Strategy in a Global World

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Comparison and Contrast of Trade Theories[edit]

Team One - Casey McKinney, Suseel Pachalla, Erik Root, Jose Cordova, Joel Stephens

Country-Based Trade Theories (Classical)

The first theories of international trade, country-based trade theories rose along with the great European nation-states during the 16th Century. These theories focused on the exporting/importing patterns of the INDIVIDUAL country (England, for example). Country-based theories of trade are particularly useful for describing the trade of commodities; undifferentiated goods bought on the basis of price, as opposed to the basis of brand.


Mercantilism Mercantilism is a 16th century philosophy that maintains that a country’s wealth should be measured by its holdings of gold and silver. Mercantilists maintain that a country can increase its holdings of both gold and sliver by promoting exports and discouraging imports (i.e. a country can accumulate wealth by exporting more than it imports). Domestic manufacturers threatened by international trade supported mercantilism, voting in heavy tariffs to discourage international imports that might have reduced their market share. Most of society, however, is hurt by mercantilism. Restrictions on importing goods leads to less selection and higher prices (lower purchasing power for the customer) and government subsidies of exported goods are financed through increased taxes (i.e. various taxes imperialistic countries forced on their colonies during the height of colonialism).

Modern Support – Modern supporters of mercantilism are called neomercantilists or protectionists. Support mainly comes from industries and firms that would benefit from reduced imports and resultant competition


Theory of Relative Factor Endowments (Heckscher-Ohlin Theory) Theory focuses on the question: “What Determines the Products for Which a Country Will Have a Relative (Comparative) Advantage?” Theory revolves around two basic observations:

1). Factor Endowments (Resources) Vary Among Countries: Argentina (Land), Saudi Arabia (Oil), etc.

2). Goods Differ According to Factors Used to Produce Them: wheat requires land, oil requires crude oil reserves, clothing requires unskilled labor

Theory is a country will have a comparative advantage in producing products that intensively use resources (factor endowments) it has in abundance.

Absolute Advantage The theory of Absolute Advantage suggests that a country should export those goods and services for which it is more productive than other countries are and import those goods for which other countries are more productive than it is. This theory was believed to have been superior to mercantilism, as mercantilism avoids importing goods (even those which are more efficiently made elsewhere). If goods are not imported, they must be made (inefficiently) domestically, thereby reducing the country’s overall wealth (i.e. what it could have potentially accumulated).

Comparative Advantage The theory of Comparative Advantage states that a country should produce and export those goods for which it is relatively more productive than other countries and import those goods and services for which other countries are relatively more productive than it is. The main difference from Absolute Advantage is that Comparative Advantage incorporates the concept of opportunity cost; time spent producing goods for which a country is less productive than another (from which it could import) is wasted time that could be spent producing goods at which the country has a comparative advantage.


FIRM BASED THEORIES OF TRADE


The Firm Based Theories of Trade are resultant of the evolution of Country-Based theories – developed as international/INTRAINDUSTRY trade expanded and as the traditional theories could not explain the presence and growth of international trade.


The Firm Based Theories of Trade Introduced 4 additional factors into the explanation of trade flows: 1) Quality 2) Brand 3) Technology 4) Customer Quality


Country Similarity Theory:

The Country Similarity Theory of Trade states that trade of manufacture good should be done between countries with similar income per capita. (‘Explains the phenomena of intra-industry trade’). One chief assumption that this theory makes is that countries with similar income per capita will not have varying consumer tastes; the theory assumes homogeneity in this regard.

Product Life Cycle Theory of Trade Theory applies the traditional Product Life Cycle to international trade. The chief claim of this theory is that competitive markets will provide rapid feedback, driving trade to suit the needs of consumers. The theory also assumes that less expensive competitor products will eventually supplant domestic brands and will, resultantly, begin to be imported into the country of origin (for the product or service).


