what is happening? steve case resigned as chairman of aol time warner. effective in may. initially...

What is Happening?What is Happening?Steve Case resigned as Chairman of AOL Time Warner.

Effective in May.

Initially heralded as part of the new Internet era, the deal became a failure when AOL’s business badly stumbled.

Cultural clashes between the two companies.

Stock value has wiped out nearly $200 billion in two years.

A victory for Capital Group—largest institutional investor.

Case owns 11 million shares of AOL Time Warner

Governor Grey DavisGovernor Grey Davis

Has proposed a $8.3 billion tax increase.

Has also proposed $21 billion in spending cuts.

The top tax bracket of 11% kicks in if you make a whopping $________.

The $36 billion funding gap was caused by a failure to curtail spending when the economy weakened and was further exacerbated by relying on a series of one-time funding shifts and other gimmicks to make the current year spending plan appear balanced on paper.

First ISM Club MeetingFirst ISM Club Meeting

Tuesday, January 21 at 4:30 to 5:30.

Analysis Term Paper Analysis Term Paper AssignmentsAssignments

On the course web page.

The Plan!?The Plan!?

Start researching material immediately.

• Read syllabus regarding the assignment.

• Look at the Boeing paper in the textbook plus the

Wal-Mart paper on the course web page.

• Use links on web page for your company.

Key FactorsKey Factors1. Industry definition.

2. “Big Picture” data regarding the industry.

3. Business and IT leaders.

4. Porter Competitive Model analysis.

5. Business Strategy Model.

6. Identifying strengths and weaknesses of the company.

7. Figuring out who runs the business on a day-to-day basis and the relationship with the person running the IS organization.

8. Concluding what the company changed through the use of Information Systems.

Chapter 1 Summary Chapter 1 Summary

By Jamil DaoukBy Jamil Daouk

Business and

Information Systems Management

Challenges

The Chapter IncludesThe Chapter Includes

Factors to a become a successful businessFactors to a become a successful business Three necessary perspectivesThree necessary perspectives Simultaneous revolutions within the Simultaneous revolutions within the

business environmentbusiness environment A business driver modelA business driver model Three possible roles of Information SystemsThree possible roles of Information Systems

Business Success FactorsBusiness Success Factors Business LeadershipBusiness Leadership Ability to Fit the Pieces into the Increasingly Bigger Business Ability to Fit the Pieces into the Increasingly Bigger Business

PicturePicture Organization Responsiveness and ResilienceOrganization Responsiveness and Resilience Solving Customer Problems Through a Combined Solving Customer Problems Through a Combined

Organizational EffortOrganizational Effort A Strong Company CultureA Strong Company Culture Ability and Willingness to Innovate, Change, and Take RisksAbility and Willingness to Innovate, Change, and Take Risks Accomplishing These Factors While Maintaining a BalanceAccomplishing These Factors While Maintaining a Balance Communication Across the Entire OrganizationCommunication Across the Entire Organization

Three Perspectives Necessary for Three Perspectives Necessary for Business (and Course) SuccessBusiness (and Course) Success

• Business Environment

• Enterprise Environment

• I/T Environment

Business Success

Figure 1-1

SIMULTANEOUS REVOLUTIONSSIMULTANEOUS REVOLUTIONS

NEW RULES OF COMPETITION

INDUSTRYSTRUCTURE CHANGES

THEBUSINESS

NEW COMPETITORS

NEW POLITICAL AGENDAS

NEW TECHNOLOGIES

NEW EMPLOYEESAND NEW VALUES

NEW REGULATORY ENVIRONMENT

EVER INCREASINGCUSTOMER EXPECTATIONS

Figure 1-2

Business Driver ModelBusiness Driver Model

Regulation

Market Technology

Employees/Work

Organization

Business Processes

Solutions to Business Requirements

Use of Information Systems Use of Information Systems Requires a Systematic ApproachRequires a Systematic Approach

VisionStrategyTactics

Business Plan

• Competitive Options• Roles, Roles and Relationships• Redefine and/or Define• Telecommunications as the Delivery Vehicle• Success Factor Profile

The Possible Roles of Information The Possible Roles of Information Systems within a CompanySystems within a Company

EfficiencyEfficiency

EffectivenessEffectiveness

Competitive AdvantageCompetitive Advantage

Chapter 1 ConclusionsChapter 1 Conclusions

Value to customer defines the purpose and Value to customer defines the purpose and success of a business.success of a business.

The customer defines the business.The customer defines the business. The role of information systems is to The role of information systems is to

enhance (enable) realizing the purpose of enhance (enable) realizing the purpose of the business.the business.

Running a successful business in today’s Running a successful business in today’s global environment involves many global environment involves many challenges.challenges.

Possible Example QuestionsPossible Example Questions

1. Explain why it is necessary to have three perspectives to understand the role and significance of the use of information systems within a specific company.

2. Identify and explain the three possible roles of information systems within a company. Include a three specific company examples for each of the possible roles.

