International chapter 12

Strategy

The specific actions managers take to attain the goals of the firm, focusing on increasing profitability and profit growth.

Value Creation

Measured by the difference between the costs of production ($C$) and the value consumers perceive in a product ($V$). Profitability is the result of $V - C$.

Low-Cost Strategy

A strategy that focuses primarily on driving down production costs to increase a firm's profit margins.

Differentiation Strategy

Increasing the perceived value of a product in the eyes of consumers so that they are willing to pay a premium price.

Efficiency Frontier

A graphical representation of all the positions a firm can take regarding value ($V$) and cost ($C$). It shows the trade-off between differentiation and low cost.

Primary Activities (Value Chain)

The core functions of a business: R&D, Production, Marketing and Sales, and Customer Service.

Support Activities (Value Chain)

Activities that provide the inputs for primary activities to occur: Information Systems, Logistics (Infrastructure), and Human Resources.

Core Competence

Unique skills and strengths within a firm that competitors cannot easily match or imitate (e.g., Toyota’s lean manufacturing).

Location Economies

The economic benefits of performing a value creation activity in the optimal location for that specific activity (e.g., IT in India, Design in Italy).

Experience Curve

The systematic reduction in production costs that occurs over the life of a product as cumulative output increases.

Learning Effects

Cost savings that come from "learning by doing." These are most significant when a new, complex process is first introduced.

Economies of Scale

Reductions in unit cost achieved by producing large volumes of a product (spreading fixed costs over more units).

Pressures for Cost Reductions

High in industries where the product is a commodity (like steel or sugar) and price is the primary competitive factor.

Pressures for Local Responsiveness

Arise from differences in consumer tastes, national infrastructure, traditional distribution channels, or host-government demands.

Global Standardization Strategy

Focuses on reaping cost reductions from economies of scale and location economies. Best when cost pressure is high and local pressure is low.

Localization Strategy

Customizing goods or services to match the tastes and preferences of different national markets. Best when local pressure is high and cost pressure is low.

Transnational Strategy

The "ideal" but difficult strategy of simultaneously achieving low costs, differentiating products across markets, and sharing skills globally.

International Strategy

Selling a product produced for the home market in international markets with very little customization. Best when both cost and local pressures are low.

Strategic Fit

The requirement that a firm's strategy must match market conditions and its internal operations must be configured to support that strategy.

Organizational Architecture

The totality of a firm’s organization, including formal structure, control systems, incentives, culture, processes, and people.

Vertical Differentiation

The location of decision-making responsibilities within a structure (Centralized vs. Decentralized).

Horizontal Differentiation

The formal division of the organization into subunits, such as by function, product division, or geography.

Subsidiary Skills

The idea that valuable knowledge doesn't just come from the home office; it can be developed in foreign subsidiaries and transferred elsewhere.

Universal Needs

Needs that are the same the world over (e.g., industrial chemicals, small electronic components), which increases pressure for cost reduction.

Evolution of Strategy

Over time, as competitors enter the market, International and Localization strategies usually become unsustainable, forcing firms to move toward Global Standardization or Transnational strategies.