Part Five Global Strategy Structure and Implementation Chapter

Chapter Objectives • To examine the idea of industry structure, firm strategy, and value creation • To profile the features and functions of the value chain framework • To appreciate how managers configure and coordinate a value chain • To identify the dimensions that shape how managers develop strategy • To profile the types of strategies firms use in international business 2 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Industry, Strategy, And Firm Performance • Managers, as agents of their firms, devise strategies to engage international markets in ways that sustain the company’s boost its profitability and growth • Strategy is defined as the efforts of managers to build and strengthen the company’s competitive position within its industry in order to create superior value 3 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Industry, Strategy, And Firm Performance • Firm performance is influenced by both the structure of the company’s industry and the insight of managers’ strategic decision making • Estimates vary on the degree of influence for both factors • Managers need to be familiar with industry - and firm-level conditions in making strategy 4 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

The Five Forces Model • Managers typically anchor analysis of industry structure by modeling the strength and importance of the so-called “five fundamental forces. ”: § the moves of rivals battling for market share § the entry of new rivals seeking market share § the efforts of other companies outside the industry to convince buyers to switch to their own substitute products § the push by input suppliers to charge more for their inputs § the push by output buyers to pay less for products 5 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Events that can change industry structure • • • Competitors’ moves. Government policies. Changes in economics. Shifting buyer preferences. Technological developments. Rate of market growth. 6 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Strategy and Value • Strategy is defined as the efforts of managers to build and strengthen the company’s competitive position within its industry in order to create superior value • Value is the measure of a firm’s ability to sell what it makes for more than the cost it incurred to make it 7 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Creating Value • Firms create value either through a lowcost leadership strategy or a

The Firm As Value Chain • Interpreting the firm within the context of the value chain provides a strong tool to improve the accuracy of strategic analyses and decisions 9 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

What Is a Value Chain? • The value chain lets managers deconstruct the general idea of “create value” into a series of discrete activities • The function of the value chain is shaped by how managers opt to configure and then coordinate discrete value activities 10 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Dimensions of The Value Chain • Primary activities that create and deliver the product. • Support activities that aid the individuals and groups engaged in primary activities. • Profit margin reports the difference between the total revenue generated by sales and the total cost of the activities that led to those sales. • Orientation—namely, whether the particular activity takes place upstream or downstream. 11 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Using the Value Chain • Configuration is the way that managers arrange the activities of the value chain. • Coordination is the way that managers connect the activities of the value chain. • Firms pay close attention to location economics when configuring their value chain • Devising a way to coordinate value chain activities must be in ways that leverage a firm’s core competencies 12 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Pressures for Global Integration • Companies that operate internationally face the asymmetric pressures of global integration versus local responsiveness • Change, whether in managers, competencies, industries, or environments, often spurs companies to rethink and reset their value activities 13 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Types Of Strategy • The firm entering and competing in foreign markets can adopt either an: § § international multidomestic global transnational strategy • Often, firms use a mix of these four types due to company, industry, and environmental situations 14 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall