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 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 Meeting Tuesday, January 21 at 4:30 to 5:30. Analysis Term Paper Assignments On the course web page. 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 Factors 1. 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 Business and Information Systems Management Challenges By Jamil Daouk The Chapter Includes Factors to a become a successful business  Three necessary perspectives  Simultaneous revolutions within the business environment  A business driver model  Three possible roles of Information Systems  Business Success Factors         Business Leadership Ability to Fit the Pieces into the Increasingly Bigger Business Picture Organization Responsiveness and Resilience Solving Customer Problems Through a Combined Organizational Effort A Strong Company Culture Ability and Willingness to Innovate, Change, and Take Risks Accomplishing These Factors While Maintaining a Balance Communication Across the Entire Organization Three Perspectives Necessary for Business (and Course) Success • Business Environment • Enterprise Environment Business Success • I/T Environment Figure 1-1 SIMULTANEOUS REVOLUTIONS NEW COMPETITORS NEW RULES OF COMPETITION INDUSTRY STRUCTURE CHANGES NEW POLITICAL AGENDAS THE BUSINESS NEW REGULATORY ENVIRONMENT NEW TECHNOLOGIES NEW EMPLOYEES AND NEW VALUES EVER INCREASING CUSTOMER EXPECTATIONS Figure 1-2 Business Driver Model Market Technology Employees/ Work Regulation Organization Business Processes Solutions to Business Requirements Use of Information Systems Requires a Systematic Approach Vision Strategy Tactics 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 Systems within a Company  Efficiency  Effectiveness  Competitive Advantage Chapter 1 Conclusions Value to customer defines the purpose and success of a business.  The customer defines the business.  The role of information systems is to enhance (enable) realizing the purpose of the business.  Running a successful business in today’s global environment involves many challenges.  Possible 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 Introduction Business Competitive Environment By Melissa Chan Section 1: Business Environment • Business Environment • Enterprise Environment Business Success • I/T Environment Figure 1-1 Objectives of the Chapter Define Competitiveness  Competition in a Global Environment  Role of Nation relative to Competitiveness  Competitiveness  How do you define competitiveness? – – – – Revenue Profits Market share Customer value Competitiveness: Value to Customer Competitive Model Decreased Budget Deficit Trade Policy Human Resources Capital Improved Domestic Performance Increased World Market Competitiveness Technology New Competition Reduced Trade Deficit Stronger National Security More and Better Jobs Increased Standard of Living Competitive Model Inhibit Impact Impact Input Input Improved Domestic Performance Increased World Market Competitiveness Impact Input Inhibit Impact Impact Diamond of National Advantage Chance Firm Strategy, Structure and Rivalry Factor Demand Conditions Conditions Related and Supporting Industries Government Competitiveness of Nations Anticipate future competition from which country  Types of companies that will be primary competitors  Primary competitive strategies  Conclusions Understanding the business environment through competition  Position to better understand role of Information Systems  Chapter 2 Business Competitive Environment Position Some Important Factors 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. Competitiveness is the Pivotal Business Issue in the 21st Century Business Environment The global market will come to you, if you don’t go to it. An 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 Status • In the 1990s the US was the run away leading performer in the industrial world. • 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. • Interest rates are at a forty year low. • Inflation has been a minor issue. Some 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) • Can nations create a social system in which entrepreneurial spirit can flourish without also creating income and wealth inequities that threaten the system? • What skills are needed to succeed in this new economy? Global (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 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”: • Nokia • Finland • Burger King • UK • Chrysler • Germany • Airbus • France, Spain, UK, Germany • Benetton • Italy • Gillette • US • Shell • Netherlands A 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 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 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. WTO 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 • 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 Commission Letter 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. Young Chairman President’s Commission on 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 Human Resources Capital Technology Trade Policy Improved Domestic Performance New Competition Decreased Budget Deficit Increased World Market Competitiveness Reduced Trade Deficit Stronger National Security More and Better Jobs Increased Standard of Living 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? 