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  • ADMS 3960International Business

  • Chapter 11The Strategy of International Business

  • Chapter ObjectivesTo identify how managers develop strategyTo examine industry structure, firm strategy, and value creationTo profile the features and functions of the value chain frameworkTo assess how managers configure and coordinate a value chainTo explain global integration and local responsivenessTo profile the types of strategies firms use in international business

  • The Role of Strategy in International Business

  • Industry, Strategy ,and Firm Performance Industry organization paradigm leading strategy perspectivesThe exceptions of imperfect competitionThe idea of industry structure: The Five Forces Model

  • Five Forces Model

  • Industry Change

    Industry structure changes because of events like Competitors moves Government policies Changes in economics Shifting buyer preferences Technological developments Rate of market growth

  • Competition

    In its pure form it refers to the conditions that are present in the marketplace when buyers and sellers interact to establish prices and exchange goods and services.It refers to the means whereby the self interest of buyers and sellers acts to serve the needs of society as well as those of individual market participants.

  • The Practical Significance of Perfect CompetitionA large number of small firms and many buyers do not possess the power to influence the behavior of the participants in the marketplace.That power is thoroughly dispersed throughout the marketplace.Perfect Competition rarely exists in the real world.

  • Desirable Conditions for Workable CompetitionA market structure with at least two buyers and two sellers, but preferably moreA mixture of large and small firmsNo collusion or coercion among sellers

  • Desirable Conditions for Workable CompetitionAs much market information as possibly is available to buyers and sellersNo barriers to entry and exit

  • Strategy and ValueStrategy helps managers assess the companys present situation, identify the direction the company should go, and determine how the company will get there.

  • StrategiesStrategy is a set of goals and policies or actions to achieve those goals. A strategic plan must link to sub-strategies at the operations level.

  • Strategic ProgrammingThis focuses on, who what and how much. Day to day prioritiesRoles and responsibilities

  • Tactics and ExecutionThis focuses on how to get it done Immediate objectives with a focus on adjustment based on new information

  • Michael PorterCompetitive strategy, is all about being different from others. As a nation or a company your differences will allow you to excel in areas that other will not.Strategy is not about one activity, but a series of complementary and reinforcing activities.

  • What does strategy give us?Organizational purposeCompetitive domainsInterpretations of opportunities, threats, strengths and weaknessesDefines managerial tasks and processesDefines the impact that the firm intends to make on its shareholdersDetermines investment

  • ValueValue is what remains after costs have been deducted from the revenues of a firm. Cost leadership emphasizes high production volumes, low costs, and low prices. Firms that choose this strategy strive to be the low-cost producer in an industry for a given level of quality. This strategy requires that a firm sell its products at the average industry price to earn a profit higher than that of rivals or below the average industry prices to capture market share.

  • Value ChainWhat is the value chain?A value chain disaggregates a firm into:Primary activities that create and deliver the productSupport activities that aid the individuals and groups engaged in primary activitiesValue chains identify the format and interactions between different activities of the company.

  • Porters Value Chain

  • Purpose of The Value Chain? Cost AnalysisDefine the value chain in terms of sources of competitive advantageEstablish the relative importance of each activity in terms of total product costCompare costs by activity and against competitorsIdentify cost driversIdentify linkages between activitiesIdentify opportunities for reducing costs

  • Using the Value ChainUsing the value chain leads to Configuration of the CompanyMacro Cost FactorsLogistics analysisIndustry ClustersDigitizationEconomies of ScaleBusiness Environment

  • DigitizationThe process of digitization involves converting an analog product into a string of zeros and ones. Increasingly, products like software, music, and books, as well as services like call centers, application processing, and financial consolidation, can be digitized and, hence, located virtually anywhere. Equipped with networked computers, workers can move goods and services anywhere in the world at negligible cost and complication. Consequently, the potential for digitization of goods or services influences how a company configures its value chain.

  • ClustersAn industry cluster is a system of businesses and institutions engaged with one another at various levels.

  • ManufacturingManufacturing costs vary from country to country because of wage rates, worker productivity, resourceavailability, and fiscal and monetary policies.

  • LogisticsLogistics entails how companies obtain, produce, and exchange material and services in the proper place and in proper quantities for the proper value activity.

  • Economies of ScaleThe concept of economies of scale refers to a situation wherein a firm doubles its cumulative output yet total cost less than doubles due to efficiency gains. Effectively, reductions in the unit cost of a product result from the increasing efficiency that comes with larger operations.

  • Economies of ScaleSourcesThe division of labour This is related to specialization particularly in mass production. Leads to lower unit costs, machinery output increased, quality control improvements, time savings. Economies of massed resources Theory rests on the idea of large numbers. This is what insurance is based on. Any company needs excess resources and capacity. The larger the firm, the smaller the proportion of duplicate capacity needed.

  • Economies of ScaleSourcesFirm-level economies of scaleAdministrative economiesFinancial economiesMarketing economies

  • Porters Value Chain

  • Economies of ScaleLimitsDiseconomies of scale in distributionComplexity of large-scale managementCosts of product differentiation HRM costs in large plants

  • Economies of Scale

  • CoordinationCoordination ConcernsAs companies globally configure value activities, they must develop coordination tools. Coordinated well, MNEs can leverage their core competencies, using them to serve customers, boost sales, and improve profits.

  • National CulturesCultures impose hurdles in coordinating a transaction from one stage of the value chain to another. Units anchored in individual versus collectivist cultures may disagree over information sharing or collaboration responsibilities; conflicts complicate coordination.

  • National CulturesHence, features of national culture require managers to understand their implications to the collaborative relationship that shape the coordination of value activities.

  • Learning CurveLearning curve is the commonsense principle that the more one does something, the better one gets at it.Companies configure value chain activities to exploit the learning curve.

  • The Experience Curve

    The Experience CurveUnit cost reductions arising from experience of productionBenefits accrue to first movers and those who facilitate learning

  • Experience leads to Core CompetencyA core competency can emerge from various sources, including: Product development Employee productivity Manufacturing expertise Marketing imagination Executive leadership

  • Operational ObstaclesOperating internationally inevitably runs into communication challenges because of time zones, differing languages, and ambiguous meanings. Increasingly, companies rely on browser-based communications methods to coordinate the handoffs from link to link.

  • Change and the Value ChainThe configuration and coordination of value chains respond to changes in customers, competitors, industries, and environments.

    Caveat: The Risk of Strategy

  • Global Integration versus Local ResponsivenessPressures for Global IntegrationGlobalization of MarketsA provocative thesis, increasingly supported by global buying patterns and companies strategies, suggests that consumers worldwide seek global productswhether they are Apple iPods, Samsung plasma screens, Facebook connections, Starbucks espressos, Google searches, or Zara blouses.

  • Global Integration versus Local ResponsivenessEfficiency Gains of StandardizationGlobal and local pressures challenge how the firm configures and coordinates its value chain. The convergence of national markets and quest for production efficiency push for the global integration of value activities.

  • StandardizationStandardization is the handmaiden of globalization, encouraging supply conditions that produce volumes of low-cost, high-quality products. That is, standardization is the push dynamic that drives supply, whereas the globalization of markets represents the pull dynamic that converges consumer preferences.

  • StandardizationThe logic of standardization is straightforward. Repeatedly doing the same task the same way improves the efficiency of effort. Improving efficiency in the valu