks, tools for competitive analysis

Teaching MethodsThis course honors an active and collective learning approach. It consists of a brief summary of theories and frameworks, thorough discussion of a representative case, and learning-by-doing applications in the classroom. Instructor facilitates class discussion to help students learn from others. Outside the classroom, students are expected to work as a group to share diverse views and brainstorm solutions for a case and project and then share their findings to fellow classmates.

TextbooksThe recommended textbook for the course is:

David Besanko, David Dranove, Mark Shanley, and Scott Schaefer. Economics of Strategy, Wiley, 4rd edition, 2007.

Readings from the textbook and other articles assigned for the sessions give complementary perspectives and references to the relevant concepts. The textbook provides neat framework for analysis and the articles provide applications.

Rules students must followRule of Three:

1. Be prepared before the class. This is a highly interactive discussion course. Active preparation and participation is the key to the amount of take-away for everybody in the classroom.

2. Be on time for the class and respect your fellow classmate during class discussion. Please listen to other’s talking, switch off your mobile phones and do not chat online, surf web or send emails during class.

3. Maintain academic honesty at all times. The penalties for plagiarism are significant.

Course AssessmentCourse requirements include active class participation, a case write-up, and a more substantial group project.

Grading: Class participation: 40%Case write-up: 20%Final project: 40%

Class Participation: Class participation refers to the quality and quantity of your contributions to classroom discussion, particularly by applying concepts, frameworks and tools and providing insights for the case analysis. Class attendance is expected. Truly exceptional situations requiring that you miss class will be accepted provided that you send me notification by email prior to the absence.

Case Write-up: Case analysis write-up gives you an opportunity to apply strategy concepts and frameworks to a real situation and provide recommendations. You will need to put together a team of 3-5 people to conduct one case write-up. The case analysis write-up is expected to be 3 pages. Write-ups are due at 10 pm the day BEFORE class starts, and should be submitted by email to weiru.chen@gmail.com.

Note also that your group might expect to present your analysis and recommendations in your case write-up for 5-10 minutes in the class. The group is encouraged to discuss with the instructor on the direction and approach to analyze your case. The group should send the instructor the slides (no more than 2 slides) by 10 pm the day BEFORE the class.

Final Project: The final project allows you to do a more thorough strategic analysis of an industry or a company of your choice. An in-depth analysis plus recommendations is required. The length is expected around 15 pages, excluding exhibits. Your group will present the project in the last class. I’d like to work with you through the learning process: please submit by email a one-page abstract/proposal of your group project by Oct 23, a working-in-process draft of your group project by Nov 10, and the presentation slides (no more than 5 pages) before Nov 18. Please incorporate feedback obtained from the instructor and peer participants during your presentation into your final draft of the project. The deadline for final group project is 10 pm on Nov 25. Both the presentation and the written report will contribute to the grade. Below are some samples of titles:

Battle for the Living Room: Digital Convergence Luxury for the Masses: Lego and the toy industryAnalysis of Low-cost Carriers in China

Cola Wars to Water Wars - The Evolution of Bottled Water IndustryVertical Integration in the Russia Oil Industry

About the Instructor

I am an Assistant Professor of Strategy at INSEAD, the world’s top executive education provider. I got my Ph.D. in strategic management at Purdue University in the U.S.—the first school to offer a PhD program in strategic management. I’ve been at INSEAD since 2003, where I teach industry and competitive analysis (ICA) and innovation and technology strategy (ITS) to MBAs and PhDs. I was selected as the Outstanding Teacher of Elective Courses in the Academic Year of 2005 by MBA students in INSEAD’s Asia campus. At Purdue University, I was also elected the Best Teaching Award by undergraduate students in the Krannert School of Management when I taught the strategy core course in 2002. I assisted Purdue’s Executive MBA programs in Germany and advised some Asian multinational companies’ strategic planning in their early internationalization stages.

My research interests include firms' technological search behaviors, risk management, and strategy dynamics.  My work has been published on the world’s leading academic journals, such as Academy of Management Journal, Organization Science, Strategic Management Journal, and Strategic Organization.  My dissertation on firm search behavior received the Best Dissertation Runner-up Award in technology and innovation management in its year. My research on firms' forward-looking and backward-looking search behavior has been selected in the Best Paper Proceeding of the Academy of Management Conference. Another paper on firms’ decision making under uncertainty was awarded the Best SMS Conference Paper (Honorable Mention) in the Annual International Conference of Strategic Management Society. I am currently studying search behavior of Indian business groups and presumptive adaptation of foreign franchises in China.

I am married with two babies. In leisure, I like travel, photography, and swimming. Look forward to having intellectual discussion with you in the class.