What

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Whats Happening?!
Comcast to offer Internet telephone service in
early 2006.
Semiconductor industry is projecting a slowdown
in demand this year that should bounce back in
2006.
Cisco is going to sell EMC storage devices.
MacWorld is in San Francisco today.
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Fortune 500 Best Places to Work
4. Genentech 5. Xilinx 13. Adobe Systems 24.
Network Appliance 27. Cisco Systems 43.
Symantec 64. Intuit 79. Granite Construction 91.
Morrison Foerster
1. Wegmans Food Markets, New York
Not on the list HP and Intel
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Analysis Term Paper Assignments
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Key Factors

• Industry definition.
• Big Picture data regarding the industry.
• Business and IT leaders.
• Porter Competitive Model analysis.
• Business Strategy Model.
• Identifying strengths and weaknesses of the
  company.
• Figuring out who runs the business on a
  day-to-day basis and the relationship with the
  person running the IS organization.
• Concluding what the company changed through the
  use of Information Systems.

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The Information Technology Environment
Administrative Framework Regulated Monopoly Fre
e Market Regulated Free Market
Primary Target
Justification/ Purpose
ERA I Data Processing ERA II End User
Computing ERA III Strategic Systems
Productivity/ Efficiency
Organizational
Individual
Effectiveness
Business Processes
Competitive Advantage
Source Cash, McFarlan, McKenney and Appleton,
Corporate Information Systems Management,
Richard D. Irwin,1992, 3/E, p. 11, adapted.
Figure 1-5
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How Fragile is Business Success?
How much of the answer to this question is
related to business leadership and strategies?
How much of the answer to this question is
related to information technology leadership
and strategies?
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IT Significance
If your business lives by information technology
can it also die by information technology?
How much of an IT dependency does a company have?
How much change must they deal with in defining
their business to be successful in the future?
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A Quick IS Assessment

• 1. How is Business?
• 2. Is the Information Systems Manager a Member of
  the Top Management Team?
• 3. What Percentage of the Operating Budget of the
  Business is for Information Systems?

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Examples of Successful Company Use of I/S to
Compete

• Boeing Airplane Company
• Wal-Mart Stores
• Bissett Nursery Corp.
• Federal Express
• Charles Schwab
• USAA
• L.L. Bean
• Progressive Corp.

Your quota is 5 companies!
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Best ISTC Industries

• Transportation Industry
• American Airlines
• American President Co.
• British Airways
• CSX
• Delta Airlines
• FedEx
• Singapore Airlines
• Union Pacific
• United Airlines
• UPS

• Retail Industry
• L. L. Bean
• Dillards Dept. Store
• The Gap
• Home Depot
• Kmart
• Mens Wearhouse
• Mervyns
• J C Penney
• Toys R Us
• Wal-Mart Stores

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Worst ISTC Industries

• Construction Industry

Petroleum Industry
Federal Government
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Can the IS be right if
1. The business climate is bad.
2. The business strategy is wrong.
3. The business leadership is wrong.
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Business Strategy and IS

• Concepts.
• Relative To (Bigger Picture).
• Company Examples.

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Conclusions
To logically and effectively position information
systems within an organization one must begin by
understanding the environment and the company
itself. Then and only then can you understand
the significance of the role of information
systems.
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Chapter 1 Summary

• Business and
• Information Systems
• Management

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Key Messages
To logically and effectively position information
systems within an organization, one must begin by
understanding the environment and the company
itself.

