1. 1 Twelve C h a p t e rC h a p t e r The Strategy of International Business Part Five Competing in a Global Marketplace

2. 2 Chapter Twelve THE STRATEGY OF INTERNATIONAL BUSINESS 1.Strategy and the Firm 2.Global Expansion Benefits 3.Formulating a Global Strategy OBJECTIVES

3. 3 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.

4. 4 THE FIRM AS A VALUE CHAIN  Sequential process of value-creating activities  Identifies the separate activities and business processes performed to design, produce, market, deliver, and support a product / service.  Firm is profitable to the extent the value it receives exceeds the total costs involved in creating its product or service.  Consists of two types of activities Primary activities Support activities

5. 5 VALUE CHAIN: PRIMARY AND SUPPORT ACTIVITIES General administration Human resource management Technology development Procurement Inbound logistics Operations Outbound logistics Marketing and sales Service Copyright  The McGraw-Hill Companies, Inc. All rights reserved.

6. 6 2. GLOBAL EXPANSION BENEFITS  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.

7. 7 BENEFITS FOR INTERNATIONAL FIRMS  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.

8. 8 Global Firm Global Firm Domestic Firm Domestic Firm Manufacturing Economies of Scale R & D Procurement MarketingLogistics ECONOMIES OF SCALE FOR GLOBAL FIRMS

9. 9 EXPERIENCE CURVE EFFECTS Copyright  The McGraw-Hill Companies, Inc. All rights reserved.

10. 10 CAVEATS  When making location decisions: ●Consider trade barriers and transportation costs. ●Assess political and economic risks.

11. 11 3. FORMULATING A GLOBAL STRATEGY Organization Environment Int’lStrategy Int’lMarket Success ! Economic Socio-cultural Political/Legal Local competition Firm Resources Firm Capability Core competence Strategic Disadvantages Generic competitive Strategies Choice of Entry Modes Constraints Opportunity Constraints Opportunity

12. 12 $  Cost Reduction  Local Responsiveness TWO COMPETING FORCES

13. 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. $

14. 14 LOCAL RESPONSIVENESS  Different consumer tastes and preferences.  Different infrastructure and practice.  Differences in distribution channels.  Government demands.

15. 15 High Cost Pressures Low Low High Pressures for Local Responsiveness GlobalStrategy Transnational TransnationalStrategy Multidomestic MultidomesticStrategy CHOICE OF GLOBAL STRATEGY International InternationalStrategy Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

16. 16 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.

17. 17 MULTIDOMESTIC 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. UK Chile India Japan USA HK Mexico

18. 18 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. B A Accumulated output Unit costs Moving down the curve reduces the cost of creating value Economies of Scale

19. 19 Chile Japan Mexico India Korea UK China USA TRANSNATIONAL STRATEGY (Distributed but Networked Organization)

20. 20 TRANSNATIONAL STRATEGY  Makes sense where there is pressure for both cost reduction and local responsiveness.  Global coordination and national flexibility  Link local operations to each other, and to center in flexible systems  Flow of skills and product offerings occurs throughout the firm (global learning).  Link diverse org’ perspectives and resources.  Organizational characteristics:  Reciprocal dependence, sharing resources, ideas, opportunities.  Integrating mechanism: difference solving system, Information system, Forums, HRM, Corporate Identification