DISCUSSION QUESTIONS
16-1. Outline Porter’s five forces model of industry competition. How are the various barriers to
entry relevant to global marketing?
The first force, the threat of new entrants, depends on the presence or absence of barriers
to entry. As industries globalize, the threat on new entrants into national markets
The second force, the threat of substitute products, limits a company’s ability to raise
Bargaining power of buyers is the third force. The discussion of keiretsu in Chapter 9
manufacturers and others that depend on their products.
16-2. How does the five partners (flagship) model developed by Rugman and D’Aveni differ
from Porter’s five forces model?
According to Professors Alan Rugman and Joseph D’Aveni, Porter’s model is too
simplistic given the complexity of today’s global environment. Rugman and D’Aveni have
A major difference between their model and Porter’s is that Porter’s is based on the notion
of corporate individualism and individual business transactions. For example, Microsoft’s
16-3. Briefly describe Hamel and Prahalad’s framework for competitive advantage.
Hamel and Prahalad argue that, while Western companies have been preoccupied with
outdated concepts such as generic strategies, competitors in Japan have developed a true
It should be noted that some industry observers have found fault with Hamel and
16-4. How can a nation achieve competitive advantage?
Porter identifies four determinants of national competitive advantage:
Factor conditions
In the United States, for example, the patient monitoring equipment industry thrived due
to sophisticated demand an active domestic rivalry. The robotics industry in Japan
16-5. According to current research on competitive advantage, what are some of the
shortcomings of Porter’s models?
One criticism of generic strategies is that they are static, rather than dynamic. Porter
himself acknowledges this, writing, “The firm competing with a differentiation
The five forces model provides a good framework for competitor analysis; however, the
16-6. What is the connection, if any, between national competitive advantage and company
competitive advantage? Explain.
National competitive advantage is the sum of the company competitive advantages in a
country. It is derived from company strategy formulation and implementation. It is not to
National competitive advantage should not be confused with comparative advantage,
CASES
Case 16-1: Volkswagen
Overview: Volkswagen executives acknowledge that if they are to triple the number of vehicles
sold in the United States they must make cars that appeal to American drivers historically, one of
VW’s sources of competitive advantage is its core competence in the design and manufacture of
small, fuel-efficient gasoline engines. Diesel engines are another strength; both types of engines
offer the kind of money-saving performance that drivers seek when gasoline prices are high.
Several VW models also rank high for crash safety.
16-7. CEO Winterkorn intends to make VW the world’s number 1 automaker by 2018. Do you
think this is an attainable goal, or is it an “exaggerated” or “stretch” goal designed to motivate
employees?
Student answers will vary but good students will note that during 2014, the company sold
10 million vehicles. One could make a convincing argument that GM, Toyota, and others
16-8. In VW’s advertising the “Das Auto” tagline encourages potential buyers to associate the
brand with its German heritage. Is this the right approach for VW?
Again, student answers will vary but one could make the point that if VW wants to appeal
to the US market with cars designed for the US driver, that the “German” heritage tagline
16-9. Which rivals present the strongest competitive threat to VW’s strategic plans?
All carmakers that sell cars in the U.S. are competitive threats to VW’s plan on being the
world’s #1 car maker. The current reigning car maker, GM, along with Toyota and others
16-10. What are some of the risks inherent in VW’s relentless drive to become the world’s
number 1 automaker?
Student answers will vary but good students will note that as of 2014, VW’s unit sales for
the United States totaled 550,000 vehicles. A target of 1,000,000 means a doubling
production, and subsequent sales, in just four years could jeopardize their quality as their
Case 16-2: IKEA: The Assignment
Overview: IKEA’s unconventional approach to the furniture business has enabled it to rack up
impressive growth in a $30 billion industry in which overall sales have been flat. Sourcing
furniture from a network of more than 1,600 suppliers in 55 countries helps the company
maintain its low-cost, high-quality position. During the 1990s, IKEA expanded into Central and
Eastern Europe. Because consumers in those regions have relatively low purchasing power, the
stores offer a smaller selection of goods; some furniture was designed specifically for the
cramped living styles typical in former Soviet bloc countries.
Throughout Europe, IKEA benefits from the perception that Sweden is the source of high-quality
products and efficient service. In 2005, IKEA opened two stores near Tokyo; more stores are on
the way as the company expands in Asia. IKEA’s first attempt to develop the Japanese market in
the mid-1970s resulted in failure.
16-11. Review the characteristics of global and transnational companies in Chapter 1. Based on
your reading of the case, would IKEA be described as a global firm or a transnational firm?
Per the definition found in Chapter 1: Global firms (transnational firms) demonstrate the
following characteristics, all of which apply to IKEA, making it a global firm:
Transnational companies both serve global markets and utilize global supply chains and
often have a blurring of national identity.
16-12. At the end of Chapter 11, it was noted that managers of IKEA stores have a great deal of
discretion when it comes to setting prices. In terms of the
ethnocentric/polycentric/regiocentric/geocentric (EPRG) framework, which management
orientation is in evidence at IKEA?
A company using ethnocentric pricing policy calls for the per-unit price of an item to be
the same no matter where in the world the buyer is located. While polycentric pricing,
16-13. What does it mean to say that, in terms of Porter’s generic strategies, IKEA pursues a
strategy of “cost focus?”
The definition of cost focus: offering low prices to a narrow target market. During the
1990s, IKEA expanded into Central and Eastern Europe. Because consumers in those
Case 16-3: LEGO
Overview: LEGO is a world known Danish toy company gaining a great profit from global sales.
In past several years the company has been confronted with a Canadian competitor, Mega
Blocks, which has tried to copy its products and sell at a lower price. The competition has caused
LEGO to experience losses and now faces many challenges.
16-14. Jorgen Vig Knudstorp became CEO in 2004. Assess the key strategic decisions he has
made, including outsourcing and divesting the theme parks.
Outsourcing for the production with a Singapore company allowed LEGO to reduce
costs. Launching new toys is a competitive strategy designed to attract consumer
attention back to the company. By creating the exclusive product, LEGO may increase
market share and gain valuable profit.
16-15. LEGO’s movie-themed products, keyed to popular film franchises such as Harry Potter,
Lord of the Rings, and Spiderman, include detailed construction plans. Do you think this is the
right strategy?
Surveying the customers might point to the real problem of the Harry Potter line. If the
problem is only about the old movie and the expectance for the new one, then the line
16-16. Using Porter’s generic strategies framework, assess LEGO in terms of the company’s
pursuit of competitive advantage.
LEGO tries to be unique and introduce new products, trying to gain a differentiation
advantage with their competitors.
16-17. What risk, if any, is posed by LEGO’s movement into multimedia categories such as
video games and television?
uniqueness in order to enter this market successfully.