An ocean away? Featured

1:11pm EDT September 20, 2006
When your fiercest competitor lives not across town or even in the same country, but a continent or two away, what pressures bear on your ability to build and sustain a business?

According to Michael Hitt, a leading management consultant and distinguished professor of business at Texas A&M University, globalization forces businesses to continually develop new competitive advantages in order to go head-to-head with rivals an ocean away. Sophisticated in every way as an American operation, these firms bring to the table ready access to the same skills and materials that domestic firms market. As a result, U.S. companies need to develop a fresh paradigm for viewing competition, says Hitt. This means developing strategic alliances and partnerships globally in an effort to reach more markets and to continually improve on customer service and product delivery.

Smart Business spoke with Hitt about the challenges facing American industry in a globalized economy.

Why has the term ‘competitive advantage’ become so popular?
Competition has really changed in the last 10 years, and we truly are a global marketplace. The work of Michael Potter at Harvard caught the eyes of many managers when he wrote about competition and the implications of designing the best strategy.

Other recent works including that by New York Times journalist Thomas Friedman have addressed how a firm can no longer consider itself a solely domestic company when the entire businesses environment has become globally focused. Today, you no longer sell in a regular (protected) domestic market. And firms realize they need to develop unique strategies to remain competitive.

Can you cite recent examples of firms that have failed to adapt to the new competitive landscape?
Levi Strauss comes to mind. As recently as 20 years ago, this American icon was the top brand in its category. Today, it’s struggling to survive because it failed to address customers’ needs. And as it faltered, others quickly brought out the kinds of products that consumers desired.

Polaroid is another example. It once was one of the country’s top 50 companies. Today, it’s no longer in business because it failed to quickly bring out a digital camera, which a slew of rivals did.

What role can outsourcing play in developing a competitive strategy?
A lot of business activity has shifted to countries such as China and India, either because of the cheap labor or for the access to a wide pool of high-skilled people than is available domestically.

Figuring out what should be outsourced is part of the new competitive strategy. A large firm typically forms about 140 strategic alliances in a three- to five-year period. In doing so, it’s getting something valuable from its partners — a constellation of networks in which they share a knowledge base; an entre into a new market with seasoned operators; and the kind of partnership that’s needed to manage local relationships.

Should a firm sign up the lowest cost provider of a product or service?
You should never go for the cheapest bid. Some people assume that companies outsource their work because it costs less to get work done someplace else. Maybe the talent that’s needed is not available locally or because, in order to enter a new market, you need local partners.

Regardless of the decision to farm out a function, it’s critical that you manage your human capital.

It seems as if a businessperson today cannot afford the luxury of sleep.

You cannot relax as an individual or as a firm. You’ve got to be aware of many different elements of your business, including your own strengths and weaknesses. You’ve also got to know who your customers are and always keep a line of communication open with them. You need to know what your competitors are doing to beat you at your game, and you’ve got be able to predict your customers’ future needs.

If you do all this, are you sure to succeed?
A number of strategic mistakes are made when a business becomes too arrogant. It’s why you see businesses entering industries they shouldn’t and then failing. Know your strengths and focus on them. At the same time, maintain a dynamic equilibrium in which you pursue, diversify and build new strengths in your business. It’s why developing a competitive advantage through strategic alliances with other firms becomes important. Having access to their resources can help overcome your weaknesses.

MICHAEL HITT is a Distinguished Professor and the Joe B. Foster chair in business leadership and the C.W. and Dorothy Conn chair in new ventures in the Department of Management at the Mays Business School at Texas A&M University. Reach him at (979) 458-3393 or mhitt@mays.tamu.edu.