Chapter 2 IntroductionChapter 2 Introduction

Business Competitive Business Competitive

EnvironmentEnvironment

By Melissa ChanBy Melissa Chan

Section 1: Business EnvironmentSection 1: Business Environment

• Business Environment

• Enterprise Environment

• I/T Environment

Business Success

Figure 1-1

Objectives of the ChapterObjectives of the Chapter

Define CompetitivenessDefine Competitiveness Competition in a Global EnvironmentCompetition in a Global Environment Role of Nation relative to CompetitivenessRole of Nation relative to Competitiveness

CompetitivenessCompetitiveness

How do you define competitiveness?How do you define competitiveness?– RevenueRevenue– ProfitsProfits– Market shareMarket share– Customer valueCustomer value

Competitiveness: Value to Customer

Competitive ModelCompetitive Model

HumanResources

Capital

Technology

ImprovedDomestic

Performance

IncreasedWorld Market

Competitiveness

NewCompetition

TradePolicy

DecreasedBudgetDeficit

ReducedTrade Deficit

IncreasedStandardof Living

More and Better Jobs

StrongerNationalSecurity

Competitive ModelCompetitive Model

Input

Input

Input

ImprovedDomestic

Performance

IncreasedWorld Market

Competitiveness

Inhibit

Inhibit Impact

ImpactImpact

Impact

Impact

Firm Strategy, Structure and

Rivalry

Factor

ConditionsDemand

Conditions

Related and Supporting Industries

Chance

Government

Diamond of National AdvantageDiamond of National Advantage

Competitiveness of NationsCompetitiveness of Nations

Anticipate future competition from which Anticipate future competition from which countrycountry

Types of companies that will be primary Types of companies that will be primary competitorscompetitors

Primary competitive strategiesPrimary competitive strategies

ConclusionsConclusions

Understanding the business environment Understanding the business environment through competitionthrough competition

Position to better understand role of Position to better understand role of Information SystemsInformation Systems

Chapter 2Chapter 2

Business Competitive Business Competitive EnvironmentEnvironment

1. The definition of competitiveness.

2. The key elements of competitive advantage.

3. The role of the nation relative to companies that compete successfully on a global basis.

4. The role of government within a nation.

While contemplating the idea that information

technology might make a difference.

Position Some Important FactorsPosition Some Important Factors

Competitiveness is the Pivotal Business Issue

in the 21st Century

The global market will come to you, if you don’t go to it.

Business EnvironmentBusiness Environment

An Essential RoadmapAn Essential Roadmap

Determining how nations, companies and individuals can and must build wealth in a knowledge-based global economy.

Understanding how breakthrough technologies in microelectronics, biotechnology, new materials, telecommunications, robotics, and computers have fundamentally changed the game of creating wealth.

Recognizing that relatively new industries are growing explosively and existing industries are being transformed.

US StatusUS Status• In the 1990s the US was the run away leading performer in the industrial world.

• Interest rates are at a forty year low.

• Inflation has been a minor issue.

• The US claimed nine of the ten largest companies in the world by 1998 compared to only two in 1990.

• Nine of the fifteen most profitable banks are in the US compared to none in 1990.

• The wealthiest man in the world is an American.

• American billionaires measure in the hundreds.

• US stock markets remain relatively high.

Some Important QuestionsSome Important Questions

• Is the fairly unique US prosperity sustainable?

• Is global integration a boon or a threat to this prosperity?

• Will the forces that sparked the Asian meltdown provoke an

era of stagnation or worse?

• Should global integration be slowed?

• What rules should be applied to the creation and protection

of new ideas. (intellectual property rights)

• What skills are needed to succeed in this new economy?

• Can nations create a social system in which entrepreneurial spirit can flourish without also creating income and wealth inequities that threaten the system?

Global (International) TradeGlobal (International) Trade

The US has truly become a global economy.

1950 - Global trade represented 10% of the US

economy.

2000 - Global trade was nearly 25% of a much bigger

economy.

Foreign Direct Investment Foreign Direct Investment

Since 1985 foreign direct investment in the US has increased five-fold.

Five percent of the total labor force works for companies that are wholly or partially foreign owned.

Employees of companies that work for companies that export earn more than those that do not.

Forty percent of productivity improvements are in exporting companies.

What Countries “Own”:What Countries “Own”:

• Nokia

• Burger King

• Chrysler

• Airbus

• Benetton

• Gillette

• Shell

• Finland

• UK

• Germany

• France, Spain, UK, Germany

• Italy

• US

• Netherlands

A Complex Political EnvironmentA Complex Political Environment

Three of five American registered voters approve of free trade.

Most agree that imports give them a larger selection of goods to choose from and that foreign competition forces US companies to be more competitive.

They also feel that imports help lower income families afford a higher standard of living by lowering prices.

They have concerns regarding the environment, human rights, jobs, taxes, societal problems and sovereignty.

Trade Issue AttitudesTrade Issue Attitudes

Attitudes lie along income, education, age and gender divides.

Free trade proponents tend to be those that see themselves benefiting from globalization: men, those that are better educated, richer and live in cities.

Those who question globalization include women, the elderly, those who are less well educated or poorer and those that live in rural areas.

