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r 12
The Strategy of
International
Business
Strategy & the firm
• Profit determined by :
– The amount of value customers place on
firm’s goods or services (V)
– Firm’s cost of production (C)
• Consumer surplus occurs when price
charged by a firm on a good or service is
less than value placed on it by a
customer
• Firm creates profit by increasing value or
lowering cost
• Two basic strategies to create value and
attain competitive advantage according
to Porter:
– Low cost
– Differentiation strategy
4
Firm as a value chain
6
Strategy in international
business
•
• Strategy is concerned with
identifying and taking actions that
will lower costs of value creation
and/or differentiate the firm’s
product offering through superior
design, quality service,
functionality, etc.
• Meet both of Porters Goals
• 7
Advantages of global
expansion
• Location economies
• Cost economies from experience
effects
• Leveraging core competencies
• Leveraging subsidiary skills
BUT
Par
Sal ts
es
Advertis Design
ing
Par
Pontiac LeMans Part ts
s
10
Caveats
•
• Complications arise due to
– Transportation costs
– Trade barriers
– Political and economic risks
• US firms have shifted production from Asia
to Mexico due to
– Low labor costs.
– Proximity to U.S.
– NAFTA. - transportation costs
.
11
Experience effects
14
Strategic significance of the
experience curve
• The firm that moves down the experience
curve most rapidly has a cost advantage
over its competitors
Fig 12.4
• Serving the global market
from a single location helps to
•
15
Leveraging core competencies
18
Pressures for local
responsiveness
• Differences in consumer tastes &
preferences
– North American families like pickup trucks
while in Europe it is viewed as a utility
vehicle for firms
• Differences in infrastructure & traditional
practices
– Consumer electrical system in North
America is based on 110 volts; in Europe
on 240 volts
• Differences in distribution channels
– Germany has few retailers dominating the
food market, while in Italy it is fragmented
• Host-Government demands
19
– Health care system differences between
Pressures for cost reduction and local
responsiveness
Gen
the erall
Fig 12.5 com posi y refl
pan t
ies ion o ects
f m
ost
20
Management focus – tailoring world
cars to the U.S. market
• Japanese automobile manufacturers
customize car design to tastes of
American consumers
– Toyota released the Tundra with V8 engines
which looks like a heavy-duty pickup truck
with a powerful engine
– Nissan let U.S. engineers and planners be
completely responsible for development of
most vehicles sold in North America
– Honda customizes the Pilot, it’s next
generation SUV according to tastes for
American families who wanted bigger
vehicles with three row seating 21
Strategic choices
22
Four basic strategies
Fig 12.6
23
International strategy
28
Advantages and disadvantages of
the four strategies
29