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International Business : The Challenge of Global Competition, 8/e
Donald Ball
Wendell H. McCulloch, California State University Long Beach
Paul L. Frantz, California State University Long Beach
Michael Geringer, California Polytechnic State University
Michael S. Minor, University of Texas Pan American
Competitive Forces

E Learning Session

  1. Competition at the macro level (National competitiveness) PowerPoint (32.0K)
    1. National competitiveness is the ability of a nation's producers to compete successfully in world markets and with imports in their own domestic markets Concept Check
    2. United States
      • 1950s and 60s saw sustained competitiveness increases and prosperity in the US
      • Complacency among American managers has led to a decline in the past few decades
      • Declining competitiveness in the 1970s and 1980s
        1. Decline in American competitiveness was masked by a growing share of the export market
        2. The strength of the American economy led to increased competition from Europe and Japan as more and more US companies were bought by foreign interests
        3. The decline of the value of the dollar in the 1980s required foreign owners to alter production to remain competitive in domestic markets
        4. The decline of the dollar was not the only reason for the eroding competitive position Concept Check
          1. Product quality
          2. Delivery time
          3. After-sales service
          4. Reliability of supply
          5. Trade barriers to US exports
      • Improving competitiveness in the United States
        1. Mid 1980s to mid 1990s saw many improvements in the non-dollar value influences on competitiveness
        2. By mid-1995 the US had improved its global market share by 23%
      • Ranking American competitiveness
        1. In several organizations' measures of world competitiveness, the US has consistently ranked number 1
        2. In 2000 reports, US is consistently in top five of all major competitiveness studies
      • Dawn of a "New Economy"
        1. Disproportional amount of recent competitiveness growth has been in a relatively small number of industries
        2. Most are related to information and communication technology
        3. ICT accounted for as much as 75% of growth for US companies
        4. This concentration of activity is referred to as the "new economy"
      • Continued challenges to US competitiveness
        1. Sometimes the new economy is characterized in the same way as the industrial revolution
        2. Innovative capability and investment in research and development
          1. Technological innovation, the transformation of knowledge into new products, processes, or services, plays a central role in productivity improvement
          2. US ranks as a leader in creativity, technology, and start-up dimensions that comprise major indexes of creativity and innovation
          3. However, other areas of the world are quickly increasing their creativity and innovation application
          4. Much US innovation can be traced to government-supported infrastructure that emerged as a part of the US cold-war strategy
            • National Aeronautics and Space Administration (NASA)
            • National Institutes for Health (NIH)
            • Department of Defense (DOD)
            • US university system
          5. Research and development from these entities had a spill-over effect for products and services for general population
          6. Government should look again at efforts to support this kind of development to help the US maintain competitive position
        3. A shortage of knowledge workers
          1. Increased global competition has placed an increasing premium on skilled workers
          2. The increase of the information economy has required a change in workers' required skills
          3. Investment in training and education of employees has paid off for American managers with better educated workers creating greater productivity
          4. Employers have found that American workers like to know how they compare to others' performances
          5. Using benchmarking, a technique for measuring a firm's performance against the performance of others that may be in the same or a completely different industry, provides employees with valuable measures of performance
          6. Increasing numbers of college graduates in the US are from foreign nations
          7. Education performance of American students has been on the decline in comparison to other countries
          8. The US competitiveness position is threatened by this lack of domestic knowledge development
        4. More conducive regulatory environment
          1. The private section is the primary engine for transforming knowledge into products or services
          2. Government policies can promote or deter private sector investment in R&D
          3. Public in US may be realizing the relationship between government intervention and productivity
          4. Not all government intervention is potential harmful to competitiveness, such as policies toward
            • Safety
            • Energy use
            • Environmental protection
          5. Critics of government suggest it could do more, such as
