Class 6 (Value Chain)

Question 1

country vs firm based theories?

Answer 1

country:
- country is unit of analysis
- emerged prior to WW2
- developed by economists
- explain interindustry trade

firm:

• firm is unit of analysis
• emerged after WW2
• developed by business school profs
• explain intraindustry trade

Question 2

what is the purpose of value chain analysis?

Answer 2

• Value Chain Analysis:
– allows a firm to understand the parts of its operations that create value and those that do
not

• Used often – modified depending on the industry/situation

Question 3

the value chain is a template that firms use to:

Answer 3

– is a template that firms use to:
• understand their cost position.
• identify multiple means that might be used to facilitate implementation of a chosen business-level
strategy.

Question 4

what is a primary activity?

Answer 4

– a product’s physical creation
– a product’s sale and distribution to buyers
– the product’s service after the sale

Question 5

what are support activities?

Answer 5

provide the assistance necessary for the primary activities to take place

Question 6

To be a source of competitive advantage, a resource or capability must
allow the firm to perform:

Answer 6

– an activity in a manner that is superior to the way competitors perform it, or
– a value-creating activity that competitors cannot complete

Question 7

discuss configuration possibilities of the value chain

Answer 7

– distributing value chain activities around the world
• concentrated
– putting all value chain activities in one location
• dispersed
– performing different value chain activities in
different locations
» location economies

Question 8

outsourcing vs offshoring

Answer 8

Outsourcing – when a firm externalizes (contracts out to another firm) certain functions
– Examples: IT functions, manufacturing, contract R&D, back-office functions

Off-shoring – when a firm shifts a function overseas
– Examples: manufacturing shifts from home country A to country B

Question 9

describe factors in offshoring

Answer 9

Off-shoring
• Focus on labour costs
– China, also Mexico, India,
Southeast Asia
• Skilled IT at lower cost
– India
• Limits:
– Rising labour costs
– Distance from home market
• Risk if outsourcing
– Loss of IP, creating rivals

Question 10

describe factors in reshoring

Answer 10

Automation, 3-D printing
making labour cost aspect
less significant
• Being closer to market,
faster response, shorter
logistics
• Proximity for R&D &
manufacturing
• Reputational boost

Question 11

why would a company in-house (internalize?)

Answer 11

• Develop, extend and
leverage firm’s capabilities
• Preserve flexibility / make
quick adjustments (Zara)
• Retain control of IP

Question 12

why would a company outsource (externalize?)

Answer 12

Focus only on core
competencies
• Cede low-value or less
strategic activities to
external specialists
• Benefit from industry best
practices