Transcript Chapter 5 Strategies in Action

Strategic Marketing
052 430
• Instructor:
• E-mail Address:
• Office:
Michael Cooke
[email protected]
IC room 817
• Class hours:
• Class Location:
• Web:
Friday 13:00-16:00
IC room 806
home/kku.ac.th/michco
Term Project
• Likely Project Topics
– Thai silk
– Thai tourist industry
– Thai rice
– Thai shrimp
– Other business or industry
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•
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•
Choose a topic and a partner by 7-December
Advise 10-15 minute presentation, papers accepted
Can use the Five Forces framework to look at the business
Suggest and support a market strategy for the industry or a
firm within the industry
• Due 1 February
Foxconn challenged as global reach grows
Financial Times, 3 January, 2013
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Contract manufacturer Foxconn has embarked on an ambitious expansion plan in Brazil, which could reach
$12bn of investment.
Many of the plants make Apple products to help avoid import taxes on electronic goods sent from China.
The new factories in Brazil, where unions are historically strong, have faced challenges.
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Working outside of China helps Foxconn’s customers get quicker turnaround and avoid some import taxes.
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The regimented style of management has sometimes caused conflicts when applied to cultures far different
from the Chinese factory floors.
The autocratic style has led to clashes even in China, where workers are gradually gaining power.
The company recently made investments in Brazil, Mexico and Turkey, and has said it is planning projects
in the US, Indonesia and Malaysia.
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It has also created a new set of challenges for the company.
Foxconn employs more than 1m people worldwide .
Foxconn often enters new geographical markets by taking over old factories once owned by its customers.
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Workers there have staged protests over everything from overcrowded transport to working hours and lack of
career planning offered to employees.
“Strikes really aren’t that normal around here – it seems to be a problem just with Foxconn,” said one local
official.
“Many similar companies are starting to move from a global manufacturing strategy to a more regional
strategy,” said a professor at Massachusetts Institute of Technology. “That’s a completely different strategy from
what we saw companies using 10-15 years ago.”
For customers, Foxconn’s factories outside China allow them to cut transportation costs, avoid many
import taxes, and get quick turnaround on orders.
“We are here to service customers, and that is why we do final assembly, internationally” says one current
Foxconn executive in Europe.
Older operations in the US and Europe started when Foxconn took over factories from customers such as
Sony or Hewlett-Packard that wanted to cut costs by doing less of their own manufacturing.
Foxconn’s overseas operations have generally managed to avoid the violent conflicts experienced in China.
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Cultural differences are muted slightly as the majority of overseas managers are locals.
Foxconn localizes production line workers and senior management, to have a good understanding of
local culture.”
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Why does Apple choose to assemble iPhones in China?
◦ Scale of operations
◦ Supply chains
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Skilled technical workforce, including engineers
Clusters of excellence
Response times
Think of how 2011 floods in Thailand affected other manufacturers
◦ Labor is not a big component of the total cost
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Apple employs 47,000 (35,000 in retail and customer support) in the
USA. Apple’s contractors employ 700,000 outside the USA
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Apple’s profits accrue to shareholders across the world
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Apple is a true global company
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Sales span the globe
Software created in USA
Marketing created and managed in USA
Supply chains span the globe
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iPhones assembled in China by a Taiwanese company
Some components made in USA by S. Korean company (Samsung)
Glass made in Japanese factories by an American company (Corning)
http://www.nytimes.com/2012/01/22/business/apple-america-and-asqueezed-middle-class.html?pagewanted=print
Turning Points
 The point about paradigm shifts, as Thomas Kuhn pointed out in “The Structure
of Scientific Revolutions,” is that they don’t happen often
 Paradigm: philosophical or theoretical framework
 Paradigm shift: fundamental change in an individual's or a society's view of how
things work in the world
 Major changes are slow, because even when a new insight is right (dazzlingly right
in hindsight) vested interests and inertia resist its adoption.
 There are six slow-acting drivers of historical change in our time, as in most of
recorded history. A common error is to focus on only one. They are:
 1. Technological innovation;
 2. The spread of ideas and institutions;
 3. The tendency of even good political systems to degenerate;
 4. Demographics;
 5. Supplies of essential commodities;
 6. Climate change.
 One simple way of thinking about the world is to say that wealth, and with it
power, are shifting from the West. In that sense, the real turning point was not
Nov. 9, 1989 (end of the Cold War ), but 1979, the year Deng Xiaoping visited the
United States and China’s economic reforms began in earnest.
