Midterm #3 INBA ch 12

cons of going international

- develop new promotional material - subordinate short term profits to long term - more investments are required -risks -travels oversea -develop int'l knowledge, skills, attitudes - wait longer for payments - modify products/packaging - additional financing -obtain special licenses -trade barriers

managers must consider

- the benefits of expanding into foreign markets -strategies to pursue in foreign markets -value of collaboration -advantages of strategic alliances

benefits of going international

-access to cheap resources - exploit corporate tech and know how - extend sales - enhance competitiveness with global exposure -increase global market share, sales, and profits -reduce dependence on existing markets by making it more diverse -mitigate seasonal market flucuations -enhance company brand - sell temp excessive production - gain info about foreign

Enterprise Valuation Goals

1. profitability (reduce costs, add value and raise prices) 2. profit growth (sell more in existing markets, enter new markets)

Differences in Distribution Channels

A firm's marketing strategies may be influenced by differences in distribution channels between countries which may necessitate delegation of marketing functions to national subsidiaries

Testing your knowledge

All of the following are examples of primary activities except Logistics Marketing and sales Customer service Production When different stages of a value chain are dispersed to those locations around the world where value added is maximized or where the costs of value creation are minimized, _____ is (are) created. Experience effects Learning effects Economies of scale A global web Pressures for local responsiveness come from all of the following except Excess capacity Host government demands Differences in consumer tastes and preferences Differences in distribution channels When pressures are high for local responsiveness, but low for cost reductions, a _______ makes sense. Global standardization strategy International strategy Transnational strategy Localization strategy

The Evolution of Strategy

As competition increases, international and localization strategies become less viable To survive, firms may need to shift to a global standardization strategy or a transnational strategy in advance of competitors ex: procter and gamble

Locating value creation activities in optimal locations

Can lower the costs of value creation Can enable a firm to differentiate its product offering from those of competitors

Pressures for Local Responsiveness

Differences in consumer tastes and preferences Differences in traditional practices and infrastructure Differences in distribution channels Host government demands The rise of regionalism Firms facing these pressures need to differentiate their products and marketing strategy in each country

Host Government Demands

Economic and political demands imposed by host country governments may necessitate a degree of local responsiveness

The Advantages of Strategic Alliances

Facilitate entry into a foreign market Allow firms to share the fixed costs and risks of developing new products or processes Bring together complementary skills and assets that neither partner could easily develop on its own Can help establish technological standards for the industry that will benefit the firm

Location Economies

Firms should locate value creation activities where economic, political, and cultural conditions are most conducive to the performance of that activity Firms that successfully do this can realize 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

Profitability and Profit Growth Summary

Firms that expand internationally can increase their profitability and profit growth by: Entering markets where competitors lack similar competencies Realizing location economies Exploiting experience curve effects Transferring valuable skills within the organization

Firms use four basic strategies in global markets

Global standardization Localization Transnational International

Strategic Significance

Moving down experience curve allows firm to reduce its cost of creating value and increase its profitability Once firm has established low-cost position it can act as a barrier to new competition

Global Web

Multinationals that take advantage of location economies create a global web of value creation activities Under this strategy, different stages of the value chain are dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized Introducing transportation costs and trade barriers complicates this picture Political and economic risks must be assessed when making location decisions

Organization

Organization Architecture: the totality of a firm's organization- formal organizational structure, control systems and incentives, organizational culture, processes, and people Organizational Structure: The formal division of the organization into subunits The location of decision-making responsibilities within that structure The establishment of integrating mechanisms to coordinate the activities of subunits including cross functional teams and or pan-regional committees

Making Alliances Work

PARTNER SELECTION : Collect as much information as possible Gather data from informed third parties Get to know the potential partner well before committing ALLIANCE STRUCTURE: Can be designed to make it difficult to transfer technology meant to be transferred Contractual safeguards can be written into alliance agreement to guard against risk of opportunism Both parties can agree in advance to swap skills and technologies that the other covets MANAGING THE ALLIANCE Requires managers from both companies to build interpersonal relationships (relational capital) Should promote learning from alliance partners Should promote the diffusion of learned knowledge throughout the organization

Operations

Primary Activities - Involves the design, creation, and delivery of the product; its marketing; and its support and after-sale service. Divided into: research and development, production, marketing and sales, customer service Support Activities - Provides the inputs that allow the primary activities to occur Divided into: information systems, company infrastructure, logistics, human resources The operations of a firm can be thought of as a value chain composed of a series of distinct value creation activities, including production, marketing and sales, materials management, research and development, human resources, information systems, and the firm infrastructure.

