The strategy-of-international-business

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  • Internet Extra: Cadbury Schweppes has changed its strategy over the years to respond to shifting market and competitive conditions. Go to the company’s web site {http://www.cadburyschweppes.com/EN/} to further explore this and to see real examples of the different strategic approaches outlined in this chapter. Click on Investor Centre, then on Our Business and Values. From this point, you can explore why the company is in its various products lines and what it expects to achieve (click on Origins and Portfolio Development), where the company is today, and why (click on The Business Today), the company’s structure and organization (click on structure and organization), and where the company wants to go in the future (click on 2007 goals and priorities).
  • Management Focus: The Evolution of Strategy at Procter & Gamble Summary This feature explores the evolution of Procter & Gamble’s global strategy. In 1915, Procter & Gamble opened its first foreign operation in Canada. In the 1950s and 1960s, Procter & Gamble expanded into Western Europe, and then, in the 1970s, into Japan and other parts of Asia. Throughout this expansion, the company maintained all product development at its Cincinnati, Ohio headquarters, while each subsidiary took on the responsibility for manufacturing, marketing, and distributing the products. Procter & Gamble shifted its strategy in the 1990s, closing several foreign locations and moving to a more regional approach to global markets. More recently, the company implemented a business unit approach whereby different units are entirely responsible for generated profits for a product group. Discussion of this feature can begin with the following questions. Suggested Discussion Questions 1. Discuss the evolution of Procter & Gamble’s strategy. Do you think Procter & Gamble was reactive or proactive in its approach to strategy in the late 1990s and early 2000s? 2. What factors have forced Procter & Gamble to change its strategy? As a competitor to Procter & Gamble, what can you learn from the company’s experiences? 3. How would you characterize Procter & Gamble’s current strategy? What challenges do you foresee with the new strategy?
  • STRATEGIA PAG. 619
  • Management Focus: Cisco and Fujitsu Summary This feature examines Cisco Systems’ joint venture with Fujitsu. Cisco, the world’s largest manufacturer of Internet routers, entered the alliance in 2004 in an effort to jointly develop the next generation of high end routers for sales in Japan. Cisco believes that the Japanese market will be important, and wants to expand its presence there. Fujitsu wanted the routers so that it can offer end-to-end communications solutions to its customers. Discussion of the feature can begin with the following questions. Suggested Discussion Questions 1. What did Cisco hope to gain by forming an alliance with Fujitsu? What risks are involved for Cisco with this alliance? How can Cisco limit those risks? 2. What did Fujitsu bring to the alliance? Why was it important for Cisco to have a Japanese presence? What were the advantages of the alliance for Fujitsu? 3. What does the alliance between Cisco and Fujitsu mean to other competitors in the router market?
  • Management Focus: Cisco and Fujitsu Summary This feature examines Cisco Systems’ joint venture with Fujitsu. Cisco, the world’s largest manufacturer of Internet routers, entered the alliance in 2004 in an effort to jointly develop the next generation of high end routers for sales in Japan. Cisco believes that the Japanese market will be important, and wants to expand its presence there. Fujitsu wanted the routers so that it can offer end-to-end communications solutions to its customers. Discussion of the feature can begin with the following questions. Suggested Discussion Questions 1. What did Cisco hope to gain by forming an alliance with Fujitsu? What risks are involved for Cisco with this alliance? How can Cisco limit those risks? 2. What did Fujitsu bring to the alliance? Why was it important for Cisco to have a Japanese presence? What were the advantages of the alliance for Fujitsu? 3. What does the alliance between Cisco and Fujitsu mean to other competitors in the router market?
  • The strategy-of-international-business

    1. 1. The Strategy ofInternationalBusiness8
    2. 2. The Strategy ofInternational BusinessINTRODUCTIONThe focus is on the firm itself and, in particular, on theactions managers can take to compete more effectively asan international business.
    3. 3. The Strategy ofInternational BusinessSTRATEGY AND THE FIRMA firm’s strategy can be defined as the actions thatmanagers take to attain the goals of the firm.Profitability can be defined as the rate of return the firmmakes on its invested capital.Profit growth is the percentage increase in net profits overtime.
