2000 Lynn Metcalf, Ph.D.

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International Marketing
The Firms International Competitiveness
Chapter 4 Global Marketing Svend Hollensen
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How is this useful to us?

• Framework of analysis for cases
• Pannebakker project

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A Hierarchy of Models

• National The Porter Diamond
• Industry Porters Five Forces
• Firm
• Porters Five Forces
• Core Competence
• Differentiation via the marketing mix

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Questions for Today

• How does Asias home furnishings industry fare
  among nations?
• How competitive will Pannebakker find the home
  furnishings market in the US and Europe?
• Given industry forces, how should Pannebakker
  compete against established players?
• What are Pannebakkers core competences? The core
  competences of its competitors?
• Looking at the marketing mix elements, how does
  Pannebakker stack up against the competition?

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How Does Asias Furniture / Furnishings Industry
Fare Among Nations?

• Why have certain countries achieved international
  success in furniture making and export?

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The Porter Diamond
Chance
Firm strategy, structure, and rivalry
Factor conditions
Demand conditions
Govern- ment
Related and supporting industries
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Factor Conditions

• A nations position in the factors of production
  that are necessary to compete in a given industry

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Factor Conditions

• Human resources the quantity, skills cost of
  people
• Physical resources abundance, quality,
  accessibility, cost
• Knowledge resources the nations stock of
  scientific, technical market knowledge bearing
  the industrys product / services
• Capital resources the amount cost of capital
  available to finance the industry
• Infrastructure needed to support the growth of
  the industry transport, communications, mail or
  delivery services

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Factor Conditions
Factor
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Demand Conditions

• The nature of home demand for the industrys
  product or service
• Nations gain competitive advantage in industries
  where the home demand gives local firms a clearer
  or earlier picture of buyer needs than foreign
  rivals can have
• Nations also gain advantage when home buyers
  pressure local firms to innovate faster and
  achieve more sophisticated competitive advantages
  compared to foreign rivals

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Demand Size Pattern of Growth

• Size of home demand large home market size can
  lead to economies of scale or learning
  encourages domestic firms to invest heavily in
  facilities
• Early home demand if it anticipates needs in
  other nations, gives domestic firms a competitive
  advantage internationally
• Early market saturation forces domestic
  competitors to become lean mean and pushes them
  to pursue overseas markets
• Mobile or multinational local buyers start the
  internationalization / diffusion process

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Related Supporting Industries

• The presence or absence in the nation of supplier
  industries and related industries that are
  internationally competitive

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Internationally Successful Italian Supplier
Industries to Footwear
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Firm Strategy, Structure Rivalry

• The conditions in the nation governing how
  companies are created, organized, managed
• The nature of domestic rivalry

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The Porter Diamond
Chance
Firm strategy, structure, and rivalry
Factor conditions
Demand conditions
Govern- ment
Related and supporting industries
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Competitive Advantage of Nations

• Firms compete, not nations
• Competitive advantage results from an effective
  combination of national circumstances company
  strategy
• Conditions in a nation can create an environment
  in which firms can attain international
  competitive advantage
• Its up to the firm to seize the opportunity

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How Does Asias Home Furnishings Industry Fare
in Global Terms?

• What advantages do competitors home bases give
  them?
• What advantage does representing Asian products
  give Pannebakker in the markets of interest?

Were assuming here that Asian nations have
enough in common to treat them as a group for
this analysis
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Recent Headlines
Nice Tibetan Table! Too Bad About the Termites
WSJ 14 February 2000
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Asian Furniture Comes Cheap But Often With
Problems That Bookcase Smells Fishy

• Demand for hand-crafted Asian furniture is
  booming, thanks largely to increased global
  travel and great deals in places like Shanghai,
  Bali and Macau. One Indonesian shipper
  estimates its volume is up about 50 from three
  years ago, with the bulk coming from small
  importers in Australia and the US that buy
  furniture, carvings and crafts for resale.
• Homes around the globe are littered with Asian
  furniture furniture purchases gone awry pieces
  that got to their destinations and not all of
  them do looking, feeling, even smelling
  different than when they left the shop.