 Wars change history’s direction most decisively.
November 30, 2012 Turning Points By NIALL FERGUSON
Niall Ferguson’s View of the Near Future
Political Systems and Demographics
 More than 300 million Chinese adults have wealth between $10,000 and $100,000, and nearly
20 million have wealth above $100,000.
 These people are discovering that property needs to be protected by the rule of law, and that
the biggest threat to that is a corruption.
 Nearly always overlooked by political scientists is the tendency of systems to degenerate as
rent-seeking special interests grow and civic virtue yields.
 Rent seeking: Rent-seeking behavior would include lobbying government for tax, spending or
regulatory policies that bring monetary benefits or other advantages at the expense of
taxpayers, consumers or others in economic competition with the rent seeker.
 Rent seeking tends to hurt innovative activities more than production.*
 In many Western countries there has been a decline in the rule of law. In the United States,
the World Bank reports declines since 2000 in the control of corruption, regulatory quality,
accountability and government effectiveness.
 Much of the developed world today reminds me of what Adam Smith said about China in
“The Wealth of Nations” (1776): It has reached a “stationary” state in which growth is near
zero and prosperity is enjoyed only by a corrupt bureaucratic elite.
 Because of immigration, fertility and inefficient health care, the United States is aging much
less quickly than countries like Japan and Germany.
 By 2050 more than a third of Japanese will be 65 or over. For Germany the figure will be 31
percent. In China, more than a quarter of the population will be older than 64. But for the
United States, the figure will be just 21 percent.
 China’s labor force will start to shrink in the 2020s. That will not happen in the United
States.
*http://www.economics.harvard.edu/faculty/shleifer/files/rent_seeking.pdf
http://www.nytimes.com/2012/11/30/opinion/global/niall-ferguson-turning-points.html?pagewanted=all
How Technology Changed Incomes in the Music
Industry
 Before the era of recorded music, the very best singer might
have filled a large concert hall but would only be able to
reach thousands of listeners over the course of a year at
most.
 Each city might have its own local stars, with a few top
performers touring nationally.
 Even the best singer in a large nation could reach only a
relatively small fraction of the potential listening audience.
 After music could be recorded and distributed at a very low
marginal cost, a few top performers could capture much of
the revenue in every market.
 With digital technologies, entrepreneurs, top executives,
entertainment stars, and financial executives have been
able to distribute their talents across global markets.
http://www.theatlantic.com/business/archive/2011/10/why-workers-are-losing-the-war-against-machines/247278/
Adjusting to Changes in the Economy
 Over time, a well-functioning economy should be able to adjust to reallocations
of income.
 For instance, about 90% of Americans worked in agriculture in 1800; by 1900 it
was 41%, and by 2000 it was just 2%.
 As workers left farms over the course of two centuries, other sectors created new
jobs.
 Whole new industries sprang up to employed former farm workers.
 Shift in income from labor to capital or from many to a few with high skills
leads to a reduction in overall demand.
 The wealthy tend to save more of each marginal dollar than laborers. In the
short run this reduces consumption.
 Corporate profits as a share of US GDP are at 50-year highs.
 Compensation to labor in all forms, including wages and benefits, is at a 50-year
low
 The ratio of CEO pay to average worker pay has increased from 70 in 1990 to
300 in 2005, and much of this growth is linked to the greater use of IT.
 Aided by digital technologies, entrepreneurs, CEOs, entertainment stars, and
financial executives have been able to leverage their talents across global
markets and gain enormous financial rewards.
http://www.theatlantic.com/business/archive/2011/10/why-the-massive-wealth-of-the-1-could-ruin-the-economy/247277/
http://www.theatlantic.com/business/archive/2011/10/where-human-workers-can-still-beat-robots-at-least-for-now/247259/
Reasons for Wage Divergence
 In Figure 3.5: US wage divergence accelerated in the digital
era (computer mass marketing began in the early 1980s).