Global Strategic Rivalry Theory of Trade The Global Strategic Rivalry Theory of Trade assumes that competitiveness amongst firms, within like industries, will be commonplace and, in order to prosper, firms must build sustainable competitive advantages. The theory states that there are four main ways by which a firm can build such and advantage.

o Own Intellectual Property Rights o Invest in R&D o Achieve Economies of Scale/ Scope o Exploit the Experience Curve

Porter’s Theory of National Competitive Advantage: This theory of trade suggests that success in international trade is dependent upon four key factors:

o FACTOR CONDITIONS: existing factors and the creation of new ones (training, education) o DEMAND CONDITIONS: Large, sophisticated demand leads to innovative industry development. o RELATED SUPPORTING INDUSTRIES: Proximity to suppliers is and advantage – new industries spur growth or suppliers o FIRM STRATEGY, STRUCTURE, and RIVALRY: Firms that can develop strategy to compete domestically are better prepared to compete internationally.


References:

http://www.iht.com/articles/2006/09/18/bloomberg/bxtea.php -- “India faces tea shortage as demand increases” by Thomas Kutty Abraham, International Herald Tribune, 9/19/2006. (article on tea demand in India) http://en.wikipedia.org/wiki/Tata_Tea_Limited (Tata Tea Wikipedia entry) http://www.tatatea.com/pro_bulktea.htm# (Tata Tea website) oInternational Business. Griffin, R.W. and Pustay, M.W. Fifth Edition, 2007. Upper Saddle River, NJ: Prentice H


Analysis of Industries[edit]

Team 7

As much as the macro environment is important in understanding the overall business environment, a micro level analysis of each industry is equally important. One cannot compare the toy industry with the beverage industry or automobile industry. It is critical to compare with the peers. This can determine the current standing of a company, determine the competitive factors and find the differentiator.

The spectrum of the industry structure consists of

  1. Perfect Competition
  2. Oligopoly
  3. Duopoly
  4. Monopoly

One of the popular frameworks for identifying the industry structure is the "Porters Five Forces of Competition Framework". The five elements of this framework are:

  1. Industry Competitors
  2. Suppliers
  3. Buyers
  4. Potential Entrants
  5. Substitutes.

However, Porters framework has certain limitations. It provides a simplified view of the industry and competition. A more sophisticated analysis of the industry could be performed by analyzing the complements. Game theory is another mechanism to perform competitive analysis. Firms with similar strategies also sets a level playing ground for performing a sound industry analysis. Segmentation can categorize the industry depending on the players in the appropriate segments e.g., luxury automobiles vs. regular sedans.

Resource Based View Analysis – WFU Babcock Charlotte program[edit]

Team 3 - Pete Brown, Heather Dienhart, Mark Huntley, Suresh Manoharan and Pete Roney

Resource Based view analysis is a methodology that is used to formulate a strategy for a firm based on its internal resources and capabilities. In this methodology, we look at a firm’s resources and capabilities to derive a competitive advantage using the following factors – Scarcity, Relevance, Durability, Transferability and Replicability. In this analysis, we assess the WFU Babcock School’s charlotte program’s resource and capabilities and create a strategy to gain a competitive advantage.

Advantages:

Methodology:

  1. Identify critical success factors, implied resources and capabilities.
  2. Assess relative strengths and importance of resources/capabilities.
  3. Identify Industry critical success factors.
  4. Compare internal resources/capabilities with industry key success factors.
  5. Define a set of strategic goals.
  6. Form resource based strategy to achieve the above goals.

Results: Based on our analysis as in Exhibit 1, we defined the goals of the strategy should be to defend and expand leading position in Charlotte and try to become the #1 regional program in BW rankings using the following strategy.

Conclusion: WFU Babcock Charlotte program can derive a competitive advantage over their competitors by sustaining their position in charlotte, improving their Business Week ranking and maintaining an industry-leading network.

