INB 410

International Competitiveness Course Instructor: Mehree Iqbal (MeI) Lecture 11, 12, 13, 14, 15 Final Syllabus

Drivers of Internationalization
Many general pressures (such as migration, international trade, investment) increasing internationalization. Moreover, international regulation and governance along with improvement in communications made movement and the spread of ideas much easier around the world. George Yip has invented the frame-work of drivers of internationalization to diagnose the strength and direction of trends in particular markets. The four drivers are as follows: Market drivers, cost drivers, competitive drivers and government drivers.

1. Market Drivers
A critical facilitator of internationalisation is some standardisation of markets. The three components of this drivers are: Presence of similar customer needs and tastes - Cultural imperialism leads to drive internationalization Such as- Visa card, Jeans, Cadbury chocolate Global customers - For global customers companies are going global Such as- car components companies becoming more international (Toyota or Ford) Transferable marketing Such as- Pizza Hut, Lux, Coca-Cola (similar advertisement, promotions, pricing around the globe)

2. Cost Drivers
Cost can be reduced by operating internationally . Under this driver there are three components: 1. Scale economies -increasing volume beyond what a national market might support can give scale economies in production and in purchasing of supplies 2. Country specific differences - Enjoying location economies through cheap labour, raw materials, availability of resources, specialization of resources 3. Favourable logistics - Cost of moving products or service across borders relative to their final value. (value-to-weight ratio if high then favourable)

3. Government Drivers
This driver can both facilitate and inhibit internationalisation. The component of this driver are: 1.Trade policies - Whether favourable for internalisation ?(U.S.A) 2. Technical standards - Warranty, general standard for product quality (ISO) 3. Host government policies - Whether encourages internalisation ? Discourage U.S.A and Bangladesh Automobiles Encourage Bangladesh Mobile industry ( very little tax)

4. Competitive Drivers
These relate specifically to globalisation as an integrated worldwide strategy rather than simpler international strategies. This driver has two components: 1. Interdependence between countries - Interdependence between country operations increases the pressure for global coordination (U.S.A dependent on China for assembling products) 2. Competitors global strategies - The presence of globalised competitors increases the pressure to adopt a global strategy in response because competitors may use one countrys profits to cross-subsidies their operation in another.

Innovation and Entrepreneurship

Innovation and entrepreneurship are fundamental drivers in todays economy. Innovation and entrepreneurship leads to competitive advantage of a firm or country. Steve jobs is a technological innovator, whose creativity in computers, electronics and film led to Apple computers and built Pixar into one of the worlds leading animation companies.
Nobel Prize winner Muhammad Yunus is a social innovator, pioneer of microcredit (small loans to entrepreneurs who are too poor to be considered by ordinary banks) and founder of the Grameen Bank in Bangladesh

Innovation involves conversion of new knowledge into a new product, process or service and putting of this new product, process or service into use, either via the marketplace or by other processes of delivery.
Entrepreneurship is a process by which individuals either on their own, or inside organisations pursue opportunities without regard to the resources they currently control Jarillo and Stevenson (1990, p23) Entrepreneurs identify opportunities, assemble required resources, implement a practical action plan, and harvest the reward in a timely, flexible way. Sahlman and Stevenson (1991, p1)

Entrepreneurship as a process
To understand entrepreneurship as a process, consider: 1. The economic, technological and social conditions from which opportunities arise 2. The people who recognise those opportunities (entrepreneurs) 3. The business techniques and legal structures they use to develop them 4. The economic and social effects produced by such development.

