Chapter 13: Strategy of International Business

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