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Asian Furniture Comes Cheap But Often With
Problems That Bookcase Smells Fishy

• Among furniture shoppers, the horror stories are
  legion
• Mark Cochranes furniture problem was nothing
  to sniff at. He bought a latticework bookcase at
  an antiques store in Macau. It arrived at his
  Hong Kong apartment reeking of fish. The stench
  soon pervaded his apartment. He still refers to
  the bookcase as his fish piece.
• And in another case, the armoire arrived
  crushed and infested with wood beetles and
  termites. We had a guy come over to look at the
  furniture and he told me to spray it will a
  termite killer and then tape the piece to the
  floor so bugs wouldnt escape and get into our
  wood home.

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Asian Furniture Comes Cheap But Often With
Problems That Bookcase Smells Fishy

• Indeed, Joe Bauer says furniture shopping can
  actually be a health hazard. Shortly after moving
  to Singapore in 1996, he developed painful rashes
  all over his body. When he went away on business
  trips, they cleared up when he came back to his
  new apartment, they worsened. He had to cancel
  all his meetings on one trip to Jakarta,
  Indonesia, because his legs swelled so badly that
  he could barely walk, much less get his pants on.
• Mr. Bauer had bought a Chinese table in Macau
  just before he moved to Singapore.
• It turned out that chemicals used to mix
  shellacs and glazes were to blame. Mr. Bauer
  hauled his table onto his patio and let it bake
  in the sun. After a few days the chemicals burned
  off. Hes been rash-free ever since.

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How Competitive Will Pannebakker Find the Home
Furnishings Market in the US Europe?

• Can Pannebakker find a niche and compete
  successfully?

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Porters Five Forces
New Entrants
Threat of new entrants
Bargaining power of buyers
Bargaining power of suppliers
Buyers
Suppliers
Threat of substitutes
Substitutes
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Market Competitors

• Intensity of competition depends on
• Concentration of the industry
• Rate of market growth
• Cost structure
• Degree of differentiation
• Switching costs
• Exit barriers

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Suppliers

• Raw material and component costs impact a firms
  profitability
• The higher the bargaining power of suppliers, the
  higher the firms costs

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Suppliers

• When the bargaining power of suppliers is high,
  then competition is less intense
• Bargaining power of suppliers is higher when
• Supply is dominated by few companies they are
  more concentrated than the industry they sell to
• Their products are unique or differentiated, or
  they have built up switching costs
• They can integrate forward
• Sell their furniture directly to retailers
• Set up their own retail outlets
• Buyers dont threaten to integrate backward into
  supply

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Buyers

• Raw material and component costs impact a firms
  profitability
• The higher the bargaining power of buyers, the
  lower the firms costs

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Buyers

• When the bargaining power of customers is high,
  competition among suppliers is more intense
• Bargaining power of buyers is higher when
• Buyers are concentrated and/or purchase in large
  volumes
• Buyers can integrate backwards to manufacture the
  suppliers product
• There are many suppliers of the product
• Buyers earn low profits, which create a great
  incentive to lower purchasing costs

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Substitutes

• Substitute products reduce industry profits
  because they put constraints on price levels
• If the industry is earning high profits, its
  more likely that competitors will enter the
  market with substitute products (so they can earn
  a share of the profits as well)

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Substitutes

• The availability of substitute products increases
  the level of competition in an industry
• The threat of substitute products depends on
• The buyers willingness to substitute
• The relative price performance of substitutes
• The costs of switching to substitutes
• The threat of substitute products can be lowered
  by building up switching costs
• Strong, distinctive brand
• Good price / value perception

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New Entrants

• New entrants increase the level of competition in
  an industry

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New Entrants

• The threat of new entrants depends on the
  barriers to entry that exist in the market
• If barriers to entry are high, the threat of new
  entrants is low
• Key factors creating high barriers to entry
• Economies of scale
• Product differentiation and brand identity
  (customers loyal to existing competitors)
• Capital requirements (RD, production, brand
  building, channels)
• High switching costs
• Access to distribution channels

