Strategies of International Business
What is strategy?
Strategy can be defined as the actions that managers must take to attain the goals of the firm
In order to do so, firms need to pursue strategies that increase profitability and profit growth
profitability: The rate of return the firm makes on its invested capital,
calculated by dividing the net profits of the firm by total invested
capital
Profit growth: The percentage increase in net profits over time
How is value created
The way to increase profitability is through creating more value
According to Porter there are two basic strategies for creating
value and attaining a competitive advantage in an industry
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Importance of strategic positioning
It is important for a firm to be explicit about its choice of strategic emphasis with regard to value creation
To maximize profitability, a firm must do three things:
Select a position on efficiencies that is viable in the sense
that there is enough demand to support that choice
Configure internal operations so that they support that
position
Make sure that the firm has the right organisation structure
in place to execute its strategy (not covered in the unit)
Global expansion, profitability, and profit growth
Expanding the market
Firms can increase growth by selling goods or services developed at home internationally
The success of firms that expand internationally depends on:
The goods or services they sell
Their core competencies - skills within the firm that competitors cannot easily match or imitate
Location economies
Economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be
Firms that take advantage of location economies in different parts of the
world, create a global web of value creation activities
However, firms must be aware of: Transportation costs, trade barriers, political and economic instability
Competitive pressures of the global market
The pressures that firms face in
the global marketplace limit their
ability to realise location
economies and experience effects,
leverage products, and transfer
skills within the firm