Podcast
Questions and Answers
What is one of the key components of a transnational strategy?
What is one of the key components of a transnational strategy?
When is a transnational strategy most effective?
When is a transnational strategy most effective?
Which statement best describes the resource distribution in a transnational organization?
Which statement best describes the resource distribution in a transnational organization?
Why may firms need to shift strategies over time?
Why may firms need to shift strategies over time?
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What characterizes the complexity of a transnational organization's operations?
What characterizes the complexity of a transnational organization's operations?
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What is a firm's primary focus when developing a strategy?
What is a firm's primary focus when developing a strategy?
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Which of the following is NOT a strategy for increasing profitability?
Which of the following is NOT a strategy for increasing profitability?
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What must a firm do to maximize profitability according to the discussed strategies?
What must a firm do to maximize profitability according to the discussed strategies?
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Which of the following best represents the concept of value creation in a firm?
Which of the following best represents the concept of value creation in a firm?
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In what way can collaboration with global competitors be beneficial for a firm?
In what way can collaboration with global competitors be beneficial for a firm?
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What is meant by a firm's operations being a 'value chain'?
What is meant by a firm's operations being a 'value chain'?
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Which of the following is a key determinant of enterprise value?
Which of the following is a key determinant of enterprise value?
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What is a fundamental reason for firms to engage in strategic alliances?
What is a fundamental reason for firms to engage in strategic alliances?
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What is a key characteristic of a global strategy?
What is a key characteristic of a global strategy?
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Under which condition does a global strategy typically perform well?
Under which condition does a global strategy typically perform well?
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What defines a multi-domestic strategy?
What defines a multi-domestic strategy?
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What condition is necessary for a multi-domestic strategy to be effective?
What condition is necessary for a multi-domestic strategy to be effective?
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How does headquarters manage foreign operations in a multi-domestic strategy?
How does headquarters manage foreign operations in a multi-domestic strategy?
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Which strategy is characterized by both high local responsiveness and high global integration?
Which strategy is characterized by both high local responsiveness and high global integration?
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What is the control method in a decentralized federation for a multi-domestic organization?
What is the control method in a decentralized federation for a multi-domestic organization?
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What is an advantage of a global strategy for multinational enterprises?
What is an advantage of a global strategy for multinational enterprises?
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Under what circumstances are pressures for cost reductions greatest?
Under what circumstances are pressures for cost reductions greatest?
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Which factor does NOT contribute to pressures for local responsiveness?
Which factor does NOT contribute to pressures for local responsiveness?
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Which strategy integrates core competencies into foreign markets while centralizing value chain elements at headquarters?
Which strategy integrates core competencies into foreign markets while centralizing value chain elements at headquarters?
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What is a characteristic of a global (standardization) strategy?
What is a characteristic of a global (standardization) strategy?
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When is an international strategy most effective?
When is an international strategy most effective?
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What causes firms to face conflicting demands in the global marketplace?
What causes firms to face conflicting demands in the global marketplace?
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Which of the following strategies emphasizes responsiveness to local market demands?
Which of the following strategies emphasizes responsiveness to local market demands?
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Which situation typically requires firms to lower the costs of value creation?
Which situation typically requires firms to lower the costs of value creation?
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What encompasses the primary activities of a firm in the value chain?
What encompasses the primary activities of a firm in the value chain?
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What role do support activities play in the value chain?
What role do support activities play in the value chain?
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Which of the following factors should be considered when managing the value chain?
Which of the following factors should be considered when managing the value chain?
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What is meant by location economies in value creation activities?
What is meant by location economies in value creation activities?
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What is a strategic advantage for multinationals regarding location economies?
What is a strategic advantage for multinationals regarding location economies?
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What is one method for leveraging subsidiary skills within a global network?
What is one method for leveraging subsidiary skills within a global network?
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What contributes to a firm’s core competencies in expanding international markets?
What contributes to a firm’s core competencies in expanding international markets?
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Which aspect is NOT a consideration for firms when deciding on the location of value creation activities?
Which aspect is NOT a consideration for firms when deciding on the location of value creation activities?
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How can companies increase profitability through international expansion?
How can companies increase profitability through international expansion?
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What is a key challenge when dispersing value chain activities globally?
What is a key challenge when dispersing value chain activities globally?
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Study Notes
International Business Environment - Session 7: Strategy for International Business
- Introduction: Managers need to consider the benefits of expanding into foreign markets, choosing appropriate strategies, collaborating with global competitors, and understanding strategic alliances for global success.
Strategy and the Firm
- What is strategy?: A firm's strategy is the actions managers take to achieve firm goals. Strategies typically focus on maximizing profitability and profit growth.
- Profitability: The rate of return a firm makes on its invested capital.
- Profit Growth: The percentage increase in net profits over time.
Determinants of Enterprise Value
- Enterprise valuation is influenced by profitability and profit growth.
- Profitability: Factors such as reducing costs, adding value, and raising prices are crucial to maximizing profitability.
- Profit Growth: Factors such as selling more in existing markets and entering new markets contribute to profit growth.
Value Creation
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Question: How do you increase the profitability of a firm?
