30 Aug Read the section Ford Motor Company up to the end of the Turnaround paragraph. Summarize the situation and changes of factor condition demand condition, and Rivalry of the Diamond a
See the requirements below. Report 2 is the main part of this assignment. PPT and lectures are the supporting documents. The Detroit is the article of this assignment. Please read before you begin.
Global Economic Competitiveness
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You must read the requirements first:
1. Please make sure you use your own words and provide detailed answers .
· For questions that are worth 10 points: aim your answers to a quarter of page.
· For questions that are worth 15 points and 20 points: aim your answers to at least half page and maximum one page.
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· Unless otherwise specified and required, your answers must be based on the case only.
· Never simply say a yes or not but provide your reasons!
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Read Disruption in Detroit: Ford, Silicon Valley, and Beyond and answer the questions:
1. Read the section “Ford Motor Company” up to the end of the “Turnaround” paragraph. Summarize the situation and changes of factor condition, demand condition, and Rivalry of the Diamond and discuss the innovation Ford has achieved to stay competitive throughout the time. (15 points) (Minimum half pages)
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2. Use your own words to describe what is “disruptive innovation”. If you consider the industry structure (i.e., the 5 forces), is disruption innovation considered as the threat of new entrance, threat of substitutes, or Rivalry among existing competitors and why? Please list five (5) disruptive innovations in other industries (not automobile or related industries, as we will discuss the industry in detail later) (15 points) (Minimum half pages)
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3. Now let’s focus on the auto industry and conduct the industry structure analysis. Read the sections “Disruptive Influences”, “We are Going to Disrupt Ourselves”, and the “Competitive Landscape” and discuss the threat of new entrance and the threat of substitutes to the auto industry and how Ford has responded. (20 points) (Minimum half pages)
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4. Now let’s focus on the auto industry and conduct the industry structure analysis. Read the sections “Disruptive Influences”, “We are Going to Disrupt Ourselves”, and the “Competitive Landscape” and discuss rivalry among existing competitors in the auto industry and how Ford has responded. (10 points) (Minimum a quarter of pages)
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5. Read the sections “Disruptive Influences”, “We are Going to Disrupt Ourselves”, and the “Competitive Landscape” and discuss the bargaining power of suppliers and factor conditions in the auto industry and how Ford has responded. (20 points) (Minimum half pages)
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6. Read the sections “Disruptive Influences”, “We are Going to Disrupt Ourselves”, and the “Competitive Landscape” and discuss the bargaining power of customers and demand conditions (i.e. in what ways are consumer preferences changing) in the auto industry and how Ford has responded. (20 points) (Minimum half pages)
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7. Based on your analyses of the Diamond and industry structure, which R&D initiatives should the company bet on as a response to each of the five disruptions? How aggressively should it invest to build new capacity? (20 points) (Minimum half pages)
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8. What kinds of partnership should Ford initiate to acquire technologies that it cannot or does not want to build in-house? (10 points) (Minimum a quarter of pages)
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9. Does the concept of “disruption” provide a helpful model for understanding Ford’s dilemmas? Why or why not? Based on the case, are there other challenges that impact Ford’s competitiveness? (10 points) (Minimum a quarter of pages)
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10. After reading and discussing the Ford case, discuss 3 things you have learned about running established companies in a changing world that will benefit your managerial career or start-up journey in the future. (15 points) (Minimum half pages)
Note: I am looking for genuine answers and discussions on what you have learned in terms of running businesses – this should not be just knowledge or facts learned.
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11. Ford is in traditional industry with key disruptive innovations. What are the suggestions you would give to companies in the traditional industries to stay competitive in an ever-changing market? (15 points) (Minimum half pages)
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Lecture 2: Competitive Advantage of Firms in Global Industries
How firms create and sustain competitive advantage in their industries in order to explain what role the nation plays in the process.
1
Force 1: Threat to Entry
Threat of
new entrance
Bargaining Power
of Suppliers
Rivalry
Bargaining Power
of Customers
Threat of Substitutes
2. Strengthen the Network Effects:
A buyer’s willingness to pay for a company’s product increases with the number of other buyers.
e.g., Customers go to amazon.com because it offers more selections…
3. Increase customers’ switching cost (because you are special):
Cost for customer to change products or switching vendors.
e.g., changing your phone from iPhone to Samsung
4. Consider Capital Requirements of the Industry:
The need to invest the large financial resources, e.g. in R&D, facilities, equipment, inventories, marketing…
Asset-heavy industries: large up-front cost in the oil & gas, auto, pharmaceutical.
How to build your moat?
