The Strategy of International Business

Overview of Strategy

• Actions taken by managers to attain the goals of the firm

• Internal and external factors play a part in formation

• Focus on profitability and profit growth

Strategy and the Firm

Enterprise valuation

• Profitability (creating value)

  • Reduce costs

  • Add value and raise prices

• Profit growth (core competence)

  • Sell more to existing marketing

  • Enter new markets

Determinants of Enterprise Value

Profitability and profit growth

Profitability

rate of return the firm makes on its invested capital

Profit growth

percentage increase in net profits over time

Key Elements of Successful Strategies

1. Clear, consistent performance goals and targets

2. Deep and thorough understanding of the competitive environment

3. Objective assessment of internal strengths and weaknesses

4. Effective implementation based on total organizational commitment

Value Creation

• Activities that increase the value of goods or services to customers

• 2 strategies:

  • Low cost

  • Differentiation

value created equation

Value created = V - C

V is value of product to customer

C is cost of producing product

Consumer surplus

• difference between how much a customer believes a product is worth and how much they actually pay

• V − P

Value & Pricing

he more value customers place on a firm’s products, the higher the price the firm can charge for those products.

Perception is everything

• Lincoln Navigator vs Ford Expedition

• Basically the same vehicle, but the Navigator is much more costly

  • Consumers are more willing to pay for the recognition associted with Lincoln

Benefits perceived by customer

• Louis Vuitton and Four Seasons Hotels and Resorts

• Even though both of these products/services are very expensive, consumers see emotional value in these brands, so they’re willing to pay more

The Strategic Triangle: Still the Strategic Point

Porter on Strategy: A Foundational Definition

“Strategy is the creation of unique and valuable position to achieve competitive advantage”

McGrath on Strategy: The Transient Advantage View

“Sustainable competitive advantage is being replaced by transient advantage - a continuous process of launching exploiting, and reconfiguring strategic initiatives”

Martin on Strategy: Strategy as Integrative Choice

“Strategy is an integrated set of choices: Where to play, and how to win.”

Park on Strategy: Continuous Learning Across Borders

"In global strategy, the firm that learns fastest across borders wins”

5 Key Elements of Strategy

• Arenas

• Vehicles

• Differentiators

• Economic Logic

• Staging

Arenas (5 Key Elements)

• Where will we be active?

• Which products, market segments, geographic areas?

Vehicles (5 Key Elements)

• How will we get there?

• Internal development, M&A, Joint ventures?

Differentiators (5 Key Elements)

• How will we win in the marketplace?

• Price, quality, service, image, styling?

Economic Logic (5 Key Elements)

• How will we obtain our returns?

• Lowest cost through XXX

• Premium prices due to XXX

Staging (5 Key Elements)

What will be our speed and sequence of moves?

4 Basic Strategies

Cost Pressures × Local Responsiveness

• Global standardization strategy

• Localization strategy

• International strategy

• Transnational strategy

Global standardization strategy (4 Basic Strategies)

Focus on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies. (ex, Boeing)

Localization strategy (4 Basic Strategies)

Focus on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets. (ex, McDonald's local menus)

International strategy (4 Basic Strategies)

• Taking products first produced for their domestic market and selling them internationally with only minimal local customization

• (ex, Microsoft)

Transnational strategy (4 Basic Strategies)

• When the firm simultaneously faces both strong cost pressures and strong pressures for local responsiveness

• (ex, Caterpillar - Construction machinery and equipment company)

• Tries to simultaneously

  • Achieve low costs through location economies, economies of scale, and learning effects

  • Differentiate the product offering across geographic markets to account for local differences.

  • Foster a multidirectional flow of skills between different subsidiaries in the firm’s global network of operations