INB 20012 Asian Regionalism & Global

Business
International Business Strategy

CRICOS 00111D
TOID 3069
 Topics for Today

1. Business Strategy
2. Pressures Firms face in international
environment
3. Business Strategies (by Michael Porter)
4. Four basic strategies to compete in the
international environment
 Business Strategy
Strategic initiatives a company
pursues to create value for the
organization and its stakeholders
and gain a competitive advantage
 Strategy and the firm

To maximise the value of a firm, managers must pursue strategies

that increase the profitability and its rate of profit growth over time.

– Profitability : Return on Investment (ROI) the firm makes on its

invested capital.

– Profit growth : Percentage increase in net profits over time.

How to increase Profit?
Strategy and the firm
Determinants of enterprise value

Figure 10.1 Determinants of enterprise value

 Individual Activity

You are the Business Manager of a company in X

industry. Find out and share- how to:

1. Reduce cost
2. Add value and raise prices
3. Sell more in Existing markets
4. Enter new markets
 Value creation

Firms can increase their profits by:

• adding value to a product so that customers are willing to

pay more for it

• lowering the costs

 Business Development
➢ a strategic process focused on expanding a business's
reach and value in the marketplace.
It involves :
✓ identifying and pursuing new market segments,
partnerships, and
✓ product/service development.
 Business Strategies
(by Michael Porter)
The strategies for improving a firm’s profitability:
1) Differentiation strategy
2) Low-cost strategy
3) Focus strategy
 Cost Leadership

This strategy aims to

✓ become the most cost-efficient producer in the industry,

✓ offer products or services at lower prices than competitors

while maintaining comparable quality.
 Differentiation

This strategy aims to

✓ create unique products or services that distinguish

the company from its rivals.

✓ This can involve features, quality, brand image, or

customer service.
 Focus

✓ targeting a specific niche market segment and

✓ tailoring the company's strategy to serve that segment's

needs most effectively.

✓ This can be either a cost focus or a differentiation focus.

Operations: the firm as a value chain
– The firm’s value chain composed of a series of distinct
value-creation activities,
• production,
• marketing,
• research and development (R&D),
• human resources,
• materials management,
• IT

– These value-creation activities can be categorised as

primary activities and support activities.
 The value chain

Figure 10.4 The value chain

 Strategy and the firm

Operations: the firm as a value chain

– Primary activities
▪ The primary activities of a firm have to do with creating
the product, marketing and delivering the product to
buyers, and providing support and after-sale service to
the buyers of the product.
– Support activities
▪ Support activities provide the inputs that allow the
primary activities of production and marketing to occur.
 Organisation architecture

– is the framework of roles, processes, and formal

reporting relationships within an organization
• control systems,
• organisational culture,
• processes and people.
 Organisational structure

How activities within a business are

✓ carried out,

✓ coordinated, and

✓ supervised,

including the roles, responsibilities, and reporting

lines
Organisation architecture

Figure 10.5 Organisation architecture

 Incentives & Control & Processes
– Incentives are the devices used to reward appropriate
managerial behaviour.
– Controls are the metrics used to measure the
performance of sub-units and make judgments about how
well managers are running those sub-units.

– Processes are the manner in which decisions are made

and work is performed within the organisation.
 Organisational culture
– Organisational culture is the norms and value systems
that are shared among the employees of an
organisation.

– By people we mean not just the employees of the

organisation, but also the strategy used to recruit,
compensate and retain those individuals and the type of
people that they are in terms of their skills, values and
orientation.
 Strategy and the firm

In sum: strategic fit

– In sum, for a firm to attain superior performance and
earn a high return on capital, its strategy must make
sense given market conditions.

