The Strategy of International Business

Global Strategy @ MTV N/W

y MTV, the US based music n/w has been expanding y y y

outside its North American base. Localization push has reaped benefits for MTV. It also helps MTV to capture all important advertising revenues MTVs strategy was to transfer its programming and content from the US n/w (which failed since local imitators captured viewers by tailoring to local tasted n preferences) Thus, they changed the strategy from global standardization to emphasizing local responsiveness.

Strategy and the Firm

y A firms strategy - Actions that manager takes to

attain the goals of the firm. y Major goal is maximizing long-term profitability. y Profit = total revenue total cost y Return on sales = profit/total revenue.

Value Creation
Basic conditions determining profit y Amount of value customers place on firms goods/services (perceived value) y Firms costs of production. y Value Creation is measured by the difference b/w consumer value and cost of production. y A company can create value by low cost strategy i.e. focusing on lower production costs or differentiation strategy i.e. focusing on increasing the attractiveness of the product.

Contd..
According to Porter y Firms that create superior value gain superior profitability. y Superior value can be created by driving down cost structure or differentiating the product. y The gap b/w value and cost of production should be greater than that attained by competitors.

The Firm as Value Chain

y Primary activities

R&D

Production

Marketing & Sales

Service

y R&D design of products and production process y Production for physical products, manufacturing for services,

service is delivered to the customer. y Mktg n sales thru brand positioning n advertising and by discovering consumer needs n communicating them to R&D y Service by solving customer problems and supporting customers.

Contd..
y Support Activities y Materials Mgmt transmission of physical materials thru value

chain frm procurement thru production into distribution. y Human Resource right mix of skilled people n ensuring tht ppl are adequately trained, motivated n compensated to perform value creation tasks. y Information Systems electronic sys for managing inventory, tracking sales, dealing with customer service inquiries coupled with communication features of Internet. y Company Infrastructure orgn structure, control sys n culture of the firms.

Strategy in International Business

y E.g. A company called Clear Vision manufacturer n y y

distributor of eyewear. Initially firm imported from overseas manufacturer, but dissatisfied with products quality n delivery. The best way to guarantee quality was to set up own manufacturing unit. The firm found a Chinese partner n opened a facility in Hong Kong. To deal with foreign competition Clear Vision used a strategy of shifting manufac. From high-cost location(US) to low-cost location (1st Hong Kong then China). A strategy to increase the perceived value of its product so that it could charge a premium price was adopted.

Profiting from Global Expansion

y Firms that operate internationally are able to 1. Realize location economies. 2. Realize cost economies. 3. Earn a greater return from the firms distinctive

skills or core competencies. 4. Earn a greater return by leveraging valuable skills developed in foreign operations and transferring them to other entities.

Location Economies
y Theory of intl trade says that due to differences in

factor costs, certain countries have a comparative advantage in production of certain products. y The firm will benefit by basing each value creation activity at location where economic/political/cultural conditions are most conducive to performance of that activity. y E.g. US- computer s/w, Japan automobiles n consumer electronics.

Experience Effects
y Experience curve systematic reduction in production costs

which have been observed to occur over a life of a product. y Learning effects cost savings that come from learning by doing. E.g. labor learns by repetition. y Economies of scale reductions in unit cost by producing large volume of a product. y Economies of scale have no. of sources 1. Ability to spread fixed costs over a large volume, 2. Ability of large firms to employ increasingly specialized equipment or personnel.

Leveraging Core Competencies

y The core competencies are the bedrock of a firms

competitive advantage. y For firms which have core competencies global expansion is a way of further exploiting the value creation potential of their skills and product offerings.

Leveraging Subsidiary Skills

y Leveraging skills created within subsidiaries n applying them

to other operations within the n/w may create value. y To create new challenges 1. They must have humility to recognize that d valuable skills can arise within d firms global n/w. 2. They must establish an incentive system. 3. Managers must have a process for identifying valuable new skills. 4. They need to act as facilitators.

Pressures for Cost Reduction

y Pressures for cost reduction are intense in 1. Products that serve universal needs e.g. bulk

products like chemicals, sugar etc. 2. Where major competitors are based in low-cost locations 3. Where there is persistent excess capacity 4. Where consumers are powerful n face low switching costs

Pressures for Local Responsiveness

y Sources 1. Differences in consumer tastes and preferences 2. Differences in infrastructure n traditional

practices 3. Differences in distribution channels. 4. Host-Government demands

Strategic Choices
 y y  y  y y y

International Strategy Try to create value by transferring valuable skills n products The firm should have core competence which the competitor lacks Multidomestic Strategy Firms customize their product offering n marketing strategy to match different conditions. Global Strategy Focus on increasing profitability Prefer to market a standardized product worldwide. E.g. semiconductor industry

Contd..
 Transnational Strategy y Trying to achieve cost n differentiation advantages

simultaneously.