Exhibit 1 - Overview of Resource Based View Analysis


Analysis of Duke Energy with Keith Trent [edit]

July 2, 2008 [edit]

Teams 4 & 5 [edit]

Image:Slide1.jpg

Executive Summary

Industry Comparables Image:DukeComparables.jpg

Sensitivity Analysis

Rate Changes

Environmental Legislation

New Products

Interest Rates

Raw Materials

Image:Dukevaluation.jpg


Flexibility[edit]

Team 8 - Patrick Brang, Randy Brockway, Trae Fletcher, Kristy Gordon, Kenya Moses and Biju Nair

Managerial flexibility is a concept based on management’s ability to create, modify, execute, adapt and abandon strategic options and investments over time in response to unexpected market conditions and as certain aspects of a project’s uncertainty become apparent.

Discounted Cash Flow (DCF) is a traditional method of valuation used in management decision-making.

Real Options is a method of valuation that takes into account management’s flexibility to exercise certain strategic options when levels of uncertainty are resolved though the passage of time.

Monte Carlo is a computer simulation package that uses scenario analysis to quickly generate a company’s best options based on variable input parameters and/or some management-defined ranges of possible cost and revenue structures.

Some Real Options and their definitions:

Bibliography:

Last edited by:--Nairbr6 17:39, 14 May 2008 (EDT)


Culture [edit]

Road To Hell

Team 6: LeAnn Hill, Krisie Buscaglio, Mark Eagle, Justin Perelle, Jason Carter, David Lord

Rennall’s Letter of Resignation

It has always been my practice to respect the advice given me by seniors, so after our interview, I decided to give careful thought once again to its main points and so make sure that I had understood all that had been said. As I promised you at the time, I had every intention of putting your advice to the best effect. It was not, therefore, until I had sat down quietly in my home yesterday evening to consider the interview objectively that its main purport became clear. Only then did the full enormity of what you said dawn on me. The more I thought about it, the more convinced I was that I had hit upon the real truth—and the more furious I became. With a facility in the English language which I, a poor Barracanian, cannot hope to match, you had the audacity to insult me (and through me every Barracanian worth his salt) by claiming that our knowledge of modern living is only a paltry 50 years old whereas yours goes back 200 or 300 years. As if your materialistic commercial environment could possibly be compared with the spiritual values of our culture. I’ll have you know that if much of what I saw in London is representative of your most boasted culture, I hope fervently that it will never come to Barracania. By what right do you have the effrontery to condescend to us? At heart, all you Europeans think us barbarians; as you say amongst yourselves, we are “just down from the trees.” Far into the night I discussed this matter with my father, and he is as disgusted as I. He agrees with me that any company whose senior staff think as you do is no place for any Barracanian proud of his culture and race—so much for all the company “clap-trap” and specious propaganda about regionalization and Barracania for the Barracanians. I feel ashamed and betrayed. Please accept this letter as my resignation, which I wish to become effective immediately. cc: Production Manager Managing Director

Resolving Conflict Diagram Image:Conflict.jpg

Hofstedes Emerging Cultural Profiles Image:Hofstede.JPG

http://www.youtube.com/watch?v=7L0fy3RTtYY


Social Responsibility & Related Topics[edit]

Team 2: Hance, Greene, Layel, Li, Wheeler

Hook: While almost everyone says they want to buy from 'good' companies, there are still many questions that need to be answered for their intentions to become reality:

  1. How do you tell what a 'good' company is?
  2. If a company is a 'bad' company, why are people still willing to purchase goods and services from it?
  3. Can a company be good (i.e. socially conscious) and make average or above average returns? That is, can companies create a competitive advantage by being socially conscious? Or are they wasting their money (i.e. lowering profits) as our friend Milton Friedman might suggest.

We've intentionally broadened on subject to include explaining what a socially conscious company is, how their performance, in general, compares to competiting investment opportunities, and also will spend some time on specific examples of companies (including foundations, microfinancing, etc.) that are changing the world for the better and making a competitive profit.

Definitions (to start us all on the same page - we'll use this as a basis for our discussion)

Question: What is Social Responsibility?