– Market conditions, strategy,

– operations and organisation must all be consistent

with each other, or fit each other, for superior
performance to be attained.
 Strategic fit

Figure 10.6 Strategic fit

 Location & Cost Economies
– Firms expand the market for their domestic product offerings by
selling those products in international markets
▪ realise location economies by dispersing individual value-
creation activities to locations around the globe where they
can be performed most efficiently and effectively
▪ realise greater cost economies from experience effects by
serving an expanded global market from a central location,
thereby reducing the costs of value creation
▪ earn a greater return by leveraging any valuable skills
developed in foreign operations and transferring them to
other entities within the firm’s global network of
operations.
 Leveraging products and competencies
Expanding the market: A company can increase its
growth rate by taking goods or services developed at home
and selling them internationally.

– The success of firms that expand in this manner is

also based on their core competencies which enable the
firm to reduce the costs of value creation and/or to create
perceived value in such a way that premium pricing is
possible.
 Strategy and the firm

Location economies
– Firms can benefit by basing each value-creation activity
at that location where economic, political and cultural
conditions, including relative factor costs, are most
conducive to the performance of that activity.
– Firms that pursue such a strategy can realise location
economies (the economies that arise from performing a
value-creation activity in the optimal location for that
activity, wherever in the world that might be).
 Strategy and the firm

Location economies
– Locating a value-creation activity in the optimal location
for that activity can have one of two effects:

▪ it can lower the costs of value creation and help the firm to
achieve a low-cost position, or

▪ it can enable a firm to differentiate its product offering from the

offerings of competitors.
 Strategy and the firm

Location economies
– Creating a global web
▪ By taking advantage of location economies in different parts of
the world, multinational firms 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 maximised or where the costs of value creation are
minimised.
 Economies of scale

Experience effects
▪ Economies of scale refers to the reductions in unit cost
achieved by producing a large volume of a product.
▪ Sources of economies of scale include:
• the ability to spread fixed costs over a large volume
• the ability of large firms to employ
increasingly specialised equipment or
personnel.
Strategy and the firm

The experience curve

Figure 10.7 The experience curve

 Strategy and the firm

Experience effects

▪ When labour productivity increases, individuals

learn the most efficient ways to perform
particular tasks, and management learns how to
manage the new operation more efficiently.
 Strategy and the firm

Experience effects
– Strategic significance
▪ Moving down the experience curve allows a firm to reduce its cost of
creating value.
▪ Serving a global market from a single location is consistent with
moving down the experience curve and establishing a low-cost
position.

© MIQUL76/DREAMSTIME.COM
Pressures for Cost Reduction &
Local Responsiveness
 Pressures for Cost Reduction &
local Responsiveness

• Firms that compete in the global marketplace

typically face two types of competitive pressures:

– Pressures for cost reductions

– Pressures to be locally responsive

• These pressures place conflicting demands on the

firm.
Cost pressures and pressures for local
responsiveness

Figure 10.8 Pressures for cost reductions and local responsiveness

 Pressures for cost reductions
– Pressures for cost reductions are greatest:
▪ in industries producing commodity-type products that fill
universal needs (needs that exist when the tastes and
preferences of consumers in different nations are similar if not
identical) where price is the main competitive weapon

▪ when major competitors are based in low-cost locations

▪ where there is persistent excess capacity

▪ where consumers are powerful and face low switching costs.

Pressures for cost reductions in the airline
industry
Pressures for local responsiveness

– Pressures for local responsiveness arise from:

▪ differences in consumer tastes and preferences

▪ differences in traditional practices and
infrastructure
▪ differences in distribution channels
▪ host government demands.

© GM HOLDEN LTD
 Choosing a strategy

• Firms use four basic strategies to compete in

the international environment:
– Global standardisation strategy

– Localisation strategy

– Transnational strategy

– International strategy
Choosing a strategy

Four basic strategies

Figure 10.9 Four basic strategies

 Global Standardisation strategy

– increasing profitability and profit growth by reaping the cost

reductions that come from economies of scale, learning effects
and location economies.
– The strategic goal is to pursue a low-cost strategy on a
global scale.
– This strategy makes sense when there are strong
pressures for cost reductions and demands for local
responsiveness are minimal.

– Example: Intel sells similar microchips

globally
Localisation strategy
– Customising the firm’s goods or services so that they
provide a good match to tastes and preferences in
different national markets.

