The Nature of Competitive Advantage in Global Industries

A global industry can be defined as:

• An industry in which firms must compete in all world markets of that product in order to
survive.
• An industry in which a firm’s competitive advantage depends on economies of scale and
economies of scope gained across markets

Ang competitive advantage is the ability of a firm to outperform its rivals in terms of
profitability, quality, innovation, or customer satisfaction.

- A global industry is an industry kung saan ay kailangan nilang makipagcompete sa iba't ibang
markets around the world, and where their competitive advantage depends on how well they
can use economies of scale and economies of scope across these markets.

- Economies of scale are the cost savings that result from producing large volumes of a product
or service. For example, a global car manufacturer can lower its average cost per unit by
spreading its fixed costs (such as research and development, marketing, or administration) over
a larger output.

- Economies of scope are the cost savings that result from producing a variety of products or
services that share some common inputs or processes. For example, a global media company
can lower its average cost per unit by using the same content (such as news, sports, or
entertainment) for different platforms (such as TV, radio, or online).

- A firm can gain a competitive advantage in a global industry by exploiting economies of scale
and economies of scope better than its rivals. This can help the firm to lower its costs, increase
its quality, differentiate its products or services, or enhance its customer loyalty.

Some industries are more suited for globalization than are others. The following drivers
determine an industry’s potential.
• Cost drivers

These are factors that affect the cost of producing or delivering a product or service in different
markets. Some cost drivers are:

o Location of strategic resources

Some industries need to access resources that are scarce, unique, or cheaper in certain
locations. For example, the oil industry needs to locate near the sources of crude oil, while the
diamond industry needs to locate near the mines of gemstones.
o Difference in country costs

Some industries can lower their costs by producing or sourcing their products or services in
countries that have lower wages, taxes, regulations, or tariffs. For example, the textile industry
can reduce its labor costs by outsourcing to countries like Bangladesh or Vietnam, while the
software industry can reduce its development costs by outsourcing to countries like India or
China.
o Potential for economies of scale (production, R&D, etc.) Flat experience curves in an industry
had more global potential than the furniture industry is that for fax machines, the production
cost drop 30% - 40% with each doubling of volume; the curve is much flater for the furniture
industry and many service industries. Industries for which the larger expenses are in R&D such
as aircraft industry, exhibit mor economies of scale than those industries for which the larger
expenses are rent and labor, such as the dry cleaning industry. Industries in which costs drop by
at least 20% for each doubling of volume tend to be good candidates for globalization.

Some industries can lower their average costs by increasing their output and spreading their
fixed costs over a larger volume. For example, the aircraft industry can lower its research and
development costs by selling more planes to more customers, while the fax machine industry
can lower its production costs by making more units of the same model.

o Transportation costs (value/bulk or value/weight ratio) => diamonds and semiconductors are
more global than ice.

Some industries can save on transportation costs by producing or delivering their products or
services in markets that are closer to their customers or suppliers. Transportation costs depend
on the value-to-bulk or value-to-weight ratio of the product or service. For example, diamonds
and semiconductors have a high value-to-bulk or value-to-weight ratio, which means they are
worth a lot but do not take much space or weight. Therefore, they can be transported cheaply
and easily across the world. On the other hand, ice has a low value-to-bulk or value-to-weight
ratio, which means it is worth little but takes a lot of space and weight. Therefore, it is
expensive and difficult to transport across the world.

• Competitive Drivers

These are factors that affect the intensity and nature of competition in an industry. Some
competitive drivers are:

o Global competitors: The existence of many global competitors indicates that an industry is
ripe for globalization. Global competitors will have a cost advantage over local competitors.
o When competitors begin leveraging their global positions through crosssubsidization, an
industry is ripe for globalization.
So ang global competitors are firms that compete in many markets around the world and have
a global strategy and presence. Global competitors can have a cost advantage over local
competitors because they can exploit economies of scale and scope, access cheaper resources,
or cross-subsidize their operations. Cross-subsidization means using profits from one market to
support losses or low prices in another market. For example, a global car manufacturer can use
its profits from Europe to subsidize its losses or low prices in Asia, making it harder for local
competitors to survive.

When competitors begin leveraging their global positions through cross-subsidization, an

industry is ripe for globalization. This means that the industry becomes more attractive and
profitable for global firms, and more challenging and risky for local firms. For example, the
airline industry is ripe for globalization because many global airlines use cross-subsidization to
gain market share and reduce fares in different regions, putting pressure on local airlines.

