Creating Competitive Advantages Over Imports

Strategic Management: Creating Competitive

Advantages over Imports

Introduction

• "The Oxford expandable folder on your desk was assembled in Mexico. Your Papermate pencil is from Japan, and that blue-and-white J. Crew striped shirt was stitched in Mauritius. The pillowcase on your bed comes from India. Your dining-room table is from Italy; the tea candles on it are from Hong Kong. If you or your children have a Schwinn or Huffy bike, it probably came from China.”-- “Surviving the Onslaught,” Wall Street Journal, October 6 2003

Introduction

• Wall Street Journal published a series of articles analyzing how U.S. companies can strategically counter competition from global imports

• Part 1: “Surviving the Onslaught”• Parts 2 – 5: Each part was dedicated to studying a

particular company and its strategic approach to competing against imports

“Surviving the Onslaught”

• Imports have touched $1.2 Trillion!!

• Why are imports so successful?

• What have been the effects so far?

• Can U.S. companies successfully withstand the invasion of imports?

“Surviving the Onslaught”

• What are some battle strategies that U.S. companies can use?– Value chain approach: merge automation, quality with rapid

response to customer needs– Differentiation: custom-made products, niche positioning– Outsourcing: outsource everything or outsource based on a

product-by-product analysis

• Is outsourcing the only way?– “outsourcing…makes most sense if a product is stable, requires

lots of labor and doesn’t need lots of technical support”

“Three Countries, One Dishwasher”

• The company: Maytag

• The products: Appliances, i.e. dishwashers

• The problem: Lower labor and production costs overseas have more than offset the freight costs of importing appliances

• The solution…

Maytag Revalues Value chain

• Distributed Manufacturing to take advantage of Locational Benefits– Selective outsourcing– Motors in China– Wring assembly in Mexico– Final Assembly in US

• Result: Achieve cost parity while maintaining customer focus.

• Products tailored for Local US Customers

Transnational Strategy

High

HighLow

Pressure for Local Adaptation

Pressure to Lower Costs

“The Allure of Bundling”

• The company: Timken Co

• The products: Roller and Ball Bearings

• The problem: Cheap Imports of standard bearings and Intense Competition on Price

• The solution…

Differentiate for Customer Value

• Timken’s strategy is to differentiate from its competitors by working closely with customers.

• Provide solution for friction by bundling flaps for lubrication instead of just bearings

• Work closely with customers to develop solutions. This will:– Create Value to customers– Increases Switching Costs for customers

Timken’s Sustainable Advantage

• By providing solutions, Timken has a competitive advantage as long as they achieve Price parity with respect to competition

• Danger: If Timken’s customers move their manufacturing abroad, Timken will have to follow suit.

Domestic Strategy

High

HighLow

Pressure for Local Adaptation

Pressure to Lower Costs

“Smaller Runs of More Things”

• The company: Plexus Corp

• The products: Contract Electronic Manufacturing

• The problem: Lower labor costs for foreign competitors gives them an obvious cost advantage

• The solution…

Build to Order

• Plexus’s strategy is to focus on fast customer response, - “A Focus strategy”

• By having a build-to-order strategy, Plexus is able to fend off competition from abroad by offering services unique to contract manufacturing

• Totally customer focused while marinating cost parity

Long term Sustainability

• Most competitors of Plexus have moved manufacturing abroad, This leaves the local market for small orders totally for Plexus

• A complicated manufacturing management system required to run a build-to-order factory is difficult to imitate

• Imports have longer turn around, so customers will remain with Plexus as long as the prices are not out of control

Domestic Strategy

High

HighLow

Pressure for Local Adaptation

Pressure to Lower Costs

“The Plastic Bag Fight”

• The company: Sonoco Co

• The products: Everyday Shopping Plastic Bags

• The problem: Cheaper imports from Asia and high energy costs are driving out US manufacturers

• The solution…

Lobby for Protection

• Government Policies and Tariffs greatly affect the business environment– E.g.: US Steel Industry

• Protection is good for manufacturers but hurts consumers

• Indicates that the industry does not have a long term sustainable advantage!

Factor Endowments

Demand Conditions

Firm Strategy, Structureand Rivalry

Related & SupportingIndustries

Govenment Rules & Regulation

Conclusion• Realize greater cost economies from

manufacturing parts where they are most efficient. – “A Transnational Strategy” by Maytag

• Build-to-order strategy provides a competitive advantage because of the ability to efficiently meet customer needs – “Focus Strategy” by Plexus

Conclusion

• Differentiate from Competition by offering unique solutions which are highly valued by customers -- “Differentiation Strategy” by Timken

• Rely on the government for help as a strategy falls short of the other strategies – low cost, differentiation, and rapid response -- “Influence the Business Environment” By Sonoco

Thank you

Arun Kottolli