G2

Competitive Advantage

Subject : Global FirmProf. : Tae Koo KangG2 : Koo min-woo(200510085) Song Eun-gwon(200510227) Kim Jun-won(62338) Jang Seo-young

Opening Case

In 2007, Hyundai motor company has put a new car on markets.

The new car is “GENESIS” Genesis’ main consumer target is high-income grade. The reason of launching Genesis is that Hyundai motor will be target a high-grade car market over the world.

Until 1990s, Hyundai was treated “ Cheep price, suitable quality “ In US car market. But, Global car market is more and more intense.

So, Hyundai do not survive existing cost-leadership strat-egy.

Opening Case

In 2007, Hyundai motors has launching High-Class Premium Car “GENESIS”

The Means of GENESIS is that Hyundai will be concentrate the premium car market and Differentiation is new strategy on Hyundai.

1. What is the Competitive Advantage?

2. Source of Global Competitive Advantage

3. Competitive Advantage by Porter

Contents

1. What is the Competitive Ad-

vantage?Competitive Advantage means

Something that places a company or a person above the com-petition

1. What is the Competitive Ad-

vantage?The company will be able to apply to strong point

Without being what does not evaluate a property and the ability which the company possesses

Competition company comparison will lead and the strong point which is relative could be grasped.

The strategy which sees from viewpoint of competitive ad-vantage

Continuous a competitive advantage reinforcement and competitive advantage endeavors not to disappear

1. What is the Competitive Ad-

vantage?The reason of enterprise have a competitive advan-

tageResource/Performance

1. Customer satisfaction and loyalty increase, Increase of profit, Increase of market share → bring market perfomance2. The product offering which is value in the market→  competitive advantage offering valuable product and service

3. various size and scope and profitability of company  → The competitive advantage makes the base will be able to expand the enterprise which is various.

1. What is the Competitive Ad-

vantage?Competitive Advantage Cy-cle.

STEP4. Encroachment

STEP3. Value proprsal

STEP2. Barrier to Imitation

STEP1. Source of Competi-tive Advantages.

 Step 1. Source of Competitive Advantage          Superior assets          Super Capabilities        Key Success Factor  Step 2. Barriers to Imitation          higher the barrier to entry to company          When the new business opportunity coming from the Market which enters first mover advantage        barriers to imitation 

1. What is the Competitive Ad-

vantage?Step 3. Value proposal form of competitive advan-tage          Operational Excellence           Product Leadership          Customer Intimacy                  Step 4.Eencroachment prevents of competitive ad-vantage                 New competitive advantage position construction

       effort encroachment prevents of competitive advan-tage   Reinvestment of profit

         asset and capability accumulation         resource strengthen of competitive advantage

1. What is the Competitive Ad-

vantage?

Competitive Advantage

Cost advantage

DifferentiationAdvantage

Simila

r pro

duct

At lower

cost

Higher price

For unique product

1. What is the Competitive Ad-

vantage?A Model of Competitive ad-vantage

Resources

DistinctiveCompetencies

Capabilities

Cost advantageOr

Differentiation ad-vantage

ValueCre-ation

1. What is the Competitive Ad-

vantage?Main aspects of five forces analysis

1. the rivalry between existing sellers in the mar-ket

2. the potential threat of the entry of new com-petitors

3. the threat of substitute products becoming available the market

4. the bargaining power of consumer

5. the bargaining power of suppliers

1. What is the Competitive Ad-

vantage?

Main aspects of five forces anal-ysis

1. What is the Competitive Ad-

vantage?Competitive advan-tage strategies

1. What is the Competitive Ad-

vantage?1.Cost Leadership (Low Cost Strategy) cost Leadership mean that produce goods level of

equal more in expensive

2. differentiation (Differentiation Strategy) Differentiation is that provide inventive value can im-

prove of perceive valued of consumers toward prod-uct(or service) in the market.

3. Focus Cost Leadership / Differentiation: When competition's range is narrow, in other words

when target on specific customer segment will be fo-cused cheap price and differentiation strategy.

2. Sorce of Global Competitive Advan-

tageSource of Global competitive ad-

vantage

Adapting to local market differ-ences

Exploiting economies of global

scale

Exploiting economies of global

scope

Tapping the opti-mal loca-tions for activities and re-sources

Maximiz-ing

knowl-edge

transfer across lo-

cation

2. Sorce of Global Competitive Advan-

tageAdapting to Local Market Differences

Companies must respond to the inevitable heterogeneity they will encounter in these markets.

Differences in language, culture, income levels, customer preferences, and distribu-tion systems.

(a) Increased market share.

(b) Improved price realiza-

tion.

(c) Neutralizing local competi-

tors.

Adapting to lo-cal market dif-

ferences

2. Sorce of Global Competitive Advan-

tage(a) Increased market share.

Offering standard products and services across countries reduces the boundaries of the served market to only those customers whose needs are uniform across countries.

(b) Improved price re-alization.