How Trade WorksHow Trade Works

General Agreement on Tariffs and Trade (GATT)

A loose agreement that had a restricted scope and limited powers based on an agreement that was originally signed in the late 1940s.

World Trade Organization (WTO)

Created in 1995, the WTO has the job of administering trade agreements, resolving trade disputes and conducting future trade negotiations.

WTOWTO

WTO members must abide by the group’s rulings.

The most important of which is to give every member the same set of low tariffs and other favorable trade rules.

The most significant recent development was the admission of China to the WTO in 2000.

Michael Porter Contributions Michael Porter Contributions

• 1985 - Presidential Commission and Competitiveness Definition

• 1987 - Competitive Model and Value Chain

• 1990 - Competitiveness of Nations Study

• Present - Institute for Strategy and Competitiveness, Harvard Business School

Presidential CommissionLetter to President Reagan

Mr. President, it has been a great honor to serve you and the Nation. The competitive challenge calls for the leadership only you can provide. We thank you for your vision, interest and initiatives in making competitiveness a priority on our national agenda.

John A. YoungChairmanPresident’s Commissionon Industrial Competitiveness

Competitiveness Definition

The degree to which a nation can, under free and fair market conditions, produce goods and services that will meet the test of international markets while simultaneously maintaining or expanding the real income of its citizens.

Source: President’s Commission on Industrial Competitiveness

Competitiveness: A Link to National Goals

HumanResources

Capital

Technology

ImprovedDomestic

Performance

More andBetter Jobs

IncreasedStandard of

Living

StrongerNational Security

DecreasedBudgetDeficit

TradePolicy

NewCompetition

Increased World Market Competitiveness

ReducedTrade Deficit

Figure 2-1

Presidential Commission

Recommendations:

1. Create, apply and protect technology.

2. Spur new industries and revive old ones.

3. Pursue productivity gains through technology.

4. Reduce the cost of capital to American industry. Increase the supply of capital available for investment, reduce its cost and improve its ability to flow freely to its most productive uses.

Who is going to make it happen?

1. Government cannot legislate competitive success.

2. Government should highlight the importance of competitiveness.

3. Everyone must recognize the competitive challenge and its significance.

How Does a Company Compete?

If the bottom line to a business is

profit, then the top line is value to

customer.

The Best Optional Strategy?

To produce quality products and

services through effective leadership

of skilled employees using advanced

methods through the innovative use

of technology.

A Good Competitor:

1. Knows its products and services.

2. Knows its customers.

3. Knows its competitors.

Competitiveness of Nations

The striking internationalization of competition in the decades after World War II has been accompanied by major shifts in the economic fortunes of nations and their firms.

1. How did this happen?

3. What can companies and countries do about it?

2. What can one learn from this?

Competitiveness of Nations

Why (how) are companies in a particular nation able to gain a dominant competitive position in a specific industry against the world’s best competitors?

Competitiveness of Nations

• Helps to anticipate from which country future competition is likely to come from?

• Helps to understand as least in basic terms what types of companies will be primary competitors?

• Could help to anticipate what could be their primary competitive strategies?

The point of all of this:

Organizations Compete

Within Industries

What is the role of the nation?

• How Measure Success?

• Basis of Analysis?

Previous Basis of Competitive Analysis

• Porter Companies and Industries• Economists Unit Cost of Labor Adjusted

for Inflation• Politicians Balance of Payment• Companies The Right Strategies to

Compete in Global Markets

To Understand Competition

• The industry was the basic unit of analysis.

• Industries are organizations that directly compete with each other.

• Some industries are well-defined, while others are not.

The role of the nation has increased as competition has

shifted more to the creation and assimilation of knowledge.

A Major Message

Competitiveness of Nations Study

• Denmark: Copenhagen School of Economics

• Germany: Deutsche Bank

• Italy: Ambrosetti Group (transportation company)

• Japan: MITI, Hitotsubashi University and Industrial Bank of Japan

• Korea: Seoul National University

• Singapore: Economic Development Board

• Sweden: Institute of International Business, Stockholm School of Economics

• Switzerland: University of Basel, University of St. Gallen, Union Bank of Switzerland

• United Kingdom: The Economist

• United States: Harvard Business School

Industry Case Studies DenmarkAgriculture Machinery

Building Maintenance

Services

Consultancy Engineering

Dairy Products

Food Additives

Furniture

Pharmaceuticals

Specialty Electronics

Telecommunications

Equipment

Waste Treatment

Equipment

GermanyAutomobiles

Chemicals

Cutlery

Eyeglass Frames

Harvesting/Threshing

Combines

Optical Instruments

Packaging, Bottling

Equipment

Pens and Pencils

Printing Presses

Rubber, Plastic Working MachineryX-ray Equipment

ItalyCeramic TilesDance Club and Theater EquipmentDomestic AppliancesEngineering/ConstructionFactory Automation EquipmentFootwearPackaging and Filling EquipmentSki BootsWool Fabrics JapanAir Conditioning MachineryHome Audio EquipmentCar Audio EquipmentCarbon FibersContinuous Synthetic WeavesFacsimile EquipmentForklift TrucksMicrowave and Satellite Communications Equip.Musical InstrumentsOptical Elements and Instruments

