Organizing and Structuring Global Operations

Case: ECCO A/S

International Business

Markets

Managing

Culture Political and Cultural Systems

Globalization And Economic Markets

Strategy; Structure; People

Course Road Map

Topic Case Sadhu Reading Chapter 1; Debates Chapter 2 Chapter 8 Chapter 6 Chapter 19 Chapter 10 Chapter 11

Global Environment

Globalization

International Trade International Economic Integration

WTO The Great Recession Silvio Corruption in the USA Cola Wars ECCO A/S

Global Markets and Culture International Business Management

Culture Ethics International Entry Strategy Global Firm Structure

Road Map

1. Economist article 2. Review 3. ECCO Case

Review from last week

vThe objective of global strategy is to manage differences vGlobal strategy requires tradeoffsfocus on one or two strategies at a time [e.g., responsiveness, integration, arbitrage] vStructure and people management practices should align with strategy vEmploy multiple integration mechanisms vEffectively managing knowledge is the key factor in successful global operations

Benefits of Global Integration and Local Responsiveness

Lower costs
scope advantages scale advantages Oracle GE IBM Shell

meet global client needs

Standardization as control mechanism Global leader

Integration

Integration of resources and competencies

Sanyo Nestle

Responsiveness
Boost local sales Access to local resources Innovation
Ideas new to the firm Capitalization on local talent

Local citizen
Responsiveness
customization flexibility speed

Global structure map for managers

Labor-to-Sales
100%

55%

Median

20%

90th percentile

1%

.75%

6%

7%

10%

10%

Advertising-to-Sales

R&D-to-Sales

Ghemawat, 2007

Todays Objectives
vUnderstand industry analysis vUnderstand core competencies and drivers of competitive advantage vUnderstand the importance of global value chain analysis vUnderstand the difference between in-house and outsourcing (offshoring)

v v v v v

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

What is the competitive environment like for ECCO? How well are they positioned?

Additional Industry Analysis Tools

vSWOT Analysis:
Numerous Environmental Opportunities Overcome Weaknesses

Grow

Critical Internal

Substantial
Internal Diversify

Weaknesses

Restructure

Strengths

Major Environmental

Threats

Porters Five Forces Model

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry among Existing Competitors

Bargaining Power of Buyers

Threat of Substitutes

Barriers to Entry
What factors keep potential competitors out?

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry among Existing Competitors

Bargaining Power of Buyers

Threat of Substitutes

v Scale economies Industry A B C D

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

Nature and Focus of Rivalry

Why industries are more or less competitive?

Threat of New Entrants Bargaining Power of Suppliers Rivalry among Existing Competitors Bargaining Power of Buyers

Threat of Substitutes

Industry A

v Factors Industry growth rates

Where to secure growth

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

Fixed costs B C
e.g. capacity increments

Lack of product differentiation

e.g. differences in functionality, performance

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

Supplier or Buyer Power

How can my suppliers or customers extract value

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry among Existing Competitors

Bargaining Power of Buyers

Threat of Substitutes

Supplier Power

Buyer Power

Supplier concentration Supplier volume

Buyer concentration

Few vs many suppliers Large vs small purchase

decisions

Volume of purchases

Few vs many customers Large vs small purchase

decisions

Product differences

Available alternative products Threat of backward integration

Dependence on unique features Ability to become competitor Limitations on ability to change

suppliers

Competitive products Ability to become a

competitor suppliers

Threat of forward integration Switching costs

Switching costs

Threat of switching

Threat of Substitutes
What alternatives are available to customers

Threat of New Entrants Bargaining Power of Suppliers Rivalry among Existing Competitors Bargaining Power of Buyers

Threat of Substitutes

Industry A

v Direct substitution with the same functionality

diesel vs gas engines DirecTV vs cable

v Eliminating need for product

water meters vs flat rate

Customers

Successful Strategies Should:

Avoid excessive rivalry
(e.g., attack emerging vs
entrenched segments)

Raise barriers to entry

Threat of New Entrants Rivalry among Existing Competitors Threat of Substitutes

(e.g., make preemptive investments)

Offset supplier power

(e.g., alternative source(s))
Bargaining Power of Suppliers

Minimize buyer power

Bargaining Power of Buyers

(e.g., build

customer loyalty)

v Reduce the threat of substitution

(e.g., incorporate their benefits)

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
Source: J. de la Torre

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

SUPPLIER POWER HIGH strong labor unions concentrated aircraft makers

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.)
Source: J. de la Torre

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

SUPPLIER POWER LOW

Examine ECCOs global value chain. How well do they match their industry?

What is a value chain?

Takeaways from Today

vIndustry analysis means understanding my competitors and the market and environment factors that influence my company vCompetitive advantage comes from differentiating yourself from other companies in your industry or beating them at their game vValue chain mapping helps us understand how to integrate the organization vOutsourcing operations makes integration difficult but not impossible