            • Institute tax reform
            • Opening of foreign markets
            • Protection of intellectual property rights
            • Reducing dependence on foreign capital
            • Industrial targeting for support
          6. Market-opening efforts
            • Government could renew its historical leadership in opening new markets
            • Use power of government to secure fair playing field for American business
          7. Protecting intellectual property rights
            • US government has used the threat of retaliation to achieve cooperation from governments in protecting intellectual property
            • Counterfeiting is a serious problem for American corporations
          8. Dependence on foreign capital
            • Area of vulnerability in competitiveness
            • Increase in foreign participation in US investments is result of numerous factors including depreciating currencies in other regions, the declining value of the Euro, and higher growth and profitability of American firms
            • Government could also respond by reducing the federal budget deficit to reduce the amount of the budget used to service debt and making more available to support trade
          9. Industrial targeting
            • Industrial targeting is the practice of government assisting selected industries to grow
            • This has been a common tool of other nations for a long time
    3. European Union
      • The European Economic Areas (EEA) is a free trade area for industrial products comprising 15 EU and 3 EFTA nations
      • More competition
        1. The Lomé Convention is an agreement between 71 African, Caribbean, and Pacific states (ACP) and the EU by which 99% of the ACP's exports are duty free in the EU
        2. WTO has ruled that the provisions are not compatible with international trade rules
        3. An option to Lomé Convention is the Generalized System of Preferences providing for any of 140 countries not included in agreements such as the Lomé Convention to also participate in duty-free access to markets
      • European competitiveness
        1. Difficult to compare competitiveness for a 15-country market
        2. In general, the EU has had lower than average competitiveness as a unit than world figures
        3. EU countries seem to focus on low-tech products for export
        4. Technology that contributes to higher levels of productivity are used more sparingly in EU than in US
      • Barriers to European competitiveness Concept Check
        1. Labor costs and productivity
          1. Labor costs is a major factor in European competitiveness
          2. Wages, salaries and fringe benefits are higher in 11 EU countries than in the US
          3. Many jobs will have to be eliminated in the EU and work consolidated to produce increases in some European industries
          4. High minimum wage requirements in some EU countries prevent employment of people on low end of skills
          5. Estimates suggest if the US minimum wage rates were similar, more than 30 million Americans would lose their work
        2. Education
          1. Many European nations have achieved high levels of education
          2. More Americans attend university than Europeans
        3. Conflicting positions of member nations
          1. A constraint is continuing disagreements among member nations about key issues
          2. Variations in economic strength among member nations is a point of contention
        4. Cultural biases
          1. One bar to economic growth is an aversion to using "things American"
          2. Cultural artifacts such as status and power may contribute to managers not using productivity increasing technology
        5. International e-commerce in Europe
          1. The WTO extended moratorium on Internet taxes until 2000
          2. EU targets development of Internet use to compete with US in about five years
          3. Development of e-business is hindered by a lack of entrepreneurial spirit in Europe
      • Signs of improvement in European competitiveness
        1. Positions of European counties in competitiveness indexes has been improving
        2. Lower levels of corruption in government are also helping to improve
        3. Europe has seven of the top 10 countries in innovation index
        4. Many European companies seek improvement in productivity by modernizing, including closing older, inefficient plants
        5. Creation of jobs has reduced unemployment
        6. Competition with Japan
          1. Automotive industry has been major target of Japan in Europe
          2. EU runs a large deficit in electronics with Japan
          3. Japanese service companies in retailing, advertising, hotels, distribution, tourism, and insurance are also strong in EU
        7. Competition from the United States
          1. US companies have had European based production for a long time
          2. European governments are assisting European companies to compete against US firms
            • Fifth Framework Programme for Research and Development provides R&D funds to European companies
            • Eureka is an independent research program supported by European governments to aid development of new technologies