 The increase in the relative demand for skilled labor is
closely correlated with advances in technology, particularly
digital technologies.
 Some technologies (like robotics, numerically controlled
machines, computerized inventory control, and automatic
transcription) have been substituting for routine tasks,
displacing those workers.
 Other technologies (like data visualization, analytics, highspeed communications, and rapid prototyping) have
amplified the contributions of more abstract and datadriven reasoning, increasing the value of those jobs.
http://www.theatlantic.com/business/archive/2011/10/where-human-workers-can-still-beat-robots-at-least-for-now/247259
Historic Trends in Automation
 The 20th century was marked by accelerating mechanization of
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agriculture and of factory work.
The most productive firms reinvented and reorganized decision
rights, incentives systems, information flows, hiring systems,
and other aspects of the firm to get the most from technology.
This required different skill levels in the workforce.
Whole production processes, and even industries, were
reengineered to exploit new information technologies.
Each dollar of computer hardware was often the catalyst for more
than $10 of investment in organizational capital to take
advantage of the information technologies.
Low factory wages in China have not insulated workers from
being undercut by new machinery and the resulting
organizational and institutional changes.
Foxconn, announced they plan to purchase 1 million robots over
the next three years to replace much of their workforce. Robots
will take routine jobs like painting, welding, and basic assembly.
http://www.theatlantic.com/business/archive/2011/10/where-human-workers-can-still-beat-robots-at-least-for-now/247259
Factory Working Conditions
 Foxconn is China’s largest private employer (1,400,000 employees).
 In March, a critical meeting occurred between Foxconn’s top executives and a high-ranking
Apple official. The companies committed themselves wide-ranging reforms.
 It promised to reduce work hours and significantly increase wages.
 The reforms could create a ripple that benefits tens of millions of workers across the
electronics industry.
 Apple, last year has tripled its corporate social responsibility staff, and has re-evaluated how
it works with manufacturers, and has reached out to worker advocacy groups it once rebuffed.
 Shifts under way in China may prove transformative to global manufacturing say officials at
over a dozen electronics companies.
 No one inside Intel “wants to end up in a factory that treats people badly, that ends up on the
front page.”
 Nike has convened public meetings of labor, human rights, environmental and business
leaders to discuss how to improve overseas factories. Gap Inc. has invited outside
organizations to critique its purchasing practices. Patagonia shares its factory audits with
competitors and has been a supporter of a an audit report clearinghouse.
 But Hewlett-Packard hopes that by improving living conditions, turnover and training costs
will fall. “If the people turn over every three months, think what that does to your quality,”
said a Hewlett-Packard executive.
 Often, the quality-of-life improvements requested by Western executives reduce a supplier’s
profit. Within Apple, executives often believe improvements should be financed by suppliers,
whereas suppliers say changes are not feasible unless Apple pays more.
 Employees complained in March when Foxconn announced that workers’ hours would be
reduced to China’s legal limits. Some companies raise wages to compensate for lost overtime.
http://www.nytimes.com/2012/12/27/business/signs-of-changes-taking-hold-in-electronics-factories-inchina.html?pagewanted=1&_r=1&nl=todaysheadlines&emc=edit_th_20121227&adxnnlx=1356656440PZLVTmAyNdxhOwHiwzXD4g&
Luring Factories to Relocate - 1
 Brazilian politicians used subsidies and the threat of
continued high tariffs on imports to persuade Foxconn,
which makes electronic devices in Asia for dozens of
technology companies, to start producing iPhones, iPads
and other devices near Sao Paulo.
 A developing country like Brazil can adopt trade policies
that would be difficult for the United States to do. Taking a
hard line to reduce imports of technology goods and
encourage domestic manufacturing could violate
international trade agreements and set off a trade
confrontation.
 Protectionism is bad policy, many economists argue.
Everyone benefits if countries focus on what they do best.
 Trade barriers harm consumers by driving up prices.
 Trade barriers undermine competitiveness by shielding
industries from the market forces that stimulate innovation.
 The debate is not just economic. Increasingly, it is political.
http://www.nytimes.com/2012/08/05/business/the-ieconomy-nissans-move-to-us-offers-lessons-for-tech-industry.html
Luring Factories to Relocate - 2
 The resurgence of American auto manufacturing in the 1980s is
an example of how an industry created tens of thousands of jobs.