Theories of Entrepreneurship
Innovation and resource-based approaches e.g. Schumpeter, 1943; Teece, 1986; Dubini and Aldrich, 1991; Rothwell, 1991; Jarillo, 1993 These approaches consider the role of the entrepreneur in utilizing, accessing and leveraging resources towards an innovation, often through external links and extensive social networks. The innovation- entrepreneurship Framework: Timing
Innovation Relationships Entrepreneurship

Innovation Dilemmas
Innovation is more complex than just invention. Innovation adds the critical extra step of putting new product, process or service into use. So, the strategic dilemmas starts from this more complex and extended process. Strategists have to make choices with regard to three fundamental issues: How far to follow technological opportunity as against market demand How much to invest in product innovation rather than process innovation Whether to focus on technological innovation rather than extending innovation to their whole business model

1. Technology push or market pull

People often confuse innovation as driven by technology. In technology push view, the scientists carry out research in their laboratories in order to create new knowledge. This new knowledge then handed over to the rest of the organization to make, market and distribute. Market pull reflects a view of innovation that goes beyond invention and sees the importance of actual use. Eric Von Hippel discovers that in many sectors users, not the producers are common source of innovation. In designing the innovation the strategists should first listen to the users rather than their own scientists or technologists. Von Hippel also, mentioned that organization should focus on Lead users rather than common users. However, key issue for manager is to be aware of this dilemma and review their organizations balance between these two extreme view.

2. Product or Process Innovation

Product innovation relates to the final product to be sold, especially with regard to its features Process innovation relates to the way which this product is produced and distributed especially with regard to improvement in cost or reliability. Apple had focused on product innovation where else, Dell had focused on process innovation (Direct sales reduces the cost) In early stage, product innovation leads to the establishment of a dominant design after which competition shifts to process innovation is a common scenario in many industries. Strategic implication: New developing industries typically favour product innovation, as competition is still around defining the basic feature of the product or service.

Maturing industries typically favour process innovation, as competition shifts towards efficient production of a dominant design of product or service Small new entrants typically have the greatest opportunity in the early stages of an industry, competing with new features. Large dominating firms typically have the advantage as the dominant design is established and scale economies and the ability to roll out process innovation matter most.

However, the manager confront the issue of where to focus (product/process). It also points to whether competitive advantage is likely to be with small new entrants or large incumbent firms.

3. Technology or Business Model Innovation

Many successful innovations do not rely only on new science or technology, but the reorganization of all the elements of business into new combinations. Business model refers to bringing customers, producers and suppliers together in a new ways, with or without technology. ExampleEasy jet cut out the travel agent (Change in Business Model) Direct sales using internet brought the customer and airline together in a new way (using cheap secondary airport, simplification of services) The crucial elements of a business model can be seen in terms of two halves (product, selling) of the value-chain network.

Value chain:

The product: A business model may involve a particular way of defining what the product is or how it is produced. In terms of value chain, this concerns technology development, procurement, inbound logistics, operations. ExampleBusiness model of Linux is open source operating systems (Volunteer programmers both freelancers and dedicated employees) Business model of Microsoft is based on performing technology development in-house with its own employees

The selling A business model may involve a particular way of selling or diffusing product or service. In terms of value chain, this concerns outbound logistics, marketing and sales and services. Linux software is free to the users, for customer care service the users has to pay a subscription fees. Microsoft software are sold to the users. The business model concept overlaps strongly with the concept of business level strategy. However, the two concepts have useful differences in emphasis: Radical versus incremental: Business model change involves radical strategic transformation. (Diversification) Strategic initiatives are essentially incremental, making small adjustments within an existing business model. ( Investment in extra capacity, new market entry)

Standard versus Competitive In mature stage, business models are effectively standardised, with little difference in basic structure. In introduction or growth stage the business models focus on how to obtain and sustain differentiation and competitive advantage. The managers focus on how to position themselves against their competition.

Finally the business model concept is valuable in helping managers to balance between technology and business model innovation.

Innovation Diffusion
Diffusion is the process by which innovations spread amongst users, varying in pace and extent. The pace of diffusion is something managers can influence from both the supply and demand sides and also can influence using the S-curve. The pace of diffusion can vary widely according to the nature of the products concerned. It took 20years for PC to reach 60% of American households. However, it took 10years for Internet to reach this level. Moreover, the pace of diffusion is influenced by a combination of supply-side and demand-side factors, over which managers have considerable control.

On the supply side, pace is determined by product features such as following: 1. Degree of improvement 3G mobile phones (did not provide sufficient improved infrastructure ), 4D Movies 2. Compatibility with other factor Mobile phone integrated personal organizer, music, internet browsing 3. Complexity higher complexity discourage consumer adoption slower the pace of diffusion 4. Experimentation ability to test product before commitment ( marketing features satisfied customer/ endorsement from suitable role models (Lux, Boost) 5. Relationship management how easy is to get information, place orders and receive support.