8
Force 1: Threat to Entry
Threat of
new entrance
Bargaining Power
of Suppliers
Rivalry
Bargaining Power
of Customers
Threat of Substitutes
5. Strengthen your existing advantage:
Existing firms may have advantages in cost & quality, no matter what their size.
Technology, access to resources, government subsidies, favorable geographic colocations, experience (above & beyond economies of scale).
6. Take advantage of the restrictive government policy
Through license requirements, patent protection, foreign investment barriers, and limit on access to local aw material.
e.g., liquor retailing, taxi services, Interne content provider (ICP) in China.
How to build your moat?
9
Force 1: Threat to Entry
1. Strengthen your economics of scale
2. Strengthen your network effects
3. Increase customers’ switching cost
4. Use Capital Requirements
5. Strengthen your existing advantage (above & beyond economics of scale)
6. Take advantage of government policy
Threat of
new entrance
Bargaining Power
of Suppliers
Rivalry
Bargaining Power
of Customers
Threat of Substitutes
Summary
How to build your moat?
10
Force 1: Threat to Entry
Threat of
new entrance
Bargaining Power
of Suppliers
Rivalry
Bargaining Power
of Customers
Threat of Substitutes
How to build your moat?
Work in your group:
1. What industries impose high threats of new entry?
2. What industries impose low threat of new entrance?
3. How can existing companies set up barriers?
Summary
1. Strengthen your economics of scale
2. Strengthen your network effects
3. Increase customers’ switching cost
4. Use Capital Requirements
5. Strengthen your existing advantage (above & beyond economics of scale)
6. Take advantage of government policy
11
Force 2: Powerful Suppliers
Threat of
new entrance
Bargaining Power
of Suppliers
Rivalry
Bargaining Power
of Customers
Threat of Substitutes
Powerful suppliers may reduce profitability
Powerful suppliers may reduce profitability by raising prices, shifting costs downstream, or limiting the quality of goods & services they provide.
Examples of powerful suppliers:
Microsoft’s near monopoly in the operating system and the PC makers.
Pharmaceutical companies with patented drugs.
Pilots in the airline industries.
What else?
How should companies deal with powerful suppliers?
12
Force 3: Powerful Customers
Threat of
new entrance
Bargaining Power
of Suppliers
Rivalry
Bargaining Power
of Customers
Threat of Substitutes
Powerful customers can force down prices, demand higher quality and more service, and play competitors off against each other.
Large supermarkets (Walmart, Amazon.com) are powerful …
Apple & NIKE are powerful relative to their outsourced suppliers …
Automakers are powerful relative to their parts suppliers…
What else?
How should companies deal with powerful customers?
Powerful customers may reduce profitability
13
Force 4: Substitutes
Threat of
new entrance
Bargaining Power
of Suppliers
Rivalry
Bargaining Power
of Customers
Threat of Substitutes
How easy it is to have substitutes?
Online shopping substitute brick-and-mortar retail…
UBER & Lyft substitute the taxi industry…
Streaming substitutes cable TV and now streaming industry is highly competitive (Netflix, Disney+, Apple TV, Amazon Prime, etc…)
What else?
Substitutes can be a results of consumer behavior change (online shopping) or regulation (paper product to plastic product).
An industry must distance itself from substitutes via performance (product / service innovation) or marketing, or it will suffer in profitability and growth.
Substitutes limit an industry’s profit potential.
14
Force 5: Rivalry among existing players
Threat of
new entrance
Bargaining Power
of Suppliers
Rivalry
Bargaining Power
of Customers
Threat of Substitutes
Rivalry among existing competitors can be:
price reduction.
new-product introductions.
advertising campaigns.
service upgrade, and etc.
15
Lecture 3: The Competitive Advantage of Nations –the Diamond Model
24
Understanding National Competitiveness
A few premises:
The nature of competition and the sources of competitive advantage differ widely among industries.
Global competitors often perform some activities outside their home country.
Companies gain and sustain competitive advantage in international competition through improvement, innovation, and upgrading.
Companies that gain competitive advantage in an industry are often those that move early and most aggressively to exploit it.
25
1. Factor Conditions
Factors are inputs necessary to compete in an industry.
Human Resource
Physical & Natural Resource
Infrastructure
Capital Resource
Knowledge & Technology Resource
29
Factor 1: Human Resources
Human Resources: Quantity and Skill of Workers.
Low-cost labor, factory in Vietnam
Specialized worker
30
Factor 1: Human Resources
Human Resources: Quantity and Skill of Workers.
Countries that face the worker shortage issues use various immigration programs to attract skilled workers.
31
Factor 2: Natural Resources
Natural Resources:
Saudi Arabia is one of the world’s greatest oil exporters.
