The Competitive Environment
The Competitive Environment
Each company and each industry has a different competitive environment, which may vary from one country to another. As a result, some firms may be better able to take advantage of foreign opportunities than others. Some firms may also have to deal much more with foreign competition than others within their domestic markets. The most appropriate form of international business opportunity, such as exporting versus licensing, may differ among firms and products, as well as among the countries in which the business is undertaken. Some of the most important factors are shown in Fig. 1.1 and will be discussed in later chapters. Some trends that are affecting the nature of international competition are briefly explained in the following section.
Shrinkage of Time and Space
A traditional difference between interna-
tional and domestic business is that international forms usually encompass
greater distances. Greater distance usually increases operating costs and
makes control more difficult, but distance problems are less severe than they
used to be because advances in communications and transportation have
come at an accelerated rate. Today, scheduled air service from New York to
London takes only three and a half hours and there is almost instantaneous
fax and telephone transmission. As recently as 1970 there was no commercial
transatlantic supersonic travel, no fax machines, and no overseas direct-dial
telephone service. In fact, one usually had to go in person to the telephone
company and wait sometimes for hours while operators tried to complete an
international connection. Compare these recent changes with those in earlier
periods. The far-flung production and distribution of the three Star Wars films
make William Shakespeare's words "All the world's a stage, and all the men
and women merely players" seem prophetic. During Shakespeare's lifetime
(1564—1616), most people traveled no more than a few miles from where
they were born. The time and cost of moving people or goods from one coun-
try to another was so great that sections of the world were isolated from each
other. Many products that were commonplace in one area were either un-
known or very rare in another. The New World was still being explored (and
Australia had not yet been discovered by Europeans), and such products as
tobacco and potatoes were not introduced into England until after Shake-
speare's birth. (One may ponder what the Italian diet must have been before
Marco Polo reputedly brought pasta from Asia and the Spaniards introduced
tomatoes from South America.) European powers were still fighting to make
or break trade monopolies with the Far East so that they could reap the
profits from such exotic luxuries as tea. Communications between areas were
very slow, although the Dutch did introduce the first airmail service during
this period, via pigeon. It was not until four years after Shakespeare's death
that the Mayflower sailed from Plymouth, England, to Massachusetts, a trip
that took over three months. Another two and a half centuries passed be-
fore Jules Verne fantasized that people might encircle the globe in only 80
days.
Expansion of Technological and Geographic Frontiers
So much that we lake for granted today results from the cumulative penetration of technological
and geographic frontiers over many decades. Besides the technology to make films, other technology had to be developed in order for the Star Wars producers to make and sell the films. More distant production locations could be used only because videotapes made in the English studio could be transported to California in a day and because actors could travel quickly to locations around the world. Without the transport innovations of the twentieth century, production would have taken so long that the actors might have aged noticeably before the films were completed. Communications developments such as telephone transmission via satellites have not only speeded up
interactions, they have allowed people in one country to control operations
elsewhere.
Institutional Developments
What we now take for granted is also the re-
sult of cumulative institutional developments by business and government
that let us effectively apply technological innovations. While the ability to
distribute films in foreign countries, for example, is due in part to transport
advances, it is also related to the evolution of institutional arrangements. Take Lucasfilm's sales to Chile, for example. As soon as the films arrive in Chilean customs, a bank in Santiago would likely collect a distribution fee in pesos from the Chilean distributor and make payment to Lucasfilm in dollars at a bank in the United States. If businesses were still conducted as they were in the era of early caravan traders, Lucasfilm would probably have had to accept Chilean merchandise, such as copper or wine, in payment for the films. The merchandise would have been shipped back to the United States and sold before Lucasfilms could have received a usable income. Although such barter transactions still do take place, they are not the most common means for making international payments. Barter transactions are usually cumbersome, time consuming, risky, and expensive. The relative ease with which most producers today can get paid for goods and services sold abroad is due to the development of a host of innovations. These include money to replace barter, clearing arrangements to convert one country's currency into another's, insurance to cover damage en route and nonpayment by the buyer, and bank credit agreements.
