IAF 605 - International Business Management

Week 8

The Strategy of International Business

Agenda

midterm exam results and discussion

Chapter 11 – The Strategy of International Business

Midterm

Average (/45) Average Lowest (%) Highest (%)

35 77% 51% 91%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32

Chapter Objectives

To identify how managers develop strategy

To examine industry structure, firm strategy, and value creation

To profile the features and functions of the value-chain framework

To assess how managers configure and coordinate a value chain

To explain global integration and local responsiveness

To profile the types of strategies firms use in international business

The Role of Strategy in International Business (p395)

Industry, Strategy, And Firm Performance

Strategy expresses management’s ideas on how to best:

attract customers

operate efficiently

competeeffectively

create value

Industry Organization (IO) Paradigm (theoretical framework)

forces that have the greatest impact on a multinational enterprise’s strategy: immediate industry and

competitive environment

• no individual affects price or quantities

• perfect info available to everyone

• few, if any, barriers to exit

• full mobility of resources

• perfect knowledge among firms and buyers

Industry Organization

(IO)paradigm presumes

perfect competition:

What about imperfect competition?

performance of a firm is a function of its market conduct, which in turn is determined by the structure of its industry)

few large sellers, barriers to entry, passive buyers

many firms had outstanding performance (GE, Toyota...)

Image source: http://img5.allocine.fr/acmedia/rsz/434/x/x/x/medias/nmedia/18/62/87/05/18954210.jpg

rivalry

among

competing

sellers

potentialnew entrants

suppliers of raw materials,

components or other resources

inputs

buyers

firms in other industries offering substitute

products

Industry Structure: Five Forces Model (p398)

Competitors’ moves

Government policies

Changes in economics

Shifting buyer preferences

Technological developments

Rate of market growth

Competitor’s Moves

Government Policies

Change in Economics

Shifting Buyer Preferences

Source: http://flickr.com/photos/shapeshift/352593346

Technological Developments

Source: toyota.com

Rate of Market Growth

Reminder

July 27th: group assignment due

Strategy and Value

Strategy helps managers assess the company’s present situation, identify the direction the company should go, and determine how the company will get there.

Value is the measure of a firm’s ability to sell what it makes for more than the cost it incurred to make it

Firms create value either through a low-cost leadership strategy or a strategy. Can both be done at the same time?

The Firm As Value Chain

How the company will design, make, move, and sell products; how it will find efficiencies in doing so…

…how it will co-ordinate the decisions

in one part of the businesswith those made in other parts

What Is a Value Chain?

The value chain lets managers deconstruct the general idea of “create value” into a step-by-step system.

Product

Design

Operations Outbound

Logistics

Marketing Service

Dimensions of The Value Chain

Primary activities -create and deliver

the product.

Support activities -aid the individuals

and groups engaged in primary activities.

Primary and Support Activities (See Tables 11.2 and 11.3)

Product Design OperationsOutbound Logistics

Marketing Service

Materials and Equipment

Firm Infrastructure

Human Resources

Systems & Solutions

Managing the Value Chain

Configuration

• Way that managers arrange the activities of the value chain –concentrated to dispersed

• Firms pay close attention to location economies when configuring their value chain

Coordination

• Way that managers connect the activities of the value chain.

• Devising a way to coordinate value chain activities must be in ways that leverage a firm’s core competencies

Technology and Coordination

The Risk of Strategy

crea-tivity

Pressures for Global Integration vs. Local Responsiveness

global integration

local responsiveness

managers, competencies, industries, or environments

- companies rethink and reset their value activities

Two Drivers of Global Integration

globalization of markets

• $...hard to acquire, difficult to save and scarce

efficiency gains of standardization

Pressures for Local Responsiveness

host-government

policies consumer divergence

Source: AP Photo/Lefteris Pitarakis

Integration-Responsiveness (IR) Grid (I): Industry Types (p421)

Exercise

Use the five fundamental forces model to analyze one of the industries listed in the integration-responsiveness grid (page 421).

Does the pressure for local responsiveness and/or global integration impact the five forces in the industry you selected?

rivalry

among

competing

sellers

potentialnew entrants

suppliers buyers

substitute products

Integration-Responsiveness (IR) Grid (II): Strategy Types

Homework

if you were not satisfied with your mid-term exam mark, determine what needs to change in preparation for thenext exam

review Chapter 11

read Chapter 12

Case: Burger King Beefs Up Global Operations (page 465)