 Since June 16, 1983, Nissan has produced more than seven
million vehicles in the United States. It now employs 15,000
people in the USA. The Tennessee factory makes more than a
half-million vehicles including the new all-electric Nissan Leaf.
 Other foreign carmakers built factories in America — Honda,
Toyota, Hyundai, BMW, Mercedes-Benz and, most recently,
Volkswagen. The Nissan engine plant in TN, for instance, exports
engines to Japan.
 Pressures were growing in 1979 for Nissan to break out of
manufacturing in Japan.
 Currency fluctuations made exporting more expensive.
 Political pressure came from American anger as imports grabbed
one-fourth of the United States market.
 In May 1981, Japan agreed to limit exports to America with a 7
percent reduction from 1980 while the United States imposed a 25
percent tax on imported pickup trucks.
http://www.nytimes.com/2012/08/05/business/the-ieconomy-nissans-move-to-us-offers-lessons-for-tech-industry.html
Luring Factories to Relocate - 3
 To train its new American engineers, Nissan flew
workers to its Zama factory in eastern Japan.
 There the Nissan officials, assisted by English-speaking
Japanese workers taught the intricacies of the company’s
production techniques to the Americans.
 At first, Nissan guarded against quality concerns by
shipping components from Japan or buying from
Japanese companies that set up operations nearby.
 Gradually, American parts makers were allowed to bid
on supply contracts. The US Congress, passed a law in
1992 requiring auto makers to inform consumers of the
percentage of parts in United States-made cars that
came from North America, Asia or elsewhere.
 Nissan’s Japanese suppliers were encouraged locate
production in the USA.
http://www.nytimes.com/2012/08/05/business/the-ieconomy-nissans-move-to-us-offers-lessons-for-tech-industry.html
Factory Innovation
 Companies with their research and manufacturing employees close together might be
more innovative than businesses that develop a design and send it overseas for low-wage
workers to make.
 Clusters of manufacturers, where workers and ideas can naturally flow between
companies, may be more productive and innovative than if they were spread.
 Instead of a sequential process where you look at product design and then how to
manufacture it, there is a simultaneous process.
 Experts are researching whether such strategies offer the same benefits for most
businesses — and examining how this might show up in national data on innovation,
productivity and growth.
 Companies with products early in their life cycle seemed to benefit more than those with
products on the market for years.
 Companies making especially complicated or advanced goods, from new medicines to new
machines also benefit. Economists said that while the link between making and
innovating within individual businesses was not yet well established, the link between
making and innovating between different companies was.
 In a “spillover” effect: manufacturing companies near one another create a kind
of commons.
 Workers exchange ideas when they socialize or when they switch jobs, taking their
knowledge with them.
 Factories draw other companies, who compete to offer them goods and services.
 An MIT economist analyzed what happened to towns after large manufacturing plants,
like a BMW factory, moved in.
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Other factories in the town became more productive.
Wages rose, too.