RoboticsSemiconductorsSewing MachinesShipbuildingTires for Trucks and BusesTrucksTypewritersVideocassette RecordersWatches

KoreaApparelAutomobilesConstructionFootwearPianosSemiconductorsShipbuildingSteelTravel GoodsVideo and Audio Recording TapeWigs

SingaporeAirlinesApparelBeveragesShip RepairTrading

SwedenCar CarriersCommunication ProductsEnvironment Control EquipmentHeavy TrucksMining EquipmentNewsprintRefrigerated ShippingRock DrillsSemihard Wood FlooringTeller-operated Cash Dispensers

SwitzerlandBankingChocolateConfectioneryDyestuffsFire Protection EquipmentFreight ForwardingHearing AidsHeating ControlsInsuranceMarine EngineersPaper Product Mfg. EquipmentPharmaceuticalsSurveying Equipment

Textile MachineryTradingWatches

United StatesAdvertisingAgricultural ChemicalsCommercial AircraftCommercial Refrigeration and Air-ConditioningComputer SoftwareConstruction EquipmentDetergentsEngineering and ConstructionMotion PicturesPatient Monitoring EquipmentSyringesWaste Management Services

The ways that firms achieve and sustain competitive advantage in global industries provide the necessary foundation for understanding the role of the home nation in the process.

Firm Strategy, Structure and

Rivalry

Factor

ConditionsDemand

Conditions

Related and Supporting Industries

Diamond of National Advantage

Chance

Government

• Natural Resources

• Labor Pool

• Interest Rates and Currency Value

• Economies of Scale

Competitive Success Is Not Determined By:

. . . Traditional Economic Thinking

Factor Conditions

The nation’s position in factors of productionthat are prerequisites to compete in a specificindustry.

• Infrastructure• People Skills and Training• Factors Unique to a Specific Industry

A nation does not inherit but creates the most important factors.

Physical Resources:

• Abundance, quality, accessibility and cost of

land, water, minerals, timber, hydroelectric

power, etc.

• Climatic conditions.

• Location and geographic size.

• Time zone re: global communication.

Factor Conditions

Infrastructure: Type, quality, and user cost.

• Transportation

• Communication

• Mail/freight Delivery

• Health Care

• Schools

• Housing Stock

Factor Conditions

. . .Quality of life--to live and to work.

Capital Resources: (Amount and cost of

money)

Factor Conditions

• Secured Debt

• Unsecured Debt

• Equity and Venture Capital

• Savings Rate

• Tax Incentives• Fiscal and Monetary Policies

Knowledge Resources: Scientific, technical and

market knowledge that pertains to goods and

services.

Factor Conditions

•Universities

•Government Research Facilities

•Private Research Facilities

•Business and Scientific Literature

•Market Research Databases

•Trade Associations

Factor Conditions

Human, knowledge and capital factors are mobile.

Other elements of the diamond are more important to explain international success.

Factor Conditions

While essential to compete

within a specific industry

the availability of factors

is not enough to explain

competitive success.

Factor Conditions

Competitive advantage from factors depends on how effectively and efficiently they are mobilized and deployed in the economy.

Factor Conditions

The Japanese created and expanded needed factors at a rate far exceeding that of all other nations.

Factor Conditions: Factor Conditions: US Semiconductor IndustryUS Semiconductor Industry• Universities to train engineers and other

professional technical employees.

• Economic space for manufacturing facilities.

• Good transportation facilities.

• Good communications system.

• Access to raw materials.

• Water.

Brazilian Chicken IndustryBrazilian Chicken Industry

• Second largest chicken producer after the US.

• Two large poultry companies: Perdigao and Sadia.

• Has factor condition advantages:

• A large domestic market that allows an

economy of scale.

• A large number of farmers to raise chickens.

• Cheap, abundant corn and soya for feed.

Demand Conditions

• The sophistication of customer demand.• The more demanding the local buyers the

better to hone the global competitiveness of home-based companies..

• The local market provides an early picture of the emergence of buyer needs.

• This factor is a major positioner for success.

• Successful companies need suppliers who are:

1. Home-based.

2. Competitive on an international level.• A close relationship with suppliers contributes

to innovation and upgrading of products.

• Prompts a range of interconnected suppliers

that are all internationally competitive.

Related and Supporting Industries

Firm Strategy, Structure and Rivalry

The way in which companies are

created, managed and choose to

compete domestically.

Firm Strategy, Structure and Rivalry

Study Findings:• Company and individual goals vary.• No one management style is universally

appropriate.• Differences in background of CEO and

different company structures.• Company structures are different.• Contrasts in people motivation to work and

learn.• Career choices of the best students varies.

Country ExamplesCountry Examples

• Germany

• Italy

• Japan

Firm Strategy, Structure and Rivalry

Germany• The preeminent trading nation when considering the entire

postwar period.

• Have a very international orientation and export early.

• International success is built on many small and medium sized companies.

• They compete in highly sophisticated products and segments rather than high-volume ones.