- Tailoring products and services to the preferences of local customers enhances the value delivered to them.- A portion of this increased value should translate into higher price realization for the firm

2. Sorce of Global Competitive Advan-

tage© Neutralizing local competitors.

One of the natural advantages enjoyed by most local competitors stems from their deep understanding of and single-minded responsiveness to the needs of the local market.

2. Sorce of Global Competitive Advan-

tageExploiting Economies of Global Scale

Building a global presence automatically ex-pands a company's scale of operations, giving it larger revenues and a larger asset base.

Potential benefits of economies of scale in var-ious ways: spreading fixed costs, reducing capital and operating costs, pooling purchas-ing power, and creating critical mass.

2. Sorce of Global Competitive Advan-

tage• Benefit is most salient in areas such as research and development, opera-tions, and advertising.

(a) Spreading Fixed costs over larger vol-ume.

(b) Reducing capital and operating costs per unit.

• Concentrating global purchasing power over any specific supplier gener-ally leads to volume discounts and lower transaction costs.

(c) Pooling global purchasing power over suppli-ers.

• Larger scale gives the global player the opportunity to build centers of ex-cellence for the development of specific technologies and/or products

(d) Creating requisite critical mass in selected activities.

2. Sorce of Global Competitive Advan-

tageExploiting Economies of Global Scope

Global scope refers to the multiplicity of regions and countries in which a company markets its products and services.(a) Providing coordinated services to global

customers.

• A global supplier has the opportunity to understand the unique strategic requirements and culture of its global customer.

(b) Market power compared with competitors

2. Sorce of Global Competitive Advan-

tageTapping the Optimal Locations for Activities and resources

A firm that can exploit these intercountry differences better than its competitors has the potential to create significant proprietary advan-tage

(a) Performance enhancement.

• Location decisions can affect the cost structure in terms of the cost of local manpower and other resources, the cost of transportation and logistics, as well as government incen-tives.

(b) Cost reduction.

(c) Risk reduction.

2. Sorce of Global Competitive Advan-

tageMaximizing Knowledge Transfer Across Lo-cations

(a) Faster product and process innovation.

(b) Lower cost innovation.- A second by-product of not reinventing the wheel is considerable savings in the costs of innovation.

(c) Reduced risk of competitive preemption.- A global company that demands constant innovations from its sub-sidiaries, but does not leverage these innovations effectively across subsidiaries, risks becoming a fount of new ideas for competitors.

3. Competitive Advantage By

Porter

How a firm can actually create and sustain a

competitive advantage in its industry?

3. Competitive Advantage By

PorterCompetitive Advantage Defini-tion

“Competitive strategy is about being differ-ent. It means deliberately choosing to per-form activities differently or to perform dif-ferent activities than rivals to deliver a unique mix of value.” -- Michael Porter

3. Competitive Advantage By

PorterTwo Basic Types

Differentia-tion Cost Leader-

ship

Both can be more broadly approached or nar-row, which results in the third viable competi-tive strategy

3. Competitive Advantage By

PorterApproach 1 to Competitive advantage: Cost leadership

- A firm sets out to become the low cost producer in its industry.

- Note: a cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for it’s CA.

- Note: if more than one company aim for cost leader-ship, usually this is disastrous.

- Often achieved by economies of scale

-Examples of Cost Leadership: Nisson; Tesco; Dell

3. Competitive Advantage By

PorterApproach 1 to Competitive advantage: Cost leadership

Steps in Strategic Cost Analysis

STEP1. Identify the appropriate value chain and assign costs and assets to it.

STEP2. Diagnose the cost drivers of each value activity and how they interact.

STEP3. Identify competitor value chains, and determine the relative

cost of competitors and the sources of cost differ-ences.

STEP4. Develop a strategy to lower relative cost position through controlling cost drivers or reconfiguring the value chain and/or downstream

value.

3. Competitive Advantage By

PorterCompetitive advantage model 2: Differ-entiation

- a firm seeks to be unique in it’s industry along some dimensions that are widely valued by buyers.

- Note: a differentiator cannot ignore it’s cost position. In all areas that do not affect it’s differentiation it should try to decrease cost; in the differentiation area the costs should at least be lower than the price premium it re-ceives from the buyers.

- Area’s of differentiation can be: product, distribution, sales, marketing, service, image, etc.

3. Competitive Advantage By

PorterSteps in Differentiation

Competitive advantage model 2: Differ-entiation

1. Determine who the real buyer is

2. Identify the buyer’s value chain and the firm’s impact on it

3. Determine ranked buyer purchasing criteria

4. Assess the existing and potential sources of uniqueness in a firm’s

value chain5. Identify the cost of existing and potential sources of differentia-

tion

6. Choose the configuration of value activities that creates the most valuable differentiation for the buyer relative to cost of dif-ferentiating

3. Competitive Advantage By

PorterCompetitive advantage 3: Focus

- a firm sets out to be best in a segment or group of segments.- 2 variants: cost focus and differentiation focus.