• Business Success
• Business Success Factors
• 3 Necessary Perspectives
• Simultaneous Revolutions
• Business Driver Model

• Using IS to Compete
• Systematic Approach
• Objective of IS
• Successful Use of IS

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Business Success

• Purpose to create a customer. Goal
  satisfaction of customer needs.
• Provide value to customers through Marketing and
  Innovation.
• A successful business is responsive, flexible,
  adaptable, innovative, resilient, talented and
  financially strong.
• Competitiveness and Globalization
• Market leader benefits

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Three Necessary Perspectives
Business Success

• Business Environment
• Enterprise Environment
• IT Environment

Figure 1-1
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SIMULTANEOUS REVOLUTIONS
NEW COMPETITORS
NEW RULES OF COMPETITION
NEW POLITICAL AGENDAS
INDUSTRY STRUCTURE CHANGES
THE BUSINESS
NEW TECHNOLOGIES
NEW REGULATORY ENVIRONMENT
NEW EMPLOYEES AND NEW VALUES
EVER INCREASING CUSTOMER EXPECTATIONS
Figure 1-2
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Business Drivers
Market
Technology
Employees/ Work
Regulation
Organization
Business Processes
Solutions to Business Requirements
Figure 1-3
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Using IS to Compete

• Goal Create the Necessary Environment to Use
  Information Systems to Compete.
• Roles of IS
• Efficiency
• Effectiveness
• Competitive Advantage

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Systematic Approach to IS
Vision Strategy Tactics Business Plan

• Competitive Options
• Roles, Roles, and Relationships
• Redefine/Define
• Telecommunications as the Delivery Vehicle
• Success Factor Profile

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Possible Exam Questions
1. What is the purpose of a business? What
factors contribute to the success of a
business? 2. Why are three different perspectives
needed to understand the significance of IS
within a company? What are they? 3. What factors
help determine whether a company should decide to
use information systems to compete?
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Chapter 2 Introduction

• Business Competitive Environment

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Objective of the Chapter

• Define competitiveness.
• Understand the role of the host country relative
  to the global competitiveness of companies based
  within the country.
• Understand the necessary role of businesses and
  government relative to competitiveness.
• Points 2 and 3 will dictate an understanding of
  the Diamond of National Advantage.

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Defining Competitiveness

• The degree to which a nation can, under free
• and fair market conditions, produce goods and
• services that will meet the test of international
  
• markets while simultaneously maintaining or
• expanding the real income of its citizens.

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Competitiveness A Link to National Goals
31
Who Makes This Happen?

• Governments cannot legislate success.
• Governments provide the infrastructure and/or the
  environment for companies to compete.
• Fiscal and monetary policy
• Education system
• Protection of intellectual property rights
• Other factors that are prerequisites to compete
  within a specific industry.
• Governments do not compete, companies do.

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How is Competitive Advantage Gained?

• Providing value to the customer.
• What is a good strategy for this?
• Produce quality products and services through
  effective leadership of skilled employees using
  advanced methods through the innovative use of
  technology.
• Boils down to Work smarter not harder.

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The Diamond of National Advantage
34
The Diamond of National Advantage

• Factor Conditions The prerequisites to compete
  in a specific industry
• Transportation
• Communications
• Logistics
• Personnel training as a product of education
  system
• Etc.

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The Diamond of National Advantage

• Demand Conditions The sophistication of the
  customers demand.
• More sophisticated demands means more difficult
• competition which forces the company to
• compete more effectively.

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The Diamond of National Advantage

• Related and Supporting Industries Home-based
  suppliers who are also successful competitors on
  the international level.

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The Diamond of National Advantage

• Firm Strategy, Structure and Rivalry How
• companies are created, structured and managed
• and how they compete in the domestic market.
• Varies from country to country based on a
• number of different factors.

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The Diamond of National Advantage

• Role of the Government Serve as an enabler,
• challenger and catalyst to companies so that
• they can compete successfully.
• Role of Companies Create pressure within
• the company for innovation and welcome the
• challenge to compete against the best in the
• industry.

