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© McGraw Hill Companies, Inc., 2000 The Strategy of International Business Chapter 12.

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Presentation on theme: "© McGraw Hill Companies, Inc., 2000 The Strategy of International Business Chapter 12."— Presentation transcript:

1 © McGraw Hill Companies, Inc., 2000 The Strategy of International Business Chapter 12

2 © McGraw Hill Companies, Inc.,

3 © McGraw Hill Companies, Inc., 2000 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. 12-2

4 © McGraw Hill Companies, Inc., 2000 The Firm as a Value Chain Figure 12.1 Organizational infrastructure Information systems Human resources Research and development Materials management ManufacturingMarketing Primary activities Support activities The Firm as a Value Chain 12-3

5 © McGraw Hill Companies, Inc., 2000 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. 12-4

6 © McGraw Hill Companies, Inc., 2000 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. 12-5

7 © McGraw Hill Companies, Inc., 2000 Parts Assembly Advertising Design Sales Location Economies Pontiac LeMans 12-6

8 © McGraw Hill Companies, Inc., 2000 Caveats  When making location decisions:  Consider trade barriers and transportation costs.  Assess political and economic risks. 12-7

9 © McGraw Hill Companies, Inc., 2000 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. 12-8

10 © McGraw Hill Companies, Inc., 2000 The Experience Curve B A Accumulated output Unit costs Figure 12.2 Moving down the curve reduces the cost of creating value 12-9

11 © McGraw Hill Companies, Inc., 2000 Firms Face Two Conflicting Concepts (Pressures) Overseas  Reduce costs.  Be responsive to local needs

12 © McGraw Hill Companies, Inc., 2000 Pressures for Cost Reduction and Local Responsiveness Figure 12.3 Company A Company C Company B High Cost pressures Low Low High Generally reflects the position of most companies Pressures for local responsiveness 12-11

13 © McGraw Hill Companies, Inc., 2000 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 $

14 © McGraw Hill Companies, Inc., 2000 Local Responsiveness  Different consumer tastes and preferences.  Different infrastructure and practice.  Differences in distribution channels.  Government demands

15 © McGraw Hill Companies, Inc., 2000 McDonalds  McDonald’s overseas experience.  Detailed planning  Export of management skills.  Foreign partners.  Adaptation/Adopting ideas

16 © McGraw Hill Companies, Inc., 2000 Strategic Choice  Four basic strategies:  International strategy.  Multidomestic strategy.  Global strategy.  Transnational strategy

17 © McGraw Hill Companies, Inc., 2000 Four Basic Strategies Figure 12.4 GlobalStrategy Transnational TransnationalStrategy Multi domestic Multi domesticStrategy High Cost pressures Low Low High International InternationalStrategy Pressures for local responsiveness 12-16

18 © McGraw Hill Companies, Inc., 2000 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

19 © McGraw Hill Companies, Inc., 2000 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

20 © McGraw Hill Companies, Inc., 2000 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

21 © McGraw Hill Companies, Inc., 2000 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

22 © McGraw Hill Companies, Inc., 2000 The Advantages and Disadvantages of the Four Strategies StrategyAdvantagesDisadvantages GlobalExploit experience curve effects Exploit location economies Lack of local responsiveness International Transfer distinctive competencies to Foreign Markets Lack of local responsiveness Inability to realize location economies Failure to exploit experience curve effects Figure 12.6a 12-21

23 © McGraw Hill Companies, Inc., 2000 The Advantages and Disadvantages of the Four Strategies StrategyAdvantagesDisadvantages Multi-domestic Customize product offerings and marketing in accordance with local responsiveness Inability to realize location economies Failure to exploit experience curve effects Failure to transfer distinctive competencies to foreign markets Transnational Exploit experience curve effects Exploit location economies Customize product offerings and marketing in accordance with local responsiveness Reap benefits of global learning Difficult to implement due to organizational problems Figure 12.6b 12-22

24 © McGraw Hill Companies, Inc., 2000 Cost Pressures and Pressures for Local Responsiveness Facing Caterpillar Figure 12.5 CaterpillarTractor High Cost pressures Low Low High Pressures for local responsiveness 12-23


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