The Strategy of International Business Chapter 13

What is Strategy ? Can be defined as the actions that managers take to attain the goals of the firm.  Strategy asks the question, How do competencies and capabilities help create and sustain competitive advantage? Strategy thus articulates the ways in which, the opportunities that are created by the firm’s capabilities, can be exploited.

Strategy in International Business International strategy is often concerned with identifying and taking actions that will lower the cost of value creation. And/or Differentiate the firm’s product offering through superior design, quality, service, functionality and, so on.

Strategy and the Firm Maximize long–term profitability. The rate or return that the firm makes on its invested capital. Profit growth is measured by the percentage increase in net profits over time. Two basic conditions determine a firm’s profits: The amount of value customers place on the firms goods or services and the firm’s cost of Production. Value Creation Is measured by the difference between Increased value and Low Cost.

Value Creation

The Strategy of International Business

The basic strategy paradigm to maximize its profitability pick a position on the efficiency frontier that is viable in the sense that there is enough demand to support that choice Configure its internal operations , such as manufacturing, marketing, logistics, information systems, human resources and so on, so that they support that position. Make sure that the firm has the right organizational structure to execute its strategy.

The Value Chain

Expand the market for their domestic product offerings by selling those products in the international markets. Realize location economies by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively. Realize greater cost reduction from experience effects by serving an expanded global market from a central location, thereby reducing the costs of value creation Earn a greater return by leveraging any valuable skills developed in foreign operations and transferring them to other entities within the firm’s global network of operations.

Profiting From Global Expansion Location Economies Creating a global web Some Caveats (Limitations) Trade Barriers, Transportation Cost etc. Experience Effects Experience Curve: Systematic reductions in production costs that have been observed to occur over the life of a product. Learning Effects Economies of Scale Strategic Significance Leveraging Product and Core Competencies Leveraging Subsidiary Skills

Pressures for Cost Reductions and Local Responsiveness Pressures for Local Responsiveness Differences in Consumer Tastes and Preferences MTV case, Food taste, Culture etc Differences in Infrastructure and Traditional Practices 110 Volts & 240 Volts, CDMA & GSM, Left & right hand driven cars etc. Differences in Distribution Channels Wholesale and Retail networks. Host Government Demands Bombardier example, Implications Local responsiveness may work against low cost strategy.

Assessing Multinational Enterprise’s mentality International/Multinational Firms: Focus still on domestic market Localization/Multinational Firms: Low coordination among units; high degree of national responsiveness. Global/Multinational Firms: Centralised control and coordination; common set of strategies worldwide, treats world as one market. Transnational/Multinational Firms: Attempt to balance global integration and local responsiveness.

International Firms HO SBU

Localization/Multinational Firms HO SBU

Global Standardization Firms HO SBU

Transnational Firms HO SBU

Strategic Choices International Strategy Multidomestic Strategy Tries to create value by transferring valuable skills and products to foreign markets. Centralize product development functions at home Multidomestic Strategy Extensively customize both their product offering and their marketing strategies to match different national conditions. Global Strategy Prefer to market a standardize product worldwide so they can reap the maximum benefits from economies of scale. Transnational Strategy They must transfer core competencies within the firms and also pay attention to pressures for local responsiveness.

The Advantage and Disadvantage of the four strategies Strategy Advantage Disadvantage Global Exploit location economies. Exploit experience curve effects. Lack of local responsiveness. International Transfer core competencies to foreign markets. Inability to realize location economies. Failure to exploit experience curve effects. Localization Customize product offerings and marketing in accordance with local responsiveness. Failure to transfer core competencies to foreign markets. Transnational Exploit location economies Reap benefits of global learning. Difficult to implement due to organizational problem.