International Business Environments Operations Chapter 11 The Strategy

International Business Environments & Operations Chapter 11 The Strategy of international Business Daniels ● Radebaugh ● Sullivan 11 -1

International Business - Globally p As a result of global economic crisis, the potential for profitability in all sorts of industries has become less predictable 5 -2

The Role of Strategy in International Business 11 -3

Industry, Strategy , and Firm Performance p Industry organization (IO) paradigm: performance of a firm is a function of its marker conduct, which is determined by the structure of its industry Presumes that markets are perfectly competitive n There are large number of fully informed buyers and sellers n There are no obstacles to the entry or exit of firms into market n Full mobility of resources The explanatory power of the IO paradigm can be done by the potential bright and motivated managers n p The exceptions of imperfect competition n Presence of entry barriers that deterred new firms Presence of a few large sellers (oligarchs) Many buyers (immediate or end consumers)- passive price takers 11 -4

The idea of industry structure: The Five Forces Model The nature of competition in an industry is the combined outcome of the competitive pressures generated by: o. Moves of rivals battling for market share o. The entry of new rivals seeking market share (the Exit of a rival is also an important force that may transform the structure of an industry) o. The efforts of other companies outside the industry to convince buyers to switch to their own substitute products o. The push by input suppliers to charge more for their inputs o. The push by output buyers to pay less for products 5 -5

The Five Forces Model The five-forces model collectively develops: q a representation of the structure and competition in an industry that prepares managers to figure out what forces shape strategic conduct q how strong each force is q What forces are driving change q what strategic moves rivals are likely to make next q what are the key factors for future competitive success 5 -6

Five Forces Model Copyright © 2011 Pearson Education 11 -7

Industry Structure and Change A global industry is one in which a firm’s competitive position in one country is significantly affected by its position in other countries Industry structure changes because of events like • Competitors’ moves • Government policies • Changes in economics • Shifting buyer preferences • Technological developments • Rate of market growth 11 -8

Creating Value: Two Basic Strategies p 1 - Low Cost leadership n n n p A firm sells its products either at average industry prices to earn a profit higher than that of rivals OR below the average industry prices to capture market share Emphasizes high production volumes, low costs, and low prices Low cost-leadership strategy focuses on lowering operating costs 2 - Differentiation n n Offer unique attributes that they reason are highly valued by customers AND which customers perceive to be better than or sufficiently different from products offered by rivals. Generating customer insights regarding innovations Unique goods or services that its rivals find hard to match or 5 -9 copy

Strategy and Value p Strategy helps managers assess the company’s present situation, identify the direction the company should go, and determine how the company will get there. n n A great strategy defines the perspectives and tools managers use to appraise the company’s present situation, identifies the direction the company should go, and determine how the company will get there Strategy is the efforts of managers to build and strengthen the company’s competitive position within its industry to create value 11 -10

Strategy and Value p The fundamental principle of strategy is Creating Value n p Value is the measure of a firm’s capability to sell what it makes for more than the costs incurred to make it Purpose of Value proposition: to explain why a consumer should buy the products 5 -11

The Firm as Value Chain p p Value Chain: set of linked value-creating activities that company perform to design, produce, market, deliver, and support a product n Helps the managers integrate the knowledge and skills of employees around the world in the way that allows the best global reach Value Chain Analysis helps the manager understand the behavior of cots and the existing and potential sources of differentiation Primary Activities: inbound logistics, operations, outbound logistics, sales and marketing, service Support Activities: procurement, technology and system development, human resource management, firm 11 -12 infrastructure, Shipping, Customer Services

Factors that influence the value chain n n Configuration: the way that mangers arrange the activities of the value chain to exploit location economies (economies from performing a value activity in the optimal location given prevailing economic, political, legal, and cultural conditions) Cost Factors: differences in wage rates, worker productivity, inflation rates, and government regulations (creating significant variations in production costs) Cluster Effects: particular industry gradually clusters more and more related value creation effects Logistics: how companies obtain, procure, and exchange material and services in the proper place and proper quantities for the proper value activity 5 -13

Factors that influence the Value Chain n Digitization: converting an analog product into a string of zeros and ones. The degree of difficulty of this process influences how a company configures its value chain p n n n With network computers, negligible cost and complication Economies of Scale: decrease in the unit cost of production associated with the increase in total output (by producing a large volume of a product) Business Environment: business-friendly markets, government interest in foreign investments, corporate tax rates, flexible operating requirements, public policies Customer Needs: buyer-related activities such as distribution to dealers, sales and advertising, after sales service – locate close to buyers 5 -14

Coordination p Coordination: the way that managers connect the activities of the value chain, whether they are performed in one or many countries n Social network analysis indicates that information flows more efficiently in a collaborative manner p Core Competencies: a special outlook, skill, capability, or technology that creates unique value for the firm p Sources of Core competency: n n n Product development Employee productivity Manufacturing expertise Marketing imagination Executive leadership 11 -15

Coordination Concerns p p p Operational Obstacles: problems when trying to get the various links of their global value chain to deal with each other National Cultures: disagreement over how much information to share or who should take lead responsibility, and so on Learning effects: costs saving that comes from learning by doing Experience Curve: gain new insights into managing the value chain and cut costs by 20 -30% each time their cumulative output doubles Subsidiary Networks: subsidiaries exchange information freely, whether systematically within an Enterprise Resource Planning (ERP) context or via emails 5 -16

Change and the Value Chain p The configuration and coordination of value chains respond to changes in customers, competitors, industries, and environments. 11 -17

Forces of Pressures for Globally competing Firms p Pressures for Global Integration n n Globalization of Markets Efficiency Gains of Standardization is a push dynamic that drives supply in the global market p An MNE is pressed to integrate its value activities globally when costs of producing in separate facilities exceed those of producing in a single facility p p Pressures for Local Responsiveness n n Consumer Divergence Host Government Policies 11 -18

Types of Strategy 11 -19