MKTG 6027
International Market Entry
Strategies
Module 2: Development of the Firm’s
International Competitiveness
Material in this document is sourced or adapted from Global
Marketing (8e) by Svend Hollensen. Published by Pearson Education.
Introduction
• The Porter Diamond
• Porter’s 5 Forces Model
• Value Chain Analysis: Customer Perceived Value and Competitive Benchmarking
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Development of a Firm’s International
Competitiveness
National Competitiveness
• To consider national competitiveness we will use the ‘Porter Diamond’.
• All things being equal, the home nation of a company has a large impact on its
ability to be competitive in the international market.
• Competitive advantage comes from not just the firm’s network of internal core
competencies, but also the benefits afforded to it by the home country.
• For example, government funded research and development, strong logistical
infrastructure, educational system, human resources, etc.
• We also need to consider the home nations of competitors to better understand
their own strengths and weaknesses.
• A concentration of firms within a certain industry are called industrial clusters.
The Porter Diamond
The Porter Diamond
Factor Conditions
Basic (commodities) or Advanced (human resources, R&D funding, export
development etc.).
Demand Conditions
Includes demand in the home market, growth rate and buyer sophistication. A
large home market allows for economies of scale to develop. Even a large home
market can become saturated leading to firms that want to expand to drive
growth.
Related and Supporting Industries
The strength of the industrial cluster is a factor here. For example, highly skilled
workers in the local area. Closer suppliers leads to a higher level of integration and
lower transportation costs.
The Porter Diamond
Firm Strategy, Structure, and Rivalry
Just as challenges in the home market factors can lead to innovation, so can a strong
domestic competitive environment. This is mostly due to pressure to survive, but also
due to a mobile workforce (intended or unintended information exchange).
Government
Government influences all factors. They finance individual firms (e.g. tax breaks, R&D
funding, direct purchasing) as well as the general environment (trade agreements,
infrastructure).
Chance (Random Events)
This could be a technology development that a firm can take advantage of (e.g.
Research in Motion in Waterloo). A firm can take advantage of unplanned events, such
as a trade war in another country that negatively affects competitors. This latter
example could be referred to as a ‘double diamond’.
Development of a Firm’s International
Competitiveness
Industry Competition
• This focuses on the ‘firm strategy, structure and rivalry’ factors from the Porter
Diamond.
• Porter suggested that competition in an industry is related to the current set of
competitors themselves as well as the existing economic infrastructure.
• Porter identified 5 ‘forces’ that determine the profit potential in an industry.
Definitions
Industry: a group of firms that offer a product or class of products that are close
substitutes for each other.
Market: a set of actual and potential buyers of a product and sellers.
The industry level includes all actors (and potential actors) with an interest in the
industry. The market level includes only those actors current interest (buyers and
sellers).
Porter Five Forces Model
Porter Five Forces
Market Competitors
• Concentration of the industry (more = greater rivalry)
• Rate of market growth (lower = greater rivalry)
• Structure of costs (high fixed costs = greater rivalry)
• Degree of differentiation (commodity = greater rivalry)
• Switching costs (lower = greater rivalry)
• Exit barriers (high = greater rivalry)
Suppliers
The more power that suppliers have, the higher the costs and therefore lower
potential profits in an industry. Supplier power is related to their number,
differentiation, and switching costs – as well as the possibility they could ‘vertically
expand’ into the buyer’s market space.
Porter Five Forces
Buyers
Buyers can develop power by purchasing in larger volumes, a threat to vertically
expand upwards into the supplier’s market space, purchasing standard products
(lower switching costs), and the number of sellers in the market. It is also related
to how critical the product is to their value chain – if a product is not critical it may
be modified (lower quality to lower the price) or eliminated entirely.
Substitutes
If substitutes are available it can lower the industry potential as customers switch
between products that serve the same need. For example, a city with a strong
public transit system would put local pressure on the price that taxis could charge.
Threat of New Entrants
This is related to the barriers to enter the market. Entry barriers include whether
economies of scale exist, the level of product differentiation and brand loyalty, the
capital investment required, and access to distribution channels. Therefore
companies in the market have an incentive to raise entry barriers.
Development of a Firm’s International
Competitiveness
Value Chain Analysis (VCA) – Customer
Perceived Value
• Perceived value is the customer’s overall evaluation of the product/service
offered by the firm.
• We want customers to perceive our value as being higher than that of our
competitors’ perceived value.
• Intuitively customers think about this in terms of what they ‘get’ compared to
what they have to ‘give’.
• In a B2B setting the ‘get’ and ‘give’ are analyzed and quantified to a much
greater degree than in most B2C sales. In fact, many B2C sales are subject to
inertia – thinking about making another choice is not worth the effort and
instead the decision is made based on price and availability. For example,
toothpaste or laundry detergent.
Competitive Advantage
VRIO Analysis
V(alue): Is the resource valuable to
the local firm?
R(arity): Is the resource unique
among a set of competitors?
I(mitability): Is the resource difficult
to imitate, and a competitor who
tries to do so will be at a significant
disadvantage?
O(rganization): Can the firm
effectively exploit the resource?
Customer Perceived Value
This is a
conceptual
model. Think
about how your
product
performs based
on these factors
from the view
of a customer.
How does your
product rate
compared to a
competitor’s
product?
Competitive Benchmarking
• The net outcome of everything a firm does in the context of the environments in
which it operates is the level of profit that it achieves.
Revenue = Units x Price
Revenue = Market Share % x Total Market Size
• In order to understand competitor offerings better, we can test what it is like to
be a customer – buy a product! This tests the buying experience (including
delivery) as well as the physical components and quality of the product and
packaging.
• Remember that a core competency is an activity that your firm does better than
competitors.
• Competitive benchmarking measures performance on a set of activities. It can
help uncover visible core competencies, and the set of these core competencies
that may be creating competitive advantage.
Determine
competitor(s).
Determine the
value chain
functions to be
used.
Conduct the
survey with
customers
according to
importance (key
success factors)
and
performance.
What’s Next?
• Start working on Project Assignment #1! You should start with a team meeting to
discuss roles and plan out the first steps. Remember that once you have selected
your company to enter it in the discussion folder.
The next module will cover Chapter 6 in the text, which considers the political and
economic environment.
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