Summary containing all the relevant theory discussed in the course book of the course International Strategy given in the second year of International Business Administration at the Vrije Universiteit Amsterdam. By learning this summary I personally passed the final exam.
Globalization = shift towards a more integrated and interdependent world economy.
Globalization of markets = merging of historically distinct and separate national market into
one huge global marketplace.
Globalization of production = the sourcing of goods and services from locations around the
globe to take advantages of national differences in the cost and quality factors of production,
e.g., labor, land.
Drivers of globalization:
1. Declining trade and investment barriers
International trade = when firm exports goods or services to consumers in another
country
Foreign direct investment (FDI) = when a firm invests resources in business
activities outside its home country
2. Technological change
Communications
The internet
Transportation technology
Implications for the globalization of production
Implications for the globalization of markets
Multinational Enterprise (MNE) is any business that has productive activities in two or more
countries.
Two notable trends for a MNE are:
1. Non-US multinationals
2. The growth of mini multinationals
International business = any firm that engages in international trade of investment.
Managing international business differs from managing purely domestic business.
Countries are different.
Range of problems is wider and problems more complex.
Must find ways to work within limits imposed by government.
Chapter 13 lecture 2
Strategy refers to actions that managers take to attain the goals of the firm.
Profitability is the rate of return a firm makes on its invested capital (ROI).
Profit growth measures percentage increase in net profits over time.
To maximize a firm’s profitability, the firm has to:
1. Pick position on the efficiency frontier that is viable
2. Configure its internal operations (e.g., marketing, HR, etc.)
3. Make sure that the firm has the right organization structure
, The firm as a ‘value chain’
International firms are able to:
1. Expand potential size of market for domestic products
o Local competitors may lack comparable competencies to compete
o Core competencies = skills within the firm that competitors cannot easily
match or imitate
2. Realize “location economies”
o Dispersing value-creation activities to other locations of (e.g., cheaper labor)
o Location economies = economies that arise from performing a value
creation activity in the optimal location
3. Realize greater ‘cost economies’
o Reductions in unit cost from producing large volumes of a product to be sold
globally
o The experience curve = refers to systematic reductions in production costs
that have been observed over the life of a product
4. Earn a greater return-on-investment
o In mature multinationals, development of valuable skills can occur in foreign
subsidiaries.
o Leveraging the skills created within subsidiaries and applying them to other
operations within the firm’s global network may create value.
International strategies
Global standardization = focus on increasing profitability with economies of scale
(low-cost strategy)
Transnational = simultaneously achieve low cost through location economies,
economies of scale and learning effects
International = sell products internationally with minimal local customization
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