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Chapter 2

• Business Competitive
• Environment

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Position Some Important Factors

1. The definition of competitiveness. 2. The role
of the nation relative to companies that compete
successfully on a global basis. 3. The role of
government within a nation. 4. Things that
companies need to emphasize. While contemplating
the idea that information technology could make
a difference.
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Global Economy
Why the emphasis on globalization and the
importance of global competition?
42
Business Environment
The global market will come to you, if you dont
go to it.
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An Essential Roadmap?
Do nations play a significant role that enable
companies and individuals to build wealth in a
knowledge-based global economy?
How significant in creating wealth are
breakthrough technologies in microelectronics,
biotechnology, new materials, telecommunications,
robotics, and computers?
Do these factors explain why relatively new
industries are growing explosively and existing
industries are being transformed?
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US Status

• In the 1990s the US was the run away leading
  performer
• in the industrial world.

• The US claimed nine of the ten largest companies
  in the
• world by 1998 compared to only two in 1990.

• Nine of the fifteen most profitable banks are in
  the US
• compared to none in 1990.

• The wealthiest man in the world is an American.

• American billionaires measure in the hundreds.

• US stock markets remain relatively high.

• Interest rates are at a forty year low.

• Inflation has been a minor issue.

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Some Important Questions

• Is the US prosperity sustainable?

• Is global integration a boon or a threat to this
  prosperity?

• Should global integration be slowed?

• What rules should be applied to the creation and
  protection
• of new ideas. (intellectual property rights)

• Can nations create a social system in which
  entrepreneurial
• spirit can flourish without also creating
  income and wealth
• inequities that threaten the system?

• What skills are needed to succeed in this new
  economy?

• How serious is the competitive threat of the
  European Union?

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Global (International) Trade
The US is not in isolation to the rest of the
world!
The US has truly become a global economy. 1950 -
Global trade represented 10 of the US
economy. 2000 - Global trade was nearly 25 of a
much bigger US economy.
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Foreign Direct Investment
Since 1985 foreign direct investment in the US
has increased five-fold. Five percent of the
total labor force works for companies that are
wholly or partially foreign owned.
Employees of companies that work for companies
that export earn more than those that do
not. Forty percent of productivity improvements
are in exporting companies.
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What Countries Own

• Finland

• Nokia
• Burger King
• Chrysler
• Airbus
• Benetton
• Gillette
• Shell

• UK

• Germany

• France, Spain, UK, Germany

• Italy

• US

• Netherlands

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A Complex Political Environment
Three of five American registered voters approve
of free trade. Most agree that imports give them
a larger selection of goods to choose from and
that foreign competition forces US companies to
be more competitive. They also feel that imports
help lower-income families afford a higher
standard of living by lowering prices. They have
concerns regarding the environment, human rights,
jobs, taxes, societal problems and sovereignty.
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Trade Issue Attitudes
Attitudes lie along income, education, age and
gender divides. Free trade proponents tend to be
those that see themselves benefiting from
globalization men, those that are better
educated, richer and live in cities. Those who
question globalization include women, the
elderly, those who are less well educated or
poorer and those that live in rural areas.
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How Trade Works
General Agreement on Tariffs and Trade (GATT) A
loose agreement that had a restricted scope and
limited powers based on an agreement that was
originally signed in the late 1940s.
World Trade Organization (WTO) Created in 1995,
the WTO has the job of administering trade
agreements, resolving trade disputes and
conducting future trade negotiations.
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WTO
WTO members must abide by the groups rulings.
The most important of which is to give every
member the same set of low tariffs and other
favorable trade rules.
The most significant recent development was the
admission of China to the WTO in 2000.
53
Michael Porter Contributions

• 1985 - Presidential Commission and
• Competitiveness Definition
• 1987 - Competitive Model and Value Chain
• 1990 - Competitiveness of Nations Study
• Present - Institute for Strategy and
  Competitiveness,
• Harvard Business School

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Presidential Commission Letter 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. Young Chairman Presidents Commission on
Industrial Competitiveness
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Competitiveness Definition
The degree to which a nation can, under free and
fair market conditions, produce goods and
services that will meet the test of international
markets while simultaneously maintaining or
expanding the real income of its citizens.
Source Presidents Commission on
Industrial Competitiveness
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Competitiveness A Link to National Goals
Stronger National Security
Decreased Budget Deficit
Human Resources
Trade Policy
Improved Domestic Performance
Increased World Market Competitiveness
More and Better Jobs
Capital
Increased Standard of Living
Reduced Trade Deficit
New Competition
Technology
Figure 2-1
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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.
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Who is going to make it happen?

