University College of fsamabad Prepared by Dr. Catalina Alliende for SCG Strategy and the enterprise in international contexts — overview Strategy and the enterprise in international contexts — overview + 7.2 Strategy and value creation. vo 86. Tasmalye camer eae Bree an '* 7.3 Going international — gaining economies from value chain of a firm. a a i stl he major economies Fem ryt sin fom location, experience effects and scale.. 89 [ct Oe ale eons ee * 7.4 Analysing the international environment 1 + identify the major frameworks for conducting an environmental . Sea Incung PSTEL, Minimax, CAGE sna SWOT + 7.5 Developing international business stratesy: 2 demorstrate how Gherianat's ABA model ean besed to develop eesti aan inode)... mho3 5sternatona busines seategy fora : ‘establish four basic international strategies ~ international ‘Gealsation, global standardisation and ansnational ~ and ow ims ‘an evolve and grow through adopting these strategies tcifarent + 7.6 Choosing a strategy for international Business. 9 Strategy and the enterprise in | _ Strategy and the enterprise in | international contexts - overview international contexts — 0 7a2 joutcomes 7.1.3 Essential reading end ofthis chapter, and having completed the Essential reading sou shouldbe able to" pts of strategy, value creation and the value chain of betters tor7.2 Strategy and value creation 2) direction, while planning actions for jort- (one year) and medium-term (three year) pals. Strategy asks, and seeks to answer, three ndamental que: * are we now? do we want to be/must we be? do we get there?7.2.1 Value creation and the value chain Which strategies can a company have to increase profitability ? * reduce costs + add value to the company's products/services, thus allowing it to raise prices. + selling more products/services in existing markets. + pursue strategies to enter new markets. 7.2.1 Value creation and the value chain * Astrategy that find the optimal, that is the most profitable, balance between + a) keeping its own costs low b) differentiating its products/ervices in ways that allow it to increase prices to levels at which enough customers will still Buy those offerings. Identify the market segment, that is the group of customers, to whom your product/service and price is more attractive than those offered by the competition. University Ooi) Prepared by Or. Catalin: 7.2.1 Value creation and the value chain * Profitability can be enhanced by cutting costs, but will this affect the quality of the product/ service and therefore the customer experience? + Improving the product/service and custome experience could attract customers, allow price increases * Porter and cost versus differentiat strategies (chapter 8) 7.2.2 The firm as a value chain * Operations here are defined as the different value creation activities a company undertakes. * They include, in a manufacturing business, production, marketing and sales, R&D, human resources, information systems, logistics and infrastructure. 7.2.2 The firm as a value chain + Primary activities have to do with the design, production and delivery of the product/service, its marketing, and its support and after-sales service All create value in various ways: * Support activities of the value chain provide inputs that allow the primary activities to occur. They will be discussed in chapters ahead mainly: . — Logistics, Information Systems and Human resources. allege of stamabad te 7.2.2 The firm as a value chain Support Activities‘3 ways of achieving cost se regu come up in management thinking + 1 Location economies j + 2 Experience curve effects + 3 Economies of scale 1th Economies of SORE 7.3 Going international - gaining economies from location, experience effects and scale Location economies + Value cretion actives r persed to lsations where they can to difernces infact costs, corn cv comparative aartage nen prosucng coin pss 1 computer software in the USA. Now also any fs {iSicwort to ncan ceters le Bangalore and urbay Teh {elnvelabour con there nave been rng eet ya's. location economies, lower he cst of value creation nd achieves [Gercos poston. Compansesin ferent parts of the word create (aloe eeston acts (bg the Del notebook ample P&M Chapter opening case 7.3 Going international — gaining economies from location, experience effects and scale S04 tee ‘experience curve effects >, ri Sco tine : ~ corinitars tee eee Sec conten rere Sharia (Shee SE Ranieess sesbace See + rning als of ater afew yas thn economies sealemay ecomeaitectve ee Economies 2 \ecceas Ree Scop. Ben f ing international - gaining economies on, experience effects and scale7.4 Analysing the international environment Pesret PESTEL provides a comprehensive list of influences on the possible success or fallure of particular strategies. PESTEL isa tool international management to analyse the ‘external of the business environment erm 7.4 Analysing the international environment + PESTEL + Political factors: For example, government policies, taxation changes, foreign trade regulations, political risk in foreign markets, changes in trade blocs (EU). + Economic factors: For example, business cycles, + political x + economic interest rates, personal