summary international business awareness year 3 Q1
Chapter 12 International strategies
The industrial outlook sets the external environment as the primary determinant of an
mne’s strategic plan.
the idea of industry structure represents the interdependent relationships among
● suppliers of inputs
● buyers of outputs
● substitute products
● potential new entrants
● rivalry among competing firms
firm conduct = the choices a company makes regarding research, manufacturing,
marketing, distribution, and the like that influence its profitability.
The role of resources, capabilities and competencies
IO model; focuses on sensemaking in terms of an mne’s external environment
Great by choice; centers on the MNE’s internal setup
Resources; inputs into an MNE production process
- tangible; physical resources that are observable and measurable. (employees
skills, retail network, property portfolio)
- intangible; resources that lack physical form. (decision making process,
managerial skills, corporate goodwill, public affairs management)
Bundling resources together into capabilities. Managers also transform them into core
competencies.
Creating value
1. The cost leadership strategy
= make a product at a given level of quality for a cost below those of competitors.
Risks;
- disruptive technologies change efficiency standards
- customer’s need change
- cheaper, better products from competitors
2. Differentiation strategy
= aims to develop products that consumers value and that competitors find hard, if not
impossible, to match or copy.
Risks;
- Customer’s expectations change
- customers no longer see sufficient value to justify the price premium
- a rival introduces a newer, cooler, higher-performing alternative
- Competitors that offer a cheaper imitation
,The differentiation strategy calls for continual innovation. The cost leadership for
sustainable efficiency. The integrated cost leadership/differentiation strategy aims to do
both.
- provides lower-cost products and differentiated features.
- risk; falling in the middle. Falling short of optimizing production or sufficiently
differentiating
value-chain analysis; helps managers to understand the potential and performance of
resources and capabilities, thereby clarifying cost structures and value creation
- the set of linked activities the company performs to design, make, market,
distribute and support a product.
● primary activities; design, make, sell, deliver
● support activities; implement the primary activities
- helps to evaluate the cost structure and identify the activities through which they
can create value
Managers can concentrate (all value chain activities in one location) or disperse
(different locations)
factors that influence the configuration of a value chain;
1. business environment
2. digitization
3. economies of scale = size, output or scale of operation
4. innovation context
5. logistics
6. resource costs
7. robotics
location advantages
factors to decide where to go;
- business environment quality
- cluster effects; competition
- innovation context
- labor costs
- logistics
- political risk
Expanding
● homeshoring; home-based staff handle activities that had previously been
offshored to foreign locations
● nearshoring; a less aggressive form of offshoring whereby an mne transfers an
activity to a neighboring or nearby country
● offshoring; relocating a value activity to a different country that either remains
within or moves outside the mne
● onshoring; relocating a business process or work unit to a more productive,
lower-cost location in the home country
● reshoring; returning an activity from the foreign location to the country where the
work had originally been done.
,global integration vs local responsiveness
global integration; standardizes worldwide activities to maximize efficiency, whereas
national responsiveness adapts local activities to optimize effectiveness.
Firms face two conflicting pressures:
1. Pressure for global integration
2. Pressure for local responsiveness
Should they standardise to maximise economies of scale or customise to the particular
circumstances of each country?
Need to balance the two – influences how managers configure and coordinate value
activities
why global integration
= Process of combining differentiated parts into a standardised whole
- Technology helps standardise consumer preferences
- Global products have become popular – allows for standardisation of product
design
- uniform service for all consumers
- directly engage global competitors
Efficiency gains of standardisation
- Location, scale and learning effects
bol.com case;
- Same, low-margin products = economies of scale are vital to profitability
- Important on service and front end development and constant change = returns
only available from global market
- cost efficiency
why local responsiveness
= Process of disaggregating a standardised whole into differentiated parts
- Consumer divergence
- Cultural predisposition
- Historical legacy
- Nationalism
- customize products
- directly engage local competitors
Host government policies
- Legal, monetary and business regulations
bol.com case;
Online reservation companies must consider:
- Local sales approach
- Registration procedures
- Pricing restrictions
- Marketing regulations
- LOCAL = political / legal
, various transnational institutions, such as imf, wtfo and world bank, build an increasingly
seamless global business environment
integration-responsiveness grid
Meganational (International) Strategy
➔ Leverage core competencies into foreign markets
● Value chains set at head office
● Minor discretion locally to adapt products/activities
● Incurs moderate operational costs
➔ Works well: firm has core competencies that rivals lack
Limitations include:
- Misreading of foreign market opportunities and threats
- Testing ground for new products in home market, not foreign countries
Multidomestic Strategy (advertising, retail banking, legal services, apperal)
➔ Adjusts products, services and business practices to meet the needs of the local
markets
● Local managers better understand the local market
● Configuration and coordination by foreign subsidiaries
➔ Customising products and processes to local markets increases costs – lots of
“mini-me” units
➔ Impractical in cost-sensitive situations
➔ Benefits include: higher potential for innovative products from local R&D
Strategic intent: gain key positions in selected markets
Policies
• Tailor products nationally
• Differentiated operations
• Sacrifice efficiency for access
• Gain government support
• Joint ventures:
– Preempt competition
– Add local value
• National HRM
