Organizing and Structuring Global Operations

•  Case: ECCO A/S

International Business

Globalization And Economic

Markets

Strategy; Structure;

People

Political and Cultural Systems

Markets Culture Managing

Topic Case Reading

Global Environment

Globalization Sadhu Chapter 1; Debates

International Trade WTO Chapter 2

International Economic Integration

The Great Recession

Chapter 8

Global Markets and Culture

Culture Silvio Chapter 6

Ethics Corruption in the USA

Chapter 19

International Business Management

International Entry Strategy Cola Wars Chapter 10

Global Firm Structure ECCO A/S Chapter 11

Course Road Map

Road Map

1.  Economist article

2.  Review

3.  ECCO Case

v The objective of global strategy is to manage differences

v Global strategy requires tradeoffs—focus on one or two strategies at a time [e.g., responsiveness, integration, arbitrage]

v Structure and people management practices should align with strategy

v Employ multiple integration mechanisms

v Effectively managing knowledge is the key factor in successful global operations

Review from last week

Benefits of Global Integration and Local Responsiveness

§  Lower costs §  scope advantages §  scale advantages

§  Integration of resources and competencies §  meet global client needs

§  Standardization as control mechanism §  Global leader

§  Local citizen §  Responsiveness

§  customization §  flexibility §  speed

Inte

grat

ion

Responsiveness §  Boost local sales §  Access to local resources §  Innovation

§ Ideas new to the firm § Capitalization on local talent

Oracle

Sanyo

IBM

Shell

Nestle

GE

Global structure map for managers

Advertising-to-Sales

Ghemawat, 2007

R&D-to-Sales

Labor-to-Sales

10%

20%

7% 6%

55%

10%

100%

1% .75%

Median

90th percentile

Today’s Objectives

v Understand industry analysis

v Understand core competencies and drivers of competitive advantage

v Understand the importance of global value chain analysis

v Understand the difference between in-house and outsourcing (offshoring)

v  http://www.youtube.com/watch?v=CA9EGLaqFNk&feature=fvw v  http://www.youtube.com/watch?v=Zh-b_ILPM3I v  http://www.youtube.com/watch?v=c9otUdZ2d_4 v  http://www.youtube.com/watch?v=v2PqTN04c6Y&feature=related v  http://www.youtube.com/watch?v=HnYHGFVVR5w

What is the competitive environment like for

ECCO? How well are they positioned?

v SWOT Analysis:

Additional Industry Analysis Tools

Numerous Environmental Opportunities

Substantial Internal

Strengths

Major Environmental Threats

Critical Internal

Weaknesses

Overcome Weaknesses Grow

Diversify Restructure

Bargaining Power of Suppliers

Threat of New Entrants

Rivalry among Existing

Competitors

Bargaining Power of Buyers

Threat of Substitutes

Porter’s Five Forces Model

Barriers to Entry What factors keep potential competitors out?

v  Scale economies §  e.g., aerospace industry

v  Scope economies §  e.g., retailing

v  Capital requirements §  e.g., aerospace industry

v  Switching costs §  e.g., MSDOS operating system

v  Access to distribution §  e.g., Campbell soup

v  Entry deterring regulations §  e.g., Tobacco

D

A

B C

Industry

Bargaining Power of Suppliers

Threat of New Entrants

Rivalry among Existing

Competitors

Bargaining Power of

Buyers

Threat of Substitutes

Nature and Focus of Rivalry Why industries are more or less “competitive”?

v  Factors §  Industry growth rates

•  Where to secure growth

§  Exit barriers •  e.g., specialized assets, emotional barriers

§  Fixed costs •  e.g. capacity increments

§  Lack of product differentiation •  e.g. differences in functionality, performance

§  Switching costs

A

B C

Industry

Competitive rivalry can focus on many factors, including price, quality, technology, features, service, etc.

Bargaining Power of Suppliers

Threat of New

Entrants

Rivalry among Existing

Competitors

Bargaining Power of

Buyers

Threat of Substitutes

Supplier or Buyer Power How can my suppliers or customers extract value

v  Buyer Power v  Supplier Power

Supplier concentration • Few vs many suppliers

Supplier volume • Large vs small purchase decisions

Product differences • Dependence on unique features

Threat of forward integration • Ability to become competitor

Switching costs • Limitations on ability to change suppliers

Buyer concentration • Few vs many customers

Volume of purchases • Large vs small purchase decisions

Available alternative products • Competitive products

Threat of backward integration • Ability to become a competitor

Switching costs • Threat of switching suppliers

Bargaining Power of Suppliers

Threat of New Entrants

Rivalry among Existing

Competitors

Bargaining Power of

Buyers

Threat of Substitutes

Threat of Substitutes What alternatives are available to customers

v  Direct substitution with the same functionality §  diesel vs gas engines §  DirecTV vs cable

v  Eliminating need for product §  water meters vs flat rate

A

B C

Industry

Customers

D

Bargaining Power of Suppliers

Threat of New

Entrants

Rivalry among Existing

Competitors

Bargaining Power of

Buyers

Threat of Substitutes

Successful Strategies Should:

v  Reduce the threat of substitution §  (e.g., incorporate their benefits)

Bargaining Power of Suppliers

Threat of New Entrants

Rivalry among Existing

Competitors

Bargaining Power of

Buyers

Threat of Substitutes

Minimize buyer power

• (e.g., build customer loyalty)

Offset supplier power • (e.g., alternative source(s))

Avoid excessive rivalry

• (e.g., attack emerging vs entrenched segments)

Raise barriers to entry • (e.g., make preemptive investments)

SUPPLIER POWER HIGH

• strong labor unions • concentrated aircraft makers

THREAT OF ENTRY HIGH

• entrants have cost advantages • low capital requirements • little product differentiation • deregulation of governmental barriers

INDUSTRY COMPETITIVENESS

HIGH • many companies • little differentiation • excess capacity • high fixed/variable

costs • cyclical demand

THREAT OF SUBSTITUTES

MEDIUM

• Autos/train for short distances

BUYER POWER MEDIUM/HIGH Buyers extremely price sensitive Good access to information Low switching costs

Source: J. de la Torre

SUPPLIER POWER LOW

THREAT OF ENTRY LOW

• economies of scale • capital requirements for R&D and clinical trials • product differentiation • control of distribution channels • patent protection

INDUSTRY COMPETITIVENESS

LOW

• high concentration • product differentiation • patent protection • steady demand growth • no cyclical fluctuations

of demand

THREAT OF SUBSTITUTES LOW

No substitutes. (Changing as managed care

encourages generics.)

BUYER POWER LOW Physician as buyer: Not price sensitive No bargaining power. (Changing with managed care.)

Source: J. de la Torre

Examine ECCO’s global value chain. How well do they match their industry?

What is a value chain?

Takeaways from Today

v  Industry analysis means understanding my competitors and the market and environment factors that influence my company

v Competitive advantage comes from differentiating yourself from other companies in your industry or beating them at their game

v Value chain mapping helps us understand how to integrate the organization

v Outsourcing operations makes integration difficult… but not impossible