Why Do You Think This Strategy Became Less Viable in the 1990's?

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Chapter 12 – The Strategy of International Business

Key Points of the chapter

Strategy – is the actions managers take to attain the goals of the business (usually to maximize value for the shareholders/stakeholders).

Value Chain – The operations of the firm compose the value chain which are the series of value creating activities that occur to create value. These actions include sales, production, IT, accounting etc. These activities are divided into support and primary activities.

Primary Activities – Design, creation and delivery of the product. They are: 1. R&D
2. Production
3. Marketing
4. Sales
Support Activities – Inputs that allow the primary activities to occur 1. Information Systems
2. Logistics
3. Human Resources

Global Expansion Practices
1. Expand the market for your domestic products by selling internationally (Export) • Requires a company to tap into their core competencies

2. Move production to the most efficient countries to realize location economies • Some countries have a comparative advantage of production • Transportation costs and trade barriers must not be an issue • Location Economies is the value created by finding the most competitive place to produce product, therefore adding value i. Competitive can mean cheapest or best

• Creates a global value web as opposed to a value chain

3. Serve expanded markets from a single location, while recovering experience effects • Experience curve: Systematic reductions in production costs that occur over the life of a product i. A products production costs decline each time the cumulative output doubles • Learning Effects – Costs savings through learning by doing • Economies of Scale – Reduce costs by creating a large volume of product, the larger your market, the more opportunity for this you receive.

4. Learn from foreign operations to increase your value
• Mature multinationals who already have operations in foreign markets can learn from their operations in order to create value for those specific customers.

Pressures for Cost Reduction
Managers can be forced to create value by reducing costs. This can be done through: • Mass-produce a standard product
• Outsource certain functions
• Tends to occur in highly commoditized products (Chemicals, sugar, gas, steel)

Pressures for local Responsiveness
Arise because of:
• Difference in consumer tastes and preferences
• Infrastructure
• Accepted Business practices
• Distribution channels - May require a change in marketing strategy • Host government demands

International Expansion Strategies

Global Expansion Strategy
Focus
• Reaping cost reduction benefits through:
• Economies of Scale
• Learning effects
• Locations economies
• Low Cost on a Global Scale

Method
• R&D, Production and Marketing activities are concentrated in a few favorable locations • Try not to customize their products/marketing strategy • Use aggressive pricing

When to use it
• Strong pressures for cost reductions
• Minimal demand for localization

Localization Strategy
Focus
• Increase profitability by customizing goods to match tastes and preferences in international markets

Method
• Increase the value of the product in the local market • Duplication of functions
• Smaller production runs
• Still need to be as efficient as possible

When to use it
• When cost pressures are not high
• When local tastes differ dramatically
• When you have fewer competitors

Transnational Strategy
Focus
• Multidirectional transfer of core competencies and skills • Leveraging subsidy skills
• Try to achieve low costs through location economies, economies of scale and learning effects...
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