Part Five

Global Strategy, Structure, and

Implementation
Chapter Eleven
The Strategy of International
Business

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 Chapter Objectives
• To examine the idea of industry structure, firm
strategy, and value creation
• To profile the features and functions of the value
chain framework
• To appreciate how managers configure and
coordinate a value chain
• To identify the dimensions that shape how
managers develop strategy
• To profile the types of strategies firms use in
international business

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 Industry, Strategy, And Firm
Performance
• Managers, as agents of their firms, devise
strategies to engage international markets
in ways that sustain the company’s boost
its profitability and growth
• Strategy is defined as the efforts of
managers to build and strengthen the
company’s competitive position within its
industry in order to create superior value

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 Industry, Strategy, And Firm
Performance
• Firm performance is influenced by both the
structure of the company’s industry and
the insight of managers’ strategic decision
making
• Estimates vary on the degree of influence
for both factors
• Managers need to be familiar with
industry- and firm-level conditions in
making strategy
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 The Five Forces Model
• Managers typically anchor analysis of industry
structure by modeling the strength and
importance of the so-called “five fundamental
forces.”:
 the moves of rivals battling for market share
 the entry of new rivals seeking market share
 the efforts of other companies outside the industry to
convince buyers to switch to their own substitute
products
 the push by input suppliers to charge more for their
inputs
 the push by output buyers to pay less for products

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 Events that can change industry
structure
• Competitors’ moves.
• Government policies.
• Changes in economics.
• Shifting buyer preferences.
• Technological developments.
• Rate of market growth.

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 Strategy and Value
• Strategy is defined as the efforts of
managers to build and strengthen the
company’s competitive position within its
industry in order to create superior value
• Value is the measure of a firm’s ability to
sell what it makes for more than the cost it
incurred to make it

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 Creating Value
• Firms create value either through a low-
cost leadership strategy or a differentiation
strategy

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 The Firm As Value Chain
• Interpreting the firm within the context of
the value chain provides a strong tool to
improve the accuracy of strategic analyses
and decisions

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 What Is a Value Chain?
• The value chain lets managers
deconstruct the general idea of “create
value” into a series of discrete activities
• The function of the value chain is shaped
by how managers opt to configure and
then coordinate discrete value activities

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 Dimensions of The Value Chain
• Primary activities that create and deliver the
product.
• Support activities that aid the individuals and
groups engaged in primary activities.
• Profit margin reports the difference between the
total revenue generated by sales and the total
cost of the activities that led to those sales.
• Orientation—namely, whether the particular
activity takes place upstream or downstream.

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 Using the Value Chain
• Configuration is the way that managers arrange
the activities of the value chain.
• Coordination is the way that managers connect
the activities of the value chain.
• Firms pay close attention to location economics
when configuring their value chain
• Devising a way to coordinate value chain
activities must be in ways that leverage a firm’s
core competencies

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Pressures for Global Integration
• Companies that operate internationally
face the asymmetric pressures of global
integration versus local responsiveness
• Change, whether in managers,
competencies, industries, or
environments, often spurs companies to
rethink and reset their value activities

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 Types Of Strategy
• The firm entering and competing in foreign
markets can adopt either an:
 international
 multidomestic
 global
 transnational strategy
• Often, firms use a mix of these four types
due to company, industry, and
environmental situations
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