1. The Strategy of International Business Chapter 12
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3. 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.
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4. The Firm as a Value Chain
Organizational infrastructure
Support
activities
Information systems
Human resources
Research and development
Materials management
Manufacturing
Marketing
Primary activities
Figure 12.1
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5. 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.
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6. 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.
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7. Location Economies Pontiac LeMans 12-6 Assembly Parts Sales Design
Advertising
Parts
Pontiac LeMans
Parts
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8. Caveats When making location decisions:
Consider trade barriers and transportation costs.
Assess political and economic risks.
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9. 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.
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10. The Experience Curve 12-9 Unit costs Moving down the curve reduces
the cost of creating value
Unit costs B A
Accumulated
output
Figure 12.2
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11. Firms Face Two Conflicting Concepts (Pressures) Overseas
Reduce costs.
Be responsive to local needs.
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12. Pressures for Cost Reduction and Local Responsiveness
Company A
Company C
High
Cost
pressures
Low
Generally reflects
the position of most
companies
Company B
Low High
Figure 12.3
Pressures for local responsiveness
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13. 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. $
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14. Local Responsiveness Different consumer tastes and preferences.
Different infrastructure and practice.
Differences in distribution channels.
Government demands.
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15. McDonalds McDonald’s overseas experience. Detailed planning
Export of management skills.
Foreign partners.
Adaptation/Adopting ideas.
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16. Strategic Choice Four basic strategies: International strategy.
Multidomestic strategy.
Global strategy.
Transnational strategy.
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17. Four Basic Strategies 12-16 High Cost pressures Low Low High
Global
Strategy
Transnational
Strategy
High
Cost
pressures
Low
International
Strategy
Multi domestic
Strategy
Low High
Pressures for local responsiveness
Figure 12.4
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18. 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.
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19. 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.
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20. 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.
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21. 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.
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22. The Advantages and Disadvantages of the Four Strategies
Strategy
Advantages
Disadvantages
Global
Exploit experience curve effects
Lack of local
responsiveness
Exploit location economies
Lack of local
International
responsiveness
Inability to realize
Transfer distinctive
competencies to
location economies
Foreign Markets
Failure to exploit experience curve
effects
Figure 12.6a
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23. The Advantages and Disadvantages of the Four Strategies
Strategy
Advantages
Disadvantages
Multi-domestic
Customize product offerings
Inability to realize location
and marketing in accordance
economies
with local responsiveness
Failure to exploit
experience curve effects
Failure to transfer
distinctive competencies
to foreign markets
Transnational
Exploit experience curve
Difficult to implement due
effects
to organizational
Exploit location economies
problems
Customize product offerings
and marketing in accordance
with local responsiveness
Figure 12.6b
Reap benefits of global learning
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24. Cost Pressures and Pressures for Local Responsiveness Facing Caterpillar
High
Cost
pressures
Low
Caterpillar
Tractor
Figure 12.5
Low High
Pressures for local responsiveness
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