We have textbook solutions for you!
The document you are viewing contains questions related to this textbook.
The document you are viewing contains questions related to this textbook.
Managerial Economics Froeb/McCann Expert Verified
1 The Strategy of International Business 2 Opening Case Wal-Mart moved into other countries for three reasons 3 Opening Case To succeed abroad, Wal-Mart has had to customize its offering to local conditions while keeping its core strategies and operations the same in every market Going global has yielded additional benefits as well Enhanced bargaining power with suppliers The ability to transfer valuable ideas from one country to another 4 Strategy and the Firm Strategy can be defined as the actions that managers must take to attain the goals of the firm For most firms, the preeminent goal is to maximize the value of the firm for its owners Profitability can be defined as the rate of return that the firm makes on its invested capital (ROIC), which is calculated by dividing the net profits of the firm by total invested capital Profit growth is measured by the percentage increase in net profits over time Managers can increase the profitability of the firm by pursuing strategies that lower costs or by pursuing strategies that add value to the firm’s products, which enables the firm to raise prices. Managers can increase the rate at which the firm’s profits grow over time by pursuing strategies to sell more products in existing markets or by pursuing strategies to enter new markets. As we shall see, expanding internationally can help managers boost the firm’s profitability and increase the rate of profit growth over time. For example, by expanding into foreign markets, 5 Value Creation The way to increase the profitability of a firm is to create more value The amount of value a firm creates is measured by the difference between its costs of production and the value that consumers perceive in its products Michael Porter states that there are two basic strategies for creating value and attaining a competitive advantage in an industry Low-cost strategy suggests that a firm has high profits when it creates more value for its customers and does so at a lower cost Differentiation strategy focuses primarily on increasing the attractiveness of a product 6 Strategic Positioning 7 The Value Chain Any firm is composed of a series of distinct value creating activities Primary activities Research & development Production Marketing & sales Service Support Activities Materials management or logistics Human resource Information systems Company infrastructure 8 Global Expansion, Profitability, and Profit Growth 9 The Value Chain The operations of a firm can be thought of as a value chain composed of a series of distinct value creation activities including production, marketing and sales, materials management, R&D, human resources, information systems, and the firm infrastructure. We can categorize these value creation activities, or operations, as primary activities and support activities (see Figure 12.4). If a firm is to implement its strategy efficiently, and position itself on the efficiency frontier shown in Figure 12.3, it must manage these activities effectively and in a manner that is consistent with its strategy. p 10 EXPANDING THE MARKET: LEVERAGING PRODUCT AND COMPETENCIES 11 Location Economies Location economies are the economies that arise from performing a value creation activity in the optimal location for that activity Can have one of two effects It can lower the costs of value creation and help the firm to achieve a low-cost position and/or It can enable a firm to differentiate its product offering from those of competitors One result of this kind of thinking is the creation of a global web of value creation activities, with different stages of the value chain being dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized 12 Experience Effects The experience curve refers to systematic reductions in production costs that have been observed to occur over the life of a product There are two explanations for the experience effect Learning effects refer to cost savings that come from learning by doing Economies of scale refer to the reductions in unit cost achieved by producing a large volume of a product The strategic significance of the experience curve is clear; moving down the experience curve allows a firm to reduce its cost of creating value and increase its profitability 13 Leveraging Subsidiary Skills 14 Cost Pressures and Pressures for Local Responsiveness 15 Pressures for Cost Reductions 16 Pressures for Local Responsiveness 17 Choosing a Strategy How do differences in the strength of pressures for cost reductions versus those for local responsiveness affect the firm’s choice of strategy? Firms typical choose among four main strategic postures when competing internationally. These can be characterized as a global standardization strategy, a localization strategy, a transnational strategy, and an international strategy.31 The appropriateness of each strategy varies given the extent of pressures for cost reductions and local responsiveness. Figure 12.7 illustrates the conditions under which each of these strategies is most appropriate. p.427 18 The Evolution of Strategy 19 The Evolution of Strategy 20 International Strategy 21 Multidomestic Strategy 22 Global Strategy Focus is on achieving a low cost strategy by reaping cost reductions that come from experience curve effects and location economies Production, marketing, and R&D concentrated in few favorable functions Market standardized product to keep costs low Effective where strong pressures for cost reductions and low demand for local responsiveness exist Semiconductor industry 23 Transnational Strategy |