ADMS 3960

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ADMS 3960

• International Business

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Chapter 11 The Strategy of International Business
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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

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The Role of Strategy in International Business
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Industry, Strategy ,and Firm Performance

• Industry organization paradigm leading strategy
  perspectives
• The exceptions of imperfect competition
• The idea of industry structure The Five Forces
  Model

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Five Forces Model
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Industry Change
Industry structure changes because of events
like Competitors moves Government policies
Changes in economics Shifting buyer
preferences Technological developments Rate
of market growth
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Competition

• In its pure form it refers to the conditions that
  are present in the marketplace when buyers and
  sellers interact to establish prices and exchange
  goods and services.
• It refers to the means whereby the self interest
  of buyers and sellers acts to serve the needs of
  society as well as those of individual market
  participants.

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The Practical Significance of Perfect Competition

• A large number of small firms and many buyers do
  not possess the power to influence the behavior
  of the participants in the marketplace.
• That power is thoroughly dispersed throughout the
  marketplace.
• Perfect Competition rarely exists in the real
  world.

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Desirable Conditions for Workable Competition

• A market structure with at least two buyers and
  two sellers, but preferably more
• A mixture of large and small firms
• No collusion or coercion among sellers

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Desirable Conditions for Workable Competition

• As much market information as possibly is
  available to buyers and sellers
• No barriers to entry and exit

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Strategy and Value

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

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Strategies

• Strategy is a set of goals and policies or
  actions to achieve those goals.
• A strategic plan must link to sub-strategies at
  the operations level.

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Strategic Programming

• This focuses on, who what and how much.
• Day to day priorities
• Roles and responsibilities

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Tactics and Execution

• This focuses on how to get it done
• Immediate objectives with a focus on adjustment
  based on new information

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Michael Porter

• Competitive strategy, is all about being
  different from others. As a nation or a company
  your differences will allow you to excel in areas
  that other will not.
• Strategy is not about one activity, but a series
  of complementary and reinforcing activities.

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What does strategy give us?

• Organizational purpose
• Competitive domains
• Interpretations of opportunities, threats,
  strengths and weaknesses
• Defines managerial tasks and processes
• Defines the impact that the firm intends to make
  on its shareholders
• Determines investment

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Value

• Value is what remains after costs have been
  deducted from the revenues of a firm. Cost
  leadership emphasizes high production volumes,
  low costs, and low prices. Firms that choose this
  strategy strive to be the low-cost producer in an
  industry for a given level of quality. This
  strategy requires that a firm sell its products
  at the average industry price to earn a profit
  higher than that of rivals or below the average
  industry prices to capture market share.

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Value Chain

• What is the value chain?
• A value chain disaggregates a firm into
• Primary activities that create and deliver the
  product
• Support activities that aid the individuals and
  groups engaged in primary activities
• Value chains identify the format and interactions
  between different activities of the company.

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Porters Value Chain
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Purpose of The Value Chain? Cost Analysis

1. Define the value chain in terms of sources of
   competitive advantage
2. Establish the relative importance of each
   activity in terms of total product cost
3. Compare costs by activity and against competitors
4. Identify cost drivers
5. Identify linkages between activities
6. Identify opportunities for reducing costs

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Using the Value Chain

• Using the value chain leads to
• Configuration of the Company
• Macro Cost Factors
• Logistics analysis
• Industry Clusters
• Digitization
• Economies of Scale
• Business Environment

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Digitization

• The process of digitization involves converting
  an analog product into a string of zeros and
  ones. Increasingly, products like software,
  music, and books, as well as services like call
  centers, application processing, and financial
  consolidation, can be digitized and, hence,
  located virtually anywhere. Equipped with
  networked computers, workers can move goods and
  services anywhere in the world at negligible cost
  and complication.
• Consequently, the potential for digitization of
  goods or services influences how a company
  configures its value chain.

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Clusters

• An industry cluster is a system of businesses and
  institutions engaged with one another at various
  levels.

