Copyright © 2013 Pearson Education,

Inc. publishing as Prentice Hall

14e

Daniels ● Radebaugh ● Sullivan

11-1
 Copyright © 2013 Pearson Education,
Inc. publishing as Prentice Hall

The Strategy of International Business

11-2
 The industry organization (IO) paradigm
 presumes that markets demonstrate perfect competition where
no firm or industry consistently outperforms others
 Large number of fully informed buyers and sellers
 No obstacles to entry and exit of firms
 Constant rates of returns for all the firms in the industry
 Firm’s performance depends on industry forces
 Anomalies
 Imperfect markets with some firms always outperforming
others
+ The power of innovative executives
 bright executives exploit market imperfections to outperform rivals

11-3
 There should be strong
coordination among industry’s
structure, firm’s strategy and
performance
 Strategy’s hallmarks are
 Value
 Strategy

11-4
 Copyright © 2013 Pearson
Education, Inc. publishing as
Prentice Hall

 Industry structure involves the relationships among

 Suppliers of inputs (suppliers’ bargaining power)
 Buyers of outputs (customers’ bargaining power)
 Substitute products (threat of switching)
 Potential new entrants
 Rivalry among competing firms (Overall intensity of
competition in the industry)
 New products, new firms, new markets and new managers
trigger new developments in rivalry, pricing, substitutes, buyers
and suppliers.

11-5
 Copyright © 2013 Pearson
Education, Inc. publishing as
Prentice Hall

 Industry structure changes because of

 Competitor moves
 Government policies
 Shifting tastes and preferences of customers
 Technological developments
 Process innovations
 Diffusion of managerial and technical expertise across
nations

11-6
 Value
 the measure of a firm’s capability
of selling what it makes for more
than the costs incurred to make it
 exceeding customers’ expectations
 Higher profits
 Strategy
 Is the managerial effort to build
and strengthen company’s
competitive position in order to
create value

11-7
 Create value using
 A cost leadership strategy
 make products for a lower cost than competitors
 Selling the products at below average prices
 Cost minimization across the value chain
 Targets a broad market with mass selling of standardized
goods and services
 A differentiation strategy
 make products for which consumers are willing to pay a
premium price
 High quality and innovation
 Rolls Royce, Rolex, Apple

11-8
 The Value Chain
 the set of linked activities the company performs to
design, produce, market, distribute, and support a product
 The value chain consists of
 Primary activities
 Hold primary importance in manufacturing a product
 design, make, sell, and deliver the product
 Support activities
 Hold secondary importance
 Help in implementing primary activities

11-9
 Copyright © 2013 Pearson
Education, Inc. publishing as
Prentice Hall

Primary and Support Activities

11-10
Primary and Support Activities of the Value Chain

11-11
 A firm’s value chain determines its competitive
advantage
 Configuration
 Deciding and distributing value chain activities around the
world
 Depends on costs, logistics, buyers’ needs along with
economic, cultural, political and legal factors
 concentrated
 putting all value chain activities in one location
 dispersed
 performing different value chain activities in different locations
 location economies

11-12
 When configuring the value, consider
 Customer Needs
 Keeping the service outlets closer to customers
 Selecting speedy and efficient distribution channels
 Cost Factors
 Differences in wage rates, workers’ productivity, inflation etc
 Cluster Effects
 Firms should take advantage of specialized clusters like Hollywood for mass media,
London for global finance, Mumbai for R&D outsourcing etc
 Logistics
 Logistics configuration depends on product nature and the degree to which JIT
systems are crucial
 Digitization
 Firms should not bother themselves with the functions that can be outsourced to far
off regions or can be performed at cheaper rates by virtual workforce
 Scale economies
 Few large centralized plants to acquire the economies rather than operating several
small ones

11-13
 Coordination
 linking the value chain activities
 Factors that influence coordination
 Operational obstacles
 Online miscommunication, language and cultural barriers across
value chain
 E.g. Designed in Finland, produced in China, distributed in US
 Core competencies
 special outlook, skill, capability, or technology that runs through
the firm’s operations, threading disconnected activities into an
integrated value chain
 Apple’s innovation and product design, Wal Mart’s well
coordinated information and distribution systems

11-14
 Subsidiary Networks
 Growing global connectivity improves idea
generation and knowledge sharing
 To help increase firm value, managers should
 recognize that valuable skills can be developed anywhere
within the firm’s global network (not just at the corporate
center)
 use incentive systems to encourage local employees to
acquire new skills
 act as facilitators to transfer valuable skills within the firm

11-15
 Firms face two conflicting pressures:
 Pressures for global integration
 the process of combining differentiated parts into a
standardized whole
 maximize efficiency through large scale production of
standardized goods

11-16
 Drivers of global integration
 Increased homogeneity of products (consumers are interested in value rather
than company’s origin)
 Satisfying consumers’ identical needs for products like oil, steel and other
universally used products
 The globalization of markets
 Technology helps standardize consumer preferences

 Global products have become popular

 allows for standardization of product design

 The efficiency gains of standardization

 Single product design (R&D), production economies through

standardization and choosing optimal locations for every value chain

activity

11-17
 Pressures for local responsiveness
 the process of disaggregating a standardized whole into differentiated

parts
 Packaging, product customization, marketing and advertising differences, price
differences etc
 Pressure for local responsiveness is driven by
 Consumer divergence

 cultural predisposition

 Buy local campaigns

 nationalism

 Host government policies

 Fiscal policies, trade and business regulations

11-18
Characteristics of the Strategy Type Used by MNEs

11-19
11-20
11-21
11-22
 International strategy
 leverage a company’s core competencies into foreign markets
 critical elements of the value chain are centralized at
headquarters
 Subsidiaries are allowed to customize to a certain extent
 Microsoft, Google
 The strategy works well when
 the firm has core competencies that foreign rivals lack
 there is low pressure for global integration
 there is low pressure for local responsiveness

11-23
 Multidomestic strategy
 emphasizes responsiveness to the unique circumstances
that prevail in a country’s market
 value added activities are adapted to local markets
 Garments or textile industry
 The strategy works well when
 there is high pressure for local responsiveness
 there is low pressure for global integration

11-24
 Global strategy
 make standardized products that are marketed with little
adaptation to local conditions
 exploit location economies and capture scale economies
 Oil and steel industry, agricultural products
 The strategy works well when
 the MNE is the cost leader
 there is low pressure for local responsiveness
 there is high pressure for global integration

11-25
 Transnational strategy simultaneously leverages
core competencies worldwide, reduces costs by
exploiting location economics, and adapts to local
conditions too
 Automobile industry, Unilever, P&G
 The strategy works well when
 global learning and knowledge management through
virtual interaction
 there is high pressure for local responsiveness
 there is high pressure for global integration

11-26