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What actions can managers take to compete more effectively in a global economy? (4)

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Managers must consider: 1. the benefits of expanding into foreign markets 2. which strategies to pursue in foreign markets 3.the value of collaboration with global competitors 4. the advantages of strategic alliances

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Strategy

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the actions that managers take to attain the goals of the firm

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Profitability

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the rate of return the firm makes on its invested capital

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Profit Growth

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the percentage increase in net profits over time

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How do you increase profitability of a firm?

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create value for the customer

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Value Creation

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measured by the difference between V (the price that the firm can charge for that product given competitive pressures) and C (the costs of producing that product)

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Two basic strategies for creating value (2)

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1. differentiation 2. low cost

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Value creation activities can be categorized as (2)

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1. Primary Activities 2. Support Activities

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Primary Activities

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involves creating the product, marketing and delivering the product to buyers, and providing support and after-sale service to the buyers of the product

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Support Activities

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provides the inputs that allow the primary activities of production and marketing to occur

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Organization architecture

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refers to the totality of a firm's organization (formal organizational structure, control systems and incentives, organizational culture, processes, and people)

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Organizational structure (3)

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1. the formal division of the organization into subunits 2. the location of decision-making responsibilities within that structure 3. the establishment of integrating mechanisms to coordinate the activities of subunits including cross functional

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Controls

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are the metrics used to measure the performance of subunits and make judgments about how well the subunits are run

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Incentives

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are the devices used to reward appropriate managerial behavior

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Processes

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are the manner in which decisions are made and work is performed

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Organizational culture

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is the norms and value systems that are shared among the employees

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People

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refers to employees and the strategy used to recruit, compensate, and retain those individuals

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Firms that operate internationally can

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1. Expand the market for their domestic product offerings by selling those products in international markets 2. Realize location economies by dispersing individual value creation activities to locations around the globe where they can be performed most efficiently and effectively 3. Realize greater cost economies from experience effects by serving an expanded global market from a central location, thereby reducing the costs of value creation 4. Earn a greater return by leveraging any valuable skills developed in foreign operations and transferring them to other entities within the firm's global network of operations

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core competencies

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types of goods and services that competitors cannot easily match or imitate

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location economies

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the economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be

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global web

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Under this strategy, different stages of the value chain are dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized

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experience curve

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the systematic reductions in production costs that have been observed to occur over the life of a product

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Learning effects

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cost savings that come from learning by doing

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Economies of scale

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the reductions in unit cost achieved by producing a large volume of a product

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To help increase firm value, managers should (4)

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1. recognize that valuable skills can be developed anywhere within the firm's global network (not just at the corporate center) 2. incentive systems can encourage local employees to acquire new skills 3. develop a process to identify when new skills have been created 4. act as facilitators to transfer valuable skills within the firm

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Firms that compete in the global marketplace typically face two types of competitive pressures

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1. pressures for cost reductions 2. pressures to be locally responsive

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universal needs

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needs that exist when the tastes and preferences of consumers in different nations are similar if not identical

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Pressures for local responsiveness arise from (4)

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1. differences in consumer tastes and preferences 2. differences in traditional practices and infrastructure 3. differences in distribution channels 4. host government demands

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Differences in Consumer Tastes and Preferences

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When consumer tastes and preferences differ significantly between countries, firms face strong pressures for local responsiveness

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Differences in Infrastructure and Traditional Practices

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When there are differences in infrastructure and/or traditional practices between countries, pressures for local responsiveness emerge

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Differences in Distribution Channels

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A firm's marketing strategies may be influenced by differences in distribution channels between countries

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Host Government Demands

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Economic and political demands imposed by host country governments may necessitate a degree of local responsiveness

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There are four basic strategies to compete in the international environment

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1. global standardization 2. localization 3. transnational 4. international

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global standardization strategy

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focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies

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localization strategy

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focuses on 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

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transnational strategy

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tries to simultaneously 1. achieve low costs through location economies, economies of scale, and learning effects 2. differentiate the product offering across geographic markets to account for local differences 3. foster a multidirectional flow of skills between different subsidiaries

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international strategy

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involves taking products first produced for the domestic market and then selling them internationally with only minimal local customization

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Is the choice of strategy static?

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As competition increases, international and localization strategies become less viable To survive, firms may need to shift to a global standardization strategy or a transnational strategy in advance of competitors

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Strategic alliances

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refer to cooperative agreements between potential or actual competitors examples: -formal joint ventures - short term contractual arrangements

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Strategic alliances are attractive because they (4)

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1. facilitate entry into a foreign market 2. allow firms to share the fixed costs (and associated risks) of developing new products or processes 3. bring together complementary skills and assets that neither partner could easily develop on its own 4. can help establish technological standards for the industry that will benefit the firm

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What are the drawbacks of strategic alliances?

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Strategic alliances can give competitors low-cost routes to new technology and markets Unless a firm is careful, it can give away more in a strategic alliance than it receives

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The success of an alliance seems to be a function of three main factors

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1. partner selection 2. alliance structure 3. the manner in which the alliance is managed

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1. Partner Selection

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A good partner helps the firm achieve its strategic goals and has the capabilities the firm lacks and that it values shares the firm's vision for the purpose of the alliance does not expropriate the firm's technological know-how while giving away little in return

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2. Alliance Structure

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A good alliance should be designed to make it difficult to transfer technology not meant to be transferred have contractual safeguards to guard against the risk of opportunism by a partner involve an agreement in advance to swap skills and technologies to ensure a chance for equitable gain extract a significant credible commitment from the partner in advance

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3. Managing the Alliance

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A good alliance requires managers from both companies to build interpersonal relationships should promote learning from alliance partners should promote the diffusion of learned knowledge throughout the organization

Flashcards on International Business Chapter 11

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