On the Demand side, key factors driving the pace of diffusion are as following: 1. Market awareness: pace of diffusion is low if market is not aware. 2. Observe-ability to potential adopters: spreading the benefits of the product or service in use. 3. Customer innovativeness: Distribution to potential customers from early adopter groups to laggards. Higher the number of early adopters, higher the pace of diffusion.

The Diffusion S-curve

The pace of diffusion is not steady. Successful innovations often diffuse according to an S-curve pattern. The shape of S-curve reflects a process of slow adoption in the early stages, followed by a rapid acceleration in diffusion and ending with a plateau representing the limit to demand. The height of S-curve shows the extent of diffusion , the shape of S-curve shows the speed.

Even if the diffusion doesnt follow the exact same pattern, Scurve help manager anticipate upcoming issues in decision making. 1. Timing of the tipping point: Demand of a new product may initially be slow but then reach a tipping point when it explodes onto a rapid upwards path of growth. Tipping points explode where there are strong network effects. Failing to anticipate a tipping point leads to missed sales and easy opportunities for competitors. American mobile companies wrong prediction on tipping point gave Finnish company Nokia a world-wide leadership. E-mail/ SMS has now became the formal source of communicating, at the past written letters was the main source.

2. Timing of the plateau The S-curve also, alerts managers to a likely eventual slowdown in demand growth which helps the managers preventing over production, new investment. 3. Extent of Diffusion The S-curve does not necessarily 100% lead to diffusion amongst potential users. Most of innovation fail to displace previous generation products and services altogether. Hand-made shoe will always be classy and expensive compare to machine made shoes. A critical issue for managers then is to estimate the final ceiling on diffusion. Tipping point doesnt make sure 100% capture of consumers.

4. Timing of the Tripping point Tripping point is where demand suddenly collapses. The tripping point concept warns managers all the time that a small dip in quarterly sales could presage a rapid collapse. Internet browser pioneer Netscape collapsed after Microsoft started to counter attack with its Explorer products. S-curve is a useful concept to help managers avoid simply extrapolating next years sales from last years sales.

First Mover advantages and disadvantages

First movers get easy sales of early fast growth and can establish a dominant position. Such as Coca-Cola, Hoover etc. However, Apple failed with its pioneering PDA Newton and the followers HP and Palm captured the PDA market. Theoretically, first-mover is a monopolist, able to charge customers high prices without fear of immediate undercutting by competitors. However, in practice innovators often prefer sacrifice profit margins for sales growth. Beside, monopoly is a temporary phase.

There are five potential more robust first mover advantages: Experience curve benefits: provides greater expertise than late entrants (J&D, Coca-Cola) Scale benefits: establish earlier than competitors (Infrastructure) Pre-emption of scarce resources: opportunity for first movers as late movers will not have the same access (Employee wages, Raw materials) Reputation: consumer has mind-space to recognize the brand (Hoover, Xerox) Buyer switching cost: it can exploited by first movers by locking in their consumers (Grameen Phone) Superior reputation and customer lock-in provide a marketing advantage, allowing first movers to charge high prices.

Late movers advantages:

Free-riding : Imitate technological and other innovation at less expense, ready infrastructure, aware market. Learning: late movers can observe what worked well and what did not work well for innovators. So, less chances for making mistakes.

First or Second?

Capacity for profit capture: if innovation is easy to replicate and intellectual property right is weak then profit will captured by the late movers. Complementary assets: if complementary assets such as marketing and distribution are easy for the innovation to implement then late mover. However, if marketing and distribution is strict based on relationship (Japan, Britain) then first mover advantage. Fast moving arena: if fast moving market(Games- Xbox, WII, Nintendo) then it becomes very hard to be dynamic so being first doesnt help much. However, if slow moving market (Soft drink) then it is easier to capture the market and being first mover provide customer lock-in. (Coca-Cola)