There are innumerable other institutional arrangements that have facilitated the conduct of international business. One involves the transport of mail. The first international postal agreement, between France and part of what is now Germany, was enacted during Shakespeare's lifetime. Today you can send a letter to any place in the world by buying stamps denominated in your own country's currency, regardless of how many countries the letter must pass through en route. Lucasfilms could buy U.S. postage stamps for a letter sent to its Chilean distributors even though the letter might be routed on an Argentine airline that made stops en route in Colombia and Peru. Imagine what it would be like if separate payment and shipment had to be arranged for each country through which a letter passes.
Development of Global Competition
Firms today are able to respond to many foreign opportunities more quickly than ever before. News in one place is transmitted almost simultaneously elsewhere, resulting in more rapid dif- fusion of new product information and consequently more sales in foreign countries. Firms can also shift production more quickly from one country to another because of their foreign experience and because goods can be transported efficiently from most places. Likewise, companies can separate component and/or product manufacture among countries to take advantage of cost differences. Recall from the opening case that Kenner carried out the
more automated part of its Chewbacca Bandoleer Strap production in the United States and the more labor-intensive production in Mexico. Some Japanese and South Korean firms are now producing part of their product lines at home and part in the United States, then exporting from each production location.
Because companies can respond to foreign market and production opportunities, competition has become more global. Firms that hitherto operated only domestically with domestic competitors are now facing increased competition from foreign firms and from domestic firms that operate internationally. When they do not recognize and respond to new global competition, the results can be catastrophic. A good example is Mesta Machine, one of a handful of U.S. firms that supplied equipment to the U.S. steel industry when the United States dominated steel output worldwide. The firm overlooked Jec|mjcal_ach^ances. by foreign equipment manufacturers and ignored the rapid growth of foreign markets. Suddenly Mesta found itself in competition with overseas rivals that could offer lower prices, faster delivery, and the technology demanded by the foreign and U.S. steel industry. Mesta responded too late and went bankrupt.
Each company and each industry has a different competitive environment, which may vary from one country to another. As a result, some firms may be better able to take advantage of foreign opportunities than others. Some firms may also have to deal much more with foreign competition than others within their domestic markets. The most appropriate form of international business opportunity, such as exporting versus licensing, may differ among firms and products, as well as among the countries in which the business is undertaken. Some of the most important factors are shown in Fig. 1.1 and will be discussed in later chapters. Some trends that are affecting the nature of international competition are briefly explained in the following section.
Shrinkage of Time and Space
A traditional difference between interna-
tional and domestic business is that international forms usually encompass
greater distances. Greater distance usually increases operating costs and
makes control more difficult, but distance problems are less severe than they
used to be because advances in communications and transportation have
come at an accelerated rate. Today, scheduled air service from New York to
London takes only three and a half hours and there is almost instantaneous
fax and telephone transmission. As recently as 1970 there was no commercial
transatlantic supersonic travel, no fax machines, and no overseas direct-dial
telephone service. In fact, one usually had to go in person to the telephone
company and wait sometimes for hours while operators tried to complete an
international connection. Compare these recent changes with those in earlier
periods. The far-flung production and distribution of the three Star Wars films
make William Shakespeare's words "All the world's a stage, and all the men
and women merely players" seem prophetic. During Shakespeare's lifetime
(1564—1616), most people traveled no more than a few miles from where
they were born. The time and cost of moving people or goods from one coun-
try to another was so great that sections of the world were isolated from each
other. Many products that were commonplace in one area were either un-
known or very rare in another. The New World was still being explored (and
Australia had not yet been discovered by Europeans), and such products as
tobacco and potatoes were not introduced into England until after Shake-
speare's birth. (One may ponder what the Italian diet must have been before
Marco Polo reputedly brought pasta from Asia and the Spaniards introduced
tomatoes from South America.) European powers were still fighting to make
or break trade monopolies with the Far East so that they could reap the
profits from such exotic luxuries as tea. Communications between areas were
very slow, although the Dutch did introduce the first airmail service during
this period, via pigeon. It was not until four years after Shakespeare's death
that the Mayflower sailed from Plymouth, England, to Massachusetts, a trip
that took over three months. Another two and a half centuries passed be-
fore Jules Verne fantasized that people might encircle the globe in only 80
days.
