Topic2.StrategyRevisited

Problem upf international strategic management 2012

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Unformatted text preview: oduction technology •  Try to differentiate their products, thereby charging higher prices to offset higher productions costs associated with a smaller-than optimal plant. •  Problem?? UPF - International Strategic Management 2012 30 1.1. Economies of scale - Examples   In automobiles, be a low-cost producer, sales of over four million vehicles a year are necessary  Recent entrants tend to be:   state-supported companies (e.g., Proton of Malaysia)   companies that have gambled that low labor and material cost would offset their scale inefficiency   The costs of developing a new passenger plane are so great that company can only cover these costs by obtaining a major share of world orders…   Airbus A380 superjumbo: $12-16 billion, sales of over 800 planes to break even! 15 28/04/12 UPF - International Strategic Management 2012 31 1. The Threat of Entry 1. Economies of scale 2. Product differentiation 3. Capital requirements 4. Cost disadvantages independent of size 5. Access to distribution channels 6. Government policy UPF - International Strategic Management 2012 32 1.2. Product differentiation •  Incumbent firms possess brand identification/recognition and customer loyalty that potential entrants do not possess! •  Entrants have to absorb: •  standard start up costs •  costs of overcoming incumbent’s differentiation strategies •  E.g. Loyal to a single brand? <30%: batteries, canned vegetables and garbage bags 61%: toothpaste 65%: mayonnaise 71%: cigarettes 16 28/04/12 UPF - International Strategic Management 2012 33 1.2. Product differentiation    No entry if the cost of overcoming these advantages is greater than the potential return from entering an industry!    BUT, incumbent should be careful:  Suppose an incumbent could earn $3000 of above-normal economic profits if there was no entry into its industry.  However, because there are potential entrants, this firm decides to invest in product differentiation UPF - International Strategic Management 2012 34 1. The Threat of Entry 1. Economies of scale 2. Product differentiation 3. Capital requirements 4. Cost disadvantages independent of size 5. Access to distribution channels 6. Government policy 17 28/04/12 UPF - International Strategic Management 2012 35 1.3. Capital requirements •  The need to invest large financial resources in order to compete •  Particularly if the capital is required for unrecoverable expenditures in up-front advertising or R&D!! •  Examples: •  The duopoly of Boeing and Airbus! •  Franchised fast-food restaurants? •  $350,000 for a Wendy’s •  App. $1 million for a Burger King UPF - International Strategic Management 2012 36 1. The Threat of Entry 1. Economies of scale 2. Product differentiation 3. Capital requirements 4. Cost disadvantages independent of size 5. Access to distribution channels 6. Government policy 18 28/04/12 UPF - International Strategic Management 2012 37 1.4. Absolute cost disadvantages •  Cost advantages independent of economies of sca...
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This note was uploaded on 10/18/2012 for the course BUSI 102 taught by Professor X during the Spring '12 term at Universitat Pompeu Fabra.

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