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Unformatted text preview: The International Strategic Setting According to Michael Porter, four forces shape competitive advantage within industries: 1) barriers to entry, 2) supplier strength (relative to producers), 3) the availability substitute products, and 4) customer strength (relative to producers). How producers strategically adapt to these forces to achieve competitive advantage will determine the ultimate nature and intensity of competitive rivalry within the industry. High capital or technical entry barriers will foster oligopolistic competition whereas low barriers will encourage more laissez faire forms. Mo- nopoly suppliers and monopsony customers will squeeze producers to placate the former, court the latter, and give no quarter to rivals. Abundant substitutes will drive producers to “close ranks.” Barriers to Entry Supplier Strength Customer Strength Substitute Products Competitive Rivalry Porter’s Competitive Advantage Model Porter’s second model begins where the initial model ends. Once a domestic industry reaches saturation, vis á vis competition, high-performing members are compelled to pursue geo- expansion into foreign markets if they are to reap the potential benefits afforded by their current business lines. The attractiveness or aversiveness of those markets is determined by the condi- tions extant therein. A nation’s ability to be competitive will determine how advantageous it is to do business there. Here, Porter departs from trade models that are derived from economic theory. The more traditional models consider only land, labor, and capital as critical factors of production (Economic Rents). At the extreme, one body of theory — the labor theory of value — suggests that there is really only one significant factor: all real value can be attributed to the labor that finds; harvests or extracts; combines, breaks-down, or modifies; and conveys com- modities and value-added goods. Natural resources are seen as belonging to everyone and thus should not be controlled by any one group or person. Capital is simply a surrogate for the inherent value of the actual commodity or good for which it is traded. International trade, thus, is a matter of capitalizing on national production factors — whether one or all three — to pro- duce surpluses that can be traded for desired commodities and goods that cannot be practically or economically produced within the domestic economy. Porter suggests that nations do not trade, rather, enterprises do. Further, the nature of trade is competitive thus any useful model should transcend economics and include strategic considerations. Finally, he notes that economic models not only lack the inclusion of strategic variables, they treat economic factors as homoge- neous and equally represented across nations. He, therefore, concludes that: 1) the nature of domestic competition, 2) the condition of strategic business factors (versus simple economic factors), 3) the presence or absence and health of related and supporting industries, and 4) do-...
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This note was uploaded on 11/10/2011 for the course MGMT 4190 taught by Professor Robertdesman during the Fall '11 term at Kennesaw.
- Fall '11