Transcript The Strategy of International Business Chapter 12

The Strategy of
International Business
Chapter 12
© McGraw Hill Companies, Inc., 2000
© McGraw Hill Companies, Inc., 2000
12-1
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.
© McGraw Hill Companies, Inc., 2000
12-2
The
Firm
as
a
Value
Chain
The Firm as a Value Chain
Support
activities
Organizational infrastructure
Information systems
Human resources
Research and development
Materials management
Manufacturing
Marketing
Primary activities
Figure 12.1
© McGraw Hill Companies, Inc., 2000
12-3
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.
© McGraw Hill Companies, Inc., 2000
12-4
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.
© McGraw Hill Companies, Inc., 2000
12-5
Location Economies
Assembly
Parts
Sales
Advertising
Pontiac LeMans
© McGraw Hill Companies, Inc., 2000
Design
Parts
Parts
12-6
Caveats
When making location decisions:
Consider trade barriers and
transportation costs.
Assess political and
economic risks.
© McGraw Hill Companies, Inc., 2000
12-7
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.
© McGraw Hill Companies, Inc., 2000
12-8
The Experience Curve
Unit costs
Moving down the curve reduces
the cost of creating value
B
A
Accumulated
output
Figure 12.2
© McGraw Hill Companies, Inc., 2000
12-9
Firms Face Two Conflicting
Concepts (Pressures) Overseas
Reduce costs.
Be responsive to local
needs.
© McGraw Hill Companies, Inc., 2000
12-10
Pressures for Cost Reduction and
Local Responsiveness
High
Company
C
Cost
pressures
Company
B
Low
Low
Figure 12.3
Generally reflects
the position of most
companies
High
Pressures for local responsiveness
© McGraw Hill Companies, Inc., 2000
12-11
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.
© McGraw Hill Companies, Inc., 2000
12-12
Local Responsiveness
Different consumer tastes and
preferences.
Different infrastructure and practice.
Differences in distribution channels.
Government demands.
© McGraw Hill Companies, Inc., 2000
12-13
McDonalds
McDonald’s overseas experience.
Detailed planning
Export of management skills.
Foreign partners.
Adaptation/Adopting ideas.
© McGraw Hill Companies, Inc., 2000
12-14
Strategic Choice
Four basic strategies:
International strategy.
Multidomestic strategy.
Global strategy.
Transnational strategy.
© McGraw Hill Companies, Inc., 2000
12-15
Four Basic Strategies
High
Global
Strategy
Transnational
Strategy
International
Strategy
Multi domestic
Strategy
Cost
pressures
Low
Low
High
Pressures for local responsiveness Figure 12.4
© McGraw Hill Companies, Inc., 2000
12-16
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.
© McGraw Hill Companies, Inc., 2000
12-17
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.
© McGraw Hill Companies, Inc., 2000
12-18
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.
© McGraw Hill Companies, Inc., 2000
12-19
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.
© McGraw Hill Companies, Inc., 2000
12-20
The Advantages and Disadvantages of the
Four Strategies
Strategy
Global
International
Advantages
Exploit experience curve
effects
Exploit location
economies
Transfer distinctive
competencies to
Foreign Markets
Disadvantages
Lack of local
responsiveness
Lack of
local responsiveness
Inability to realize
location economies
Failure to exploit
experience curve
effects
Figure 12.6a
© McGraw Hill Companies, Inc., 2000
12-21
The Advantages and Disadvantages of the
Four Strategies
Strategy
Advantages
Multi-domestic Customize product offerings
and marketing in accordance
with local responsiveness
Transnational
Exploit experience curve
effects
Exploit location economies
Customize product offerings
and marketing in accordance
with local responsiveness
Reap benefits of global learning
© McGraw Hill Companies, Inc., 2000
Disadvantages
Inability to realize location
economies
Failure to exploit
experience curve effects
Failure to transfer
distinctive competencies
to foreign markets
Difficult to implement due
to organizational
problems
Figure 12.6b
12-22
Cost Pressures and Pressures for Local
Responsiveness Facing Caterpillar
High
Caterpillar
Tractor
Cost
pressures
Low
Figure 12.5
Low
High
Pressures for local responsiveness
© McGraw Hill Companies, Inc., 2000
12-23