• Government cannot legislate competitive success.
• Government should highlight the importance of
  competitiveness.
• Everyone must recognize the competitive challenge
  and its significance.

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How Does a Company Compete?
If the bottom line to a business is profit, then
the top line is value to customer.
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A Good Possible Strategy?
To produce quality products and services through
effective leadership of skilled employees using
advanced methods through the innovative use of
technology.
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A Good Competitor

• Knows its products and services.
• Knows its customers.
• Knows its competitors.

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Competitiveness of Nations
The striking internationalization of competition
in the decades after World War II was accompanied
by major shifts in the economic fortunes of
nations and their firms.
1. Where did this happen? How did this happen?
2. What can one learn from this?
3. What can companies and countries do with this
knowledge?
63
Competitiveness of Nations
Why (how) are companies in a particular nation
able to gain a dominant competitive position in
a specific industry on a global basis against the
worlds best competitors?
64
Competitiveness of Nations
The point of all of this

• Helps to anticipate from which country future
  competition is likely to come from?
• Helps to understand at least in basic terms the
  types of companies that will be primary
  competitors?
• Could help to anticipate what could be their
  primary competitive strategies?

65
Nations do not compete!
Organizations Compete Within Industries
What is the role of the nation?
66
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

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To Understand Competitiveness

• 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.

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A Major Message
The role of the nation has increased as
competition has shifted more to the creation and
assimilation of knowledge.
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Competitiveness of Nations Study

• Denmark
• Germany
• Italy
• Japan
• Korea
• Singapore
• Sweden
• Switzerland
• United Kingdom
• United States

• Copenhagen School of Economics
• Deutsche Bank
• Ambrosetti Group (transportation company)

• MITI, Hitotsubashi University and the
  Industrial
• Bank of Japan
• Seoul National University
• Economic Development Board

• Institute of International Business, Stockholm
  School
• of Economics

• University of Basel, University of St. Gallen,
  Union
• Bank of Switzerland
• The Economist
• Harvard Business School

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Competitiveness of Nations Study

• Denmark
• Germany
• Italy
• Japan
• Korea
• Singapore
• Sweden
• Switzerland
• United Kingdom
• United States

If were to initiate a similar study today, what
country or countries would you possibly eliminate?
If you were to initiate a similar study today,
what country or countries would you probably add?
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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 Chem
icals Cutlery Eyeglass Frames Harvesting/Threshing
Combines Optical Instruments Packaging,
Bottling Equipment Pens and Pencils Printing
Presses
Rubber, Plastic Working Machinery X-ray
Equipment Italy Ceramic Tiles Dance Club
and Theater Equipment Domestic
Appliances Engineering/Construction Factory
Automation Equipment Footwear Packaging and
Filling Equipment Ski Boots Wool Fabrics
Japan Air Conditioning Machinery Home
Audio Equipment Car Audio Equipment Carbon
Fibers Continuous Synthetic Weaves Facsimile
Equipment Forklift Trucks Microwave and
Satellite Communications Equip. Musical
Instruments Optical Elements and
Instruments
Robotics Semiconductors Sewing Machines Shipbuildi
ng Tires for Trucks and Buses Trucks Typewrit
ers Videocassette Recorders Watches
Korea Apparel Automobiles Construction Footwear Pi
anos Semiconductors Shipbuilding Steel Travel
Goods Video and Audio Recording Tape Wigs
Singapore Airlines Apparel Beverages Ship
Repair Trading
Sweden Car Carriers Communication
Products Environment Control
Equipment Heavy Trucks Mining Equipment Newsprint
Refrigerated Shipping Rock Drills Semihard Wood
Flooring Teller-operated Cash
Dispensers Switzerland Banking Chocolate Con
fectionery Dyestuffs Fire Protection
Equipment Freight Forwarding Hearing Aids Heating
Controls Insurance Marine Engineers Paper Product
Mfg. Equipment Pharmaceuticals Surveying
Equipment
Textile Machinery Trading Watches United
States Advertising Agricultural
Chemicals Commercial Aircraft Commercial
Refrigeration and Air-Conditioning Computer
Software Construction Equipment Detergents Enginee
ring and Construction Motion
Pictures Patient Monitoring
Equipment Syringes Waste Management Services
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United States
Advertising Agricultural Chemicals Commercial
Aircraft Commercial Refrigeration and
Air-Conditioning Computer Software Construction
Equipment Detergents Engineering and
Construction Motion Pictures Patient Monitoring
Equipment Syringes Waste Management Services
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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.
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Diamond of National Advantage
Firm Strategy, Structure and Rivalry
Chance
Factor Conditions
Demand Conditions
Related and Supporting Industries
Government
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Competitive Success Is Not the Direct Result of