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Manufacturing

• Manufacturing costs vary from country to country
  because of wage rates, worker productivity,
  resource
• availability, and fiscal and monetary policies.

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Logistics

• Logistics entails how companies obtain, produce,
  and exchange material and services in the proper
  place and in proper quantities for the proper
  value activity.

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Economies of Scale

• The concept of economies of scale refers to a
  situation wherein a firm doubles its cumulative
  output yet total cost less than doubles due to
  efficiency gains. Effectively, reductions in the
  unit cost of a product result from the increasing
  efficiency that comes with larger operations.

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Economies of Scale

• Sources
• The division of labour This is related to
  specialization particularly in mass production.
  Leads to lower unit costs, machinery output
  increased, quality control improvements, time
  savings.
• Economies of massed resources Theory rests on
  the idea of large numbers. This is what
  insurance is based on. Any company needs excess
  resources and capacity. The larger the firm, the
  smaller the proportion of duplicate capacity
  needed.

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Economies of Scale

• Sources
• Firm-level economies of scale
• Administrative economies
• Financial economies
• Marketing economies

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Porters Value Chain
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Economies of Scale

• Limits
• Diseconomies of scale in distribution
• Complexity of large-scale management
• Costs of product differentiation
• HRM costs in large plants

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Economies of Scale
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Coordination

• Coordination Concerns
• As companies globally configure value activities,
  they must develop coordination tools. Coordinated
  well, MNEs can leverage their core competencies,
  using them to serve customers, boost sales, and
  improve profits.

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National Cultures

• Cultures impose hurdles in coordinating a
  transaction from one stage of the value chain to
  another. Units anchored in individual versus
  collectivist cultures may disagree over
  information sharing or collaboration
  responsibilities conflicts complicate
  coordination.

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National Cultures

• Hence, features of national culture require
  managers to understand their implications to the
  collaborative relationship that shape the
  coordination of value activities.

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Learning Curve

• Learning curve is the commonsense principle that
  the more one does something, the better one gets
  at it.
• Companies configure value chain activities to
  exploit the learning curve.

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The Experience Curve

• The Experience Curve
• Unit cost reductions arising from experience of
  production
• Benefits accrue to first movers and those who
  facilitate learning

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Experience leads to Core Competency

• A core competency can emerge from various
  sources, including
• Product development
• Employee productivity
• Manufacturing expertise
• Marketing imagination
• Executive leadership

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Operational Obstacles

• Operating internationally inevitably runs into
  communication challenges because of time zones,
  differing languages, and ambiguous meanings.
  Increasingly, companies rely on browser-based
  communications methods to coordinate the handoffs
  from link to link.

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Change and the Value Chain

• The configuration and coordination of value
  chains respond to changes in customers,
  competitors, industries, and environments.
• Caveat The Risk of Strategy

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Global Integration versus Local Responsiveness

• Pressures for Global Integration
• Globalization of Markets
• A provocative thesis, increasingly supported by
  global buying patterns and companies strategies,
  suggests that consumers worldwide seek global
  productswhether they are Apple iPods, Samsung
  plasma screens, Facebook connections, Starbucks
  espressos, Google searches, or Zara blouses.

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Global Integration versus Local Responsiveness

• Efficiency Gains of Standardization
• Global and local pressures challenge how the firm
  configures and coordinates its value chain. The
  convergence of national markets and quest for
  production efficiency push for the global
  integration of value activities.

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Standardization

• Standardization is the handmaiden of
  globalization, encouraging supply conditions that
  produce volumes of low-cost, high-quality
  products. That is, standardization is the push
  dynamic that drives supply, whereas the
  globalization of markets represents the pull
  dynamic that converges consumer preferences.

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Standardization

• The logic of standardization is straightforward.
  Repeatedly doing the same task the same way
  improves the efficiency of effort. Improving
  efficiency in the value chain, in turn, supports
  aggressive product development, lower-cost
  production processes, and lower prices.