Expansion of Technological and Geographic Frontiers
So much that we lake for granted today results from the cumulative penetration of technological
and geographic frontiers over many decades. Besides the technology to make films, other technology had to be developed in order for the Star Wars producers to make and sell the films. More distant production locations could be used only because videotapes made in the English studio could be transported to California in a day and because actors could travel quickly to locations around the world. Without the transport innovations of the twentieth century, production would have taken so long that the actors might have aged noticeably before the films were completed. Communications developments such as telephone transmission via satellites have not only speeded up
interactions, they have allowed people in one country to control operations
elsewhere.
Institutional Developments
What we now take for granted is also the re-
sult of cumulative institutional developments by business and government
that let us effectively apply technological innovations. While the ability to
distribute films in foreign countries, for example, is due in part to transport
advances, it is also related to the evolution of institutional arrangements. Take Lucasfilm's sales to Chile, for example. As soon as the films arrive in Chilean customs, a bank in Santiago would likely collect a distribution fee in pesos from the Chilean distributor and make payment to Lucasfilm in dollars at a bank in the United States. If businesses were still conducted as they were in the era of early caravan traders, Lucasfilm would probably have had to accept Chilean merchandise, such as copper or wine, in payment for the films. The merchandise would have been shipped back to the United States and sold before Lucasfilms could have received a usable income. Although such barter transactions still do take place, they are not the most common means for making international payments. Barter transactions are usually cumbersome, time consuming, risky, and expensive. The relative ease with which most producers today can get paid for goods and services sold abroad is due to the development of a host of innovations. These include money to replace barter, clearing arrangements to convert one country's currency into another's, insurance to cover damage en route and nonpayment by the buyer, and bank credit agreements.
There are innumerable other institutional arrangements that have facilitated the conduct of international business. One involves the transport of mail. The first international postal agreement, between France and part of what is now Germany, was enacted during Shakespeare's lifetime. Today you can send a letter to any place in the world by buying stamps denominated in your own country's currency, regardless of how many countries the letter must pass through en route. Lucasfilms could buy U.S. postage stamps for a letter sent to its Chilean distributors even though the letter might be routed on an Argentine airline that made stops en route in Colombia and Peru. Imagine what it would be like if separate payment and shipment had to be arranged for each country through which a letter passes.
Development of Global Competition
Firms today are able to respond to many foreign opportunities more quickly than ever before. News in one place is transmitted almost simultaneously elsewhere, resulting in more rapid dif- fusion of new product information and consequently more sales in foreign countries. Firms can also shift production more quickly from one country to another because of their foreign experience and because goods can be transported efficiently from most places. Likewise, companies can separate component and/or product manufacture among countries to take advantage of cost differences. Recall from the opening case that Kenner carried out the
more automated part of its Chewbacca Bandoleer Strap production in the United States and the more labor-intensive production in Mexico. Some Japanese and South Korean firms are now producing part of their product lines at home and part in the United States, then exporting from each production location.
Because companies can respond to foreign market and production opportunities, competition has become more global. Firms that hitherto operated only domestically with domestic competitors are now facing increased competition from foreign firms and from domestic firms that operate internationally. When they do not recognize and respond to new global competition, the results can be catastrophic. A good example is Mesta Machine, one of a handful of U.S. firms that supplied equipment to the U.S. steel industry when the United States dominated steel output worldwide. The firm overlooked Jec|mjcal_ach^ances. by foreign equipment manufacturers and ignored the rapid growth of foreign markets. Suddenly Mesta found itself in competition with overseas rivals that could offer lower prices, faster delivery, and the technology demanded by the foreign and U.S. steel industry. Mesta responded too late and went bankrupt.
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