Strategy of International Business Flashcards
Exam 2 (13 cards)
What is strategy?
The planned actions that managers take to attain the goals of the firm
(usually to maximize the value of the firm for shareholders/owners by increasing
profitability and the rate of profit growth)
Profitability
This can be measured as the rate of return on invested capital
(net profit/total invested capital)… note there are numerous ways to measure
profitability.
Lowering costs
adding value to products or services may allow firms to increase and increase profitability
Value Creation
refers to the process by which a company or organization adds worth or benefit to its products, services, or business operations. The goal is to increase the overall value for customers, employees, shareholders, and other stakeholders.
Value Creation = Making something more desirable or useful to people, which benefits everyone involved.
Positioning
Porter offers that firms need to be explicit with regards to
their strategic emphasis on either “differentiation” or “low-cost”
strategies… and they need to configure their internal operations to
support this emphasis. They must pick a viable position on the
efficiency frontier and ensure the proper configuration and
organization structure to achieve this goal.
The Firm as a Value Chain:
In strategic management, a value chain is a framework that views a company as a series of interconnected activities, each contributing to the creation of value for customers. This concept was introduced by Michael Porter in his book, Competitive Advantage, and helps firms understand how to maximize value at each step in the production and service delivery process.
What is a Value Chain
A value chain consists of all the activities a firm undertakes to design, produce, market, deliver, and support its product or service. These activities are grouped into primary and supporting activities.
Primary Activities (Directly involved in producing the product or service):
Inbound Logistics: Managing raw materials, inventory, and storage.
Operations: Converting raw materials into finished products (e.g., manufacturing, assembly).
Outbound Logistics: Distributing the final product to customers (e.g., warehousing, order fulfillment).
Marketing & Sales:
International Expansion can also increase profitability
- Selling in more markets could potentially mean greater sales
volumes and economies of scale (the decrease in per unit costs
as production volume increases). - There are opportunities for location economies (the economies
that result from performing a value creating activity in the
optimal location for that activity). - Firms tend to learn a great deal through international operations,
and the new capabilities developed can lead to reduced costs
and increases efficiency.
Profit Growth
the percentage increase in net profits over time.
i. Managers may seek to sell more products in existing markets for
profit growth.
Managers may seek to expand to sell products in new markets for
profit growth
International Strategy
the planned international actions/activities that managers
take to attain the goals of the firm (usually to maximize the value of the firm for
shareholders/owners by increasing profitability and the rate of profit growth
Pressures for cost reduction
Managers often respond to pressures for
cost reductions through mass production of standardized products in
international locations that offer location economies, simultaneosly
taking advantage of opportunities for economies of scale, and learning
effects.
International Strategy
Definition: This strategy involves taking products initially designed for the domestic market and selling them internationally with minimal local adaptation.
Advantages:
Efficiency: The firm can use existing products and processes to enter new markets.
Low risk: Since the product is already established in the domestic market, the risk of failure is reduced.
Disadvantages:
Lack of local responsiveness: Products may not meet the unique needs and preferences of local markets.
Vulnerability to competition: Competitors may offer more locally adapted products, gaining an edge.
Localization Strategy
Localization Strategy:
Definition: A strategy focused on adapting products or services to meet the specific tastes and preferences of different national markets.
Advantages:
Market fit: Products are tailored to local needs, leading to higher customer satisfaction and loyalty.
Competitive edge: Firms can compete effectively by meeting local demands and regulations.
Disadvantages:
High costs: Adapting products and processes for each market is expensive.
Complexity: Managing diverse offerings across multiple countries can be operationally complex.
When it’s used: Typically when customer preferences or cultural differences are significant, and the market demands customization.
Evolution: As price competition becomes intense or as firms achieve economies of scale, the localization strategy may lose its effectiveness, pushing the firm toward a transnational strategy.
Global Standardization Strategy
Definition: This strategy focuses on achieving low cost by standardizing products across global markets, benefiting from economies of scale, location economies, and learning effects.
Advantages:
Cost reductions: Significant savings from producing large volumes of a standardized product and leveraging global supply chains.
Efficiency: Less customization required, streamlining production, distribution, and marketing.
Disadvantages:
Low local responsiveness: Products may not be well-suited to specific local preferences or needs.
Market risk: Companies may face resistance in markets with strong cultural or regulatory differences.
When it’s used: Common in industries where there is a universal need (e.g., industrial goods, technology products) and where local adaptation is minimal.
