strategy of international business chapter 12
DESCRIPTION
Strategy of International Business Chapter 12. International Business October 15, 2007. Cho, Hee-Joo Jang, Se-Yeop. Luo, Lin Morger, Raffael. Content. Strategy and the Firm Hee-Joo Global Expansion Luo Lin Cost & Localization PressureRaffael Morger - PowerPoint PPT PresentationTRANSCRIPT
Strategy of International BusinessChapter 12
Cho, Hee-Joo
Jang, Se-Yeop Luo, Lin
Morger, Raffael
International Business October 15, 2007
2
Content
Strategy and the Firm Hee-Joo
Global Expansion Luo Lin
Cost & Localization Pressure Raffael Morger
Four Strategies Se-Yeop
3
Strategy and the Firm
4
Strategy and the Firm
Value Creation
C
P - C
V - P
C
P
VV - C
V = Value of product to and average consumer
P = Price per unit
C = Cost of production per unit
V – P = Consumer surplus per unit
V – C = Value created per unit
5
Strategy and the Firm
Strategic Positioning
6
Strategy and the Firm
Operations: the firm as a value chain
Primary Activities
Support Activities
Information Systems Logistics Human Resource
Company Infrastructure
7
Global Expansion, Profitability, and Profit Growth
What can firms do after expanding globally?
Expanding the Market
Realizing Location Economies
Reducing Production Cost from Experience Effects
Earning a Greater Return by Leveraging Subsidiary Skills
8
Global Expansion, Profitability, and Profit Growth
Expanding the Market
=>by selling products in international markets
• Leveraging Products
e.g. Microsoft ;Volkswagen and Toyota
• Core Competencies
e.g. Toyota
9
Global Expansion, Profitability, and Profit Growth
Realizing Location Economies
=>by dispersing individual value creation activities
• Creating a Global Web
e.g. IBM’s ThinkPad X31 laptop computer
• Some Warnings
e.g. New Zealand (high transportation costs);
Political risk
10
Reducing Production Cost from Experience Effects
=>by reducing the costs of value creation
Global Expansion, Profitability, and Profit Growth
Cumulative Output
Un
it C
os
ts
A
B
Cumulative output increases over time, and unit costs will lower gradually in one period. Why?
11
• Learning Effects=>cost savings
e.g. Assembling airframe
• Economies of Scale=> reductions in unit cost
e.g. In the automobile industry
Global Expansion, Profitability, and Profit Growth
Reasons
12
Global Expansion, Profitability, and Profit Growth
Earning a Greater Return by Leveraging Subsidiary
Skills
=>by leveraging any valuable skills developed in foreign operations and transferring them to other entities
e.g. McDonald's restaurant in France
13
Pressures International Businesses
Firm A Firm C
Firm B
Pre
ssu
res
for
Co
st R
edu
ctio
n
Pressures for Local Responsiveness
Lo
wH
igh
Low High
--> Nowadays many companies are in the position of firm C
14
Pressures for Cost Reductions
Companies have to lower cost of value creation
Outsourcing: eg. Call Centers to India, bank back office to developing nations
Pressures are particularly intense in commodity-type industries e.g. bulk chemicals, petroleum, steel, sugar etc
15
Local Responsiveness (1)
Differences in Customer Tastes and Preferences
- Customer tastes and preferences
- Deeply embedded historic or cultural reasons
Marketing message have to be customized
e.g. Difference US vs. European automobile market
Differences in Infrastructure and Traditional Practices
- Electrical system
- Left side driving in Great Britain
- Mobile networks
16
Differences in Distribution Channels
- Marketing strategies may have to be adapted
e.g. British and Japanese doctors will not accept or respond favorably to a US style high pressure sales force
Differences Host Government Demands
- Economic and political demands imposed by host-country government may require local responsiveness
- Threats of protectionism, economic nationalism
e.g. Pharmaceutical Companies are subject o local clinical testing, registration procedures etc.
Railcar production must be in purchasing country
Local Responsiveness (2)
17
Four Basic Strategies
High
High
Low
Low
Pressures for Cost Reduction
Pressures for Local Responsiveness
Global Standardization
Strategy
Transnational Strategy
International Strategy
Localization Strategy
18
Four Basic Strategies
High
High
Low
Low
Pressures for Cost Reduction
Pressures for Local Responsiveness
International Strategy
- Product of universal needs
- No major competitors
- Starts from domestic market and expands internationally
- Tight control over marketing and product strategy
=> Microsoft, Procter & Gamble
19
Global Standardization Strategy
Global Standardization
Strategy
High
High
Low
Low
Pressures for Cost Reduction
Pressures for Local Responsiveness
- Low cost strategy on global Scale --> minimal adaptation
- Products usually serve universal needs
=> e.g. Samsung, Nokia
20
Four Basic Strategies
High
High
Low
Low
Pressures for Cost Reduction
Pressures for Local Responsiveness
Localization
Strategy
- Customizing the product to local demands
- Value creation strategy in the local market
=> e.g. MTV
21
Four Basic Strategies
High
High
Low
Low
Pressures for Cost Reduction
Pressures for Local Responsiveness
Transnational Strategy
- Focuses on leveraging subsidiary skills
- Build centralized manufacturing of components with assembling plants in each of its markets
=> e.g. Caterpillar
22
The Evolution of Strategy - Xerox
- Invention of photocopier in 1960
- No major competition at first
- Expanded globally => pursuing international strategy
23
Emergence of Competitors
Japanese companies such as Canon invented their way around Xerox’s patens.
1. produced their own photocopiers in very efficient
manufacturing system.
2. priced them below Xerox’s products.
- leads to Xerox’s failure in cost reduction
24
The Evolution of Strategy
Mistake of Xerox: Failed in reducing cost before the emergence of competitors
=> In the long run, international strategy will face cost or localization pressure
25
Questions
? Cho, Hee-JooJang, Se-Yeop
Luo, Lin Morger, Raffael