Strategy and structure of IB Flashcards
Be able assess the strategy of international businesses Be able to evaluate how this affects the way international business organize Be able to examine what this means for the corporate center and subsidiaries.
What is strategy?
strategy refers to the actions that managers take to attain the goals of the firm
- the Direction
- is Long-term
- the Organisation
- profitability vs longevity
How is value created?
- using a differentiation strategy
2. using a low cost strategy
Why is Strategic Positioning (Porter) Important?
- Porter argues that firms need to choose either differentiation or low cost
- avoid generic strategies, otherwise firm will become “stuck in the middle.”
- must pick a viable position and configure internal ops and org structure to support that
Generic strategies
- Cost leadership (Wilkos)
- Differentiation (Apple)
- Focus cost
- Focus differentiation (Porsche)
How Can Firms Increase Profits Through International Expansion?
- Expand their market
- Realize location economies
- Realise greater cost economies from experience effects
- Earn a greater return （leverage skills)
Market expansion
Success internationally depends on goods/services and core competencies (are they rare/ imitable?
Location economies
arise from performing a value creating activity in the optimal location for that activity
- lower costs or better quality
Experience curve (Johnson et al, 2008).
describes a curve that shows the systematic reductions in production costs that occur over the life of a product
- by moving down the experience curve, firms reduce the cost of creating value
- to get down the experience curve quickly, firms can use a single plant to serve global markets
Leverage Skills
- leverage skills developed in foreign operations and transfer them elsewhere in the firm
- This signifies the role of subsidiaries
What Types of Competitive Pressures Exist in the Global Marketplace? (conflicting)
- pressures for cost reduction
- pressures to be locally responsible (adapt product to meet local demand BUT will raise cost
When Are Pressures for Cost Reductions Greatest?
- products fulfil a ‘universal need’ (commodity) - price is the main competition point
- when major competitors are based in low cost locations
- Where there is always excess capacity
- Where consumers are powerful and face low switching costs
When Are Pressures for Local Responsiveness Greatest?
- differences in consumer tastes and preferences between
- differences in distribution channels
- Host government demands (economic & political demands imposed)
Strategies for the Competitive Pressures in the Global Marketplace (CRR and LRP)
1) Global standardisation strategy (high CRR, low LRP)
2) Transnational strategy (high CRR, high LRP)
3) International strategy (low CRP, low LRP)
4) Localisation strategy ( low CRR, high LRP)
International strategy
- The firm views international business as separate from, and secondary to, its domestic business.
- International business only pursued to generate additional sales for domestic products
- Products are designed with domestic customers in mind
- little knowledge flows from foreign operations.
- simple exporting
Global strategy at IKEA
- 90% of product line is identical worldwide
- targeting a global customer segment allows IKEA to offer standardised products at uniform prices
- scale economies are sought by consolidating worldwide design, purchasing and manufacturing
- decisions made centrally, speeds up decision making & globalises IKEA culture
VERY DIFFICULT TO ACHIEVE WHAT IKEA HAS
