Chapter Two Theoretical Foundations MKT 568 Global Marketing

Chapter Two Theoretical Foundations MKT 568 Global Marketing Management Dr. Fred Miller

Sample Essay Questions 1. Given the following production data, which country(ies) enjoy an absolute advantage and in what commodity? Which enjoy a comparative advantage and in what commodity? Using the Cappuccino Trail video as an example, explain the difficulties of basing competitive advantage on locational factors such as climate and growing conditions. 2. Using the Cappuccino Trail video as an example; 1) explain how a country might use Porter’s Diamond model to create a competitive advantage in beans/brands and 2) explain how Café Direct/Nescafe/Starbucks might use Porter’s Value Chain model to establish a competitive advantage in the retail coffee market.

Theories of International Production Country specific advantages - (CSA’s) absolute and comparative, locational International product life cycle Porter’s diamond factors, interaction, government, man-made New trade theory firm specific advantages (FSA’s) Eclectic theory – matching CSA’s & FSA’s

Absolute and Comparative Advantage Absolute Advantage England Portugal Totals Wine 40 50 90 Wine 0 100 Wool 50 35 85 Wool 100 0 100 Totals 90 85 175 Totals 100 200 Comparative Advantage England Portugal Totals Wine 45 40 (88%) 85 Wine 0 80 80 Wool 50 35 (70%) 85 Wool 100 0 100 Totals 95 75 170 Totals 100 80 180

Cappuccino Trail Video What CSA’s give equatorial countries comparative advantage in coffee production? What are the benefits of relying on locational factors for comparative advantage? What are the dangers of relying on locational factors for comparative advantage?

Cappuccino Trail Video A B Totals Switzerland Totals Peru Beans 25 50 75 Beans 0 100 Brands 50 30 85 Brands 100 0 100 Totals 75 85 160 Totals 100 200 Based on the video, which country is Peru and which is Switzerland? In this scenario, who benefits from specialization and trade? By how much?

Cappuccino Trail Video Switzerland Totals Peru Beans 45 40 85 Brands 50 25 75 Totals 95 65 160 In this situation, which of the following are true? 1. Switzerland has an absolute advantage in beans 2. Switzerland has a comparative advantage in brands 3. Peru has an absolute advantage in brands 2. Peru has a comparative advantage in beans

Cappuccino Trail Video Switzerland Totals Peru Beans 45 40 85 Beans 0 80 80 Brands 50 25 75 Brands 100 0 100 Totals 95 65 160 Totals 100 80 180 In this scenario, who benefits from specialization and trade? By how much?

Porter’s Diamond Competitive Advantage for Countries Advantage Firm strategy, structure and rivalry Factor conditions Demand conditions Related and supporting industries Source: Adapted and reprinted with the permission of the Free Press, a division of Simon and Schuster, from The Competitive Advantage of Nations, by Michael E. Porter. Copyright © 1990 by Michael E. Porter

Porter’s Diamond Competitive Advantage for Countries Beer Fashion Consumer Apparel Electronics Beans or Brands? Firm Strategy, Structure and Rivalry Large, diverse brewers Innovative Strong firms designers Multiple cooperatives Complex positioning Competitive styles features Diverse growing strategies Factor Conditions Demand Conditions Hops, barley, yeast Fabric Components suppliers Skilled farmers Brewers Fashion Design Engineers designers Regional system Social acceptance Stylistic Innovative buyers Knowledgeable Fashion Knowledgeable conscious Selective Related and Supporting Industries Advertising industry Specialty Media suppliers retailing Transportation infrastructure Hospitality infrastructure Promotional Retail infrastructure Media Agricultural supports How would you revise this strategy to one supporting firms strong in developing coffee brands?

FSA’s and Marketing Strategy Production-based vs marketing specific advantage Product price focus vs market satisfaction focus Market orientation vs knowledge/resource-based orientation Who can we serve? vs Who needs our skills? The value chain and internationaliztion Johanssen’s model, Porter’s model Foreign entry, local marketing & global management

Value-Added Analysis for Consumer Electronic Products Components Assembly Panasonic Marketing, sales, Retailing and distribution Radio Shack Source: Reprinted from “Designing Global Strategies: Comparative and Competitive Value-Added Chains, ” by Bruce Kogut, Sloan Management Review, Summer 1985, pp. 27 -38 by permission of publisher. © 1985 by the Sloan Management Review Association. All rights reserved

Porter’s Value Chain Competitive Advantage for Companies Location Production Retail Mgt Engineering Product Design Inventory Mgt Online Customer Service Support Ads Inventory Sales Production Product Suppliers Components Coffee producers Panasonic Radio Shack Café Direct Nescafe Starbucks

Internationalization Theory Modes of entry internalization of FSA’s - export, foreign direct investment (FDI) externalization of FSA’s – licensing, alliances Transaction cost theory The Competitive Environment Rivalry, new entrants, substitutes, buyer and supplier power Global competitors Strength, repertoire, rivalry, hypercompetition

Cappuccino Trail Video What firm specific advantages does Cafe. Direct seek in serving consumer coffee markets? Is it working? What firm specific advantages does Nestle’s seek in serving consumer coffee markets? Is it working? How has Starbucks responded to criticism of its use of Ethiopian place names in its branding strategies?

CaféDirect’s Competitive Advantage Peru Mexico Tanzania Uganda

Fair Trade and Local Production as Competitive Advantages Fair Trade products include: Fresh fruit Cocoa and chocolate Coffee and tea Honey Wine and spirits Sports balls Flowers and cosmetics Sugar and confectionary Fair trade products Fruit juice and yogurt have up to 15% Herbs and spices share of some UK Nuts and snacks market sectors Cotton products Rice and quinoa

Ethiopia and Starbucks WSJ article discussing the issues You. Tube video for Oxfam’s position Starbuck’s response Oxfam’s comments on the resolution of the dispute Ethiopia’s Branding Strategy

Chapter Two Theoretical Foundations MKT 568 Global Marketing Management Dr. Fred Miller