Answer: It's an ethical or ideological theory that an entity has a responsibility to society. Also, it's voluntary; it is about going above and beyond what is called for by the law. [Think Friedman vs. Stone]

Question: What is Social Entreprenuership?

Answer: Just as entrepreneurs change the face of business, social entrepreneurs act as the change agents for society, seizing opportunities others miss by improving systems, inventing new approaches and creating sustainable solutions to change society for the better. However, unlike business entrepreneurs who are motivated by profits, social entrepreneurs are motivated to improve society. Despite this difference, social entrepreneurs are just as innovative and change oriented as their business counterparts, searching for new and better ways to solve the problems that plague society.

Source: Skoll Foundation

Question: Are there specific criteria to be a Social Entreprenuer?

Answer: Social entrepreneurs that meet Skoll’s criteria for Skoll Awards can be characterized by their ability to: • Recognize an unjust equilibrium that leads to the exclusion, marginalization or suffering of vulnerable members of our society • Identify an opportunity within this unjust equilibrium to change the existing system and, through inspiration, creativity, direct action, courage and fortitude, implement a better solution • Demonstrate potential to scale up their innovation until they have replaced the old system with a new, stable equilibrium that alleviates the suffering of the targeted group and creates a better future

Source: Skoll Foundation

Web Resources



If you still have doubts...

This is a touching article brought to our attention by Kristie Buscaglio (thank you!) related to our presentation subject. We included the entire text of this WSJ article so you don't have to register or look up as the WFU Library.

Philanthropy: Giving a Lot for Saving a Little; Gates Foundation to Invest in Programs to Help Collect Deposits for the World's Poor Robert A. Guth. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 31, 2008. pg. A.11

The idea that small loans can awaken an entrepreneurial spirit among the world's poor won a Bangladeshi economist the Nobel Peace Prize in 2006 and released a flood of money into thousands of "microcredit" programs on the bet that the poor are good borrowers.

Now, the world's largest private philanthropy is betting that they are also good savers.

The Bill and Melinda Gates Foundation plans to donate hundreds of millions of dollars over the next few years to programs designed to spur savings in poor countries, officials at the Seattle foundation say. It is the philanthropy's first focused effort in financial services and is part of a broader push by the foundation into programs to help improve basic infrastructure in the neediest regions of developing countries.

"We're going to focus very heavily on using our resources and our voice to put savings back on the world agenda," said Bob Christen, director of financial services for the poor at the Gates foundation.

The bet on saving, which has become an important measure of the health of developed economies, is based on the belief that there is widespread, unmet demand for savings programs even in poverty-stricken areas. Savings are already a fundamental part of many developing societies, in the form of physical assets; poor people world-wide store their wealth for future use by keeping livestock, hoarding coffee and buying jewelry.

In some countries, the needy appear ready for more. Six banks focused on the poor -- in the Philippines, Thailand, Indonesia, Benin, Uganda and Colombia -- found that demand for savings accounts outstripped demand for loans by a six-to-one ratio, according to a 2006 study by the Consultative Group to Assist the Poor, a World Bank- backed think tank that advised the Gates foundation on its financial- services strategy.

But while there are some early success stories in collecting deposits from the poor, in Indonesia, Bangladesh and elsewhere, the complexity and cost of delivering banking services in developing countries make the venture rife with challenges. Among them are strict banking regulations governing which organizations are allowed to hold people's deposits and the lack of bank branches in rural areas that would allow customers convenient access to accounts.

"It's a more complex issue when you start to unpeel it," said Jim Bunch, director of investments at philanthropy Omidyar Network, which has invested about $105 million in microfinance organizations, some of which in recent years expanded into savings, insurance and other noncredit products.

The effort also could lead the Gates foundation to forge ties with telecommunications operators, banks and retailers, all organizations with which philanthropists typically have had limited connections for reasons ranging from the pragmatic to the ethical. Says Mr. Christen: "It's a new world for foundations in general."

