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Different varieties of capitalism are shown throughout the world.
Post-war West Germany: Coordinated market economy
America: Liberal market economy
We need to understand what has lead to different factions of capitalism throughout the world.
Introduction
Changing conditions determine strategy-effectiveness.
“Fordist Model”: low-cost production, price-based competition.
Large firms removing barriers, small firms reducing trust in coordinated districts could destroy economic viability.
Changes in the business environment are likely to affect conditions for different competition models.
Introduction
It’s important to understand the context of given markets to gauge the effectiveness of capitalistic strategies.
Post-war competition models Socio-economic conditions Impact of institutional, market, and tech changes
Introduction
Seven ideal types of competition models Each reflects the priorities firms adopt in changing
markets.
Different conditions seem likely to encourage firms to follow particular types
Summary of market changes since the 60’s that have influenced business system restructuring.
Introduction
What are competition models?
Institutions governing the economy encourage companies to form idealized combinations of specific trade-offs when they are competing in a particular market economy.
Purpose: develop organization-specific competitive advantages
Key Dimensions for Comparing Different Social Systems of Production
1. Production volume2. Competition3. Response to market changes
Trade-offs for Different Social Systems of Production Large economies of scale v. customization
Low prices v. high quality
Responding quickly to changing demand v. reducing costs by limiting changes to production processes and products
Fordist Model Mass markets dominated by large
oligopolistic enterprises and mass productionDedicated technologies and routinesStandardized products using unskilled laborRelies on large and predictable market demandLow prices
Advantages and Disadvantages of Fordist Model Advantages:
Ability to design and control production processesSystematically utilize and coordinate capabilities
to gain large economies of scaleConsistently reduce costs Large market share
through low pricesProducer driven production system
Disadvantages:High barriers for entry and exitNot as flexible in response to change
Opportunistic Production Model Ability to quickly shift production between
product lines and adapt to changing demands
Competes on price and fast responsiveness to customer demand
Key focus: entrepreneurial seize new opportunities and manage semi-skilled labor
Does NOT involve developing new products
Craft Production Model Small-batch production with highly skilled
workers Large customization and focus on ability to
respond to demand changes Response to changes may be slow limits
the degree of work restructuring in the short-run
Flexible Customized Production Model Small production volume of customized
goods AND faster market responsiveness Highly skilled staff working together to
produce specialized services Innovation is key for growth Easily coordinate and develop new
knowledge and skills Variation in outputs and not bound by
certified skills
Diversified Quality Production Model Large production volume of differentiated
goods + high quality and responsiveness to customer demands
German firms in 1970’s:Micro-electronic control devicesLower breakeven point of mass productionCombine small batch of customized goods with
large-batch of basic components
Flexible Mass Production of Differentiated Goods and Services Model Enhancing organizational capabilities Quicker response to market change than
DQP model Restructure production and implement
technical changes into developing new products
Rapid development and commercialization of new products (R&D)
Core competence: cross-functional project team
Discontinuous Innovation Model Inventing disruptive technologies that
change the market and threaten dominant firms
New skills are distinctive and inevitably destroy the current dominant firms
Competence: fast responsiveness to new scientific and technological knowledge and opportunities
Innovation develop manufacturing new products dominate current market OR create new market
Conditions Supporting Different Competition ModelsSix key conditions Product market size and differentiation Constraints on short term economic
opportunism Availability of knowledgeable risk capital Supply of technical specialists Availability of new technical knowledge Ease of Modularizing the value chain and
disintegrating production process
Fordism Mass production/undifferentiated Few legal restrictions on employers hiring
and firing Highly routinized and easy to carry out jobs Take advantage of their size in negotiating
with their suppliers Important roles of Technical specialists and
managers
Opportunistic Large, price/fashion focused Lower cost, simpler products production Access and efficient management of easily
trained and low-cost labor Harder access to technical specialist
compare to Fordism
Craft Production Niche, quality focused There must be barrier that prevent large
firms from using predatory pricing Practitioner elites control access to their
services and the certifications Collective competition goods, i.e. Sakaki
township Have to maintain high wages, challenging
jobs, and access to training
Flexible Customized Production Niche, quality focused Combining and enhancing skills and expert
knowledge Enhance current and create new
competencies Depends on employee’s commitment Required a large supply of certified
specialists
Diversified Quality Production Large, differentiated, and quality focused Short term opportunistic behaviors are
restricted Employers and workers are encouraged
develop broad skills and ability to learn new knowledge
Encourage trust and commitment between major group involved
DQP replaced Fordism in many of the richer market economies during the last third of the twentieth century
Flexible MPDG Large, differentiated, and quality focused Ability to translate new knowledge into new
products or services Extensive investment in engineers and
managers Relies on high level of organizational
commitment and cross-functional collaboration
Weak occupational identities, organization-specific career paths
Discontinuous Innovation Large, price and/or quality focused Flexible labor markets Strong and knowledgeable venture capital
companies Environment that supports the development
of innovative technologies Winner takes all market
ConditionsFordis
mOpportunist
icCraft
Flexible customize
d productio
n
Diversified quality
production
Flexible MPDG
Discontinuous
innovation
Product Market size
and differentiatio
n
Mass, undiffer-entiated
Large, price/fashion focused
Niche, quality focused
Niche, quality focused
Large, differentiated, quality focused
Large, differentiated, quality focused