• Natural Resources
• Labor Pool
• Interest Rates and Currency Value
• Economies of Scale

. . . Traditional Economic Thinking
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Factor Conditions
The nations position in factors of
production that are prerequisites to compete in a
specific industry.

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

While some factors could be based on natural
resources, a nation usually does not inherit but
creates the most important factors.
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Possible Factor Conditions

• 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.

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Possible Factor Conditions

• Infrastructure Type, quality, and user cost.
• Transportation
• Communication
• Mail/freight Delivery
• Health Care
• Schools
• Housing Stock

. . .Quality of life--to live and to work.
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Possible Factor Conditions
Capital Resources (Amount and cost of money)

• Secured Debt
• Unsecured Debt
• Venture Capital
• Savings Rate
• Tax Incentives
• Fiscal and Monetary Policies

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Possible Factor Conditions
Knowledge Resources Scientific, technical and
market knowledge that pertains to goods and
services.

• Universities
• Government Research Facilities
• Private Research Facilities
• Business and Scientific Literature
• Market Research Databases
• Trade Associations

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Factor Condition Consideration
Human, knowledge and capital factors are
mobile. Other elements of the diamond are more
important to explain international success.
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Therefore
Competitive advantage from factor conditions
depends on how effectively and efficiently they
are mobilized and deployed in the economy.

83
Study Conclusion
The Japanese created and expanded needed factors
at a rate far exceeding that of all other nations.
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Factor Conditions US Semiconductor Industry

• Universities to train engineers and other
• professional technical employees.
• Economical space for manufacturing facilities.
• Good transportation facilities.
• Good communications system.
• Access to raw materials.
• Water.

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Brazilian Chicken Industry

• Second largest chicken producer after the US.
• Two large poultry companies Perdigao and Sadia.
• Has factor condition advantages
• A large domestic market that allows an
• economy of scale.
• A large number of farmers to raise chickens.
• Cheap, abundant corn and soya for chicken feed.

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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.

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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.

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First Strategy, Structure and Rivalry
The way in which companies are created, managed
and choose to compete domestically.
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Firm Strategy, Structure and Rivalry

• Study Findings
• Company and individual goals vary.
• No one management style is universally
  appropriate (or common).
• 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 varied.

90
Country Examples

• Germany
• Italy
• Japan

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Firm Strategy, Structure and Rivalry

• Germany
• The preeminent trading nation when considering
  the entire postwar period.
• The breadth and success of German industries
  can only be
• understood in a historical
  context--achieved over decades.
• Have a very international orientation and export
  early.
• Industry success includes a wide range of
  industries but Germany does not dominate them as
  does the U.S. or Japan.
• International success is built on many small and
  medium sized companies.
• They compete in highly sophisticated products and
  segments rather than high-volume ones.

