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Chapter 4: Strategy of International Business (why are location economies …
Chapter 4: Strategy of International Business
how are firms's operations configured?
primary activities
R&D (1)
production (2)
marketing and sales (2)
customer service (3)
support activities
information systems (1)
logistics (2)
HR (3)
how can firms increase profits through international expansion
expands market
realise location economies
realise greater cost economies from experience effects
earn a greater return
how can firms leverage their products and competencies
increase growth by selling home manufactured goods and services internationally
core competencies
skills within firm that competitors can't match
allows firms to reduce costs of value creation
how can managers leverage subsidiary skills?
recognise valuable skills from anyone can be apply anywhere
establish incentive system encouraging local employees to acquire new skills
have process to identify when valuable skills have created in a subsidiary
act as facilitator to help transfer skills within firm
why are location economies important
arise from performing value creation activity in optimal location
achieve lower costs of value creation and low cost position
differentiate their product offering
able to create global web of value creation activities (shipped to places where value is maximised and cost is minimised)
why are experience effects important
experience curve refers to systematic reductions in production costs occurring over product's life
cost savings coming from learning by doing
labour productivity increases
economies of scale = reductions in unit cost achieved by producing larger volume
spreading fixed costs over large volume
utilising production facilities more intensively
increasing bargaining power of suppliers
what types of competitive pressures exist in the global marketplace?
pressure for cost reduction
pressure to be locally responsive
these pressures make it difficult for firms to realise location economies and experience effects, leverage products and tracker skills within the firm
when are pressures for local responsiveness greatest?
Between countries:
differences in consumer tastes & preferences
differences in traditional practice & infrastructure
differences in distribution channels
host government demands
which strategy should a firm choose?
global standardisation
transnational
international
localisation
How does strategy evolve
international = not viable in long term
to survive, have to shift to global standardisation/ transnational
localisation may give competitive edge
if continuously facing aggressive competitors, firms should reduce cost structure
shift towards transnational strategy
what are the implications of trade theory for managers
location
first mover
policy