Theory of Factor Endowment


The theory put across by Heckscher-Ohlin, states that international and inter-regional differences in production costs occur because of differences in the supply of production factors. Those goods that require a large amount of the abundant—thus less quantity—factor will have lower production costs, enabling them to be sold for less in international markets.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, and my Lectures.

Advertisements

Strategies for Worldwide Innovation


The multi-domestic strategy is appropriate for innovations that depend on understanding local customer preferences, tastes, expectations, distribution channels, and local government regulations than they do on the technological knowledge on which they rest. This strategy is appropriate when the need for market information is high while that for technological information is low. Makers of packaged consumer goods (detergents and cereals) such as Unilever have pursued this strategy. Firms that pursue the multi-domestic strategy have self-sufficient units in each country to better discern and meet local customer preferences and tastes. On the other hand, if technological information requirements are high relative to market information requirements, a firm may want to pursue a global strategy. Firms can locate their facilities either where the environment is most suitable for technological innovations or at home where they have some endowments that give them some advantage. From there they develop products for world markets. If both market and technological information demands are low, a firm can operate using the international arrangement. It can take advantage of whatever home capabilities it has to develop products for its home market. Once the products are successful at home, it can then transfer the capabilities and the innovation to overseas. If both market and technological information needs are high. The transnational arrangement is best. In this mode, firms have access to the best sources of innovation, and the technological knowledge and the market knowledge that underpin them, worldwide.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Lectures, Line of Sight.

Overspending on Capabilities


Given that competence and endowments are so important, why do firms not outbid each other in the process of acquiring a capability so that whoever ends up with it has paid so much for it that it is no longer profitable? In some cases firms have actually paid too much for capabilities. Some failed acquisitions can be placed in this category. For two reasons, however, winners can still end up with profitable capabilities. First, because firms may not even know explicitly if there is competition going on or what capability it is that they are competing for, there may not be enough competitors to overbid them for the capability. For example, not all firms knew that IBM was looking for an operating system to buy for its personal computers and therefore did not have a chance to compete for the standard. Second, not all firms have the right complementary endowments that are sometimes critical to build a capability. Not all firms have a Bill Gates whose shrewdness and experience helped make DOS a standard.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please visit www.asifjmir.com, Line of Sight

The Profit Chain


Starting from end of the chain, a firm makes profits by offering  products or services at a lower cost than its competitors or by offering differentiated products at premium prices that more than compensate for the extra cost of differentiation. The question is , how do low cost and differentiated products come about, and why is it that some firms can offer them better than others?

A firm’s competencies, or skills are its ability to perform the activities that underlie the offering of low cost or differentiated products or services to customers. These abilities can be in anything from designing high performance automative engines to finding attractive markets and locating the right products in the right position in these markets. Endowments are attributes other than skills, such as brand names, patents, reputation, geographic location, client relations and distribution channels, which allow a firm to leverage its competencies and get more out of them. Competencies and endowments reinforce each other and together underpin the firm’s profitability. They are themselves a function of technological and market knowledge.

My Consultancy–Asif J. Mir – Management Consultant–transforms organizations where people have the freedom to be creative, a place that brings out the best in everybody–an open, fair place where people have a sense that what they do matters. For details please contact Asif J. Mir.