• Government drivers

These are factors that affect the policies and regulations of governments in different countries
and regions. Some government drivers are:
o Trade policies

These are the rules and agreements that govern the trade of goods and services between
countries and regions. Trade policies can affect the tariffs, quotas, subsidies, or sanctions that
are imposed on imports and exports. Trade policies can encourage or discourage globalization
depending on whether they are free or restrictive. For example, free trade policies, such as the
World Trade Organization (WTO) or the European Union (EU), can promote globalization by
reducing trade barriers and increasing market access. On the other hand, restrictive trade
policies, such as the North American Free Trade Agreement (NAFTA) or the Trans-Pacific
Partnership (TPP), can limit globalization by creating trade blocs and preferential treatment for
certain countries or regions.
o Technical standards

These are the specifications and requirements that define the quality, performance,
compatibility, or safety of a product or service. Technical standards can affect the design,
production, testing, or certification of a product or service. Technical standards can facilitate or
hinder globalization depending on whether they are harmonized or divergent. For example,
harmonized technical standards, such as the International Organization for Standardization
(ISO) or the International Electrotechnical Commission (IEC), can facilitate globalization by
creating common and consistent criteria and procedures for different markets. On the other
hand, divergent technical standards, such as the American National Standards Institute (ANSI)
or the European Committee for Standardization (CEN), can hinder globalization by creating
different and incompatible criteria and procedures for different markets.
o Regulations

These are the rules and laws that govern the conduct and behavior of firms and individuals in a
market. Regulations can affect the entry, operation, exit, or liability of a firm or individual in a
market. Regulations can enable or constrain globalization depending on whether they are
liberal or strict. For example, liberal regulations, such as the General Data Protection Regulation
(GDPR) or the Consumer Protection Act (CPA), can enable globalization by protecting the rights
and interests of consumers and users in different markets. On the other hand, strict regulations,
such as the Foreign Corrupt Practices Act (FCPA) or the Anti-Money Laundering Act (AMLA), can
constrain globalization by imposing penalties and sanctions on firms and individuals who
engage in unethical or illegal practices in different markets.

Factors That Draw Countries into International Trade

• They might be pushed into it by the lack of opportunity at domestic market.

Some countries may have a lack of opportunity at their domestic market, meaning that they
cannot sell enough of their products or services to their own people. This may be because their
population is too small, their income is too low, or their demand is too limited. These countries
are pushed into international trade to find new markets and customers for their products or
services.

• They might be pulled into it by growing opportunity for their production other countries.

Other countries may have a growing opportunity for their production in other countries,
meaning that they can sell more of their products or services to foreign people. This may be
because their products or services are unique, high-quality, or low-cost. These countries are
pulled into international trade to take advantage of the higher demand and prices for their
products or services.

• Existence of great variation in industrial structure and national income, both of which
empirically influence the need for exchange and trade relations.

Another factor that draws countries into international trade is the existence of great variation
in industrial structure and national income, both of which influence the need for exchange and
trade relations. Industrial structure refers to the types and levels of production that a country
has, such as agriculture, manufacturing, or services. National income refers to the total amount
of money that a country earns from its production. Countries with different industrial structures
and national incomes may have different needs and wants, and they may trade with each other
to satisfy them. For example, a country that produces a lot of food may trade with a country
that produces a lot of machinery, and vice versa..

EXPLOITING A STRONG TRADE NAME (STN)

Another strategy that has led enterprises to create producing facilities in foreign countries is to
exploit strong trade name, this is an obvious example that falls in the third category of the
theories mentioned above. In the modern world of easy international movement globalization
and communication, trade names can sometimes gain strength in a foreign market without
much conscious effort on the part of the firm that own the name.

A strong trade name is a name that customers recognize and trust, and that makes them more
likely to buy a product or service. A strong trade name can be a valuable asset for a business,
especially in international markets.

Some businesses may create producing facilities in foreign countries to exploit their strong
trade names, meaning that they use their names to attract more customers and increase their
sales. This is a strategy that falls in the third category of the theories of international trade,
which are based on the idea that businesses have some unique advantages or capabilities that
give them an edge over their competitors.
Reasons for STR are:
• The strength of the foreign trade name is associated with the past or the illusion of superior
performance. This superior performance is ofen strengthened and fortified by copious
promotional expenditures.

The strength of the foreign trade name is associated with the past or the illusion of superior
performance. This means that customers believe that the product or service is better than
others because of its history or reputation. This superior performance is often strengthened
and fortified by copious promotional expenditures, meaning that the business spends a lot of
money on advertising and marketing to make its name more popular and appealing.
• The strength of a brand name is associated not with superior performance but with
predictable performance. For instance, delivering a package food product such as a reasonably
reliable basis can be a technically exacting job. This is very important in the airways passage
system.

The strength of a brand name is associated not with superior performance but with predictable
performance. This means that customers know what to expect from the product or service, and
that it meets their needs and standards. For instance, delivering a package food product such as
a reasonably reliable basis can be a technically exacting job. This is very important in the
airways passage system, meaning that the product or service has to be delivered safely and on
time.