Question 1: For each of the following companies, access the sustainability of its competitive advantage.
a. Analog Devices, which develops specialized applications for analog semiconductors, has invested countercyclically to cash in on business upturns. The results: 80% faster growth and 50% higher profitability than the rest of the semiconductor industry.
b. Nike's leadership in athletic shoes is built on cheap Far Eastern labor and massive investments in product development and marketing. Over the five years between 1981 and 1986, Nike averaged three times the profitability and four times the growth of the rest of the U.S. shoe industry.
c. Lincoln Electric has been the leader in the electric welding industry ever since John Lincoln invented the portable arc welder in 1895. Since then, technological change has been incremental. Lincoln has integrated backward, customizing its production machinery and holding annual worker turnover to under 3%. It has grown more rapidly than its competitors, partly by sharing its cost reductions with customers.
d. DuPont is a leading producer of titanium dioxide, largely thanks to a production process based on low-cost feedstock that gives it a 20% cost advantage over competitors' processes. Mastering the cheaper feedstock technology can be accomplished only by investing $50 million to $100 million and several years of testing time in an efficiently scaled plant.
e. Tandem Computer pioneered fault-tolerant computers for processing transactions. Although the cost of adding additional processing capability once a system is up and running is relatively low, customers must first make sizable and irrecoverable system-specific up-front investments in software and training.
Question 2: Suppose the United States imposes a $10 per barrel tariff on imported refined oil products .
a. What is the short-run profit outlook for American refineries? What is the long-term profit outlook?
b. Suppose that eight years after imposing this tariff, the United States revokes it. What is likely to happen to the refining industry at that time?
Question 3: Wal-Mart, the discount merchandiser, began by putting large stores in small Sunbelt towns that its competitors had neglected. The company then wrapped its stores in concentric rings around regional distribution centers.
a. What was Wal-Mart's original strategy for creating value?
b. How sustainable is the company's competitive advantage?
c. How is growth in its markets likely to affect Wal-Mart's strategy?
Question 4: One of the more successful strategies in retailing has been the development of "designer label" lines of apparel. In what ways does a designer suit differ from its equivalent purchased from a discount chain? Is this the result of advertising, quality, or some other factors?
Question 5: Suppose a capital goods manufacturer brings out a new, more efficient machine.
a. If the manufacturer holds a patent on this machine, who is likely to benefit the most from it? Explain
b. Who will benefit most from this machine if the technology underlying the machine is not proprietary? Explain.
c. What are some of the things the manufacturer can do to earn higher returns from this machine even without patent protection?