        8. Competition from Asia
          1. Asian companies are investing in Europe at access markets and to take advantage of favorable labor rates
          2. Chaebol, large South Korean conglomerates, are leading the charge to invest in Europe
          3. The Asian financial crisis beginning in 1997 postponed or cancelled much of the planned growth of these investments
        9. Will the "new Economy" transform Europe?
          1. Uncertain whether or not EU will experience the same type of growth fueled by telecommunication and IT industries seen in the US
          2. To ensure growth, Europe must adopt polices to prevent decline in the value of the Euro
    4. Japan PowerPoint (34.0K)
      • Japan experienced tremendous economic growth from 1960 to 1985
      • A sustained downturn then occurred
      • In the past, Japan has used exports to fuel movement into prosperity
      • Total financial difficulties in Asia limited Japanese exports' effectiveness in rebounding economy
      • Declining ranking on competitiveness
        1. The conditions of the 1990s had a negative effect on Japanese competitiveness ranking
        2. Declining productivity
          1. Japanese have been praised for production efficiencies, education levels of the workforce, but culture contributes to declining productivity
          2. Japanese business culture has always supported lifetime employment with the result that companies are reluctant to lay off employees
          3. Resulting overstaffing and lack of young workers reduces productivity levels
        3. Declining investment in R&D
          1. Japan currently ranks as the top country in innovativeness
          2. Companies continued to invest in R&D in spite of economic difficulties
          3. In the late 1990s, investment in R&D began to drop
        4. Barriers to innovation
          1. Low ranking on creativity index and the start-up index suggests that Japan is a difficult place to introduce innovation
          2. Cost of adding manufacturing facilities in Japan is high
          3. Costs of telecommunications and Internet access are high
      • Regulations and restructuring
        1. Despite pressures to restructure and deregulate industries in Japan, limited progress has been achieved
        2. Pressured by broad recognition that the Japanese economic slump would not go away on its own, the government recently began to promote institutional changes
        3. The 'big bang" financial program fostered some investment from foreign banking groups
        4. Japan's Large-Scale Retail Store law, long a barrier to entry by foreign firms, was overcome after long years of effort by Toys-R-Us with backing by the US government
      • Japan's Keiretsu
        1. Keiretsu, groups of financially connected firms doing business with one another, is one of Japan's best know business institutions
        2. Seen largely as one of the major forces in Japanese competitiveness after World War II
        3. Horizontal keiretsu is probably the most important form
        4. US position is that keiretsu bar trade form outside
        5. Following the Japanese financial decline in the 1990s, regulations were relaxed permitting banks to have more flexibility in investing outside keiretsu lines
        6. The systems of keiretsu is beginning to unravel (1999)
      • Improving Japanese competitiveness
        1. Following decline of the yen to a value below 100 yen to the dollar, large investments in production facilities were made to improve competitive position
        2. The emerging Asian financial crisis on the late 1990s put a damper on the strategy
        3. Japanese economy entered a recover mode in mid-1999
        4. Government deregulation, technological advances, and diversifying consumer tastes have helped spur the Japanese competitive position
      • Competition from the United States and Europe
        1. Japanese have been cyclical for the last 25 years
        2. Allow the yen to fall in value relative to the dollar to boost exports
        3. Restrict domestic consumption to reduce imports
        4. The continued easing of restrictions outside this cycle has motivated specialty apparel companies from the US and Europe to enter Japanese markets
      • Competition from Asian nations
        1. Much of competition from Asian nations is because of Japanese production moved to those countries
        2. Electronics manufactures are facing charges of "hollowing out," a process of shutting down domestic production to the serve as a shell for foreign manufactured goods.
        3. New strategy is to create regional trade groups capable of competing around the world
        4. These groups are based on contract rather than joint venture projects to ensure flexibility
    5. Developing nations and the NIEs
      • An economic crisis hits the region
        1. International trade has contributed to considerable economic growth
        2. Growth was accompanied by excess capacity, high debt levels, and rapid inflation of real estate values
        3. Ironically financial institutions that were so instrumental in fostering the growth were the tolls of its decline
        4. International Monetary Fund assisted may countries including South Korea, Thailand, and Indonesia
        5. In tern, these governments were pressured to reduce spending, reform structures, reform banking systems, and to remove barriers to foreign trade
      • Recovery is faster than expected
        1. Signs are evident that the situation is improving
        2. Companies are focusing on making profit, not merely out producing the rest of the world
        3. Changes have been introduced in traditional Asian business practices including open up the banking system to less control, and dissolution of South Korean chaebol (conglomerates) assets
      • E-commerce has a promising future
        1. The gap in technological capability between Asia NIEs and the US is closing
        2. Government attitudes toward the Internet and the free flow of information will be barrier to growth until governments relax desire for control