    4. 4. The Strategy ofInternational BusinessValue Creation• The more value customers place on the firm’s products,the higher the price the firm can charge for those products• The value created by a firm is measured by thedifference between V (the price that the firm can charge forthat product given competitive pressures) and C (the costsof producing that product)
    5. 5. The Strategy ofInternational BusinessFirms can increase their profits:•by adding value to a product so that customers are willingto pay more for it• by lowering the costsThere are two basic strategies for improving a firm’sprofitability:• a differentiation strategy• a low cost strategy
    6. 6. The Strategy ofInternational BusinessStrategic PositioningA central tenet of the basic strategy paradigm is that inorder to maximize its long run return on invested capital, afirm must:• Pick a position on the efficiency frontier that is viable inthe sense that there is enough demand to support thatchoice• Configure its internal operations so that they support thatposition• Make sure that the firm has the right organizationstructure in place to execute its strategy
    7. 7. The Strategy ofInternational BusinessOperations: The Firm as a Value Chain• The firm can be thought of a value chain composed of aseries of distinct value creation activities, includingproduction, marketing, materials management, R&D,human resources, information systems, and the firminfrastructure• These value creation activities can be categorized asprimary activities and support activities
    8. 8. The Strategy ofInternational BusinessPrimary Activities• The primary activities of a firm have to do with creatingthe product, marketing and delivering the product tobuyers, and providing support and after-sale service to thebuyers of the productSupport Activities• Support activities provide the inputs that allow the primaryactivities of production and marketing to occur
    9. 9. The Strategy ofInternational BusinessOrganization: The Implementation of StrategyThe term organization architecture can be used to referto the totality of a firm’s organization, including formalorganizational structure, control systems and incentives,organizational culture, processes, and people.
    10. 10. The Strategy ofInternational BusinessOrganizational structure refers to:• the formal division of the organization into subunits• the location of decision-making responsibilities within thatstructure• the establishment of integrating mechanisms tocoordinate the activities of subunits including crossfunctional teams and or pan-regional committees
    11. 11. The Strategy ofInternational Business• Controls are the metrics used to measure the performance ofsubunits and make judgments about how well managers are runningthose subunits• Incentives are the devices used to reward appropriate managerialbehavior• Processes are the manner in which decisions are made and work isperformed within the organization• Organizational culture is the norms and value systems that areshared among the employees of an organization• By people we mean not just the employees of the organization, butalso the strategy used to recruit, compensate, and retain thoseindividuals and the type of people that they are in terms of their skills,values, and orientation
    12. 12. The Strategy ofInternational BusinessIn Sum: Strategic FitIn sum, for a firm to attain superior performance and earn ahigh return on capital, its strategy must make sense givenmarket conditions.
    13. 13. The Strategy ofInternational BusinessGLOBAL EXPANSION, PROFITABILITY, AND PROFIT GROWTHFirms that operate internationally are able to:• Expand the market for their domestic product offerings by sellingthose products in international markets• Realize location economies by dispersing individual value creationactivities to locations around the globe where they can be performedmost efficiently and effectively• Realize greater cost economies from experience effects by serving anexpanded global market from a central location, thereby reducing thecosts of value creation• Earn a greater return by leveraging any valuable skills developed inforeign operations and transferring them to other entities within thefirm’s global network of operations
    14. 14. The Strategy ofInternational BusinessExpanding the Market: Leveraging Products andCompetencies• A company can increase its growth rate by taking goodsor services developed at home and selling theminternationally• The success of firms that expand in this manner is basednot only on the goods or services they sell, but also on theircore competencies (skills within the firm that competitorscannot easily match or imitate)• Core competencies enable the firm to reduce the costs ofvalue creation and/or to create perceived value in such away that premium pricing is possible
    15. 15. The Strategy ofInternational BusinessLocation Economies• Firms can benefit by basing each value creation activity atthat location where economic, political, and culturalconditions, including relative factor costs, are mostconducive to the performance of that activity• Firms that pursue such as strategy can realize locationeconomies (the economies that arise from performing avalue creation activity in the optimal location for thatactivity, wherever in the world that might be)
    16. 16. The Strategy ofInternational BusinessLocating a value creation activity in the optimal location forthat activity can have one of two effects:• It can lower the costs of value creation and help the firmto achieve a low cost position• It can enable a firm to differentiate its product offeringfrom the offerings of competitors
    17. 17. The Strategy ofInternational BusinessCreating a Global Web• By taking advantage of location economies in differentparts of the world, multinational firms create a global webof value creation activities• Under this strategy, different stages of the value chain aredispersed to those locations around the globe whereperceived value is maximized or where the costs of valuecreation are minimized