2. What can one learn from this? 3. What can companies and countries do about it? 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 The point of all of this: • 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? Organizations Compete Within Industries What is the role of the nation? • How Measure Success? • Basis of Analysis? Previous Basis of Competitive Analysis • Porter • Economists • Politicians • Companies Companies and Industries Unit Cost of Labor Adjusted for Inflation Balance of Payment 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. A Major Message The role of the nation has increased as competition has shifted more to the creation and assimilation of knowledge. Competitiveness of Nations Study • Denmark: • Germany: • Italy: • Japan: • Korea: • Singapore: • Sweden: • Switzerland: • United Kingdom: • United States: Copenhagen School of Economics Deutsche Bank Ambrosetti Group (transportation company) MITI, Hitotsubashi University and Industrial Bank of Japan Seoul National University Economic Development Board Institute of International Business, Stockholm School of Economics University of Basel, University of St. Gallen, Union Bank of Switzerland The Economist Harvard Business School Industry Case Studies Denmark Agriculture Machinery Building Maintenance Services Consultancy Engineering Dairy Products Food Additives Furniture Pharmaceuticals Specialty Electronics Telecommunications Equipment Waste Treatment Equipment Germany Automobiles Chemicals Cutlery Eyeglass Frames Harvesting/Threshing Combines Optical Instruments Packaging, Bottling Equipment Pens and Pencils Printing Presses Rubber, Plastic Working Machinery X-ray Equipment Italy Ceramic Tiles Dance Club and Theater Equipment Domestic Appliances Engineering/Construction Factory Automation Equipment Footwear Packaging and Filling Equipment Ski Boots Wool Fabrics Japan Air Conditioning Machinery Home Audio Equipment Car Audio Equipment Carbon Fibers Continuous Synthetic Weaves Facsimile Equipment Forklift Trucks Microwave and Satellite Communications Equip. Musical Instruments Optical Elements and Instruments Robotics Semiconductors Sewing Machines Shipbuilding Tires for Trucks and Buses Trucks Typewriters Videocassette Recorders Watches Korea Apparel Automobiles Construction Footwear Pianos Semiconductors Shipbuilding Steel Travel Goods Video and Audio Recording Tape Wigs Singapore Airlines Apparel Beverages Ship Repair Trading Sweden Car Carriers Communication Products Environment Control Equipment Heavy Trucks Mining Equipment Newsprint Refrigerated Shipping Rock Drills Semihard Wood Flooring Teller-operated Cash Dispensers Textile Machinery Trading Watches United States Advertising Agricultural Chemicals Commercial Aircraft Commercial Refrigeration and Air-Conditioning Computer Software Construction Equipment Detergents Engineering and Construction Motion Pictures Switzerland Patient Monitoring Banking Equipment Chocolate Syringes Confectionery Waste Management Dyestuffs Services Fire Protection Equipment Freight Forwarding Hearing Aids Heating Controls Insurance Marine Engineers Paper Product Mfg. Equipment Pharmaceuticals Surveying Equipment 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. Diamond of National Advantage Chance Firm Strategy, Structure and Rivalry Factor Demand Conditions Conditions Related and Supporting Industries Government Competitive Success Is Not Determined By: • Natural Resources • Labor Pool • Interest Rates and Currency Value • Economies of Scale . . . Traditional Economic Thinking Factor Conditions The nation’s position in factors of production that are prerequisites to compete in a specific industry. • Infrastructure • People Skills and Training • Factors Unique to a Specific Industry A nation does not inherit but creates the most important factors. Factor Conditions 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 . . .Quality of life--to live and to work. Factor Conditions Capital Resources: (Amount and cost of money) • Secured Debt • Unsecured Debt • Equity and Venture Capital • Savings Rate • Tax Incentives • Fiscal and Monetary Policies Factor Conditions Knowledge Resources: Scientific, technical and market knowledge that pertains to goods and services. •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: US 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 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. Related and Supporting Industries • 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. 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 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 Potassium Sulfate Reciprocating Pumps High Pressure Steel Conduit Fresh Milk and Cream Rotary Printing Presses Iron, High Carbon Steel Coil Synthetic Luminophores Spinning, Reeling Machines Clothes Dryers Aircraft over 15,000 kg 70.4% 59.4% 58.1% 55.4% 54.5% 51.1% 49.8% 47.1% 42.7% 41.3% 38.1% •Jukeboxes •Polyvinyl Chloride Plates •Rubber, Plastics Machines •Combine Harvester-Threshers •Packaging, Bottling Equip. •Sewing Machine Needles 36.5% 35.9% 35.5% 35.3% 34.1% 33.2% Seventeen industries where Germany has 33% or more of the world’s export market. German Companies BASF 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 Rivalry Italy • • • • 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 