Leveraging Subsidiary Skills

Recognize that valuable skills can be developed anywhere within the firm's global network (not just at the corporate center) Use incentive systems to encourage local employees to acquire new skills Develop a process to identify when new skills have been created Act as facilitators to transfer valuable skills within the firm

The Rise of Regionalism

Regional convergence of tastes and preferences can influence product offerings within a bloc of nations

firms that operate internationally

Sell cheaper products over seas - cheaper products are older - this is good because there is no competition. expands the market disperses activities to other locations for more efficiently reduce costs earn greater return

Strategic Alliances

Strategic alliances are cooperative agreements between potential or actual competitors Examples include formal (equity) joint ventures and short term contractual arrangements The number of international strategic alliances has risen significantly in recent decades

The Disadvantages of Strategic Alliances

Strategic alliances can give competitors low-cost routes to new technology and markets Unless a firm is careful, it can give away more in a strategic alliance than it receives

core competencies

Success depends on the type of goods and services, and the firm's core competencies (skills within the firm that competitors cannot easily match or imitate) Enable the firm to reduce the costs of value creation Create perceived value so that premium pricing is possible They are the source of a firm's competitive advantage

cost pressure example

The most obvious example of a region is the European Union and particularly the euro zone countries within that trade block, where there are institutional forces that are pushing toward convergence (see Chapter 9 for details). The creation of a single EU market—with a single currency, common business regulations, standard infrastructure, and so on—cannot help but result in the reduction of certain national differences among countries within the EU and the creation of one regional rather than several national markets. Indeed, at the economic level at least, that is the explicit intent of the EU.

Strategic Fit

The operations of the firm must support the firm's strategy The organizational architecture of the firm must match the firm's operations and strategy If market conditions shift, so must the firm's strategy, operations, and organization

differentiation strategy

Unique products/ services/ brand / other

Value Creation Formulas

V = Value of product to an average consumer P = price per unit C = cost of production per unit V-P = consumers surplus per unit P-C= Profit per unit sold V-C = value created per unit

VIDEO NOTES: Video Notes

VIDEO NOTES: False to believe we communicate the same way -nodding head is diff. Chinese have no difference in past and present tense. Intercultural communication- different variables of social behavior. It can be poor D: 1. languages - there are more than 10,000 languages. If you are gonna spend time in country, good to pick up language. Chinese has diff alphabets. Imp to learn local tongue. Using wrong language can be rude. Historical factors - u can bring back bitter memories. When speaking ur native tongue, u should ask permission first - to show respect and appreciation. Most people in europe and china speak in english, but its not their native tongue so speak slowly and nicely. 2. translating can be difficult - when translating always double check if its appropriate. Use at least two translators. Be careful about humor and word choices. Don't use humor in presentation cuz already a language barrier. USA uses humor a lot in presentation, but in N. Europe, Sweden, Germany if u open presentation w joke u r looked as not serious. Translation means translation of meaning not words. As a safety use back translations. 3. 4. physical communication - body language. Personal space - in the west people stand arms length apart. In brazil they are six inches apart, v different than USA and if u back up that can be rude. Touching - russia when u come to work everymorning u shake hands with everyone in the room and at the end of the day u shake hands again. USA - u don't shake hands that much. Asia - shake hands first meeting but don't any other time. Eye contact- Middle East and Western Country - eye contact is critical - so its viewed to c their character. In japan and india eye contact depends on who u r talking to. Rude for junior to look directly at their senior in Asia. Best to avoid hang gestures. In USA - thumbs up means approval, but somewhere else it can be offensive. U should observe or ask to see which are appropriate and which are not. Summary --- 1. personal space 2. touching 3. eye contact 4. avoid hand gestures 5. Style - to communicate u need to adjust to other cultures. In USA and Australia communication is unformal (no difference in informal and formal when refering to pple). Japan has 3 diff levels of politeness depending on ur ranking. Some cultures prefer letters than phone calls. Some cultures like pacing when talking. Americans - u don't interupt people when they are talking. In france they talk loud and interupt. Silence - in east there are lenghty pauses. In america u r uncomfortabel w pauses. Different levels of emotions -- in middle east a convo can get into a heated thang and loud , loudness seems like strength, raising ur voice in south east asia can burn bridges. If u show too little emotion u seem aloof , if too much u look hot headed. Voices raised in middle east, s and e europe, and latin america has lot of emotions. France if u having a good convo, voices go up. Summary 1. formality varies 2. pacing and silence 3. emotions varies 6. conversation topics - personal questions ok in brazil but not in saudi. Always don't talk about relgion or politics. Asians ask about salary. German presentation like numbers so should talk about stats. Diff approach to selling in diff countries. French like to debate current events, not about own family, french wanna know how u think. NEXT, understatement and overstatements - americans advertisements use adjectives ,, germans use stat (usa finds german marketing dull). USA has many "I" statements—lot of self promotion in USA. Europe more of an understatement—if u boast in Europe then u seem obnoxious and overly aggresive. australia has a phrase called " cutting down the old poppy" - they don't like people who boast about themselves, in a meeting if u boast then people will calm u down 1. approached topics vary 2. different types of info 3. overstatement vs understatement 4. boasting s humility. 7. indirect communication- Asians - conflict creates disharmony and go to great length to avoid disagreement—part of confusianism- more about social harmony. In USA is direct and Europe is more direct with people. In Latin America, if u RSVP, doesn't mean u will necessarily attend. In many cultures most difficult word is "no". In japan there are multiple ways to say no, don't say no directly. In thailand no word called "no". India they nodd there heads which doesn't mean no or yes, it means its acknowledged. Don't push them doe, or else that's rude. Summary (stated above) 1. go to third parties 2. adjust ur style of asking 8. context/ content - N america and N europe - communication is content based-what u say is what u mean. In asia - emphasis on context - how something is said- what they say is often not exactly what they mean. Non verbal communication- asia. 1. how something is said 2. hierarchy, greater the status greater the context 3. eye contact, tone