disposable income, + socto-cultural exchange rates, unemployment rates, GDP trends. + technological + Socio-cultural factors: For example, population + environmental changes, income distribution, lifestyle changes, legal Gonsumérism, changes in culture and fashion. University College of islamabad Prepared by Or. Catalina Alionde for SNCG Issa 7.4 Analysing the international environment PESTEL * Technological factors: For example, ne technology developments, ICT innovations, rates of obsolescence, increased spending on R * Environmental (‘green’) factors: For exam environmental protection regulations, ener ‘consumption, global warming, waste dispo: recycling. * Legal factors: For example, competition and safety laws, employment laws, licensi intellectual property rights laws. 7.4 Analysing the international environment ESTEL Here are some rules for using PESTEL: + Apply selectively — identify specific factors which impact on the industry, market and organisation in question, * Identify factors which are important currently but also consider which will become more important in the next few years. + Use data to support your points and analyse trends sing up-to-date Information. * Identify opportunities and threats, 7.4 Analysing the international environment 7.4.2 The SWOT framework Now is also a good time to carry out a preliminary SWOT analysis: + S~Strengths of the company + W-Weaknesses of the company + O- Opportunities for the company + T~Threats to the company 7.4 Analysing the international environment SWOT Matrixt actions does a company need to take to minimise its and threats? University Cotege of samen FS Prepared y fi Dr. Catalina Alionce for HCG Casts 7.4 Analysing the international environment + Activity = 1 Do a PESTEL analysis for a global airline industry. * 2 DoaPESTEL analysis for your National airline. '* 3 Apply a SWOT analysis to your National airline. maximise opportunities to minimise its 7.4 Analysing the international environment 7.4.3 The CAGE distance framework There are important differences between countries and the world is semi-globalised. Ghemawat ‘s CAGE distance framework is a useful too! to evaluate the distance. + Cultural + Administrative + Geographical + Economic 7.4 Analysing the internationalfeo, eal 7.4 Analysing the international environment 7.5 Developing international business strategy: Ghemawat’s (2007) AAA model How should businesses deal with the international ‘environments ~regions, countries and industries — + Adaptation: the need to be responsive to local conditions and markets). + Aagregation, the need to achieve economies of scale ‘and other advantages through global integration * Arbitrage: the need to exploit differences between rational or regional markets by locating different parts of the supply chain in different places. University Collegeof Prepared ty Dr, Catalinc Attends for & 75 developing international business strategy Seman 007 AA model gre les 7.5 Develoging international business strategy: (aasiaegy [ation asreanion [pag [Comat toscheveiocs —]feachee io |ismaee: frienncetwours —lusnore [site nyssaise [nations fcurumle|econonss though ion feat? lepetingieme ses) Jinernrions|econome |e | smite Jovesen? |reooneaconome | [esteroces by foreign counvies that 7.5 Developing international business strategy Gemawa’s (2007| AAA mace: Adoption + Adaptation provides the most abvovs rte or dealing with Affrencs: the strategy Yo ajo tose ferences, Faced with aferent customer prelerences the company should offer Aiferen or modified proauct rsennces 2nd thor polices Positioning advertising and ping ‘4: CocaColaajststhe ast oft oa to suit aca preferences. Asian and new Zeland 9 mg per 100m i (www.caffeineinformer.com) os Sudan 10.2.mg/100mis (worn pits. arg/pjnonline/in2300-pdt) Collegeof siamatag 7.5 Developing international business strategy Ghemawa's 2007] AAA mosel Aggregation + Aggregation. The strategy here st overcome diferences, sing aovpng devs ang nayroupcorcnaton mechanisms i cee {Weater economies of scae/scope than country-by-couney. cama aa cae eee See a eee eae eeece eee eee ‘pin Moroceoto service Feench-speaking markets, ets Se7.5 Developing strategy as (2007) AA model: arbitrage Ghemawat’s (2007) AAA model: Arbit asa strategy, his exploits afeences between eave ng and supply chain manage Ss aferent prt ofthe sourcing and supp! nh aera ee As Ria ae much more detail in Chapter 12. Tlecboncr serie strategy whet se ; St abtotute economies rather Van scale economies gare «The key to successful global competitivent ee to look at the trade-offs between the three Find th ncn where tere are ower labou cat ower when entering a specific en aoa industry — als, raw materials) of assembly costs oF ; osean ’ Chanper copied ard porhops ar revenge precce and form an integrated AAA strategy. Componiesin every ndustvaland service sector have multiple Stoitage opportunities across the world. University Coiege af tiamanca ZY Prepared fh Dr. Catalina A Developing international business strategy 7.5 Developing international business strates 73 Dewelap ea i nmauats 7a non ar can bn andra Aa Adationto adjust to ciorences Acareption to overcome diferences Infrastructure/ Activities