• The breadth and success of German industries can only be understood in a historical context--achieved over decades.

• Industry success includes a wide range of industries but Germany does not dominate them as does the U.S. or Japan.

• The economy is extensively clustered.

• There is wide-spread private and state ownership.

• The structure of companies tends to be hierarchical and patriarchal.

• Pragmatism characterizes German management.

• Managers and workers are well trained in their industries.

• Discipline and order is evident in the way that companies are managed.

• Owners often have a deep involvement in all aspects of the business, especially in technical areas.

• They maintain an enduring relationship with employees.

• Particularly adept at complex production processes.

• Selling is technical versus advertising or intangible appeals.

• Complex product service requirements.

• Customers tend to be conservative and cautious about new products.

• High levels of customer loyalty.

• Labor is very organized and is represented on company boards.

• New business formulation has traditionally been weak.

• Most executives have technical or scientific backgrounds.

• Have a stubborn desire to achieve technical and quality excellence.

• Invariably compete on the basis of differentiation versus cost.

• Unrelated diversification is rare.

• Do not hesitate to invest abroad.

• Industry is prestigious and attracts outstanding people.

• The unique strength of the German economy is its capacity to upgrade its advantage by increasing the quality of human and technical resources.

Germany Share of Total World Exports

• Bisquettes of Coal, Coke 70.4%

• Potassium Sulfate 59.4%

• Reciprocating Pumps 58.1%

• High Pressure Steel Conduit 55.4%

• Fresh Milk and Cream 54.5%

• Rotary Printing Presses 51.1%

• Iron, High Carbon Steel Coil 49.8%

• Synthetic Luminophores 47.1%

• Spinning, Reeling Machines 42.7%

• Clothes Dryers 41.3%

• Aircraft over 15,000 kg 38.1%

•Jukeboxes 36.5%

•Polyvinyl Chloride Plates 35.9%

•Rubber, Plastics Machines 35.5%

•Combine Harvester-Threshers 35.3%

•Packaging, Bottling Equip. 34.1%

•Sewing Machine Needles 33.2%

Seventeen industries where Germany has 33% or more of the world’s export market.

German CompaniesBASF AG - Chemicals (1861)Bayer AG - Chemicals (1863)Bayerische Motoren Werke AG - Autos, Motorcycles (1913)Bertelsmann AG - Publishing (1835)Daimler-Benz AG - Autos and Aerospace (1882)Henkel KGaA - Detergents and Chemicals (1876)Hoechst AG - Chemicals (1863)Friedrich Krupp GmbH - Steel, Engineering, Trading (1587)Mannesmann AG - Steel Tubes, Auto Parts, Etc. (1885)Robert Bosch GmbH - Electronic Auto Equipment (1886)Siemens AG - Electrical and Electronics (1847)Volkswagen AG - Automobiles (1937)

Firm Strategy, Structure and RivalryItaly• Joined the ranks of advanced nations in the past two decades.• Overall growth in world export share is second only to Japan.• Clearly contradicts its image as a country.• Achieved advantage based on segmentation, differentiation

and process innovation.• Illustrates the power of a growing alignment between

national circumstances and the shifting demands of modern global competition.

• Remains a study in contrasts--industry successes and failures.• Successful industries are highly clustered including

geography.

• The world’s leading exporter in textile/apparel, household goods and personal products and third in food and beverages.

• Companies tend to be medium to small that compete primarily through export with limited direct foreign investment.

• Large private firms tend to dominate the home market.

• Companies are often managed by a commanding leader involved in all activities.

• Below the leader is often fluid, relatively unstructured (chaotic?) operation involving an interpersonal competition that would be rare in Japan.

• Managers are resourceful improvisers and able to adjust to changes, to circumvent constraints and to adapt to new rules.

• Companies tend to be highly specialized and compete through constant model changes and innovation.

• Deal with customers on a family-like and personal basis.

• Combine product design with innovations in process technology.

• Are generally not successful where standardization, high-volume mass production, or heavy investments in fundamental research are involved.

• Most companies are privately owned and owners, managers and workers are closely attached to an industry.

• These factors lead to a long-term orientation and a commitment to sustained investment.

• Business is important and a magnet for talented individuals.

• Entreprenuership thrives in Italy--they are risk takers who are individualistic and desire independence.

• Benefited from a shift from standardized, mass-produced products toward more customized, higher-style, higher-quality goods. In many cases style was combined with investment with state-of-the-art production equipment.

Italy Share of Total 1985 World Exports• Meal and Pellets of Wheat 69.5%• Worked Building Stone 62.2%• Aperitifs 58.1%• Glazed Ceramic Sets 56.6%• Precious Metal Jewelry 49.6%• Fresh Stone Fruit 45.5%• Rubber and Plastic Footwear 41.9%• Fabrics of Combed Wool 41.8%• Domestic Washing Machines 38.2%• Steel High Pressure Conduits 35.9%• Sweaters of Synthetic Fibers 34.0%• Handbags 33.7%• Woolen Sweaters 33.1%• Leather Footwear 32.8%

Fourteen industries with one third of world’s export market.

