Chapter 3 Competitive Advantages Productivity Rationalization Competitive Advantage

Chapter 3 Competitive Advantages Productivity Rationalization

Competitive Advantage The ultimate goal for international companies and is achieved when a country or company outperform their competition around the world by… Superior products Better pricing Higher quality Better service Uniqueness Higher profits

How do you measure competitive advantage? Market share = your sales/total market sales Apple i. Phone $ sales/cellular phone sales Customer demand Customer loyalty Partnerships with suppliers

Real World Examples Companies with sustained Competitive Advantage Strong Research and Innovation – Apple and Sony Brand Popularity – Coca Cola Top 10 Brands 2012 Corporate Reputation – Bershire Hathaway and Price Waterhouse Superior Product or Customer Support – IKEA Flexibility – Microsoft – ability to change swiftly Low Pricing – Wal-Mart Superior Database Management – Google, Facebook Speed and Time – Fed. Ex and Domino Pizza

Achieving Competitive Advantage A company with a competitive advantage provides a product/service with greater economic UTILITY (usefulness) than their competition. Form Utility – Created when raw materials are converted to finished products. Eg. Flour has form utility more than wheat Place Utility – A product that is in the right place for consumption. Eg. Coke in vending machine

Factors Affecting Canada’s Competitiveness Quantity/Quality of NATURAL RESOURCES Abundance of oil, fish, forests, gold, diamonds, natural gas, potash, fresh water Ready, large, accessible market in USA Disadvantage: Expensive to extract, far from European and Asian markets – delivery costs are high Strength of a Country’s Currency - Historical Foreign Exchange Data

Infrastructure – Strong Transportation and Communication – CIA Factbook Canada – airports 1, 453 (4 th top in the world) Russia – 1, 218 (5 th) Argentina – 1, 149 Canada Railway – 46, 552 km (5 th top in the world) Russia – 87, 157 km (2 nd) Argentina – 36, 966 Canada - 9 Ports Russia 7 Ports Roadways – 1, 042, 300 km (6 th top in the world) Russia – 982, 000 (9 th) Argentina – 231, 374 Canada Cellular Phones – 27. 387 million (37 th in the world) Russia – 236. 7 million (6 th) Argentina – 55 million

R&D – In Canada R&D focuses on Technology and Telecommunications Workforce Characteristics High Literacy Rates OECD stats – 88% of Canadians between 25 -64 have a high school diploma (77% OECD average) PISA Scores – Average Canadian Student 527, OECD Average = 497 Sick Days – 2010 Stats Canada – Average Full time employees lost 9. 1 days for sickness and personal leave which equates to 100 million work days. This is down from 2009 (9. 5) but up from 2000 (8. 0) UK results – 131 million or 4. 5 days on average per employee – what could cause stats to be lower? ? UK number may include ALL workers not just Full time Workforce in Canada could have an older average (Older workers take more sick days) Workforce in Canada may have more women in workforce (Need to take more days to look after sick children)

Societal Characteristics – Value citizens place on quality and productivity at work, tolerance and diversity Entrepreneurship – Entrepreneurs provide business solutions to meet global needs and wants. Remember that Canada had the highest number of entrepreneurs per capita in the world. Think Canada source Government Involvement – tax environment, free trade agreements and willingness to expand trade partnerships. Think Canada places Canadian Corporate tax at lowest in G 7 The focus of Ed Fast (Minister of International Trade) is to secure free trade agreements with the EU, India and Japan. Free Trade Agreements for Canada

Absolute and Comparative Advantage Opportunity Cost The value of the next best alternative investment OR the value of the sacrifice when a decision is made Example: The opportunity cost of going to university or college = The cost of tuition+books+accomodations+meal plan + Salary you would have made if you had worked instead Note: An accountant would only add the first 4 costs but an economist would add all 5 Absolute vs Comparative Advantage: Can two countries benefit from trade even if 1 of the 2 is more efficient? ? Youtube Lesson: Absolute and Comparative Advantage

Productivity Define: : The amount of work that is accomplished in a given time using the factors of production Land Labor Capital Technology Entrepreneurship Measured in Dollars earned/hour worked

What influences Productivity Efficient use of human and physical resources Labor costs – wages benefits Accessibility to natural resources Quality of Technology Quality of education General WORK ETHIC and HEALTHY LIFESTYLES Size of domestic and foreign market Support for R&D

Why does Productivity Matter? Standard of Living and Quality of Life are determined by PRODUCTIVITY Think about diamond mining in Canada vs Sierra Leone Efficient uses of resources, quality of technology, support for R&D to name a few were at opposite ends of the spectrum. High rates of productivity are reflected in Higher wages Incrased profits More taxes collected for public services (health, education) One of the BEST INDICATORS of economic performance

Rationalization Definition – process used by a company to change its structure, product line or production process to become more efficient. Easy Changes Combine departments Combine product lines Downsizing Closing down product lines

Larger Changes Building new factories Develop new technologies Acquiring a new business Closing factories/divisions Example of Rationalization – Privatization – ownership moves from government ownership to a private company. Air Canada Petro Canada sold to Suncor Liquor Stores – LCBO – owned by government but in some provinces there are private liquor stores Supporters of Privatization say… What may be wrong with Privatization?

Kraft Rationalization Kraft purchased Cadbury in 2010 for 20 billion Kraft split this new company into 2 separate companies Restructing Plan Job Losses Kraft Foods – N. American grocery. Kraft Grocery Brands Mondelez International – Global snacking Mondelez brands