1 Twelve C h a p t e r The Strategy of International Business P a r t F i v e C o m p e t i n g i n a G l o b a l M a r k e t p l a c
Jan 03, 2016
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Twelve
C h a p t e rThe Strategy of
International Business
Pa
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Chapter TwelveTHE STRATEGY OF
INTERNATIONAL BUSINESS
1. Strategy and the Firm
2. Global Expansion Benefits
3. Formulating a Global Strategy
OBJECTIVES
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THE ROLE OF STRATEGY
Strategy:● Actions managers take to attain the goals of
the firm.● Need to identify and take action that lowers
the cost of value creation and/or differentiates the firm’s product through superior design, quality, service, or functionality.
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THE FIRM AS A VALUE CHAIN
Sequential process of value-creating activities
Identifies the separate activities and business processes performed to design, produce, market, deliver, and support a product / service.
Firm is profitable to the extent the value it receives exceeds the total costs involved in creating its product or service.
Consists of two types of activitiesPrimary activities Support activities
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VALUE CHAIN: PRIMARY AND SUPPORT ACTIVITIES
General administration
Human resource management
Technology development
Procurement
Inbound logistics
OperationsOutbound logistics
Marketing and sales
Service
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2. GLOBAL EXPANSION BENEFITS
International firms can:● Earn a greater return from distinctive skills or core
competencies.● Realize location economies by dispersing value
creation activities to locations where they can be performed most efficiently.
● Realize greater experience curve economies, which reduces the cost of value creation.
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BENEFITS FOR INTERNATIONAL FIRMS
Learning Effects:● Labor productivity increases over time as individuals
learn the most efficient ways to perform particular tasks. Economies of Scale:
● Reductions in unit cost achieved by producing a large volume of a product.
Strategic Significance:● Moving down the experience curve allows a firm to
reduce its cost of creating value.
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GlobalFirm
GlobalFirm
Domestic Firm
Domestic Firm
ManufacturingManufacturing
Economies of ScaleEconomies of Scale
R & DR & DProcurementProcurement
MarketingMarketing LogisticsLogistics
ECONOMIES OF SCALE FOR GLOBAL FIRMS
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EXPERIENCE CURVE EFFECTS
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CAVEATS
When making location decisions:● Consider trade barriers and
transportation costs.● Assess political and
economic risks.
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3. FORMULATING A GLOBAL STRATEGY
OrganizationOrganizationEnvironmentEnvironment Int’lInt’lStrategyStrategy
Int’lInt’lMarketMarket
Success !Success !
• Economic• Socio-cultural• Political/Legal• Local competition
• Firm Resources• Firm Capability• Core competence• Strategic Disadvantages
Generic competitive StrategiesChoice of Entry Modes
Constraints
Opportunity
Constraints
Opportunity
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$ Cost Reduction
Local Responsiveness
TWO COMPETING FORCES
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COST REDUCTION
Desire to reduce costs by:
Mass production
Product standardization.
Optimal location production.
Hard to do with commodity-type products.
products serving universal needs.
Also hard where competition is in low cost producing location.
Finally, int’l competition creates price pressures.
$
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LOCAL RESPONSIVENESS
Different consumer tastes and preferences.
Different infrastructure and practice.
Differences in distribution channels.
Government demands.
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High
Cost Pressures
Low
Low High
Pressures for Local Responsiveness
GlobalGlobalStrategyStrategy
TransnationalTransnationalStrategyStrategy
MultidomesticMultidomesticStrategyStrategy
CHOICE OF GLOBAL STRATEGY
InternationalInternationalStrategyStrategy
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INTERNATIONAL STRATEGY
Go where locals don’t have your skills.
Little adaptation. Products developed at home (centralization).
Manufacturing and marketing in each location.
Makes sense where low skills, competition, and costs exist.
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MULTIDOMESTIC STRATEGY Maximize local responsiveness. Customize the product and marketing strategy to
national demands.
Skill and product transfer.
Transfer all value-creation activities, no experience curve rewards.
Good for high local responsiveness and low cost reduction pressures.
UK Chile
IndiaJapan
USA
HK
Mexico
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GLOBAL STRATEGY
Best use of the experience curve and location economies.
This is the low cost strategy.
Utilize product standardization.
Not good where local responsiveness demand is high.
B
A
Accumulated output
Unit costsMoving down the curve reduces
the cost of creating valueEconomies of Scale
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Chile
Japan
Mexico
India
Korea
UK
China
USAUSA
TRANSNATIONAL STRATEGY(Distributed but Networked Organization)
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TRANSNATIONAL STRATEGY
Makes sense where there is pressure for both cost reduction and local responsiveness.
Global coordination and national flexibility Link local operations to each other, and to center in
flexible systems Flow of skills and product offerings occurs throughout
the firm (global learning). Link diverse org’ perspectives and resources. Organizational characteristics: Reciprocal dependence, sharing resources, ideas, opportunities.
Integrating mechanism: difference solving system, Information system, Forums, HRM, Corporate Identification