Differences in Consumer Tastes and Preferences

When consumer tastes and preferences differ significantly between countries, firms face strong pressures for local responsiveness

Differences in Infrastructure and Traditional Practices

When there are differences in infrastructure and/or traditional practices, a need to customize products emerges

Strategic alliances

cooperative agreements between potential or actual competitors.

Learning effects

cost savings that come from learning by doing Labor productivity increases when individuals learn the most efficient ways to perform particular tasks and management learns how to manage the new operation more efficiently

Incentives

devices used to reward appropriate managerial behavior

People

employees and the strategy used to recruit, compensate, and retain those individuals

global standardization strategy

focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies The goal is to pursue a low-cost strategy on a global scale Makes sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal

localization strategy

focuses 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 Makes sense when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense

Low Cost Strategy

generic product / brand attributes

Value chain

information systems -> company infrastructure logistics -> human resources r&d -> production -> marketing and sales -> customer service

international strategy

involves taking products first produced for the domestic market and then selling them internationally with only minimal local customization Makes sense when there are low cost pressures and low pressures for local responsiveness

Processes

manner in which decisions are made and work is performed

Strategic Positioning

market- pick a position on the efficiency frontier that is viable (enough demand to support the choice) operational efficiency-Configure internal operations to support the position organization/management-Have the right organization structure in place to execute the strategy A firm's strategy, operations, and organization must all be consistent with each other in order to achieve a competitive advantage and superior profitability.

Controls

metrics used to measure the performance of subunits and make judgments about how well the subunits are run

universal needs

needs that exist when the tastes and preferences of consumers in different nations are similar if not identical these are commodity type products When major competitors are based in low cost locations Where there is persistent excess capacity Where consumers are powerful and face low switching costs

Organizational culture

norms and value systems that are shared among the employees

Economies of scale

reductions in unit cost achieved by producing a large volume of a product The ability to spread fixed costs over a large volume Not able to attain efficient scale of production unless served global markets Bargaining power increases with suppliers which may allow economies of scale in purchasing

people in the middle of

structure, incentives and controls, culture, and processes

experience curve

systematic reductions in production costs that have been observed to occur over the life of a product A product's production costs decline by some quantity about each time cumulative output doubles

Strategy

the actions taken by managers to attain the goals of the firm 1. profitability 2. profit growth

Value Creation

the difference between V (the price that the firm can charge for that product given competitive pressures) and C (the costs of producing that product) V- C Two basic strategies: 1. differentiation 2. low cost

profit growth

the percentage increase in net profits over time

profitability

the rate of return the firm makes on its invested capital

transnational strategy

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 Makes sense when there are both high cost pressures and high pressures for local responsiveness