Strategy of International Business

7/28/2019 Strategy of International Business

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McGraw Hill Companies, Inc., 2000

The Strategy of

International BusinessChapter 12


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McGraw Hill Companies, Inc., 2000 12-1


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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.

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F igure 12.1

Organizational infrastructure

Information systems

Human resources

Research and development

Materials management

Manufacturing Marketing

Primary activities

Supportactivities


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The Role of Strategy

Strategy:

Actions managers take to attain the goals of the

firm.Need to identify and take action that lowers the

costof value creation and/ordifferentiates the

firms product through superior design, quality,

service, or functionality.

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Profiting from Global Expansion

International firms can:

Earn a greater return from

distinctive skills orcore competencies.Realize location economies by dispersing value

creation activities to locations where they can

be performed most efficiently.

Realize greaterexperience curve economies,

which reduces the cost of value creation.

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Parts

PartsParts

Assembly

Advertising Design

Sales

Location Economies

Pontiac LeMans

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Caveats

When making location decisions:

Consider trade barriers and

transportation costs.Assess political and

economic risks.

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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.

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The Experience Curve

B

A

Accumulated

output

Unit costs

F igure 12.2

Moving down the curve reducesthe cost of creating value

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Firms Face Two Conflicting

Concepts (Pressures) Overseas

Reduce costs.Be responsive to local

needs.

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Pressures for Cost Reduction and

Local Responsiveness

F igure 12.3

CompanyC

CompanyB

High

Costpressures

Low

Low High

Generally reflectsthe position of most

companies

Pressures for local responsiveness

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Cost ReductionDesire 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, intl competition creates price pressures.

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Local Responsiveness

Different consumer tastes and

preferences.Different infrastructure and practice.

Differences in distribution channels.

Government demands.

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McDonaldsMcDonalds overseas experience.

Detailed planning

Export of management skills.

Foreign partners.

Adaptation/Adopting ideas.

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Strategic Choice

Four basic strategies:

International strategy.

Multidomestic strategy.

Global strategy.

Transnational strategy.

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Four Basic Strategies

Figure 12.4

GlobalStrategy

TransnationalStrategy

Multi domesticStrategy

High

Costpressures

Low

Low High

InternationalStrategy

Pressures for local responsiveness

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International Strategy

Go where locals dont 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.

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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.

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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.

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Transnational Strategy

Christopher Bartlett and Sumantra Ghoshal

Core competencies can develop in any of the

firms 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.

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The Advantages and Disadvantages of the

Four Strategies

Strategy Advantages Disadvantages

Global Exploit experience curveeffects

Exploit locationeconomies

Lack of localresponsiveness

International

Transfer distinctive

competencies toForeign Markets

Lack oflocal responsivenessInability to realize

location economiesFailure to exploitexperience curveeffects

F igure 12.6a

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Th Ad d Di d f h


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The Advantages and Disadvantages of the

Four Strategies

Strategy Advantages Disadvantages

Multi-domestic Customize product offeringsand marketing in accordancewith local responsiveness

Inability to realize locationeconomies

Failure to exploit

experience curve effectsFailure to transferdistinctive competenciesto foreign markets

Transnational Exploit experience curveeffects

Exploit location economiesCustomize product offeringsand marketing in accordancewith local responsiveness

Reap benefits of global learning

Difficult to implement dueto organizational

problems

Figure 12.6b

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Cost Pressures and Pressures forLocal

Responsiveness Facing Caterpillar

F igure 12.5

Caterpillar

Tractor

High

Costpressures

Low

Low HighPressures for local responsiveness

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Documents

Strategy of International Business