Factor 2: Natural Resources
Physical Resources (or Natural Resources): Natural resources, land, water, mineral, climate, location, geographic size…
https://www.visualcapitalist.com/top-trading-partner-of-every-u-s-state/
33
Factor 3: Infrastructure
Infrastructure: transportation (road & rail), telecommunication, payments or funds transfer, health care, housing stock and cultural institutions.
34
Factor 4: Capital Resources
Capital Resources: The total stock of capital resources in a country.
The develop of a country’s stock market, credit market, and etc.
35
Factor 5: Knowledge & Technology Resources
Scientific Knowledge
Market Knowledge
Technology
Innovation
Education System
36
Factor Conditions: Summary
1. Human Resources: Quantity and Skill of Workers.
2. Physical Resources (or Natural Resources): Natural resources, land, water, mineral, climate, location, geographic size…
3. Infrastructure: transportation (road & rail), telecommunication, payments or funds transfer, health care, housing stock and cultural institutions.
4. Capital Resources: development of financial markets (stock market, credit marketing, banking system, etc.)
5. Knowledge Resources: scientific, technical, and market knowledge.
37
Factor Conditions: more examples…
More examples on how factors of production affect certain industries in certain countries.
Singapore’s location on a major trading route between Japan and the Middle East has made it a center for ship repairs.
Swiss ability to deal with different languages and cultures (Switzerland vs. German-, French-, and Italian-speaking) is an advantage in services such as banking, trading, and logistics management.
Germany and Switzerland have pools of workers uniquely skilled in optic-related fields.
38
Basic vs. Specialized Factors
Basic Factors:
Unskilled & semi-skilled Labor,
Local raw-material resources.
Rarely create competitive advantage these days.
The basic factors can be acquired easily through a global strategy or be circumvented through technology (e.g. access to low-cost labor market)
Specialized Factor:
Highly-educated & skilled workers,
Infrastructure with specific properties,
Knowledge bases in particular field,
A pool of venture capital to fund specific industry.
These factors are more scarce, more difficult for competitors to imitate—and they require sustained investment to create.
To support competitive advantage, a factor must be highly specialized.
39
Factor Creation: Education & Training
Competitive advantage results form the presence of world-class institutions that create specialized factors and continually work to upgrade them.
Factor Creation mechanism
Public and private education institutions, special training & apprenticeship
US Hollywood: preeminence in film production with local concentration of skilled labor, including the different schools of film (UCLA & USC) in the area.
Germany: apprenticeship in printing, automobile assembly, and tool-making
Italy: factor-creation mechanism through transfer of knowledge within extended family
Government and private research institutes
Netherland: has premier research institutions in cultivation, packaging, and shipping of flowers it is the world’s export leader in flowers.
40
Factor Creation: Education & Training
China supports the vocational training.
Efforts include revising the Vocational Education Law and granting subsidies to enterprises that set up apprenticeship programs.
These policy actions aim to upskill the workforce: train the rural and low-income workers to meet the needs of high-end manufacturing sectors (like chip manufacturing, new energy, modern agriculture, industrial robots, etc.), they will propel and support China’s economic growth.
41
Factor Creation: Selective Disadvantage
Selective disadvantages (e.g., high land costs, labor shortage, lack of raw materials) can motivate a company/nation to innovate and upgrade.
When countries/companies have abundant supply of cheap raw materials or labor, they may rest on these advantages and often deploy them inefficiently.
Switzerland experienced labor shortage after WWII.
Swiss companies responded to the disadvantage by upgrading labor productivity and seeking higher value, more sustainable market segments.
In comparison, companies in most other parts of the world still had ample & low-cost workers, and therefore focused their attention on other issues, which resulted in slower upgrading.
42
Factor Creation: Selective Disadvantage
U.S. consumer-electronics companies faced with high labor costs.
They move labor-intensive activities to Asian countries. They didn’t upgrade their product and production process.
Japanese consumer-electronics companies faced intense domestic competition and a mature home market.
They chose to use automation led to lower assembly costs and products with fewer components and to improve quality and reliability.
Soon Japanese companies were building assembly plants in the US—the place US companies had fled.
In addition, Japan, as an island country no natural resources.
The disadvantages have spurred Japan’s competitive innovation.
Just-in-time production economized on prohibitively expensive space.
miniaturization and zero-defect manufacturing.
43
Factor Conditions: how things are changing…
Competitive advantage from factors depends on how efficiently and effectively the factors are used.
Globalization: human resources, knowledge, and capital factors can be mobile among nations.
