Chapitre 13 Flashcards
what is the strategy and the goal of a firm
strategies are actions that managers take
to attain the goals of the firm.
Goal is to maximize the value of the firm by increasing:
* Profitability is the rate of return a firm makes
on its invested capital. (ROI)
* Profit growth measures percentage increase in
net profits over time.
what is Value Creation (v)
- Measured by difference between a firm’s costs of
production and the quality that consumers perceive in
its products. - The more value customers place on a firm’s
products, the higher the price the firm can charge
for those products. - Measured by the difference between V (value) and
C (cost).
2 strategies for value creation
-low cost (reduce cost)
-differentiation (increase value perceived)
what is and how to do Strategic Positioning (firm strategy)
it is to choose a place on the Efficiency frontier which shows all positions a firm can adopt regarding adding value to the product and low cost.
how;
A firm should be explicit about choice of
strategic emphasis regarding value creation
(differentiation) and low cost.
* A firm should configure its internal operations to
support that strategic emphasis.
To maximize profitability (explain how to proprely use effecient frontier) firm must:
- Pick a position on the efficiency frontier that is viable
because there is enough demand to support that choice. - Configure its internal operations, such as manufacturing,
marketing, logistics, information systems, human resources,
etc. so that they support that position. - Make sure firm has the right organization structure in
place to execute its strategy.
Strategy, operations, and organization of firm must all
be consistent with each other if it is to attain a competitive
advantage and garner superior profitability.
explaine this concept: The Firm as a Value Chain
Operations is a Value Chain composed of
Value creation activities:
* Production.
* Marketing and sales.
* Materials management.
* R&D.
* Human resources.
* Information systems.
* Infrastructure.
what is Primary Activities + examples
activities included in operation :
1. Design, creation, and delivery of the
product.
2. Marketing, support, and after-sale service.
3. R&D is concerned with design of products and
production processes.
4. Production is concerned with the creation of a
good or service.
* Marketing and sales can increase perceived
value of a product and discover customer needs.
* Service activity provides after-sale service and
support.
How does R&D, marketing, production, after sales service support strategic positioning of the firm? specific example for each
r&d: increase v (innovation to meet needs of cust.) reduce cost; innovation reducing cost
marketing; increase v (advertizing, visibility)
production: increase v (better quality/low defects) and reduce cost (coordination)
after sales: increase v (increase confidence)
Support Activities: what it is + exemples
Provide inputs that allow the primary activities to
occur.
* Information systems can alter efficiency and
effectiveness with which a firm manages its other value
creation activities.
* Logistics controls transmission of physical materials
through the value chain.
* Human resources ensures company has the right mix of
skilled people; ensures adequate training, motivation,
and compensation.
* Infrastructure includes organization structure, control
systems, and culture of the firm.
advantage of going international
increase profitability and growth by:
i. Expand potential size of market for domestic
products.
ii. Realize location economies.
iii. Realize greater cost economies from
experience effects.
iv. Earn a greater return-on-investment by LEVERAGING SUBSIDIARY SKILLS
how to expand the market on what competencies is it based
Taking goods or services developed at home and
selling them internationally.
Also based on core competencies …
what are core competencies
skills within the firm that competitors cannot match or imitate
- That Can exist in any of firm’s value-creation
activities. - Are bedrock of a firm’s competitive advantage.
- Successful firms transfer core competencies to
foreign markets where indigenous competitors lack
comparable competencies.
LOCATION ECONOMIES
- Economies that arise from performing a value
creation activity in the optimal location for that
activity.
-specific for each activity - Can lower costs of value creation and help the firm
achieve a low-cost position. - Can enable a firm to differentiate its product
offering from those of competitors.
Creating a Global Web:
- When different stages of the value chain are
dispersed to locations around the globe where
value added is maximized or costs of value are
minimized. - Should create a competitive advantage.
- Should be able to better differentiate product offering
(thereby raising perceived value, V) and lower cost
structure (C) than a single-location competitor.
Caveats of location economies
- Transportation costs, trade barriers, plus political and
economic risk complicate the benefits of location
economies.
EXPERIENCE EFFECTS/curve
The Experience curve—systematic reductions in
production costs that have been observed to occur
over the life of a product.
2 explanation for the experience curve:
A. Learning Effects:
* Labor productivity and management efficiency.
B. Economies of Scale:
* Lowers a firm’s unit costs and increases its
profitability.
* May not be possible unless firm serves global
markets.
* Bargaining power with the firm’s suppliers
increases.
Strategic Significance / application of Experience
Curve:
- Moving down the experience curve allows a firm to
reduce its cost of creating value and increase
its profitability. - Rapid movement down experience curve
increases cost advantage. - Firm that serves a global market from a single location
can build accumulated volume more quickly. - An established low-cost position can act as barrier
to new competition
LEVERAGING SUBSIDIARY SKILLS
- In mature multinationals, development of valuable
skills can occur in foreign subsidiaries. - Leveraging skills created within subsidiaries and
applying them to other operations within the firm’s
global network may create value.
how to LEVERAGe / transfer SUBSIDIARY SKILLS
Multinational enterprise managers must:
1. Recognize that valuable skills that lead to
competencies can arise anywhere within the firm’s
global network, not just at the corporate center.