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Local Responsiveness

• Contrary to the globalization-of-markets thesis,
  others argue that divergences in consumer
  preferences across countries necessitate locally
  responsive value chains.
• Differences in local consumers preferences
  endure due to cultural predisposition, historical
  legacy, and endemic nationalism. Regardless of
  the cause, consumers often prefer goods that are
  sensitive to the particular idiosyncrasies of
  their daily life.

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When Pressures Interact

• The Integration-Responsiveness grid helps
• managers measure the global and local
• pressures that influence the configuration and
• coordination of their value chains.

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Integration Responsiveness Grid
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Strategic Choices
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What Strategy to Pursue?

• Multidomestic Strategy
• Competition in one country is independent of
  competition elsewhere.
• Markets in each country have different consumer
  behaviour.
• Portfolio of independent subsidiaries
• Leads to product diversity.

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From International to Global Strategy

• Global Strategy
• Competition in one country influenced by
  competition elsewhere.
• Markets and consumer behaviour broadly similar in
  all countries.
• International coordination and integration.
• Leads to product standardisation

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Toyota
Our global strategy used to center on world
cars which we would modify slightly to
accommodate demand in different markets. Today
our focus is shifting to models that we develop
and manufacture for selected regional markets.
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Ford
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Transnational Strategies
Exploit experience-based cost economies and
location economies, transfer distinctive
competences within the company, and at the same
time pay attention to pressures for local
responsiveness (Bartlett and Ghoshal, 1989)
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Why Global? Scale is important but..

1. Exposure to global best practices.
2. Access to technology
3. Ability to serve customers
4. Ability to anticipate competitors
5. Leaning and knowledge transfer

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Why Global? They are only viable if

1. They serve locals better than the domestics
2. Are hard to copy
3. Are sustainable.
4. Change the economics of the industry
5. Are capable of further development.

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How to be BIG

• MNEs go through three phases on the path to
  becoming a global powerhouse
• 1. First there was the nineteenth-century
  international model, whereby the company was
  headquartered both physically and mentally in its
  home country it sold goods, when it was so
  inclined, through a scattering of overseas sales
  offices.

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How to be BIG

• The third phase, the globally integrated
  enterprise, is one that builds a company-wide
  value chain that put people, jobs, and
  investments anywhere in the world based on the
  right cost, the right skills and the right
  business environment . . . . now work flows to
  the places where it will be done best, that is,
  most efficiently and to the highest quality.

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How to be BIG

• Phase two of the evolution ushered in the
  classic, multinational firm of the late twentieth
  century. This model saw the parent company
  creating smaller versions of itself in foreign
  markets. These smaller satellite companies were
  run by home-nation executives sent from
  headquarters, who typically had great technical
  expertise but little cultural fluency and minimal
  foreign-language competency.

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Future Whats New in the World of Strategy Types

• Evolution of the Multinational Corporation
• Visions of the Future
• The Metanational Company
• Micro-Nationals
• The Cybercorp

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Metanational

• Thrives on seeking unique ideas, activities, and
  insights that complement its existing operations
  as well as creating leverage points. The
  metanational company builds a new kind of
  competitive advantage by discovering, accessing,
  mobilizing, and leveraging knowledge from many
  locations around the world.

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Metanational
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Micro National

• Although the number of MNEs grows worldwide,
  their average size is fallingmost of the 70,000
  or so firms that operate internationally employ
  less than 250 people. This anomaly signals the
  era of so-called micro-multinationals clever,
  small companies that are born global and operate
  worldwide from day one. Unlike their bigger
  counterparts that expanded internationally by
  gradually entering new markets,
  micro-multinationals go global immediately.

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Cybercorp

• To this type of MNE, national boundaries no
  longer organize consumers, locations, markets, or
  industries. Instead, the cyberspace created by
  evolving Internet technologiesnot the physical
  geography of lines on a mapdefines markets. The
  cybercorp develops competencies that let it react
  in real time to changes in its customers,
  competition, industry, and environment.

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Micro National