Large, price/quality focused
Constraints on short
term opportunism
Low Low High Med High High Low
Availability of
knowledgeable risk capital
Low Low Low Low Low Low High
Supply of technical
specialists
High Low Low High High High High
Availability of new
technical knowledge
Low Low Low Med Med High High
Modularization
Med High Low Med Low High High
Changes in Business Environment Reason:
◦ Changing interest groups coalitions◦ Reduction of controls over competitive behavior in and entry into
markets
1. Internationalization of product markets, capital markets, and managerial coordination of economic activities
2. Changes in geo-political regimes 3. Changes in information and communication
technologies4. Extensive periods of economic growth 5. National governments have invested in the
expansion of education systems
1. Internationalization of Product Markets Reduce national institutional constraints on
opportunism Reduce cohesion of national interest groups
supporting them Quality based competitive strategies and
integrate supply chains◦ Follow DQP logics
Reduce domestic diversification and focus on delivering specified outputs◦ ICT innovations help
Internationalization of Capital Markets Reduced ability to coordinate activities Limit opportunism within national borders Seek to improve investment fund
performance and limit labor unions Migrated or negated by restrictions on
shareholder powers, variations in shareholders’ voting rights, limitations on hostile takeovers, and the capacity to mobilize opposition to foreign investors
Increasing access to well-informed venture capital
Managerial Coordination of Economic Activities Enhanced conditions supporting Fordist
strategies MNC able to access low cost labor and
variable integration with national and regional governance arrangements
Able to opt out of local associations, collective agreements, and other processes that restrain short-term economic opportunism
Reduced cohesion and effectiveness of regional and national institutions
2. Changes in Geo-Political Regimes Enlarged markets for many goods and
services Increased availability of unskilled and low-
cost labor for MNC Weakened the power of labor unions
organizing lower skilled workers
3. Changes in Informational and Communication Technologies Reducing the cost of communicating over
long distances and enhanced codification of knowledge and data
Driving international economic integration ◦ Firms communicate more effectively with
suppliers and customers across large distances Increase the mutual dependence and
integration of customers and suppliers Risk sharing and mutual trust
Changes IT and Communication Consequences 1. Improve the flow of codified knowledge
◦ Reduces employee process information◦ Facilitating managerial control over work processes◦ Reduce coordination costs and speed up product
development and production◦ Increase flexibility of production lines
Smaller batches and cheaper product changeover
2. Enhance skilled workers’ abilities and integrate planning and execution activities– Enables faster responses to market and technical
changes– Greater employee involvement in problem solving and
business development activities
5. National governments have invested in the expansion of education systems Easier to adapt to new technologies and
work processes without needing detailed supervision
Limit the degree of managerial direction of task performance
Facilitate competitive strategies based on radical, discontinuous innovations
Fordism and Opportunism Int’l expansion of mass markets Increasing the ease of coordination thru ICT
Fordism has declined on a national level, but is thriving internationally.
In many service sectors, changes have encouraged internationalization and standardization of service provision.
Changing Competition Models
Opportunistic encouragement Internationalization Use of ICT (coordination)
However, ease of entry to many buyer-driven commodity chains mean a constant threat from competitors of low-cost economies.
Changing Competition Models
Large firms using ICT severely threatens small firms emphasizing local markets.
Italy: moved SMEs to low-cost countries (China)
China has moved to Italy (made in Italy)
By upgrading technical knowledge, more competencies are offered than just one craft.
Denmark
Changing Competition Models
That method also enables companies to extend their services by dealing with new problems and concerns of their customers.
Many flexible project teams This depends greatly on low-cost training. Denmark has been supported by social protection
that enables workers to experiment with new ways of working.
Changing Competition Models
Flexible competition models are encouraged by: Enlarging number of potential customers for specialized
goods/services Expanding supply of highly educated workers to acquire
new technical skills Using ICT to coordinate skills/activities both within and
across national boundaries.
Internationalization grows the market Increase a company’s niche Allows them to access staff from different labor markets.
Changing Competition Models
Advantage to internationalization Locating production facilities in larger foreign
markets/lower labor cost countries produces greater revenue.
Coordination of managerial procedures with domestic operations, companies can combine DQP with lower costs. (especially where ICT innovations facilitate cross-national integration)
Companies that employ these strategies should benefit from internationalization.
Changing Competition Models
The combination of the following has supported the development of discontinuous innovation competition models.
Internationalizing product/capital markets Expanding higher education/public science systems
and income growth ICT innovations
Changing Competition Models
A few points
1. Most of the changes considered here vary in their expected impact on firms’ priorities depending on current competition models/institutional contexts.
Some threaten quality-based models. Many offer opportunities.
Conclusion
2. Identification of national institutional regimes with a single dominant economic logic is weakening with greater internationalization.
Many competition models involve cross-border economic coordination.
Conclusion
3. The combination of internationalization, increasingly differentiated patterns of demand, and an increased rate of product innovation is encouraging many firms to respond rapidly to changing circumstances.
Adaptability is critical.
Conclusion
4. How firms respond to such pressures and opportunities still seems to be strongly affected by their domestic environment and its conditioning of priorities/capabilities.
While US companies embrace outsourcing, Japan prefers to maintain centrality in design, development, and manufacturing.
In the early 2000s, Japan outsourced routine things while retaining their established patterns of collaboration at home.
Conclusion