Italian Companies• Fiat SpA - Autos and Farm Equipment (1899)• Olivetti - computers and office equipment (1908)• IRI Holding Co. (state owned) - 541 companies 5% of GNP• Ente Nazionale Idrocarburi - Petroleum & Petrochemical (1953)• Perelli SpA - Power Transmission, T/C Cables, Tires (1872)• Benetton - clothes manufacturer (1955)• Luxotica - frame manufacturers (NY Stock Exchange)• Gewiss - electrical fittings• Marposs - precision measuring equipment• Safilo - frame manufacturers• Persol - frame manufacturers• Iris - ceramics

Small Businesses in Italy

• Exemplify flexibility and thrive in niche markets.

• Provide more than 2/3 of private-sector industrial employment.

• Escape many of Italy’s oppressive labor laws.

• Exports increased 20% during 1993’s down economy.

• 99% of Italy’s businesses are owned by one or two families.

• To survive Asian competition they concentrate on a higher level of specialization and devote more time to quality and innovation versus price.

• Many companies were founded following the end of WWII.

(Less than 100 employees)

Firm Strategy, Structure and RivalryJapan• Not far behind Germany in becoming a world economic

power.

• Lacked Germany’s historical position.

• Achieved competitive advantage in some industries and failed in others.

• The role of the government and management practices does not explain the success of Japanese industries.

• Has an extraordinarily high share of world exports in many industries with a complete absence of a natural resource intensive industry.

• There is a unique ability in Japan for the “diamond” to function as a system.

• Possesses a large pool of literate, educated and increasingly skilled human resources.

• Benefit from a large pool of trained engineers.

• Created and upgraded needed factors that far exceeded that of all other nations.

• Japanese companies are hierarchical and disciplined.

• Cooperation and subordination are the norm with a unique ability to coordinate across functions.

• Relationships between labor and management are respectful and strikes are rare.

• Many of the talented people flow to industry.

• A technical orientation is pervasive and many managers have engineering backgrounds.

• Strategies often follow a path of standardization and mass production with a major emphasis on quality.

• Ownership of companies is predominantly held in institutions and other companies.

• Japanese companies often define their goals in terms of volume and market share.

• Workers define their status on how well the company is doing.

• Continual learning is emphasized and accepted.

• An international outlook promoted by the amount of domestic rivalry which is the single biggest explanation for the success of Japanese industries.

• Companies relentlessly upgrade their competitive advantage.

• More willing to form new companies.

Japan Share of 1985 World Exports

• Motorcycles 82.0%

• TV Image and Sound Recorders 80.7%

• Dictating Machines 71.7%

• Calculating Machines 69.7%

• Mounted Optical Elements 67.5%

• Photo & Thermocopy Apparatus 65.9%

• Still Cameras and Flash Equip. 62.2%

• Cash Registers and Accounting

Machines62.0%

• Outboard Marine Piston Engines 61.0%

• Electric Gramophones 59.0%

• Microphones, Loudspeakers and Amplifiers 55.7%

• Motorcycle Parts & Accessories 53.4%

• Track-Laying Tractors 51.8%

• Pianos & Musical Instruments 51.0%

• Self-Propelled Dozers 50.6%

• Color TV Receivers 49.5%

• Portable Radio Receivers 48.4%

• Other Radio Receivers 47.9%

• Special-Purpose Vessels 46.8%

• Electric Typewriters 45.0%

• Steam Boiler Plants & Parts 42.8%

• Motor Vehicle Radio Receivers 42.5%

• TV Picture Tubes 42.2%

•Prepared Sound Recording Equipment. 41.5%

•Photo Chemical Products 41.5%

•Metalworking Lathes 39.7%

•Coarse Ceramic Housewares 39.3%

•New Bus or Truck Tires 39.1%

•Buses 38.7%

•Sewing Machines 38.7%

•Iron, Steel Seamless Tubes 38.7%

•Self-Propelled Shovels, Excavators 38.4%

•Computer Peripheral Units 37.9%

•Lorries and Trucks 37.5%

•Other Electronic Tubes 36.5%

•Metal Cutting Machine Tools 36.5%

•Generating Sets with Piston Engine 36.1%

•Other Cargo Vessels 35.7%

•Iron, Simple Steel Rolled Plate 35.2%

•Continuous Synthetic Weaves 34.7%

•Clocks, Watch Movements 33.8%

•Rolling Mill Parts and Rolls 33.4%

•Liquid Dieletic Transformers 33.4%

Forty-three industries with over one third of theworld’s export market share.

Japanese Companies• Honda Motor - Autos and Motorcycles• Sony Crop. - Consumer Electronics• Bridgestone Corp. - Tires• Matsushita Electric - Consumer Electronics• Toyota Motor Corp. - Automobiles• Nissan Motor Corp. - Automobiles• Nomura Securities - Brokerage• Hitachi - Computers and Electronics• NEC - Computers and Electronics• Fujitsu - Computers and Electronics• Mitsui Group - Trading and Holding Co.• Sumitomo Group - Trading and Holding Co.• Mitshubishi Group - Trading and Holding Co.