– Localisation is most appropriate when there are

substantial differences across nations with regard to
consumer tastes and preferences, and where cost
pressures are not too intense.
 Localisation strategy

Nestlé offers different

flavors of coffee and
instant noodles in
different countries.
Transnational strategy

– A transnational strategy tries to simultaneously achieve

low costs through location economies, economies of
scale and learning effects, and differentiate the product
offering across geographic markets to account for local
differences.

– A transnational strategy makes sense when cost

pressures and pressures for local responsiveness are
both simultaneously intense.
 Transnational strategy
McDonald’s Standardized systems and processes globally
(efficiency), while adapting menu and store experience to
local cultures (e.g., McSpicy Paneer in India, Teriyaki
Burger in Japan).
International strategy
– An international strategy involves taking products first
produced for the domestic market and then
selling them internationally with only minimal local
customisation.

– When there are low cost pressures and low

pressures for local responsiveness, an international
strategy is appropriate.
 International strategy

Rolex

Luxury watches with standardized global

branding and minimal regional customization.
Same premium positioning worldwide.
 The evolution of strategy
• An international strategy may not be viable in
the long term.
• To survive, firms may need to shift to a global
standardisation strategy or a transnational strategy
in advance of competitors.
• Similarly, localisation may give a firm a competitive
edge, but if the firm is simultaneously facing
aggressive competitors, the company will also have to
reduce its cost structures, and the only way to do that
may be to shift towards a transnational strategy.
The evolution of strategy
Changes in strategy over time

Figure 10.10 Changes in strategy over time

Strategic alliances
• Strategic alliances:
– Refer to cooperative agreements between potential
or actual competitors.
– They include:
▪ formal joint ventures, in which two or more firms have equity
stakes
▪ short-term contractual agreements, in which two companies
agree to cooperate on a particular task (such as developing
a new product).
Strategic alliances

The advantages of strategic alliances

– Facilitates entry into a foreign market.
– Allows firms to share the fixed costs, resources (and
associated risks) of developing new products or
processes.
– Brings together complementary skills and assets
that neither partner could easily develop on its own.
Strategic alliances

The disadvantages of strategic alliances

– Strategic alliances can give competitors low-cost
routes to new technology and markets, but unless a
firm is careful it can give away more than it
receives.
– Could be an avenue for future takeovers.
– Problems with relationships between competitors.
Strategic alliances

Making alliances work

– The success of an alliance seems to be a function
of three main factors:
▪ Partner selection
▪ Alliance structure
▪ The manner in which the alliance is managed
Strategic alliances

Making alliances work

– Partner selection
▪ A good partner has three principal characteristics:
• A good partner helps the firm achieve its strategic goals and
has the capabilities the firm lacks and that it values.
• A good partner shares the firm’s vision for the purpose of
the alliance.
• A good partner is unlikely to try to opportunistically exploit
the alliance for its own ends: that is, to expropriate the firm’s
technological know-how while giving away little in return.
Strategic alliances

Making alliances work

– Alliance structure
▪ Alliances can be designed to make it difficult to transfer technology
not meant to be transferred.
▪ Contractual safeguards can be written into an alliance agreement
to guard against the risk of opportunism by a partner.
▪ Both parties can agree in advance to swap skills and technologies
to ensure a chance for equitable gain.
▪ The risk of opportunism by an alliance partner can be reduced if
the firm extracts a significant credible commitment from its partner
in advance.
Strategic alliances

Making alliances work

– Managing the alliance
▪ Successfully managing an alliance requires managers from
both companies to build interpersonal relationships.
▪ A major determinant of how much a company gains from an
alliance is its ability to learn from its alliance partners.
▪ To maximise the learning benefits of an alliance, a firm must
try to learn from its partner and then apply the knowledge
within its own organisation.
GPA 3.4 is for accounting &
finance intern and
FDP program

GPA 3 for other Business

Interns
 Assignment

1. In-text Citation must be same as References

2. References must be alphabetical with URL

links

3. Check the Rubrics to know where you should

put more effort & time

4. Presentation for A2- EP – 16th Week