Chapter 14- The Strategy of Int Business

Question 1

strategy

Answer 1

the actions managers take to attain the goals of the firm
- maximize share holder wealth

Question 2

Two ways to describe profits

Answer 2

profitability
profit growth

Question 3

profitability

Answer 3

• ROIC- rate of return on invested capital
• net income/total invested capital (division sign)

Question 4

profit growth

Answer 4

percentage increase in net profits over time- sell more
(are our profits growing over time)

Question 5

return on investment

Answer 5

look at diagram 3:45 seconds in video review

Question 6

how is value created?

Answer 6

• firms value creation is the difference between value added and cost incurred
• firm has high profits when it created more value for its customers and does so at a lower cost

Question 7

value creation

Answer 7

E = V - C
earnings = value added - cost incurred

V (the higher price that the firm can charge for a product given competition pressures

C ( the cost of producing that product)

Question 8

how is value created

Answer 8

example: Dutch Bros doing good job creating value bc upbeat and uplifting workers. Creates positive environment combined with created customizable drinks
better value= better profitability bc you can raise prices

Question 9

operation configuration

Answer 9

value chain of a series of distinct value creation activities
(draw diagram at 6:33 seconds in vid)

Question 10

support activities

Answer 10

information
systems
logistics
human resources

Question 11

primary activities

Answer 11

• research and development (where innovation takes place)
• production (supply chain)
• marketing and sales (how are we promoting and distributing product)
• customer service

Question 12

how can firms profit by expanding globally (4 ways)

Answer 12

1.) increase revenue aka EXPAND MARKETS: sell domestic products in int markets

2.) decrease costs aka REALIZE LOCATION ECONOMIES: disperse value creation activities to locations where they can be performed most efficiently and effectively

3.) decrease costs aka COST ECONOMIES FROM EXPERIENCE: serve an expanded global market from a central location
(gaining experience allowing us to be more efficient)

4.) increase sales/decrease costs aka LEVERAGING SKILLS DEVELOPED IN FOREIGN OPERATIONS ELSEWHERE

Question 13

to increase profitability and profit growth:

Answer 13

• add value (cost of production and quality consumers perceive)
• lower costs through location economies (move production to low-cost sites)
• sell more to our existing marketing (increase revenue)
• expand internationally by entering in new global markets (1/3 of GM’s profits are in Asia)

Question 14

economies of scale

Answer 14

the reductions in unit cost achieved by producing a large volume of a product

(for example 300 enrolled of MGT, La Rosa is a sunk cost (fixed cost), and so is class room but if we spread it across the number of students, it produces scale economies)

Question 15

source of economies of scale:

Answer 15

• spreading fixed costs over a large volume: 600 person online classes
• utilizing production facilities more intensively: McDonalds breakfast
• increasing bargaining power with suppliers: think walmart and amazon

Question 16

compare and contrast how pressures for cost reduction and local responsiveness influence strategic choice

Answer 16

1.) pressure for cost reductions
2.) pressures to be locally responsive

Question 17

pressures for cost reductions

Answer 17

• force the firm to lower unit costs: commodity prices (coke vs. pepsi)
• persistent excess capacity: think supply and demand

Question 18

pressures to be locally responsive

Answer 18

• require the firm to adapt its product to meet local demands in each market (deep bowls in china)
• consumer tastes (action movies in asia)
• differences in traditional practices, distribution channels, host gov demands (country infrastructure)

Answer 18

you can choose to be cost focus or you can choose to be well differentiated

Question 19

global strategies

Answer 19

• global standardization: cost reductions from economies of scale- standardized products (intel would compete in this marketplace)
• localization: customizing goods to match the tastes of national markets (ikea in China)
• transnational: simultaneously low costs and local responsiveness (caterpillar vs. komatsu)… hardest strategy to achieve but very profitable if you achieve this

international: only minimal local customization (xerox early copiers)

Question 20

core competence

Answer 20

skills within the firm that competitors cannot easily match or imitate

• skills may exist from value creation activities such as production, marketing, R&D, human resources, logistics, general management etc

Question 21

what are core competencies for Ikea

Answer 21

great design
great product
interesting store layout
cool item
unique things but may not last

Question 22

Sample questions

Answer 22

T/F: the more value customers place on a firm’s product, the higher the price the firm can charge for those products

TRUE

Question 23

Sample question

Answer 23

T/F: when consumer tastes and preferences differ significantly between countries, there is low pressure for local responsiveness

FALSE