International Export Management Strategies PDF

**CHAPTER 3: INTERNATIONAL EXPORT MANAGEMENT STRATEGIES** The Value Chain, a concept introduced by Michael E. Porter, is a popular framework for businesses to find areas in which their activities could provide a competitive edge. Analysing every phase of the business process helps organisations to...

**CHAPTER 3: INTERNATIONAL EXPORT MANAGEMENT STRATEGIES** The Value Chain, a concept introduced by Michael E. Porter, is a popular framework for businesses to find areas in which their activities could provide a competitive edge. Analysing every phase of the business process helps organisations to identify strategies for outperforming rivals, therefore generating a distinctive advantage with great market value that is durable, defendable, lucrative, and highly valuable. Global Value Chains (GVCs) break down production into tasks spread across different countries. It is a massive version of the division of labor that Adam Smith talked about. Back in Smith\'s day, making a pin involved several steps done by different workers in one factory. Now, imagine those steps spread out across the globe, with much more complex products than pins. **THE VALUE CHAIN** **Creating Competitive Advantage** The key of the value chain is to break down a company\'s activities into strategically relevant pieces. Each of these pieces can be optimized to perform better than competitors, leading to one of two main types of competitive advantage: - **Cost Reduction:** Delivering the same product at a lower cost, allowing for lower prices without sacrificing profitability. - **Value Addition:** Offering a better product at the same cost, which can justify a higher price due to added value perceived by customers. - **Common Strategies Within the Value Chain** 1. **Cost Leadership:** Streamline operations to reduce costs, such as through more efficient production methods or economies of scale. For instance, a company might invest in advanced manufacturing technology to lower production costs, enabling it to offer competitive prices. 2. **Differentiation:** Enhance product features, quality, or customer service to stand out. For example, a company might invest in R&D to innovate new features that competitors can\'t match, allowing it to charge a premium price. 3. **Outsourcing:** If certain activities can be done more efficiently or cost-effectively by external providers, outsourcing can be a smart move. This allows the company to focus on its core strengths while leveraging the expertise of specialized partners. Cross-border production has taken off thanks to: - **Trade and Investment Liberalization:** Eased restrictions make it easier to operate internationally. - **Lower Transport Costs:** Advances in logistics, like containerization, have reduced shipping expenses. - **Tech Advances:** Improved information and communication technologies streamline international operations. - **Innovations in Logistics:** Efficient systems help manage complex global supply chains. **LEVELS OF ANALYSIS USING THE VALUE CHAIN** For a 360 (metaphorically) view, if they seek to develop international competitiveness, firms should conduct value chain analysis at three levels: 1. **Macro Level:** Assess national competitiveness by examining factors like government policies, infrastructure, and economic stability. This helps identify which countries offer favorable conditions for business operations. 2. **Meso Level:** Analyze competition within a specific industry to understand market dynamics, competitive forces, and industry trends. This insight helps companies position themselves strategically within the industry. 3. **Micro Level:** Perform a detailed value chain analysis of the firm itself, identifying strengths, weaknesses, and opportunities for improvement in its internal processes. As such, the granular view allows for precise optimization efforts to build a competitive edge. **MACRO LEVEL ANALYSIS** Porter's Diamond Model explains how the home country's environment influences a firm's international competitiveness. It focuses on six elements that shape the firm's strengths and weaknesses relative to foreign rivals. **Six Elements of Porter's Diamond Model** 1. **Factor Conditions:** Resources available in the home country, such as skilled labor and infrastructure. Basic factors (natural resources) provide a foundation, while advanced factors (skills, research) drive true competitiveness. 2. **Demand Conditions:** Characteristics of the home market, including size, growth, and sophistication. Strong home demand pushes firms to innovate and improve. 3. **Related and Supporting Industries:** Presence of strong supplier and related industries fosters innovation and efficiency. Example: Germany's automotive industry benefits from robust related industries. 4. **Firm Strategy, Structure, and Rivalry:** Firms\' organizational structure and domestic competition influence their international success. Intense local competition drives innovation and efficiency. 5. **Government:** Government policies can promote or hinder competitiveness by influencing supply conditions, demand, and industry rivalry. 6. **Chance:** Random events can significantly impact competitiveness, creating advantages or disadvantages beyond a company's control. **MESO LEVEL ANALYSIS** **The Five Forces** 1. **Threat of New Entrants:** New companies entering the market can increase competition and reduce profitability. Industries with high entry barriers (like the airline industry) are less vulnerable to new entrants. 2. **Bargaining Power of Suppliers:** If suppliers have strong bargaining power, they can demand higher prices or better terms, squeezing the profitability of companies within the industry. 3. **Bargaining Power of Buyers:** Powerful buyers can demand lower prices or higher quality, reducing industry profitability. In the airline industry, corporate clients often have significant bargaining power. 4. **Threat of Substitute Products or Services:** Substitutes can limit industry profitability by capping prices. For airlines, substitutes include trains, cars, and virtual meetings. 5. **Existing Industry Rivalry:** High levels of rivalry among existing firms can drive down prices and profitability. The airline industry is known for intense competition among carriers. **Extended Forces** Since Michael E. Porter introduced the Five Forces Model, it's also important to consider two additional forces: 6. **Bargaining Power of Employees:** Skilled employees can negotiate for better wages and benefits, impacting profitability. For instance, pilots and maintenance crews in the airline industry have significant bargaining power. 7. **Government Regulations and Activities:** Government policies and regulations can heavily influence industry dynamics. Safety regulations, environmental laws, and air traffic control policies are critical in the airline industry. **MICRO LEVEL ANALYSIS** The Strategic Triangle, or 3C's model, developed by Kenichi Ohmae, focuses on three critical factors for business success: the Corporation, the Customer, and the Competition. Balancing these three components can lead to a sustainable competitive advantage. **The Three Components of the Strategic Triangle** 1. **The Corporation** - - - 2. **The Customer** - - - 3. **The Competition** - - - **WHAT ARE THE BARRIERS TO THE INITIAL PROCESS OF INTERNATIONAL EXPANSION?** 1. **Insufficient Finances** 2. **Insufficient Market Knowledge** 3. **Lack of Foreign Market Connections** 4. **Lack of Export Commitment** 5. **Lack of Productive Capacity** 6. **Lack of Foreign Channels of Distribution** **WHAT ARE THE BARRIERS TO THE FURTHER PROCESS OF INTERNATIONAL EXPANSION?** 1. **General Market Risks** 2. **Commercial Risks** 3. **Political Risks** **KEY TAKEAWAYS** - - - - - - -