Session 10: International Business Strategy: MNC Perspective

Question 1

What’s a Strategy?

Answer 1

Strategies
- Actions that managers take to attain the goals of the firm.
Profitability
- Rate of return that the firm makes on its invested capital.
Profit growth
- The percentage increase in net profits over time

Question 2

Determinants of Enterprise Value

Answer 2

Enterprise Valuation: 1) Profitability 2) Profit Growth

1a) reduce costs 1b) add value and raise prices

2a) sell more in existing markets 2b) enter new markets

Question 3

Value Creation definition

Answer 3

is a group of activities that increase the value of goods or services to consumers.
* Drives firm profits
* The more value customers place on a firm’s products, the higher the price the firm can charge for those products.

Question 4

Value creation is determined by 2 basic conditions

Answer 4

➢ The amount of value customers place on the firm’s
goods or services (perceived value)
➢ The firm’s costs of production

Question 5

Strategic Positioning
Michael Porter states the importance for a firm:

Answer 5

➢ value creation (differentiation) ➢ low cost (cost reduction)
* To configure its internal operations to support that strategic emphasis.

Question 6

1) Where do the company
wants to be positioned?
2) Is there demand for the
positioning I have in mind?

Answer 6

1) Operations must be
organized accordingly.
2) Efficient implementation is key

Question 7

The strategy, operations and organization of the firm must all be consistent with each other to attain and maintain competitive advantage.

Answer 7

Operations: The different value-creating activities a firm undertakes.
Organization: The structure the firms adopts to develop and
implement a strategy (e.g. hierarchy structure; departmental
divisions; etc.

Question 8

The operations of a firm can be thought of as a value chain composed of a series of distinct value creation activities, including:

Answer 8

• production,
• marketing and sales,
• materials management,
• research and development,
• human resources,
• information systems,
• the firm infrastructure.

Question 9

Value Chain diagram: what are the primary and support activities?

Answer 9

Primary activities: R&D, Production, Marketing and sales, Customer service

Supporting activities: Information systems, Company infrastructure logistics, Human resources

Question 10

Primary Activities

Answer 10

• Primary activities have to do with the design, creation, and delivery of the product; its marketing; and its support and after-sale service.
• Primary activities are broken into four functions: research and
  development, production, marketing and sales, and service

Question 11

Support Activities

Answer 11

Provide inputs that allow the primary activities to take place:
* The materials management (or logistics) function
* HR Human Resource function
* Information systems
* Company infrastructure, or the context within which all the other
value creation activities occur.

Question 12

Organization: The
Implementation of Strategy

Answer 12

The strategy of a firm is
implemented through its organization. For a firm to have
superior return on invested capital (ROIC), its organization must support its strategy and operations

Question 13

Organization architecture diagram

Answer 13

People (in the center)
- Structure
- Incentives and controls
- Culture
- Processes

Question 14

Strategic Fit

Answer 14

Market conditions, strategy, operations, and organization must all be consistent with each other, or fit each other, for superior performance to be attained.

Question 15

Global Expansion, Profitability, and Profit Growth
Firms that operate internationally are able to do 4 things:

Answer 15

1. Expand the market
2. Realize location economies
3. Realize greater cost economies from experience effects
4. Earn a greater return

Question 16

1. Expand the market

Answer 16

for their domestic product offerings by selling those products in international markets.

Question 17

2. Realize location economies

Answer 17

by dispersing individual value creation activities to those locations around the globe where they can be performed most efficiently and effectively.

Question 18

3. Realize greater cost economies from experience effects

Answer 18

by serving an expanded global market from a central location, thereby reducing the costs of value creation.

Question 19

4. Earn a greater return

Answer 19

by leveraging any valuable skills
developed in foreign operations and transferring them to other entities within the firm’s global network of operations

Question 20

Pressures for Cost Reductions and Local Responsiveness

Answer 20

Firms that compete in the global marketplace face two types of competitive pressures:
➢cost reductions and
➢to be locally responsive

Question 21

Pressure for cost reductions

Answer 21

• Responding to pressures for cost reduction requires a firm to try to lower the costs of value creation, e.g. increasing supply chain efficiencies
• The liberalization of the world trade and investment environment (= global dispersion of production) in recent decades has generally increased cost pressures

Question 22

Pressure for local responsiveness

Answer 22

• Differences in consumer tastes and preferences
• Differences in infrastructure and traditional practices
• Differences in distribution channels
• Host-government demands
• The Rise of Regionalism

Question 23

What’s Strategy?

Answer 23

The complex set of choices that managers make to achieve the firm objectives, which primarily consist of being profitable over time.

Question 24

What choices? (3)

Answer 24

1. How do we increase profitability? Cost reduction, value addition, raising prices… (Strategic positioning)
   ➢ How do we achieve the priority goal? Location economies (offshoring), cost economies from experience effects….
2. How do we grow profits? Sell more on existing markets, enter new markets, develop new products (which products, for which markets…)
3. How do I differentiate myself from competitors?

Question 25

4 steps how do we formulate a strategy?

Answer 25

1. Mission (fundamental purpose, values)
2. Objectives (specific targets)
3. External analysis (strategy)
4. Supporting organizational arrangements (structures, processes, rewards, people)

• Understanding the context in which the firm will operate is crucial to make the right choices.

Question 26

Developing a strategy through PESTLE analysis: what does PESTLE stand for?

Answer 26

Political
Economic
Sociocultural
Technological
Legal
Environmental