92

• The economy is extensively clustered.
• There is wide-spread private ownership.
• The structure of companies tends to be
  hierarchical and patriarchal.
• Managers and workers are well trained in their
  industries.
• Pragmatism characterizes German management.
• 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.
• Managers maintain an enduring relationship with
  employees.
• Companies are particularly adept at complex
  production processes.
• Selling is technical versus advertising or
  intangible appeals.
• Complex product are supported by similar service
  requirements.

93

• Achieve high levels of customer loyalty.
• Labor is very organized and is represented on
  company boards.
• New business formulation has traditionally been
  weak but has changed in the past decade.
• 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 product diversification is rare.
• Companies 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.

94
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

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• 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 had 33 or
more of the worlds export market.
96
German Companies
BASF 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)
97
Firm Strategy, Structure and Rivalry

• Italy
• Joined the ranks of advanced nations in the past
  two decades.
• Overall growth in world export share was second
  only to Japan.
• Illustrates the power of a growing alignment
  between national circumstances and the shifting
  demands of modern global competition.
• 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
  in state-of-the-art production equipment.
• Achieved advantage based on segmentation,
  differentiation and process innovation.

98

• The worlds leading exporter in textile/apparel,
  household goods and personal products and third
  in food and beverages.
• Are generally not successful where
  standardization, high-volume mass production, or
  heavy investments in fundamental research are
  involved.
• Companies tend to be highly specialized and
  compete through constant model changes.
• 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.
• Successful industries are highly clustered
  including geography.
• Remains a study in contrasts--industry successes
  and failures.
• Clearly contradicts its image as a country.

99

• 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.
• Most companies are privately owned and owners,
  managers and workers are closely attached to an
  industry.
• Deal with customers on a family-like and personal
  basis.
• Business is important and a magnet for talented
  individuals.
• Entreprenuership thrives in Italy--they are risk
  takers who are individualistic and desire
  independence.
• These factors lead to a long-term orientation and
  a commitment to sustained investment.

100
Italy Share of Total 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 worlds
export market.
101
Italian Companies

• 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

102
Small Businesses in Italy
(Less than 100 employees)

• Exemplify flexibility and thrive in niche
  markets.
• Provide more than 2/3 of private-sector
  industrial employment.
• Escape many of Italys oppressive labor laws.
• Exports increased 20 during a down economy.
• 99 of Italys small businesses are owned by one
  or two families.
• To survive Asian competition they concentrate on
  a higher level of specialization and devote more
  time to quality and innovation versus price.
• Many companies were founded following the end of
  WWII.

103
Firm Strategy, Structure and Rivalry

• Japan
• Not far behind Germany in becoming a world
  economic power.
• Lacked Germanys 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.

104

• Possesses a large pool of literate, educated and
  increasingly skilled human resources.
• Created and upgraded needed factors that far
  exceeded that of all other nations.
• Benefit from a large pool of trained engineers.
• A technical orientation is pervasive and many
  managers have
• engineering backgrounds.
• 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.

105

• An international outlook promoted by the amount
  of domestic rivalry is the single biggest
  explanation for the success of Japanese
  industries.
• Japanese companies often define their goals in
  terms of volume and market share.
• Strategies often follow a path of standardization
  and mass production with a major emphasis on
  quality.
• Companies relentlessly upgrade their competitive
  advantage.
• Ownership of companies is predominantly held in
  institutions and other companies.
• Workers define their status on how well the
  company is doing.
• Continual learning is emphasized and accepted.
• Have become more willing to form new companies.

106
Japan Share of 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
• Machines 62.0
• Outboard Marine Piston Engines 61.0
• Electric Gramophones 59.0

107

• 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

108

• 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

109

• 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
the worlds export market share.
110
Japanese Companies

• 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.

111
Study Postscript
What happened to Japan since 1990?
1. The second largest economy in the world.
2. Arrogance based on what they had accomplished
including an assumption that the only way
their economic endeavors would go is up.
3. A rigidity in approach that takes too long in
a fast paced, global economy.
112
Forget the North Pole!