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Porters Five Forces
New Entrants
Threat of new entrants
Bargaining power of buyers
Bargaining power of suppliers
Buyers
Suppliers
Threat of substitutes
Substitutes
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How to Use the Five Forces Model

• How intense will Pannebakker find competition in
  the US Europe?
• What degree of bargaining power does Pannebakker
  have vis-à-vis their US European customers?
  Against their Asian suppliers?
• Whats the threat of substitute products?
• Whats the threat of new entrants?
• Will it be relatively easy for Pannebakker to
  enter the US European markets and gain market
  share?
• Once in the market, can Pannebakker be unseated
  easily by still newer entrants?

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Porters Five Forces

• Five forces model provides a framework for
  analysis that helps a firm figure out
• How to squeeze the maximum competitive gain out
  of the industry
• How to minimize the prospect of being squeezed
  out
• Firms must balance the need to compete with the
  need to collaborate

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Burtons Five Sources Model

• Focuses on collaborative advantage and strategy
• Five potential sources for building advantage
  through collaboration
• The idea is to use both models to evaluate and
  formulate strategy

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Five Forces Five Sources
Vertical collaborations with suppliers (keiretsu
formations between suppliers and assemblers
typical in auto electronics in Japan)
Suppliers
Selective partnering arrangements with specific
channel members or customers (lead users)
Buyers
Related diversification alliances with producers
of both complements substitutes (collaborations
between fixed-wire mobile phone companies to
grow size of joint network)
Substitutes
Diversification alliances with firms based in
previously unrelated sectors, but whose
industries are converging (computing, content,
communications TCI/ATT)
New entrants
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Successful Firms

• Chose an appropriate combination of competitive
  and collaborative strategies
• Blend the two types of strategies so that they
  interact in a mutually consistent and reinforcing
  (not counterproductive) way

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Competitor Strength Weakness

• Knowledge / understanding of the market
• Products
• Reputation, image, standing from the users point
  of view (style, functionality, quality, value for
  money)
• Breadth depth of product line
• Channel partners / distribution
• Channel coverage quality
• Strength of channel relationships
• Ability to service the channel (on-time delivery,
  returns, financing)

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Competitor Strength Weakness

• Promotion
• Gather Marcom materials from the makers of
  comparable furniture
• ads in consumer magazines
• brochures at furniture retailers
• list of exhibitors at major trade shows that
  attract US buyers (see if competitors are
  exhibiting)
• Pricing
• Price range of competing / comparable products
• Dont forget substitutes

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The Marketing Mix Sources of Market Strength

• Promotion pricing moves are easy to imitate
• Significant product innovation and channel
  partnerships provide more enduring advantage

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Creating Differential Advantage via the Marketing
Mix
Mix
Advantage
Perceived Value
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Creating Differential Advantage via the Marketing
Mix
Mix
Advantage
Perceived Value
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Creating Differential Advantage via the Marketing
Mix
Mix
Advantage
Perceived Value
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Creating Differential Advantage via the Marketing
Mix
Mix
Advantage
Perceived Value
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How Does _____ Stack up Against the Competition
on these Elements?

• Look at the top 3 competitors from the top
  exporting nation from Europe, Latin America,
  Asia.
• Look at the top 3 competitors in the US.

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Resources Core Competence

• Competences result from how a firm combines
  resources to create differential advantage
• Core competence a value chain activity in which
  the firm is regarded as a better performer than
  any of its competitors
• Competitors cannot easily imitate
• Have the potential to earn the firm long-term
  profit

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Core Competence
Patents
Sources of market strength
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What are the core competences of Pannebakker vs
key competitors?

• How does each firm create differential advantage
  via their marketing mixes?

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A Hierarchy of Models

• National The Porter Diamond
• Industry Porters Five Forces
• Firm
• Porters Five Forces
• Core Competence
• Differentiation via the marketing mix

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How is this useful to us?

• Framework of analysis for cases
• Pannebakker project

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Due Position Paper Preferences
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For Monday.

• Read Hollensen Chapter 5