International Strategy

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rStrategy & the firm
Strategy: actions that managers
Strategy:
must take to attain the goals of the
firm
Main goal usually to maximize longMain
longterm profit (П)
Profitability defined by return on
Profitability
sales or return on equity

Value creation
Profit determined by :
Profit

• The amount of value customers place on firm’s
firm’
goods or services (V)
• Firm’s cost of production (C)
Firm’

Consumer surplus occurs when price
Consumer
charged by a firm on a good or service is
less than value placed on it by a customer
Value creation = V-C
Value
VTwo basic strategies to create value and
Two
attain competitive advantage according to
Porter:
• Low cost
• Differentiation strategy

Value creation
Value
Fig 12.1

1

Firm as a value chain
Any firm is composed of a series of
Any
distinct value creating activities
Primary activities
Primary
• Research & development
• Production
• Marketing & sales
• Service

Support Activities
Support

• Materials management or logistics
• Human resource
• Information systems
• Company infrastructure

Firm as a value chain
Fig 12.3

Strategy in international business
Strategy is concerned with
Strategy
identifying and taking actions that
will lower costs of value creation
and/or differentiate the firm’s
firm’
product offering through superior
design, quality service, functionality,
etc.

2

DEFINITIONS
Global Business: Minimum volume required
for cost efficiency is not available in
home market.
Global Competition: Firms subsidize
national market share battles in pursuit
of global brand name and distribution.
Global Company: Firms have distribution in
key foreign markets that enable cross
subsidization, international retaliation &
world wide volume.

Factors Promoting the Globalization
of Industries
Narrowing of demand characteristics
Narrowing
Escalating costs of R & D
Escalating
Cost reduction pressures & economies of
Cost
scale
Government industrial policies
Government
Reduction of factor costs(e.g. labor,
Reduction
capital)
Rise of new distribution channels
Rise
Reduction of transportation,
Reduction
communication, and storage costs

Sources of Global Comparative
Advantage
transferring core competencies
transferring
production economies of scale
production
global experience
global
logistical economies of scale
logistical
marketing economies of scale
marketing
product differentiation
product
local responsiveness
local
proprietary product technology
proprietary

3

Advantages of global expansion
Location economies
Location
Cost economies from experience
Cost
effects
Leveraging core competencies
Leveraging
Leveraging subsidiary skills
Leveraging
Profitability is constrained by product
Profitability
customization and the “imperative of
localization”.
localization”

Economic Impediments to
Global Competition
transportation and storage costs
transportation
differing product needs
differing
established distribution channels in
established
national markets
sales force
sales
lack of world demand
lack
complex segmentation within
complex
geographic markets

Impediments to Global
Competition
Managerial
differing marketing needs
differing
intensive local services
intensive
Institutional
government restrictions
government
resource constraints
resource
perceptual
perceptual

4

Location economies
Realized by performing a value creation activity in
Realized
an optimal location anywhere around the globe
Often arise due to differences in factor costs
Often
It can lower costs of value to enable low cost
It
strategy and/or
Help in differentiation of products from
Help
competitors
Global web: different stages of value chain are
Global
dispersed to those locations where perceived
value is maximized or costs of value creation are
minimized

Caveats
Complications arise due to
Complications




Transportation...
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