Strategy
The actions that managers take to attain the goals of the firm
Profitability
The rate of return the firm makes on its invested capital
Profit growth
The percentage increase in net profit over time
Methods to increase profitability
Add value or lower cost
Methods to increase profit growth
Sell more in existing markets or expand to new markets
Value creation
V= Value of product to an average consumer
P= Price per unit
C= Cost per unit
Cost leader
Achieving lower overall cost in comparison to rivals
Differentiate
Ability to differentiate firm's product or service and command a premium price
Value Chain Analysis
Allows the firm to understand the parts of its operations that create value and those that do not
Value Chain Analysis Primary Activities
Involve product's physical creation
The product's sale and distribution to buyers
The product's service after the sale
(R&D, Production, Marketing&Sales, Customer Service)
Value Chain Analysis Support Activities
Provide the assistance necessary for the primary activities to take place, does not touch the product.
(IS, Company Infrastructure, Logistics, HR)
International Expansion can increase profits by
Expanding their market, realizing location economies, realizing greater cost economics from experience effect, earn greater return
Location economies
The economies that arise from performing a value creation activity in the optimal location for that activity (ex: Lenovo designs the product in the US, makes case, keyboard, and hard drive in Thailand, and display in S Korea)
Experience curve
The systematic reduction in production costs that occur over the life of a product
Learning effects
Cost savings that come from learning by doing
Economies of scale
Refer to the reductions in unit cost achieved by producing a large volume of a product
When are Pressures for Cost Reductions Greatest?
Price is main criteria
Competitors are based in low cost locations
There is persistent excess capacity
Where consumers are powerful and face low switching cost
When are Pressures for Local Responsiveness Greatest?
Differences in consumer tastes and preferences
Differences in traditional practices and infrastructure
Differences in distribution channels
Host government demands
Global Standardization Strategy
a firm focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies
Localization Strategy
increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets
Transnational Strategy
an international strategy through which the firm seeks to achieve both global efficiency and local responsiveness (hardest strategy to achieve)
International Strategy
take products first produced for the
domestic market and sell them internationally with only
minimal local customization