• Santas Workshop is in China

113
Ironic
What makes Christmas festive for Americans is
produced in the worlds officially atheistic
country.
What this picture provides is a lesson in
globalization and an example of how trade and
tradition have brought together China and the US
in a mutually beneficial relationship.
114
Country Examples

• Germany
• Italy
• Japan

115
Firm Strategy, Structure and Rivalry

• Germany
• The preeminent trading nation when considering
  the entire postwar period.
• Have a very international orientation and export
  early.
• International success is built on many small and
  medium sized companies.
• They compete in highly sophisticated products and
  segments rather than high-volume ones.
• 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 Germany does not dominate them as
  does the U.S. or Japan.

116

• The economy is extensively clustered.
• There is wide-spread private ownership.
• The structure of companies tends to be
  hierarchical and patriarchal.
• Managers and workers are well trained in their
  industries.
• Pragmatism characterizes German management.
• 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.
• Managers maintain an enduring relationship with
  employees.
• Companies are particularly adept at complex
  production processes.
• Selling is technical versus advertising or
  intangible appeals.
• Complex product are supported by similar service
  requirements.

117

• Achieve high levels of customer loyalty.
• Labor is very organized and is represented on
  company boards.
• New business formulation has traditionally been
  weak but has changed in the past decade.
• 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.

118
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

119

• 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 worlds export market.
120
German Companies
BASF 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)
121
Firm Strategy, Structure and Rivalry

• Italy
• Joined the ranks of advanced nations in the past
  two decades.
• Overall growth in world export share was second
  only to Japan.
• Illustrates the power of a growing alignment
  between national circumstances and the shifting
  demands of modern global competition.
• 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
  in state-of-the-art production equipment.
• Achieved advantage based on segmentation,
  differentiation and process innovation.

122

• The worlds leading exporter in textile/apparel,
  household goods and personal products and third
  in food and beverages.
• Are generally not successful where
  standardization, high-volume mass production, or
  heavy investments in fundamental research are
  involved.
• Companies tend to be highly specialized and
  compete through constant model changes.
• 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.
• Successful industries are highly clustered
  including geography.
• Remains a study in contrasts--industry
  successes and failures.
• Clearly contradicts its image as a country.

123

• 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.
• Most companies are privately owned and owners,
  managers and workers are closely attached to an
  industry.
• Deal with customers on a family-like and personal
  basis.
• Business is important and a magnet for talented
  individuals.
• Entreprenuership thrives in Italy--they are risk
  takers who are individualistic and desire
  independence.
• These factors lead to a long-term orientation and
  a commitment to sustained investment.

124
Italy Share of Total 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 worlds
export market.
125
Italian Companies

• 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

126
Small Businesses in Italy
(Less than 100 employees)

• Exemplify flexibility and thrive in niche
  markets.
• Provide more than 2/3 of private-sector
  industrial employment.
• Escape many of Italys oppressive labor laws.
• Exports increased 20 during a down economy.
• 99 of Italys small businesses are owned by one
  or two families.
• To survive Asian competition they concentrate on
  a higher level of specialization and devote more
  time to quality and innovation versus price.
• Many companies were founded following the end of
  WWII.

127
Firm Strategy, Structure and Rivalry

• Japan
• Not far behind Germany in becoming a world
  economic power.
• Lacked Germanys 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.

128

• Possesses a large pool of literate, educated and
  increasingly skilled human resources.
• Created and upgraded needed factors that far
  exceeded that of all other nations.
• Benefit from a large pool of trained
  engineers.
• A technical orientation is pervasive and many
  managers have
• engineering backgrounds.
• 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.

129

• An international outlook promoted by the amount
  of domestic rivalry is the single biggest
  explanation for the success of Japanese
  industries.
• Japanese companies often define their goals in
  terms of volume and market share.
• Strategies often follow a path of standardization
  and mass production with a major emphasis on
  quality.
• Companies relentlessly upgrade their competitive
  advantage.
• Ownership of companies is predominantly held in
  institutions and other companies.
• Workers define their status on how well the
  company is doing.
• Continual learning is emphasized and accepted.
• More willing to form new companies.