Worked Building Stone Aperitifs Glazed Ceramic Sets Precious Metal Jewelry Fresh Stone Fruit Rubber and Plastic Footwear Fabrics of Combed Wool Domestic Washing Machines Steel High Pressure Conduits Sweaters of Synthetic Fibers Handbags Woolen Sweaters Leather Footwear 69.5% 62.2% 58.1% 56.6% 49.6% 45.5% 41.9% 41.8% 38.2% 35.9% 34.0% 33.7% 33.1% 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 • • • • • • • (Less than 100 employees) 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. Firm Strategy, Structure and Rivalry Japan • 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 TV Image and Sound Recorders Dictating Machines Calculating Machines Mounted Optical Elements Photo & Thermocopy Apparatus Still Cameras and Flash Equip. Cash Registers and Accounting 82.0% 80.7% 71.7% 69.7% 67.5% 65.9% 62.2% Machines 62.0% • 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 Color TV Receivers Portable Radio Receivers Other Radio Receivers Special-Purpose Vessels Electric Typewriters Steam Boiler Plants & Parts Motor Vehicle Radio Receivers TV Picture Tubes 50.6% 49.5% 48.4% 47.9% 46.8% 45.0% 42.8% 42.5% 42.2% •Prepared Sound Recording Equipment. •Photo Chemical Products •Metalworking Lathes •Coarse Ceramic Housewares •New Bus or Truck Tires •Buses •Sewing Machines •Iron, Steel Seamless Tubes 41.5% 41.5% 39.7% 39.3% 39.1% 38.7% 38.7% 38.7% •Self-Propelled Shovels, Excavators •Computer Peripheral Units •Lorries and Trucks •Other Electronic Tubes 38.4% 37.9% 37.5% 36.5% •Metal Cutting Machine Tools •Generating Sets with Piston Engine •Other Cargo Vessels •Iron, Simple Steel Rolled Plate •Continuous Synthetic Weaves •Clocks, Watch Movements •Rolling Mill Parts and Rolls •Liquid Dieletic Transformers 33.4% 36.5% 36.1% 35.7% 35.2% 34.7% 33.8% 33.4% Forty-three industries with over one third of the world’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 Postscript What happened to Japan since 1990? 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. Forget the North Pole! Santa’s Workshop is in China Ironic 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? Because of China! Imports 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: 1988-2000 Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 U.S. Exports 5.0 5.8 4.8 6.3 7.5 8.8 9.3 11.7 12.0 12.8 14.3 13.1 15.0 U.S. Imports 8.5 12.0 15.2 19.0 25.7 31.5 38.8 45.6 51.5 62.6 71.2 81.8 99.4 U.S. Trade Balance -3.5 -6.2 -10.4 -12.7 -18.2 -22.8 -29.5 -33.8 -39.5 -49.7 -56.9 -68.7 -84.4 China Imports to the US Top 5 Categories Apparel Telecom and sound 1999 1995 Office machines Footwear Toys, games, etc All Commodities 0 20 40 60 80 100 US Exports to China Industrial Machinery Office Machines Fertilizer 1999 Electrical Equipment 1995 Transport Equipment Top 5 Categories All Categories 0 5 10 15 Critics 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 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 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 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, and restrictive technical and sanitary standards (especially in respect to agricultural products). China 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 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. Singapore • 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 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 Kenya From whiskey to cooking fat to batteries to clothes, Kenya is being swamped with counterfeit goods. Some are made locally but most are imported. Kenya 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 nonexistent. Kenya 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 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. Kenya 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. Kenya 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 entity is 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 resist acknowledging the demise of the nationstate, only those who can accept it and promote region-states within and across their borders will be able to provide the best quality of life for their constituents. Kenichi Ohmae Global Competitiveness Ranking Criteria: 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 Ranking 1. Finland 11. Canada 21. Taiwan 2. US 12. France 22. Ireland 3. Netherlands 13. Austria 23. Spain 4. Germany 14. Belgium 24. Italy 5. Switzerland 15. Japan 25. South Africa 6. Sweden 16. Iceland 26. Hungary 7. UK 17. Israel 27. Estonia 8. Denmark 18. Hong Kong 28. Korea 9. Australia 19. Norway 29. Chile 10. Singapore 20. New Zealand 30. Brazil Global Competitiveness Ranking 36. India 37. Malaysia 41. Poland 43. Greece 47. China 51. Mexico 54. Philippines 58. Russia 62. Vietnam 75. Bolivia 1998 Rankings 1. Singapore 2.16 11. Ireland 1.05 2. Hong Kong 1.91 12. Japan .97 3. US 1.41 13. New Zealand .84 4. UK 1.29 14. Australia .79 5. Canada 1.27 15. Finland .70 6. Taiwan 1.19 16. Denmark .61 7. Netherlands 1.13 17. Malaysia .59 8. Switzerland 1.10 18. Chile .57 9. Norway 1.09 19. Korea .39 10. Luxembourg 1.05 20. Austria .37 Source: World Economic Forum From Third World to World Class Is globalization by definition a zero sum game? Or can it be a win-win proposition? Major 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. Conclusions • 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.