Chapter 14- The Strategy of Int Business Flashcards
strategy
the actions managers take to attain the goals of the firm
- maximize share holder wealth
Two ways to describe profits
profitability
profit growth
profitability
- ROIC- rate of return on invested capital
- net income/total invested capital (division sign)
profit growth
percentage increase in net profits over time- sell more
(are our profits growing over time)
return on investment
look at diagram 3:45 seconds in video review
how is value created?
- firms value creation is the difference between value added and cost incurred
- firm has high profits when it created more value for its customers and does so at a lower cost
value creation
E = V - C
earnings = value added - cost incurred
V (the higher price that the firm can charge for a product given competition pressures
C ( the cost of producing that product)
how is value created
example: Dutch Bros doing good job creating value bc upbeat and uplifting workers. Creates positive environment combined with created customizable drinks
better value= better profitability bc you can raise prices
operation configuration
value chain of a series of distinct value creation activities
(draw diagram at 6:33 seconds in vid)
support activities
information
systems
logistics
human resources
primary activities
- research and development (where innovation takes place)
- production (supply chain)
- marketing and sales (how are we promoting and distributing product)
- customer service
how can firms profit by expanding globally (4 ways)
1.) increase revenue aka EXPAND MARKETS: sell domestic products in int markets
2.) decrease costs aka REALIZE LOCATION ECONOMIES: disperse value creation activities to locations where they can be performed most efficiently and effectively
3.) decrease costs aka COST ECONOMIES FROM EXPERIENCE: serve an expanded global market from a central location
(gaining experience allowing us to be more efficient)
4.) increase sales/decrease costs aka LEVERAGING SKILLS DEVELOPED IN FOREIGN OPERATIONS ELSEWHERE
to increase profitability and profit growth:
- add value (cost of production and quality consumers perceive)
- lower costs through location economies (move production to low-cost sites)
- sell more to our existing marketing (increase revenue)
- expand internationally by entering in new global markets (1/3 of GM’s profits are in Asia)
economies of scale
the reductions in unit cost achieved by producing a large volume of a product
(for example 300 enrolled of MGT, La Rosa is a sunk cost (fixed cost), and so is class room but if we spread it across the number of students, it produces scale economies)
source of economies of scale:
- spreading fixed costs over a large volume: 600 person online classes
- utilizing production facilities more intensively: McDonalds breakfast
- increasing bargaining power with suppliers: think walmart and amazon