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Answer: Value must be created for the consumer through differentiation or low cost strategies.
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Value Creation is V - C: V (value) minus C (cost) signifies value creation. A firm gains high profits when it creates greater value for customers at a lower production cost.
Strategic Positioning
- Maximizing Profitability: -A firm needs a viable position on the efficiency frontier (low cost or differentiation). -Internal operations must support the chosen position. -A firm's organization structure should support its strategy. -All these elements (strategy, operations, and organization) must align to gain competitive advantages and achieve superior profitability.
How Are A Firm's Operations Configured?
- A firm's operations work like a value chain. Activities, such as production, marketing, materials, research, human resources, and information systems are key components of this value chain.
The Firm as a Value Chain
- Two types of activities that make up a firm's value chain:
- Primary Activities: involve creating the product, marketing and delivering it, providing support and after-sales service to the buyers of the product.
- Support Activities: provide the inputs that support the primary activities of production and marketing.
The Value Chain (Diagram)
- A diagram shows the firm's value chain which includes Firm Infrastructure, Human Resource Management, Technology and Product Development, Procurement, Inbound Logistics, Operations (Production), Outbound Logistics, Marketing and Sales, and Service.
Location of Activities: Patterns 1-4
- Diagrams showcase the different geographic locations of firm activities (patterns 1-4).
Managing the Value Chain
- Factors to consider when configuring the value include location, business environment quality, innovation context, labor costs, logistics, digitization, and economies of scale.
Location Economies
- Location Decisions: Firms should locate their value creation activities in locations with favorable economic, political, and cultural conditions.
- Location Economies: Lowering production costs and differentiating offerings by efficient location selection.
- Global Web: Multinationals may spread operations across locations based on the need for value & cost optimization.
Leveraging Subsidiary Skills
- Valuable Skills Development: Managers should leverage valuable skills developed anywhere within the global network of a firm, not just within HQ. -Incentives & Processes: Firms must use appropriate incentive systems to motivate employees; a consistent process should be in place to identify and transfer learned skills effectively.
Leveraging Products and Competencies
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Leveraging Core Competencies for Profit: Firms can increase growth through the sale of products and services developed domestically, leveraging core competencies to establish a differentiating product edge.
- Core Competencies: skills unique to the firm that make it hard for competitors to copy.
Summary
- International expansion: Firms increase profitability and growth by entering markets where competitors have weak capabilities, realizing location benefits, leveraging their experience, and transferring valuable in-house skills.
Competitive Pressures
- Cost Reduction and Local Responsiveness: Firms competing globally frequently face pressures for both cost reductions and adapting to local demands, creating potentially conflicting pressures.
Pressures for Cost Reductions
- Greatest in Commodity-like Industries: Pressures for cost reductions often dominate for firms selling in industries where customers' needs are universal and competitive locations are associated with lower production costs.
Pressures for Local Responsiveness
-Consumer Preferences & Adaptations: Local responsiveness pressures are strongest when consumer tastes or national preferences differ considerably (e.g., specific food preferences, unique language or cultural practices in distribution channels).
Choosing a Strategy (Global)
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Four Basic Strategies:
- International Strategy
- Global Strategy
- Multi-domestic Strategy
- Transnational Strategy
International Strategy
- Focuses on leveraging a firm's core competencies in foreign markets, centralization of critical value chain activities with HQ. This strategy prioritizes leveraging existing competencies where home country strengths and fewer adaptations are required for international success. This strategy is optimal when pressures for global integration are low and pressures for local responsiveness are also low.
Global (Standardization) Strategy
- Involves marketing standardized products with minimal adjustments to local conditions, taking advantage of location economies to maximize worldwide scale economies. Global strategies are effective when local responsiveness pressures are low, but pressures for global integration are high. Firms operating with high global integration needs typically utilize cost leadership as their competitive advantage.
Multi-domestic Strategy
- Emphasis on responsiveness to unique national market circumstances, adapting value-adding activities to local markets. This strategy is best used when local responsiveness pressures are high and global integration pressures are low.
Transnational Strategy
- Aims to leverage core competencies across the globe while simultaneously adapting to local markets, utilizing the advantages of both globalization and localization to optimize value and cost across numerous countries. This is the most complex strategy as it requires a firm to simultaneously achieve global integration and local responsiveness.
HQ/Subsidiary Relations in the Multinational Organization
- Centralized Federation: HQ maintains critical control and information systems.
- Decentralized Federation: Autonomous subsidiary operation.
Evolution of Strategy
- Strategy Adaptability: Competition pushes firms to change — strategies may adjust from international/localization strategies to global/transnational strategies to survive and outpace competitors.
How Does Strategy Evolve?
- Evolutionary Diagram: A diagram clarifies that when pressures for globalization or local responsiveness are high or low, the suitable choice of strategy is better suited to the market environment to maximize the firm's profitability across the globe.
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Description
Explore the crucial strategies for success in international business. This session covers the importance of profitability, profit growth, and factors affecting enterprise value. Understand how to effectively navigate foreign markets and form strategic alliances to enhance business performance.