COVID-19 forces us to re-think using the global factors…
44
1. Factor Conditions Summary
Factors are inputs necessary to compete in an industry.
Human Resource
Physical & Natural Resource
Infrastructure
Capital Resource
Knowledge & Technology Resource
Factors are not inherited; they are created through constant innovation and upgrading…
45
The composition & character of the home market usually has a primary effect on how companies perceive, interpret, and respond to buyer needs.
Home market provides the primary driver of growth, innovation & quality improvement.
2. Demand Conditions
46
Demand Conditions
Nations gain competitive advantage in industries where…
2. The home buyers pressure local firms to innovate faster and achieve more sophisticated competitive advantage.
Pressures form buyers to improve products are most acutely felt in the home market, where proximity and cultural similarity make for clearer communications.
1. The home demand gives local firms a clearer and earlier picture of buyer needs.
Attention to nearby needs is the most sensitive and understanding them is the least costly.
47
Demand 1: Sophisticated & Demanding Buyers
A nation’s firms gain competitive advantage if domestic buyers are sophisticated and demanding buyers for the product or services.
Physical & cultural proximity to buyers helps a nation’s firms perceive new needs.
48
Demand 1: Sophisticated & Demanding Buyers
1. Sophisticated and demanding buyers pressure local firms to meet high standards in term of product quality, features, and services.
Livestreaming shopping in China
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Demand 1: Sophisticated & Demanding Buyers
1. Sophisticated and demanding buyers pressure local firms to meet high standards in term of product quality, features, and services.
Livestreaming shopping in China
2. Buyers are especially demanding because of local circumstance.
Compact air-conditioner industry in Japan because of the hot summers, the small & tightly packed homes, and the high energy costs in Japan.
Truck engine industry in U.S., a result of US’ vast road network and spread-out population.
3. Buyers’ demand could be due to national passion.
Japanese passion for recording travel and family events: Camera industry
Canadian’s passion for outdoors: ski & camping product..
Other Examples?
50
Demand 2: Anticipatory Buyer Needs
1. Local buyers can help a nation’s companies gain advantage if their needs anticipate or even shape the needs of other nations:
Western customers’ attention to environmental-friendly products,
51
Demand 2: Anticipatory Buyer Needs
1. Local buyers can help a nation’s companies gain advantage if their needs anticipate or even shape the needs of other nations:
Western customers’ attention to environmental-friendly products,
2. Local buyers can help a nation’s companies gain advantage if the nation’s values are spreading:
American’s desire for convenience fast food, consumer packaged foods.
American’s appetite for credit credit cards.
3. Nations export their values and tastes through media, training foreigners, political influence, and through the foreign activities of their citizens and companies.
Other Examples?
52
Demand 3: Demand Size and Pattern of Growth
Size and growth pattern of home demand can reinforce industry advantage.
1. Home market size is most important in industries with
heavy R & D requirement, large generational leaps in technology,
substantial economies of scale in production,
high levels of uncertainty.
In these industries, the proximity of large home demand is particularly comforting in making investment decisions.
2. Rapid domestic growth leads a nation’s firms to adopt new technologies faster and to build large & efficient facilities with more confidence.
High growth of the streaming market in the US
High growth of the videoconferencing market in the US during COVID.
53
Demand 4: Internationalization of Domestic Demand
1. Mobile local buyers, who travel extensively to other nations, provide a base of loyal customers in foreign markets.
U.S. hotel industry, as a result of business travels.
2. Multinational companies prefer to deal with suppliers based in their home country, because of the ease of communication, a desire to reduce risks, and the efficiencies of employing consistent inputs.
U.S. earth moving equipment industry, e.g. Caterpillar, was encouraged overseas by American construction, mining, and forest product companies.
Japanese auto parts industry follow Japanese car companies.
54
3. Related and Supporting Industries
The presence of related & supporting industries that are internationally competitive.
55
Competitive Advantage in Supplier & Related Industries
1. The presence of internationally competitive suppliers within a country can be beneficial as these suppliers deliver the most cost-effective inputs in an efficient, early, rapid, and preferential way:
Italian companies’ leadership in jewelry
In part because Italian firms produce two thirds of the world’s jewelry-making and precious-metal recycling machinery.
this allows the Italian jewelry industry is quick to obtain new equipment models.
56
Competitive Advantage in Supplier & Related Industries
2. Home-based related & supporting industries provide ongoing coordination and innovation & upgrading.
Suppliers and customers located near each other can:
have quick & constant flow of information, ongoing exchange of ideas.
influence each other’s technical efforts,
can serve as test sites for R&D work, accelerating the pace of innovation.
Italian leather footwear manufacturers interacts regularly with leathe
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