Study PostscriptStudy Postscript

1. The second largest economy in the world.

2. Arrogance based on what they had accomplished

including an assumption that the only way their economic

endeavors go is up.

3. A rigidity in approach that takes too long in a fast paced,

global economy.

What happened to Japan since 1990?

Forget the North Pole!Forget the North Pole!

Santa’s Workshop is in ChinaSanta’s Workshop is in China

IronicIronic

What makes Christmas festive for Americans is produced in the world’s officially atheistic country whose human rights abuses are deplored by officials of the US government.

What this picture provides is a lesson in globalization and an example of how trade and tradition have brought together China and the US in a mutually beneficial relationship.

Minimal Inflation in the US?Minimal Inflation in the US?

Because of China!

Imports from ChinaImports from China

Based on the first eight months of 2000

Artificial Christmas Trees - $78 million

Christmas Tree Ornaments - $535 million

Christmas Lights - $211 million

Stuffed Toys - $755 million

Dolls - $639 million

Electric Trains - $32 million

Puzzles - $21 million

If not available, over half of this type of merchandise in US stores would disappear.

U.S. Merchandise Trade with China: 1988-2000U.S. Merchandise Trade with China: 1988-2000

Year U.S. Exports U.S. Imports U.S. Trade Balance 1988 5.0 8.5

-3.5 1989 5.8 12.0 -6.21990 4.8 15.2 -10.41991 6.3 19.0 -12.71992 7.5 25.7 -18.21993 8.8 31.5 -22.81994 9.3 38.8 -29.51995 11.7 45.6 -33.81996 12.0 51.5 -39.51997 12.8 62.6 -49.71998 14.3 71.2 -56.91999 13.1 81.8 -68.72000 15.0 99.4 -84.4

China Imports to the US

0 20 40 60 80 100

All Commodities

Toys, games,etc

Footwear

Office machines

Telecom andsound

Apparel

Top 5Categories

1999

1995

US Exports to China

0 5 10 15

All Categories

Top 5 Categories

Transport Equipment

Electrical Equipment

Fertilizer

Office Machines

Industrial Machinery

1999

1995

Critics of US-China TradeCritics of US-China Trade

Much of what the US counts as exports to China are parts for assembly and return for sale in the US.

China Trade BarriersChina Trade Barriers

China remains a difficult market to penetrate, due largely to Chinese government policies, which attempt to protect and promote domestic industries. Chinese trade policies generally attempt to encourage imports of products which are deemed beneficial to China's economic development and growth (and which are generally are not produced in China),such as high technology, as well as machinery and raw materials used in the manufacture of products for export.

Goods and services not considered to be high priority, or which compete directly with domestic Chinese firms, often face an extensive array of tariff and non-tariff barriers.

China Trade BarriersChina Trade Barriers

Such policies make it difficult to export products directly to China. As a result, many U.S. firms have established production facilities in China to gain access to the China market.

However, foreign-invested firms in China face a wide variety of barriers as well. U.S. government officials maintain that China's restrictive trade and investment policies are a leading cause of the surging U.S.-China trade imbalance.

China Trade BarriersChina Trade Barriers

High tariffs. The average Chinese tariff rate is currently 17% (down from an average rate of 42% in 1996), but tariffs on selected items, such as autos and various agricultural products, can rise to 100% or more.

Non-tariff barriers. Arbitrarily used to control the level of certain imports into China, including quotas, import licenses, registration and certification requirements, andrestrictive technical and sanitary standards (especially in respect to agricultural products).

China Trade BarriersChina Trade Barriers

Non-transparent trade rules and regulations. China's trade laws and regulations are often secretly formulated, unpublished, unevenly enforced, and may vary across provinces, making it difficult for exporters to determine what rules and regulations apply to their products. In addition, foreign firms find it difficult to gain access to government trade rule-making agencies to appeal new trade rules and regulations.

Trading rights. China restricts the number and types of entities that are allowed to import products which limits the ability of both Chinese and foreign firms to obtain imported products.

China Trade BarriersChina Trade Barriers

Distribution rights. Most foreign companies are prohibited from selling their products directly to Chinese consumers.

Investment restrictions. Chinese officials pressure foreign investors to agree to contract provisions which stipulate technology transfers, exporting a certain share of production, and commitments on local content. Other problems faced by foreign firms include the denial of national treatment (i.e., foreign firms are treated less favorably than domestic firms), foreign exchange controls, distribution and marketing restrictions, and the lack of rule of law.

Competitiveness of Nations

It is helpful to ask what companies need to do and where does government need to play a key role?

Role of Government

Serve as a challenger and catalyst to companies to

compete successfully:

• Focus on specialized factor creation.

• Avoid intervening in capital factor and currency markets.

• Enforce strict product, safety and environmental standards.

• Limit cooperation among industry rivals.

• Promote goals that lead to sustained investment.

• Deregulate competitors.

• Enforce domestic antitrust policies.

• Reject managed trade.

SingaporeSingapore

• An economic powerhouse.

• Three million people on a small island.

• Passed the US in average income in 1999.

• World’s best infrastructure!?