      • Questions remain regarding the future
        1. Foreign debt levels have become more manageable during the past few years
        2. Although economic conditions are improving, no one is predicting a return to the high levels of growth in the 1970s and 1980s
      • China, a case unto itself
        1. The world's most populated country
        2. Strong sustained economic growth during the past 20 years
        3. China has been trying to join the WTO
        4. To be admitted to the WRO China will have to make concessions on trade barriers and business practices seen as unacceptable among many world traders
    6. Counterfeiting and piracy: A challenge to business worldwide PowerPoint (31.0K)
      • Counterfeiting, the illegal use of a well-known manufacturer's brand name on copies of the firm's merchandise, is a major international problem
      • The International Chamber of Commerce estimates that 8% of international trade is in counterfeit goods
      • Besides manufacture of exact copies of branded items, other types of counterfeiting occur. Concept Check
        1. Close copies with different names
        2. Reproductions that are not exact copies
        3. Imitations that are cheap copies and fool no one
      • Piracy is a kind of counterfeiting that is copying trade related intellectual property (see chapter 11)
      • Counterfeiting is extremely common in Asian countries
      • In spite of efforts by corporations and government, counterfeiting seems to be on the increase
      • China, the biggest offender Concept Check
        1. China has earned the status as the world's biggest course of counterfeit goods
        2. Private and government pressures on China have been unsuccessful at getting cooperation to end counterfeiting
        3. Pirated products fill about 90% of the domestic market in China
      • Counterfeit products can be dangerous
        1. Consumer goods have been counterfeited for years
        2. Recent counterfeiting has included industrial goods
        3. Since counterfeit industrial goods are usually not the same grade and quality of real goods, chances of failure in performance increase
        4. Combating imitations
          1. Corporations use security organizations, detectives and other means to stop fraud
          2. International Anti-Counterfeiting Coalition was created to disseminate information to members about counterfeiting
          3. Intellectual Property Committee, made up of the 13 largest patent holders in the US, works to stop piracy
          4. Many other industry groups have similar goals to stop counterfeiting
      • Industrial espionage
        1. A counterfeiter can copy a design by reverse engineering, acquiring a product and taking it apart to see how it was made
        2. Information can be acquired through industrial espionage as well
        3. Companies can acquire information by hiring competitor's employees, talking to customers
  2. Analysis of competitive forces
    1. Lack of information is the biggest problem in planning international business
    2. Is competitive assessment new?
      • Sales and marketing have always needed information about their competitors' product. Prices, channels of distribution, and promotional strategies
      • Sales representatives are expected to submit information they encounter during the course of their business
      • Larger firms maintain libraries with employees collecting information about competitors
      • All information contributes to competitor analysis where competitors are identified, and their objectives, strengths, weaknesses, and product lines are assessed
      • A competitor intelligence system is the tool for gathering, analyzing and disseminating information to anyone in the organization who uses it
    3. Sources of information
      • Within the firm
        1. Sales representatives are in the field and good sources of information
        2. Attendance at professional meetings and trade shows allows gathering of new information
      • Published material
        1. Technical journals publishing research, databases of publications such as Lexis/Nexis and Dow Jones News provide access to information
        2. Internet information can be very helpful., if credible
        3. Government documents can also supply information
      • Suppliers/customers
        1. Companies sometimes tell suppliers and customers about new products
      • Competitors' employees
        1. Current or past employees can provide information
        2. Job applicants can reveal a great deal during interviews
      • Direct observation or analyzing physical evidence
        1. Technical people joining standard tours of competitor's plants can pick up some information
        2. People posing as potential customers can gather important information
        3. Reverse engineering has already been mentioned but is still an important tool in assessing a competitor's product
        4. Ethical and unethical information gathering must be weighed
        5. Benchmarking PowerPoint (32.0K)
          1. A method for firm to compare themselves to the world leaders in their industries
          2. Involves
            • Management examines the firm for areas that need improvement
            • Looks for companies that are the leaders in the world in those areas
            • Firm's representatives visit those companies, talk with managers, and determine how the work is performed
          3. Problem is identifying the company to use as benchmark
          4. Four basic types of benchmarking
            • Internal
              1. Compares on operation in a firm to another
            • Competitive
              1. Compares firm's operation with that of a direct competitor
            • Functional
              1. Compares similar functions of firms in a broadly defined industry
            • Generic
              1. Compares operations in totally unrelated industries




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