    18. 18. The Strategy ofInternational BusinessSome Caveats• Introducing transportation costs and trade barrierscomplicates this picture• Political risks must be assessed when making locationdecisions
    19. 19. The Strategy ofInternational BusinessExperience Effects• The experience curve refers to the systematic reductions inproduction costs that have been observed to occur over the life of aproductLearning Effects• Learning effects are cost savings that come from learning by doing• So, when labor productivity increases, individuals learn the mostefficient ways to perform particular tasks, and management learns howto manage the new operation more efficiently
    20. 20. The Strategy ofInternational BusinessEconomies of ScaleEconomies of scale refers to the reductions in unit costachieved by producing a large volume of a product.Sources of economies of scale include:• the ability to spread fixed costs over a large volume• the ability of large firms to employ increasingly specializedequipment or personnel
    21. 21. The Strategy ofInternational BusinessStrategic Significance• Moving down the experience curve allows a firm to reduceits cost of creating value• Serving a global market from a single location isconsistent with moving down the experience curve andestablishing a low-cost position
    22. 22. The Strategy ofInternational BusinessLeveraging Subsidiary Skills• Managers must recognize that valuable skills that could be appliedelsewhere in the firm can arise anywhere within the firm’s globalnetwork (not just at the corporate center)• Managers must also establish an incentive system that encourageslocal employees to acquire new skillsSummary• Managers need to keep in mind the complex relationship betweenprofitability and profit growth when making strategic decisions aboutpricing
    23. 23. The Strategy ofInternational BusinessCOST PRESSURES AND PRESSURES FOR LOCALRESPONSIVENESSFirms that compete in the global marketplace typically facetwo types of competitive pressures:• pressures for cost reductions• pressures to be locally responsiveThese pressures place conflicting demands on the firm.
    24. 24. The Strategy ofInternational BusinessPressures for cost reductions and pressures to be locallyresponsive
    25. 25. The Strategy ofInternational BusinessPressures for Cost ReductionsPressures for cost reductions are greatest:• in industries producing commodity type products that filluniversal needs (needs that exist when the tastes andpreferences of consumers in different nations are similar ifnot identical) where price is the main competitive weapon• when major competitors are based in low cost locations• where there is persistent excess capacity• where consumers are powerful and face low switchingcosts
    26. 26. The Strategy ofInternational BusinessFirms facing pressures for cost reductions:• must try to lower the costs of value creation by mass-producing a standard product at the optimal locationsworldwide
    27. 27. The Strategy ofInternational BusinessPressures for Local ResponsivenessPressures for local responsiveness arise from:• differences in consumer tastes and preferences• differences in traditional practices and infrastructure• differences in distribution channels• host government demands
    28. 28. The Strategy ofInternational BusinessDifferences in Consumer Tastes and Preferences• Strong pressures for local responsiveness emerge whenconsumer tastes and preferences differ significantlybetween countriesDifferences in Infrastructure and Traditional Practices• Pressures for local responsiveness emerge when thereare differences in infrastructure and/or traditional practicesbetween countries
    29. 29. The Strategy ofInternational BusinessDifferences in Distribution Channels• A firms marketing strategies may have to be responsiveto differences in distribution channels between countriesHost Government Demands• Economic and political demands imposed by host countrygovernments may necessitate a degree of localresponsiveness
    30. 30. The Strategy ofInternational BusinessCHOOSING A STRATEGYFirms use four basic strategies to compete in theinternational environment:• global standardization• localization• transnational• international
    31. 31. The Strategy ofInternational BusinessGlobal Standardization Strategy• A global standardization strategy focuses on increasingprofitability and profit growth by reaping the cost reductionsthat come from economies of scale, learning effects, andlocation economies• The strategic goal is to pursue a low-cost strategy on aglobal scale• This strategy makes sense when there are strongpressures for cost reductions and demands for localresponsiveness are minimal
    32. 32. The Strategy ofInternational BusinessLocalization Strategy• A localization strategy focuses on increasing profitabilityby customizing the firm’s goods or services so that theyprovide a good match to tastes and preferences in differentnational markets• Localization is most appropriate when there aresubstantial differences across nations with regard toconsumer tastes and preferences, and where costpressures are not too intense
    33. 33. The Strategy ofInternational BusinessTransnational StrategyA transnational strategy tries to simultaneously:• achieve low costs through location economies, economiesof scale, and learning effects• differentiate the product offering across geographicmarkets to account for local differences• foster a multidirectional flow of skills between differentsubsidiaries in the firm’s global network of operationsA transnational strategy makes sense when cost pressuresare intense, and simultaneously, so are pressures for localresponsiveness.