• Safe, clean (smoggy).

• Interesting racial, religious and language mix.

• Could go from great to awesome.

Singapore ModelSingapore Model

• Strong Government (The smartest and most

capable should govern)

• Long Term Planning

• Foreign Investment

• Clean Administration

• Education for All

• No Welfarism

• Family Values

• Law and Order

• Communal Harmony

KenyaKenya

From whiskey to cooking fat to batteries to clothes, Kenya is being swamped with counterfeit goods.

Some are made locally but most are imported.

KenyaKenya

Focus on the negative impact of counterfeit goods in usually on wealthy nations where products are most often designed and developed.

The effects can be even more devastating in poor and developing countries where profits of any kind are harder to come by, smuggling is more easily accomplished and enforcement is weak or non-existent.

KenyaKenya

Kenyan manufacturers are estimated to be losing hundreds of millions of dollars in revenue.

This also costs the government $16 million in annual taxes.

Eveready BatteriesEveready Batteries

Employs 350 people in Kenya.

40% of Eveready batteries sold in Kenya are counterfeit.

If this continues, the company will terminate its operation in Kenya.

KenyaKenya

80% of counterfeit goods are estimated to come from China.

The business community blames much of their troubles on high costs, such as power and water, and government corruption.

The government run port of Mombasa is notorious for bribery and kick-backs.

KenyaKenya

If the business opportunity exists, would you want to do business in Kenya?

Companies gain an advantage against competitors by responding to pressures and challenges.

The Company Agenda

1. Creating pressure within the company for innovation.

2. Seeking out the best, most successful competitors

3. View as a positive factor the presence of domestic competition.

4. Staying alert to customer, market and competitor trends.

5. Emphasizing the home base as the place to strengthen competitiveness.

6. Selectively pursuing international advantage opportunities.

7. As a company, playing a role in strengthening the national competitive diamond.

:

Conclusions

• Today’s competitive realities demand leadership.

• Leaders believe in change.

• They energize their people to innovate continuously.

• They recognize the need for pressure and challenges to accomplish this.

Not Everyone Agrees

Kenichi Ohmae: The Borderless World

The key global economic entityis the true multinational company.

Ohmae Contentions

Four factors are usurping economic power

once held by nations:

1. Capital.

2. Corporations.

3. Consumers.

4. Communication.

Putting Global Logic First

Although political leaders will resistacknowledging the demise of the nation-state, only those who can accept it andpromote region-states within and acrosstheir borders will be able to provide thebest quality of life for their constituents.

Kenichi Ohmae

Global Competitiveness RankingGlobal Competitiveness RankingCriteria:

1. Quality of national business environment.

2. The set of institutions, market structures and economic

policies supportive of high level of prosperity.

3. Company operations and strategy ranking.

Michael Porter, Institute for Strategy and Competitiveness, Harvard Business School

World Economic Forum web page.

Global Competitiveness RankingGlobal Competitiveness Ranking

1. Finland

2. US

3. Netherlands

4. Germany

5. Switzerland

6. Sweden

7. UK

8. Denmark

9. Australia

10. Singapore

11. Canada

12. France

13. Austria

14. Belgium

15. Japan

16. Iceland

17. Israel

18. Hong Kong

19. Norway

20. New Zealand

21. Taiwan

22. Ireland

23. Spain

24. Italy

25. South Africa

26. Hungary

27. Estonia

28. Korea

29. Chile

30. Brazil

Global Competitiveness RankingGlobal Competitiveness Ranking

36. India

37. Malaysia

41. Poland

43. Greece

47. China

51. Mexico

54. Philippines

58. Russia

62. Vietnam

75. Bolivia

1998 Rankings1998 Rankings1. Singapore 2.16

2. Hong Kong 1.91

3. US 1.41

4. UK 1.29

5. Canada 1.27

6. Taiwan 1.19

7. Netherlands 1.13

8. Switzerland 1.10

9. Norway 1.09

10. Luxembourg 1.05

11. Ireland 1.05

12. Japan .97

13. New Zealand .84

14. Australia .79

15. Finland .70

16. Denmark .61

17. Malaysia .59

18. Chile .57

19. Korea .39

20. Austria .37Source: World Economic Forum

From Third World to World ClassFrom Third World to World Class

Is globalization by definition a zero sum game?

Or can it be a win-win proposition?

Major PointsMajor Points

It is no longer possible for a country to insulate itself from the rest of the world.

The possible decline of the industrialized world is merely the narrowing of the gap between it and third world countries.

The accelerated pace of change is what disturbs the pessimists, because they can see it happening.

It took Britain 60 years to double its output, the US 50 years but developing countries are doubling output every 12 years. China has actually doubled its GDP in seven years.

In many respects the developing world is unknown economic and financial territory.

ConclusionsConclusions

• The diamond of national advantage makes sense as a means of understanding global economic success.

• Domestic success does prepare companies to compete globally.

• Major European and an increasing number of Asian countries are capable of competing on a global basis.

• The global marketplace is only going to get tougher based on more, tougher competitors.

• The diamond can help to anticipate new competitors.