http://www.nytimes.com/2012/12/14/business/companies-see-high-tech-factories-as-fonts-of-ideas.html?nl=todaysheadlines&emc=edit_th_20121214&pagewanted=print
McCloughlin Chapter 6 – Internal Analysis
 Internal analysis aims to identify strengths,
weaknesses, and limitations of an organization
 Can be at firm or business levels
 Seeks to find responsive strategies
 Four aspects of internal analysis
 Financial performance
 Non-financial performance measures
 Analysis of strengths and weaknesses
 Prioritization of threats and opportunities
 Successful strategy matches strengths with competitor
weaknesses and market needs
Financial Performance
 Sales and profitability are widely used for performance
evaluation
 Sales increases are an SCA due to scale economies and
experience curves
 Issue of short term effects such as promotions
 Need to couple analysis of sales with analysis of satisfaction
and loyalty
 Market and customer inertia (delays) even if value
proposition changes
 Firms need to establish priority between sales growth and
profitability
 Amazon sacrifices profit to gain market share
 Ultimately, the goal is profit for the firm or sustainability for
the not-for-profit organization
 An often used measure of profit is ROA (Return on Assets)
Shareholder Value Analysis
 Excellent discussion on McLoughlin pages 101-102
 The idea is that each business should generate profits from an
investment that meet or exceed cost of capital
 Cost of capital can be from borrowing or equity
 Weighted average of debt and equity is used
 Typically equity has higher cost, so firms tend to borrow
 Strategies to increase shareholder value:
 Increase profit by reducing costs or by increasing revenue with the
same amount of capital (cost reduction in Ch 8)
 Invest in high return products
 Reduce cost of capital (increase debt to equity ratio)
 Use less capital (since assets are not free)
 Difficulty in estimating value of long term initiatives
 Risks in reducing investments (through outsourcing)
 Loss of control over quality
 IP risks
 Increase debt to equity ratio exposes firm to leverage issues
 Firms that use SVA tend to be focused and decentralized (ex: WFC)
Performance Measures Reflecting
Long-Term Profitability
Customer Satisfaction/
Brand Loyalty
Product/Service Quality
Current
Performance
Brand/Firm Associations
Long
Term
Profits
Relative Cost
New Product Activity
Manager/Employee
Capability and
Performance
Figure 6.1
Figure 7.1
Non-financial Performance Measures
 Customer satisfaction and brand loyalty
 Identify problems and causes of dissatisfaction
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Best information is from defecting customers
Use exit interviews
 Measure size and intensity of attached customer group
 Base lifetime value of a customer on usage and time period they might remain attached to the
brand or firm
 Track comparisons with competitors over time
 Product and service quality (compared to competitors)
 Brand and Firm associations
 Perceived quality (based on past products or quality cues)
 Other associations
 These can be monitored by surveys
 Relative cost, often determined by analysis of competitor products.
 Result may be component de-emphasis such as stressing economy rather than handling (see
figure 6.2).
 This analysis may play a key role in positioning and promotion strategies
 Innovation – does the organizational culture support innovation (note Booz study in which
most executives say their organizations do not)
 Time to market?
 Is the process from concept to market well managed?
 What is the track record of new products?
 Human resources - healthy organizations motivate and develop their employees (sustain
salesperson attitude?)
 Heritage – values known and accepted throughout an organization (these influence
employees and the brand)
 Benchmarking is comparing business component performance with others (as best practices)
Relative Cost vs. Relative Performance Strategic Implications
More Expensive
Change:
-Design
-Manufacturing/Systems
Ignore
Inferior
Our Component is
Value Analysis
-De-emphasize
-Upgrade
Value Analysis
-Raise prices
-Promote
Cost Reduction
Superior
Value Analysis
-Emphasize/promote
-Leave it alone
Less Expensive
Figure 6.2
Threats and Opportunities
 Which of the external threats and opportunities are most
relevant to the firm?
 Prioritize threats and opportunities according to
immediacy and impact
 Highest priority to imminent threats of high impact
 Opportunities can be ranked similarly
 Time to strategy implementation needs to be factored into
assessment of immediacy
 Threats can be in the form of a problem or a liability
 Problems usually require aggressive action
 Strategic liabilities (absence of a competency or asset) usually
can be handled by adjusting strategies
 Immediate and major opportunities should be pursued
quickly and decisively (MSFT’s shift to internet)
Structuring Strategic Decisions
Organizational
Strengths and
Weaknesses
Competitor Strengths
and Weaknesses
Strategy Development
Strategic Investment
Functional Strategies and Programmes
Value Proposition
Assets and Competencies
Market Needs,
Attractiveness, and
Key Success Factors
Figure 6.4
Key Ideas
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Sales and profitability analysis provide an evaluation of past strategies and
an indication of the current market viability of a product line.
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Shareholder value holds that the flow of profits from an investment should
exceed the cost of capital (which is the weighted average of the cost of equity
and cost of debt). Routes to achieving shareholder value – such as
downsizing, reducing assets employed, and outsourcing – can be risky when
they undercut assets and competencies.
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Performance assessment should go beyond financials to include such
dimensions as customer satisfaction/brand loyalty, product/service quality,
brand/firms associations, relative cost, new product activity, and
manager/employee capability and performance.
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Assets and competencies can represent a point of advantage, a point of
parity or a liability. Threats and opportunities that are both imminent and
important should trigger strategic imperatives, programs with high priority.