Within this section the needed theoretical background will be used for the analysis. Relevant concepts will be presented, explained and discussed in accordance to the subject in focus. In order for the reader to get a grasp of the context we are writing in. We will search for the common strategic factors of why Swedish enterprises establishing the People´s Republic of China different levels of theories will be presented. The thesis will be based on two relative recent developed strategic theories (Miltenburg, J & Luthans, F / Doh, J.P) which then will be traced backwards to its origins, being Porter´s Generic competitive strategies.
To get a grip of where the two main matrixes, we have to look at the original state. We will start of by presenting the foundation of the competitive strategies by Michael E. Porter. We aim to give the readers a basic understanding of how Porter´s theories have been developed and eventually became matrixes. Furthermore, the theories we will then be connected by identify common factors and relate them to our empirical findings.
Porters´ Generic Competitive Strategies
In order to outperform other corporations in the same industry and gain advantage the corpo-rations should be approaching one of the either three generic strategies; overall cost leader-ship, differentiation or focus according to Porter, (1980).
The overall cost leadership approach is aimed to gain the lowest cost in the offering products. In order to gain the lowest cost the corporation requires to aggressive construct an efficient-scale facility. The corporations’ need to pursuit cost reduction through; cost-control, mini-mizing cost in R&D, service, marketing etc. Even if the objective is to lower the costs, qual-ity and services and other areas cannot be ignored. Factors that lead to low-cost positions also provide a considerable entry barrier in terms of scale-economies or cost advantage. To achieve cost leadership, this also requires high market share or other advantages, such as good access to raw material. Often when corporation who are approaching cost leadership strategy they are related to offering standardized products, which competes against its com-petitors through price (Porter, 1980).
Differentiation is the second approach of the generic strategies. It treats differentiation of products or service. The products that are created perceive as something unique, which in the same time fulfills the customer’s demands. The differentiation can be in different forms; in design or even in brand image etc. The customers of a corporation who achieved the differen-tiation strategies are loyal because of the demand fulfillment in the unique products they been offered which leads to customer who aren´t price sensitive (Porter, 1980).
Focus strategy is focusing on a specific buyer group, segments or geographic markets. The Focus strategy can approach a specific customer through uniqueness or low cost and in com-bination with these two strategies at the same time; depend on the specific target of customer in each situation. The advantage of this strategy is that corporations can be very flexible when approaching customer in different segment or markets by focusing on uniqueness in on seg-ment and low cost in another (Porter, 1980).
To enhance the knowledge of Porters strategic theory, Porter developed a matrix, which shows the relationship between the strategic advantage and the strategic target shown in fig-ure 1
Competition in Global Industries
To achieve the strategies of Differentiation, Cost-leadership or Focus the companies may need to consider an international perspective when competing against its competitors. A company does not necessary need to compete internationally to be successful, but advantages could be gained through globalization. According to Porter (1980) there are many differ-ences in competing internationally vs. nationally, which are emphasized in the development of international competitive strategies.
Sources and Impediments to Global Competition
There are three basic mechanisms when participating on international competition; through Licensing, Export and FDI. The most common step for companies to be introduced interna-tionally starts off by export or licensing and after it been gained international experiences the companies considers of FDI. Independent subsidiaries in foreign countries are typical FDI when companies faced truly global competition. Porter (1980) argues that there are a number of distinct impediments to overcome before achieving the competitive advantages in global competition. The sources of global competitive advantages are mainly focused on four causes; conventional comparative advantage, economies of scale or cumulative volume achievable in individual national markets, advantages from product differentiation and pub-lic-good character of market information and technology. To achieve the advantages the companies has to overcome the impediments, which consist of economic impediments, mana-gerial impediments and institutional impediments.
Comparative advantage is when a country or countries have significant advantages in factors; cost, quality in producing a product. In such cases the companies will strongly consider of producing its products in these countries and export the products (Porter, 1980).
Production-, logistical-, marketing- and purchasing economies of scale advantages will con-tribute to lowering cost and/or lowering the lead time of the products when the companies achieving the economies of scale of products. The logistical perspective describes the avail-ability of the product demanding in right place (Porter. 1980).
Global experience and technology are related to the experience and technologies that can contribute to efficiency and lowering cost. It can be applied in several national markets where the companies’ are active in. The experience of selling varieties of products in each national market can bring benefits to the next (Porter, 1980).
Product differentiation is associated with the uniqueness of products that can give companies an edge of reputation and credibility in each market, which leads to loyal customers. National responsiveness will be high and the company is striving to fulfill the national demands (Por-ter, 1980).
The economic impediments’ consist of transportation and storage cost, which increases or de-creases depending on the decentralization grade of a company. The global competition diffi-culties increase when difficulties in supporting the national markets demand on different product varieties arise. In order to support the national or international demands it requires that companies gain access to each national distribution channel to impede the global compe-tition (Porter 1980).
Managerial impediments consist of differing marketing task, intensive local services and rap-idly changing technology. Though the product which are sold globally who are similar, the marketing could be forced to be different in each market to achieve result. The companies can find it tough to operate on a globally basis in nationals with tough competition from the local companies which are more responsive. There could be difficulties for global companies to operate in a country where rapid changes in technology require which demands the latest technology in product (Porter, 1980).
Institutional impediments are typical government impediment to global competition, to pro-tect the local companies or employees. The insistence of local R&D, local produced compo-nent in products and a variety of different regulations and tariffs and duties is typical institu-tional impediments (Porter, 1980).
Shi and Gregory, Map of International Manufacturing Network Con-figurations
In the theoretical framework by Shi and Gregory (1998), they argue that their article consoli-dates to Porter’s theory. They describe Porter’s generic competitive strategy to be much fo-cused on the external environment in a strategic perspective from the company. Stated by Shi and Gregory it is not able to be applicable in a global context. Nevertheless, Porters’ external aspects are incorporated into Shi and Gregory’s strategic framework but with several “net-works” as they call it, where they are able to determine what “networks” or factors from a in-ternal and external perspective a company should regard before evaluating their level of per-formance which they are able to choose a strategy in. Creating a company level of competi-tiveness to the environment in regards to the resources and availability on an international level.
Many different researchers’ theories have been indoctrinated in the process of creating Shi and Gregory’s framework. They have taken into account the manufacturing performance pri-orities and variables stated from DuBois, F.L., Toyne, B., Oliff, M.D, (1993) and Cohen, M.A., Fisher, M., Jaikumar, R (1989) theory considering the including of vendors, plants and markets into an aspect of strategy in a global context.
From Shi and Gregorys’ Globalization theory in relation to the manufacturing industry has two distinct characteristics being geographic dispersion and interdependent coordination be-tween factories. From their research, they have been able to map the necessary aspects as to what a company should regard when strategically considering a new approach in a domestic/ international setting (See figure.2)
1.1 Background .
3.1Porters´ Generic Competitive Strategies
3.2Competition in Global Industries
3.3Shi and Gregory, Map of International Manufacturing Network Configurations
3.4Bartlett and Ghoshals´ Managing across borders theories
3.5Miltenburgs´ Pressure for Globalization Vs Local responsiveness strategies
3.6Luthans and Dohs´ Global vs. National strategies
4.1Choice of Method
4.4Data collection and data analysis
4.5Method for Analysis .
5.2Mapping the Companies into the Matrix
5.3The common factors between Swedish Manufacturing Companies.
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The Strategic Trends and Factors of Swedish Manufacturing Companies Establishing in People’s Republic of China