Week 6 Flashcards
(36 cards)
Strategy success: Determinants of enterprise value
Enterprise valuation
Profitability
- Reduce costs
- add value and rise prices
profit growth
- sell more in existing markets
- enter new markets
the basic strategic questions
what am i good at or even excellent in?
- resource-based view
where (market, industry) can i be successful?
- market-based view
What is strategy
a planned set of actions that managers take to make best use of the firm’s resources and core competences while matching them to the opportunities in the environment, to gain competitive advantage
the role of strategy in international business:
external influences
- industry structure and drivers
- competitive dynamics
- economic conditions
- political, legal, and regulatory environment
- technology standards and trends
- cultural orientations
- customer expectations
substainable competitive advantage in international context depends on three objects.
to be competitive we need these three elements
efficiency
flexibility
learning
efficiency
lower the cost of the operations and activites on a global sclae
how: the firm must build efficient international value chains
Flexibility
ability to tap local resources and exploit local opportunities because of diverse and volatile environments
how: the firm must develop worldwide flexibility to accommodate diverse country-specific risk and opportunities
learning
unique learning opportunities because of diverse international environment
how: the firm must create the ability to learn from operating in international environments and exploit this learning on worldwide basis
competitive pressures in international business
standardization
- pressure for global integration and cost reduction
differentiation
- pressure for local responsiveness
sources of high pressures for global integration and cost reductions
- in industries producing commodity type products that fill universal needs where price is the main competitive weapon (universal needs)
- when major competitors are based in low cost locations
- where there is persistent excess capacity and price pressures
- where consumers are powerful and face low switching costs
Sources of high pressures for local responsiveness pressures
- differences in consumer tastes and preferences
- differences in traditional practices and infrastructure
- differences in distribution channels
- host-government demands
global vs. multidomestic industries and markets
global industries
- handful of major players that compete head-on in multiple markets
- competition takes places on a regional or worldwide basis
multidiomestic industries
- unique set of competitors in every industry
- competition take place on a country-by-country basis
Four archetypes of international stategy (Siehe Darstellung Folie 29 SW 6)
Global (Standardization) Strategy (Geocentric)
Transnational strategy (Regiocentric)
Localization (Multidomestic, polycentric) strategy
International (Home Replication, Ethnocentric) strategy
Global Strategy
high pressures for global integration and cost reduction
low pressure for local responsiveness
transnational strategy
high pressures for global integration and cost reduction
high pressure for local responsiveness
localization strategy
low pressures for global integration and cost reduction
high pressure for local responsiveness
international strategy
low pressures for global integration and cost reduction
low pressure for local responsiveness
International Strategy (home replication) Low Responsiveness / Low cost pressure
Treatment of foreign markets
- Take products produced for the domestic market and sell them internationally with only minimal local customization
- Foreign markets are separate, and secondary to domestic business.
- Often target are markets similar to the domestic one.
Traditional MNC Cultural Orientation
- Ethnocentric: focus on values and interest of the domestic company
Value Chain
- Critical elements of value chain stay centralized at home (R&D, procurement, production)
- Generally no adaptation to foreign markets, products are marketed through intermediaries
Rationale
- Transferring core competencies of the company (products/services) to locations where local competitors lack them.
Illustration:
short cultural distance
Zara, H&M: sell the same goods in the same way as in the home town
Localization (Multidomestic) Strategy
High Responsiveness / Low Cost Pressure
Treatment of foreign markets
- Increase profitability by customizing goods or services so that they match tastes and preferences in different national markets (world as a grid of national markets)
- Autonomous subsidiaries pursue local responsiveness
Traditional MNC Cultural Orientation
- Polycentric: focus on values and interests of the local culture in the served markets
Value Chain
- Value Chain is flexibly organized according to needs of different national markets
- Critical elements are positioned in the local market (production, procurement, marketing), decentralized and with authority to adapt to local market conditions.
Rationale
- Minimizing political and exchange rate risks
- Greater prestige through local/customized elements
Illustration
adapt perfectlly, so the people don’t even know that it comes for example from nestle
Global Standardization Strategy
Low Responsiveness / High Cost Pressure
Treatment of foreign markets
- World is seen as single integrated market
- No differences in consumer preferences from country to country (“Why not make the same thing, the same way, everywhere?”)
Traditional MNC Cultural Orientation
- Geocentric: focus on global values and universal needs
Value Chain
- Concentration of critical value chain activities (R&D, production and marketing) in headquarters or in the few most favorable locations, central control over operations.
- No or minimum customization applied.
Rationale
- Increase profitability through minimum redundancy, maximum efficiency and integration worldwide, improved quality through standardization.
Transnational Strategy
High Responsiveness / High Cost Pressure
Treatment of foreign markets
- Coordination approach: World is seen as a portfolio of regionally integrated markets
- Differences in consumer preferences from region to region
Traditional MNC Cultural Orientation
- Regiocentric: Focus on integration in geographic markets and building an global network of operations.
- Facilitate global learning and knowledge transfer.
Value Chain
- Scale economies through sourcing from reduced number of global suppliers, concentrate manufacturing in few locations.
- Dispersed, subject to minimum efficiency standards, to meet local preferences.
Rationale
- Benefiting from both global integration and local responsiveness and leveraging global competencies: “standardize where feasible; adapt where appropriate”.
- Coordinate global competitive moves.
An international strategy (home replication) may not be viable in the long term
to survice, firms may need to shift to a global standardization strategy or a transnational strategy in advance to competitors
When organizing for international business, management needs to consider the following
(prüfungsrelevant)
vertical differentiation
- centralization (all decisions are made at one place)
- decentralization (how much responsibilities every country management has)
horizontal differentiation
- international division
- area Divisions
- worldwide prodct divisions
- global matrix
Centralization premises
- Decisions should be made by senior managers.
- Effective value chain activities require headquarters direct local activities.
- Local operations support the central MNE’s vision and mission.