2. Establish an incentive system that encourages
local employees to acquire new skills.
3. Have a process for identifying when valuable
new skills have been created in a subsidiary.
4. Act as facilitators, helping transfer valuable skills
within the firm.
2 major pressure felt when going international
- Reduce your cost
- Be locally responsive (increase v in this market by differentiation)
explaine PRESSURES FOR COST REDUCTIONS
Require a firm to try to lower the costs of value
creation.
Greater in industries producing commodities-
type products. (universal need product)
* Universal needs—when the tastes and preferences
of consumers in different nations are similar if not
identical. Examples: steel, sugar.
Also intense in industries where major
competitors are based in low-cost locations,
where there is persistent excess capacity, and where
consumers are powerful and face low switching costs
from where come the pressur for local responsivness
1) Differences in Customer Tastes and Preferences:
* Customer demands for local customization are on the decline worldwide in some markets.
* Significant differences in consumer needs, wants, tastes still exist across cultures.
2) Host-Government Demands:
* Economic and political demands by host-country
governments.
* Threats of protectionism, economic nationalism,
and local content rules dictate that international
businesses manufacture locally.
- and adjustment to local regulation
3)Differences in Infrastructure and Traditional
Practices:
* May require the delegation of manufacturing and
production functions to foreign subsidiaries.
* Example: technical standards (110 V vs 240 V).
* Traditional practices also often vary across nations.
what is Rise of Regionalism
- Tendency toward the convergence of tastes,
preferences, infrastructure, distribution channels,
and host-government demands with a
broader region composed of two or more
nations. - Examples: European Union, North America, Latin
America. - Ability to standardize a product within a region
allows for greater scale economies and lower costs.
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what high local responsiveness may require
- Differences in Distribution Channels: May necessitate delegation of marketing functions
to national subsidiaries. to adapt to culture
may require to produce locally to account to technical, preference and legal/gouvernmental difference
what to do to choose a strategy?
1) identify if condition (adaptation for local responsiveness needs to be made),
2) make a cost benefit analysis to see if it is worth it to sacrifice standardization (to meet local resp.) to increase sells
3) factor in trade barriors
GLOBAL STANDARDIZATION STRATEGY
- Looks to reap cost reductions that come from
economies of scale, learning effects, location
economies. - Goal is to pursue low-cost strategy on global scale.
- Production, marketing, R&D, and supply chain
activities are concentrated in a few favorable
locations. - Avoids customization.
- Makes sense when there are strong pressures for
cost reductions and demands for local
responsiveness are minimal.
LOCALIZATION STRATEGY
Customizes goods or services so they are a good
match to tastes and preferences in different national
markets.
Most appropriate when:
* Substantial differences across nations
regarding consumer tastes and preferences.
* Cost pressures are not too intense.
Customization limits the ability to capture the cost
reductions associated with mass-producing a
standardized product for global consumption.
TRANSNATIONAL STRATEGY
Achieve low costs, differentiate product offerings to
account for local differences, foster multidirectional
flow of skills between subsidiaries.
Makes most sense when demands for local
responsiveness are high but cost pressures are
moderate or low.
Places conflicting demands on the company:
* Differentiating product to respond to local demands
in different geographic markets raises costs, which
runs counter to goal of reducing costs.
* Complex and challenging to achieve.
INTERNATIONAL STRATEGY
- Taking products developed for domestic market
and selling them internationally with minimal
local customization. - For firms with low-cost pressures and low pressures
for local responsiveness. - Tend to centralize product development
functions such as R&D at home but establish
manufacturing and marketing functions in
each major country or geographic region in
which they do business. - Resulting duplication may raise costs.
how and why stategie might need to evolve
International strategy may not work long term.
* Over time, competitors will emerge.
* Firms may need to shift to global
standardization or transnational strategy in
advance of competitors.
Localization strategy may also face competitors and
have to shift to a transnational strategy.
International and localization strategies less viable as
competitors emerge.
needs to reduce cost to prevent competition
what could have the biggest impact on int. strategy
hint: trump
change in trade policies
how can changes in trade barrior affect strategy
Change in rules governing international trade and
investment can affect the viability of different
strategies.
reduced barriers
Over time, there has been progressive lowering of
barriers to cross-border trade and investment.
* Easier to realize location economies and global web
of productive activities; increased attractiveness of
global standardization strategy and transnational
strategy.
increased barriers to cross-border trade.
* More difficult to attain location economies; harder
to establish global web of productive activities.
* More challenging and less attractive to implement
global standardization strategy and transnational
strategy.
* Economic nationalism may make localization
strategy necessary, or a multiregional version of a
localization strategy.
