Chapter 11: The Strategy of International Business

Transcription

1 Chapter 11: The of International Business Localization : Local country managers have the power of manufacturing and marketing Global : Corporate center exercise more control over manufacturing, marketing & production development decision *Many international businesses make toward shift from Localization strategy to Global and the Firm : actions that managers take to attain the goals of the firm Usually, strategies focus on profitability and profit growth Profitability: measured by rate of return the firm makes on invested capital(roic) Net Profit *ROIC = Total Invested Capital 100 Profit growth: measured by percentage increase in net profits over time Determinants of Enterprise VALUE Increasing in Enterprise Value Profitability incrase Profit Growth increase Reduce Cost Add value & Raise Price Sell more in Existing markets Enter new markets Value Creation (VC) *Value Creation = Product s Value (V) Cost of production (C) - We should create value superior than our competitors - Two Basic strategies for creating value (v-c) 1. Low cost strategy 2. Differentiation strategy => increase attractiveness of product

2 V = value of product to an average customer P = Price per unit How to maximize profitability (ROIC) C = Cost of production per unit V-P = Consumer surplus per unit P-C = Profit per unit sold V-C = Value created per unit 1. Strategic Position : pick a position on efficiency frontier that is viable (enough demand to support that choice) Efficiency Frontier: show all the different positions a firm can adopt with regarding to adding value to product (v) and lowering cost (c) - Some positions on efficient frontier are not viable because it may not have enough demand to support a choice 2. Operations: the firm as a value chain - Internal operations must support that position Operation: the various value creation activities a firm undertakes Value chain: Primary & Support activities Support Activities Information Systems Company Infrastructure Logistics Human Resources R&D Production Marketing and Sales Customer Service Primary Activities Primary Activities 1. Research & Development (R&D) : Design product and production process 2. Production : creation of goods and services such as packaging, warehouse 3. Marketing and Sales (Promotion, Distribution Channels, etc.) 4. Customer service (Repair and Install)

3 Support Activities 1. Information System: Electronic system ex. inventory control and tracking sales 2. Logistic Function Control the transmission of physical materials from procurement to production and then distribution 3. Human Resources (Recruiting, training and compensating) 4. Company Infrastructure: the context of working ex. Organization structure, control system, and culture of firms 3. Organization: The implementation of strategy Organization Architecture: the total of firm s organization includes Structure Processes People Incentives and Controls Culture 1. Organizational Structure Formal division into subunits Location of decision making responsibilities within that structure Establishment of integrating to coordinate the activities of subunits 2. Incentive & Controls Controls : Metric use to measure the performance of subunits and make judgments about how well managers are doing the subunits Incentives : reward appropriate managerial behavior ex. Bonus 3. Process : manner which decisions 4. Organizational Culture : Norms and values that are shared among members 5. People : employees and the strategy used to recruit, compensate and retain those individuals Strategic Fit - The operation of the firm s must support firm s strategy - Firms organization architecture must match firm s operations Global Expansion, Profitability, Profit Growth - Expanding globally will increase firm s profitability and rate of profit growth - Firms that operate internationally can: 1. Expanding the market: Leveraging products and competencies

4 Two types of pressures Sending domestic goods and services and selling them internationally Transfer core competencies(a firm s skills that competitors cannot easily match or imitate) to foreign market where they lack of them 2. Location economies Cost advantages from performing a value creation activity in the optimal location for two effects 1. Lowering cost 2. Higher quality Global Web : separate to produce each parts of products in suitable locations around the world where value added is maximized and costs of value creation are minimized 3. Experience Effects: systematic production cost reductions that occur over the life of a product Reduce production cost from cumulative output 1. Learning Effects: cost saving from learning by doing 2. Economies of Scales : cost advantage from more volume of production will reduce cost per unit 4. Leveraging subsidiaries skill : Leverage the skills created within subsidiaries and apply them other operation within the firm Managers should: 1. Recognize that valuable skills can be developed anywhere within the firm s global network 2. Use incentives systems to encourage local employees to acquire new skills 3. Act as facilitators to transfer valuable skills within the firm 1. Pressure for cost reduction : minimize costs - Pressure is intense when 1. Industries producing commodity type products that fill universal needs 2. Industries where competitors are based in low cost locations 3. Industries where customers are powerful and low switching cost 2. Pressure for responsiveness : differentiate products and strategy for different countries - Pressure arises from Difference in 1. Customer tastes and preferences 2. Infrastructure and Traditional Practices 3. Distribution channels 4. Host government demand

5 Choosing a Pressure for Cost Reduction High Global Standardization Transnational Stategy Low International Localization Low High Pressure for Local Responsiveness 1. Global Standardization : Strong pressure for cost reduction, Low pressure for local responsiveness Focus on increasing profitability and profit growth by reaping the cost of reductions that comes from - Learning Effects - Economies of Scales - Location economies The goal is to pursue a low cost strategy on global scale 2. Localization : Substantial difference across nations in consumer tastes, low pressure for cost reduction Focus on increasing profitability by customize the firms goods and services so that they provide a good match in tastes and preference in different national markets 3. Transnational : both high cost pressures and high pressure for local responsiveness Focus on simultaneously achieve low costs and offer differentiate products in different markets 4. International : Low cost pressure and low pressure for local responsiveness Focus on first produce products in the domestic markets and then selling them internationally with only minimal local customization

6 Evolution of strategy International and localization strategies may not be viable in long term because more competitors increase So firms may need to shift to Global Standardization or a Transnational Strategic Alliances : cooperative agreements between two or more firms 1. Formal Joint Venture 2. Short term contractual agreement Advantages of Strategic Alliance 1. Facilitating entry to foreign market 2. Has person to share fixed costs 3. Bring together complementary skills and assets from partner 4. Helping create technological standards for the industry Disadvantages of Strategic Alliance 1. Giving competitors low-cost routes to new technology and markets 2. If a firm are not careful, it may give away more in a strategic alliance than it receives Making Alliances work 1. Partner Selection - A Good partner should: 1. helps firm achieve its strategic goal and has the capability the firm lack and that it value 2. Shares the firm s vision for the purpose of the alliance 3. Not expropriate the firm s technological know-how while giving away little in return 2. Alliance Structure : to reduce risk of giving away too much to the partner - Good alliance should: 1. Be design to make it difficult to transfer technology not meant to be transferred 2.Have contractual safeguard against the risk of opportunism by partner 3. Make a cross-licensing agreement in advance to swap skills and technologies to ensure a chance for equitable gain 4. Extract a significant credible commitment from the partner in advance 3. Managing the Alliance - Good alliance should: 1. Building interpersonal relation called rational capital 2. Promote learning from alliance partners 3. Use all the learning to adapt in the company