    34. 34. The Strategy ofInternational BusinessInternational Strategy• An international strategy involves taking products firstproduced for the domestic market and then selling theminternationally with only minimal local customization• When there are low cost pressures and low pressures forlocal responsiveness, an international strategy isappropriate
    35. 35. The Strategy ofInternational BusinessThe Evolution of Strategy• An international strategy may not be viable in the longterm• To survive, firms may need to shift to a globalstandardization strategy or a transnational strategy inadvance of competitors• Similarly, localization may give a firm a competitive edge,but if the firm is simultaneously facing aggressivecompetitors, the company will also have to reduce its coststructures, and the only way to do that may be to shifttoward a transnational strategy
    36. 36. PRESSIONFORCOSTREDUCTIONHIGHLOWGLOBALSTANDARDIZATIONSTRATEGYTRANSNATIONALSTRATEGYLOCALIZATIONSTRATEGYINTERNATIONALSTRATEGYPRESSION FOR LOCAL RESPONSIVENESSLOW HIGHAs competitors emerge these strategies become less viableThe Strategy of International Business
    37. 37. The Strategy ofInternational BusinessSTRATEGIC ALLIANCES• Strategic alliances refer to cooperative agreementsbetween potential or actual competitors
    38. 38. The Strategy ofInternational BusinessThe Advantages of Strategic AlliancesStrategic alliances:• facilitate entry into a foreign market• allow firms to share the fixed costs (and associated risks)of developing new products or processes• bring together complementary skills and assets thatneither partner could easily develop on its own
    39. 39. The Strategy ofInternational BusinessThe Disadvantages of Strategic Alliances• Strategic alliances can give competitors low-cost routes tonew technology and markets, but unless a firm is careful, itcan give away more than it receives
    40. 40. The Strategy ofInternational BusinessMaking Alliances WorkThe success of an alliance seems to be a function of threemain factors:• partner selection• alliance structure• the manner in which the alliance is managed
    41. 41. The Strategy ofInternational BusinessPartner SelectionA good partner has three principal characteristics:• a good partner helps the firm achieve its strategic goalsand has the capabilities the firm lacks and that it values• a good partner shares the firm’s vision for the purpose ofthe alliance• a good partner is unlikely to try to opportunistically exploitthe alliance for its own ends: that it, to expropriate the firm’stechnological know-how while giving away little in return
    42. 42. The Strategy ofInternational BusinessAlliance Structure• Alliances can be designed to make it difficult to transfertechnology not meant to be transferred• Contractual safeguards can be written into an allianceagreement to guard against the risk of opportunism by apartner• Both parties can agree in advance to swap skills andtechnologies to ensure a chance for equitable gain• The risk of opportunism by an alliance partner can bereduced if the firm extracts a significant crediblecommitment from its partner in advance
    43. 43. The Strategy ofInternational BusinessManaging the Alliance• Successfully managing an alliance requires managersfrom both companies to build interpersonal relationships• A major determinant of how much a company gains froman alliance is its ability to learn from its alliance partners

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