© mcgraw hill companies, inc., 2000 the strategy of international business chapter 12
TRANSCRIPT
© McGraw Hill Companies, Inc., 2000
The Strategy of International Business
Chapter 12
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The Firm as a Value Chain Primary Activities:
Those activities having to do with creating, marketing and delivering the product to customers and providing support and after-sales service.
Support Activities: Provide inputs that allow primary activities to occur.
An Efficient Infrastructure: helps create value and reduce the cost of creating
value.
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The Firm as a Value Chain
Figure 12.1
Organizational infrastructure
Information systems
Human resources
Research and development
Materials management
Manufacturing Marketing
Primary activities
Supportactivities
The Firm as a Value Chain
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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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Profiting from Global Expansion
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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Parts
PartsParts
Assembly
Advertising Design
Sales
Location Economies
Pontiac LeMans
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Caveats
When making location decisions: Consider trade barriers and
transportation costs. Assess political and
economic risks.
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Experience Curve Economies 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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The Experience Curve
B
A
Accumulatedoutput
Unit costs
Figure 12.2
Moving down the curve reducesthe cost of creating value
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Firms Face Two Conflicting Concepts (Pressures) Overseas
Reduce costs. Be responsive to local
needs.
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Pressures for Cost Reduction and Local Responsiveness
Figure 12.3
CompanyA
CompanyC
CompanyB
High
Cost pressures
LowLow High
Generally reflects the position of most
companies
Pressures for local responsiveness
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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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McDonalds McDonald’s overseas experience. Detailed planning Export of management skills. Foreign partners. Adaptation/Adopting ideas.
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Strategic Choice
Four basic strategies: International strategy. Multidomestic strategy. Global strategy. Transnational strategy.
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Four Basic Strategies
Figure 12.4
GlobalGlobalStrategyStrategy
TransnationalTransnationalStrategyStrategy
Multi domesticMulti domesticStrategyStrategy
High
Cost pressures
Low
Low High
InternationalInternationalStrategyStrategy
Pressures for local responsiveness
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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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Multi-domestic 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.
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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.
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Transnational Strategy
Christopher Bartlett and Sumantra Ghoshal Core competencies can develop in any of the
firm’s worldwide operations. Flow of skills and product offerings occurs
throughout the firm - not only from home firm to foreign subsidiary (global learning).
Makes sense where there is pressure for both cost reduction and local responsiveness.
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The Advantages and Disadvantages of the Four Strategies
Strategy Advantages Disadvantages
Global Exploit experience curve effects
Exploit location economies
Lack of localresponsiveness
International
Transfer distinctive competencies to
Foreign Markets
Lack of localresponsivenessInability to realizelocation economiesFailure to exploit experience curve effects
Figure 12.6a
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The Advantages and Disadvantages of the Four Strategies
Strategy Advantages Disadvantages
Multi-domestic Customize product offeringsand marketing in accordancewith local responsiveness
Inability to realize locationeconomies
Failure to exploitexperience curve effects
Failure to transferdistinctive competenciesto foreign markets
Transnational Exploit experience curveeffects
Exploit location economiesCustomize product offeringsand marketing in accordancewith local responsiveness
Reap benefits of global learning
Difficult to implement dueto organizationalproblems
Figure 12.6b
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Cost Pressures and Pressures for Local Responsiveness Facing Caterpillar
Figure 12.5
CaterpillarCaterpillarTractorTractor
High
Cost pressures
Low
Low HighPressures for local responsiveness
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