the strategy of international business chapter 11
TRANSCRIPT
The Strategy of International Business
Chapter 11
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Strategy and the Firm
• ‘Strategy’ comes from the Greek word strategos, the “art of the general”
- It deals with the big questions in an organization.
• Strategy can be defined as the actions that managers, especially top managers, take or plan to take to attain the goals of the firm
• For most firms, the preeminent goal is to maximize the value of the firm for its owners
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Value Creation
• The single most important way to increase profitability is to create more value for customers
- The amount of value a firm creates is measured by the difference between its costs and the value that consumers perceive in its products
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Value Creation
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• Michael Porter argues that there are two basic strategies for creating value
- Low-cost strategy suggests that a firm has high profits when it creates more value for its customers and does so at a lower cost
- Differentiation strategy focuses primarily on increasing the attractiveness of a product (getting customers to think it’s different and better than competitors’)
• This is an oversimplification, but it helps us think about the task of global management
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Strategic Positioning
• It is important for a firm to be explicit about its choice of strategic emphasis
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Strategic Choice in the International Hotel Industry
See text, Fig. 11.3
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Going global to increase profitability and Profit Growth
• Expanding globally allows firms to increase profitability and rate of profit growth in ways not available to one-country enterprises
- Expand the market
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- Realize “location economies” by dispersing value-creation activities
• Do things where they make most sense - Clear Vision makes most of its eyeglass parts in China- Does assembly in Hong Kong- Has high-class design in Japan, France, Italy
• This produces a global web of activities
- Realize greater cost economies from experience effects
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- Bring skills learned abroad back to the home market
• Hewlett-Packard learned total quality skills from its Singapore factory
• Wal-Mart introduces wine departments in U.S. after developing them in Argentina
• French McDonald’s invents the high class McDonald’s restaurant
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Cost Pressures and Pressures for Local Responsiveness
• Firms in the global marketplace face two common types of competitive pressure
- Pressures for cost reductions
- Pressures to be locally responsive
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Pressures for Cost Reductions
• Competition in the global market forces prices lower - Pressures for cost reduction can be particularly intense
in industries producing commodity-type products• products where most customers want something similar• where tastes and preferences of consumers in different
nations are similar
- Cost reduction pressures may also be intense• where major competitors are based in low-cost locations• where there is excess capacity• where customers are powerful and face low switching costs
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Pressures for Local Responsiveness
• Differences in consumer tastes & preferences- North American families like pickup trucks while in Europe they
are viewed as a vehicle for businesses only
• Differences in infrastructure & traditional practices- Consumer electrical system in North America is based on
110 volts; in Europe on 240 volts
• Differences in distribution channels- Germany has a few retailers dominating the food market,
while in Italy it is fragmented
• Host-government demands- Health care system differences between countries require
pharmaceutical firms to change operating procedures
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Choosing a Strategy
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“International” Strategy
• Create value by transferring valuable core competencies that indigenous competitors lackto foreign markets
• Centralize product development functions at home• Head office exercises tight control• Limit customization of product offering
- This is effective if firm faces weak pressures for local responsiveness and cost reductions
- Starbucks
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Localization Strategy
• Main aim is maximum local responsiveness• Customize product offering, market strategy including
production and R&D according to national conditions• Often unable to realize value from experience curve
effects and location economies• High cost structure
- Frito Lay
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Global Standardization Strategy
• Focus is on achieving low cost – cost reductions from experience curve effects and location economies
• Production, marketing, and R&D concentrated in few favorable locations
• Market standardized product to keep costs low• Effective where strong pressures for cost reductions
and low demand for local responsiveness exist- Semiconductor industry - Intel
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Transnational Strategy
• To meet competition, firms aim to reduce costs, transfer core competencies and at the same time pay attention to pressures for local responsiveness
• Global learning- Valuable skills can develop in any of the firm’s world wide
operations- Transfer of knowledge from foreign subsidiary to home
country, to other foreign subsidiaries
• Transnational strategic management is difficult due to contradictory demands placed on the organization
- Caterpillar
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A common path of evolution of strategy
• The big long-term problem of international strategic plans is that over time competitors inevitably emerge
- An “international” strategy may not be viable in the long-term, so firms need to shift toward a global standardization strategy or a transnational strategy in advance of competitors
• As competition intensifies- “International” and localization strategies tend to become less
viable- A global standardization strategy becomes more possible - A transnational strategy remains difficult, but powerful if it works.
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Avon
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But…
• What products can a country’s firms successfully produce? • How do we know businesses we’re likely to succeed in
internationally?
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Come back after the break!