That concerns some in the microcredit movement, which is embroiled in a debate over two opposing philosophies. Some believe that financial services for the poor should direct any profits back into services for the needy. The Gates plan is a nod to the other side of the debate, which holds that commercial enterprises -- banks and other profit-seeking businesses -- can best serve the broadest swath of people by using tools such as capital markets to fund expansion.

The theme that the world's poor deserve better financial services is now a central plank of development in poor parts of the world, largely thanks to Muhammad Yunus, an economist who won the 2006 Nobel Peace Prize for small-loan programs he started in Bangladesh 30 years ago that have spread around the globe. His work helped to spark a boom in microcredit as businesses, governments and individuals in the rich world ponied up huge sums for new loan programs around the globe. In Silicon Valley, entrepreneurs started a Web site, Kiva.org, that lets individuals make small loans to poor entrepreneurs. Actress Natalie Portman lent her name to the microfinance group Finca International.

The Gates foundation's decision to enter the field is an example of what likely will be a range of new programs as Bill Gates begins working full time at the foundation, which has an endowment of $35.9 billion. The finance work is part of an expansion the foundation made two years ago into global development that includes investments to help small farms.

The foundation's efforts could have a broad impact on microfinance, which to date is largely focused on microcredit, not savings. By applying its considerable weight in an area, the Gates foundation has the power to draw people, new ideas and fresh money.

The foundation tested the microfinance waters through investments of about $300 million over several years in a range of services, including loans and insurance. A review of those programs and a broader study this year persuaded foundation officials to aim predominantly at savings, Gates officials say.

The foundation hopes to make early progress in countries including Brazil, the Philippines, Mexico, South Africa and India, which have much of the infrastructure needed for establishing savings programs, Mr. Christen says. Ultimately, though, he expects the foundation to focus a "significant portion of our funds" in Africa.

The Gates foundation in June completed an $11.7 million grant to Oxfam International to start training programs and group-savings programs, mainly in Mali and Cambodia, a foundation spokeswoman said. The foundation is considering similar grants to two other nonprofit organizations, she said.

The strategy comes as the microcredit movement is attracting questions about whether the small loans actually help to alleviate poverty. Many recipients of microloans build sustainable small businesses with their borrowings, and their success stories abound. But some borrowers use their funds for consumption and in other ways that help smooth the volatility of daily life in the short term but may do little to elevate their living standard. Mr. Christen acknowledges that the impact of savings is hard to measure.

The first challenge, though, is finding ways to offer accounts at a low cost. Since each transaction will likely be a small amount of money, the cost per transaction to the bank and the depositor has to be negligible. And many of the poorest people are in rural areas too far for banks to reach. The trick will be to extend the concept of the bank branch to local stores, kiosks, post offices or even cellular phones.

The Gates foundation's funding will go to grantees with plans to set up rural savings programs and to research, as well as to training and new technologies. It will also go to educational programs for central bankers and other ways of "encouraging" governments to make regulatory changes needed to open savings to a broader group of people, foundation officials say.

There are models, including a service called M-Pesa run by mobile operator Vodafone Group PLC, that allows Kenyans to use their cellphones to deposit and withdraw through a network of thousands of local stores. Still, "it's going to be tough to get downmarket with savings products, because the math doesn't work very well," Mr. Christen said.

The promise and problems are clear in Malawi, where the nonprofit group Opportunity International holds $15 million in 150,000 accounts in a banking system for the poor. The organization uses armored trucks equipped with ATMs that travel to rural areas where the bank doesn't have branches or kiosks.

The bank is profitable and growing but is limited by the cost of reaching the rural poor, said Francis Pelekamoyo, board chairman of the group's Malawi bank. The trucks, laden with satellite, computer and security technology, cost $250,000, and the bank runs each of its new clients through an eight-lesson training course on financial products.

"It's very expensive to introduce financial services to someone for the first time," Mr. Pelekamoyo said. With more funding, he said, "I would go deeper into rural areas."

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