130
Japan Share of 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
• Machines 62.0
• Outboard Marine Piston Engines 61.0
• Electric Gramophones 59.0

131

• 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

132

• 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

133

• 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
the worlds export market share.
134
Japanese Companies

• 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.

135
Study Postscript
What happened to Japan since 1990?
1. The second largest economy in the world.
2. Arrogance based on what they had accomplished
including an assumption that the only way
their economic endeavors go is up.
3. A rigidity in approach that takes too long in
a fast paced, global economy.
136
Forget the North Pole!

• Santas Workshop is in China

137
Ironic
What makes Christmas festive for Americans is
produced in the worlds officially atheistic
country whose human rights abuses are deplored by
officials of the US government.
What this picture provides is a lesson in
globalization and an example of how trade and
tradition have brought together China and the US
in a mutually beneficial relationship.
138
Minimal Inflation in the US?
Because of China!
139
Imports from China
Based on the first eight months of 2001
Artificial Christmas Trees - 78
million Christmas Tree Ornaments - 535
million Christmas Lights - 211
million Stuffed Toys - 755
million Dolls - 639 million Electric
Trains - 32 million Puzzles
- 21 million
If not available, over half of this type of
merchandise in US stores would disappear.
140
U.S. Merchandise Trade with China 1988-2001

• Year U.S. Exports U.S. Imports U.S.
  Trade Balance
• 1988 5.0 8.5 -3.5
• 1989 5.8 12.0 -6.2
• 1990 4.8 15.2 -10.4
• 1991 6.3 19.0 -12.7
• 1992 7.5 25.7 -18.2
• 1993 8.8 31.5 -22.8
• 1994 9.3 38.8 -29.5
• 1995 11.7 45.6
  -33.8
• 1996 12.0 51.5
  -39.5
• 12.8 62.6
  -49.7
• 14.3 71.2
  -56.9
• 13.1 81.8
  -68.7
• 15.0 100.0
  -83.8
• 22.0 102.2
  -83.1

141
It is getting worse!

• 2002 -120 billion

2003 40 170 -130 billion US exports
to the rest of the world went down 10 while
Chinas increased 66.
Unlike Japan in the past, China has not closed
its borders to US imports. It is the fastest
growing export market for US companies.
Meanwhile a number of unfair trade accusations
are being thrown around.
142
China Trade Barriers
China remains a difficult market to penetrate,
due largely to Chinese government policies, which
attempt to protect and promote domestic
industries. Goods and services not considered
to be high priority, or which compete directly
with domestic Chinese firms, often face an
extensive array of tariff and non-tariff
barriers.
143
China Trade Barriers

• Tariffs
• Quotas
• Non-Tariff Regulations
• Distribution rights
• Investment restrictions

144
Competitiveness of Nations
It is helpful to ask what companies need to do
and where does government need to play a key
role?
145
Role of Government

• Serve 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.

146
Singapore

• An economic powerhouse.
• Three million people on a small island.
• Passed the US in average income in 1999.
• Worlds best infrastructure!?
• Safe, clean (smoggy).
• Interesting racial, religious and language mix.
• Could go from great to awesome.

147
Singapore Model

• Strong Government (The smartest and most
• capable should govern)
• Long Term Planning
• Foreign Investment
• Clean Administration
• Education for All
• No Welfarism
• Family Values
• Law and Order
• Communal Harmony

148
Kenya
From whiskey to cooking fat to batteries to
clothes, Kenya is being swamped with counterfeit
goods. Some are made locally but most are
imported.
149
Kenya
Focus on the negative impact of counterfeit goods
in usually on wealthy nations where products are
most often designed and developed.
The effects can be even more devastating in poor
and developing countries where profits of any
kind are harder to come by, smuggling is more
easily accomplished and enforcement is weak or
non-existent.
150
Kenya
Kenyan manufacturers are estimated to be losing
hundreds of millions of dollars i