subject to large scale economies (es sorting, storage) © Demand creation advertising = stockpiling > preservation of prestige 1 innovation of various sorts (but ike demand creation, benef's most nan excludable) Leverage: Build-up of bargaining power of single channel particularly vs. downstream trade 1 Focus on owing mines in “wear governance counties vation in rough elesees ove tne avertisng/ marketing (but wth country of orginobscwed “imate development ving “rect praductinovation mine: ‘Cosmopolitan “hitory of tabng a global penpectve cena seling Ongena te Hoe in United Kingsort Univesity Colage of lrabad fy Prepaedby fs Dr cetnina lie MOK nationals 76.Choosinga sratesy fr international business Fou sts onto busines 47 Woks 283 477.6 Choosing a strategy for ont international business international business 3s Pressures for cost reductions are greate: Pressures fr local responsiveness arse from the following. + Diferancas in cansumer tastes and preferences ~s:0ng cc | sinindustries producing commodity type products that pressure emerges when consumer tastes and preferences difer ¢{_illuniversal needs (needs that exist when the tastes and Sigifianty between countries. preferences of consumers in diferent nations are si weapon, * when major competitors are based in low-cost locations. - ‘* where there is persistent excess capacity. —) + where consumers are powerful and face low swite costs. low produ S if not identical) where price is the main competitive 7.6 Choosing a strategy for Similar + Differences in traditional practices and infrastructure ~ strong pressure emergas when there are significant differences in Infrastructure and/or traditional practices between countries. * + Differences in distribution channels ~there isa need to be ass responsive to differences in distribution channels between nag countries a + Host government demands - economic and political demands ‘imposed by host country governments may require local responsiveness. eres * University College of Islamabad Prepared by Dr. Catalina Ationd: 7.6 Choosing a strategy for international business The four basic strategies are as follows * International (home replication) strate; * Localisation (multi-domestic) strat * Global standardisation strategy * Transnational strategy ant ae yiecnatioial + TLE Ovackubet 7.6 Choosing a strategy for international business + International (home replication) strategy, Stresses the advantages of replication internationally of home country-based competencies (e.g. brand, distribution network) and products and services. Taking products first produced for the domestic. | market and selling them internationally with only minimal local customization makes sense when, there are low cost/global integration pressures and low pressures for local responsiveness. astonds & Comany of PTC i ae 5 7.6 Choosing a strategy for 7.6 Choosing a strategy for international business international business localisation(mult-domesti strategy ©.9) Mo Global andsrduaton ate, * Localisation considers each country or region as 8 O41 «seeks to develop and distribute standardised stand-alone local market worthy n itself of significant products/services worldwide to reap the benefits of adaptation and attention. ‘+ The strategy involves increasing profitability by economies of scale and shared product development. ‘customising goods or services so that they match * Aggregation goal, namely to increase profitability and tastes and preferences in diferent nationel markets. profit growth by reaping the cost reductions from economies of scale, learning effects and location *+ when there are substantial diferences across nations emo, with regard to consumer tastes and preferences and *+ When there are strong pressures for cost reductions ‘when cost pressures are not too intense, and demands for local responsiveness are mini imal,Ch ig. a strategy for “ie international business | Transnational strategy, Decamey cusenrtmnarast he a ‘This tries to simultaneousty achi economies, economies of scale differentiate the product offer iptcun rie ee ster a multidirectional ow of skis between diferent ASSAM hong obs sto of arate resures ae intanse and pressures fr loca Genera er prove presuunies colaich ceekpeies fe ahore eg pack “O° coceonbinay Ape University College of iarnoond ES Prepared by Dr. Catalins Atiande for SCG FmP se cod Laced 7.6 Choosing a strategy for international business eke TRS, aera enerpses Meatak cider: avy De an eae 7 Horas bal enawrs + Toomey WWD foods foc clusthi Poo’ 7 8choosng a strateny fe inernations business ieee nm, GIO, TSocdord RK eve" putea 7.6 Choosing a strat! gy fo international business « Aninternational/home replication strateey Ae vlable inthe long term. To survive, mot nies may need to shift toa global comp ardisation strategy of a transnational Strategy in advance of competitors. « Alocalisation strategy may give a company @ pampettive edge, but ifthe company is comme ineously facing aggressive competitors, the company wil ‘0 have to reduce its cost sernares, This would require a shift towards a more transnational strategy: 7.6 Choosing a strategy for international business amaranth Oman eg re ‘ceubpet am gota earng ard siiten