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BMGC Ch7

This document summarizes key concepts from Ch 7 and 8 on strategy and competitive advantage for international businesses. It discusses value chain strategies like cost leadership and differentiation. It also analyzes factors for international success like location economies, experience curve effects, and economies of scale. Frameworks are presented for international environmental analysis (PESTEL), identifying strengths and weaknesses (SWOT), and measuring cultural and economic differences between countries (CAGE). International business strategies are mapped to Ghemawat's three models of aggregation, adaptation, and arbitrage. Porter's five forces model is explained for analyzing industry competition. Finally, the document outlines generic competitive strategies and the resource-based view of sustained competitive advantage through valuable, rare, inimitable,

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Fan Yuqing
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197 views

BMGC Ch7

This document summarizes key concepts from Ch 7 and 8 on strategy and competitive advantage for international businesses. It discusses value chain strategies like cost leadership and differentiation. It also analyzes factors for international success like location economies, experience curve effects, and economies of scale. Frameworks are presented for international environmental analysis (PESTEL), identifying strengths and weaknesses (SWOT), and measuring cultural and economic differences between countries (CAGE). International business strategies are mapped to Ghemawat's three models of aggregation, adaptation, and arbitrage. Porter's five forces model is explained for analyzing industry competition. Finally, the document outlines generic competitive strategies and the resource-based view of sustained competitive advantage through valuable, rare, inimitable,

Uploaded by

Fan Yuqing
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Ch 7: Strategy & the Enterprise

Value creation & value chain strategies


1. Reduce costs (cost leadership) by (a) outsourcing, (b) location
2. Add value to products (differentiation)
3. Focus, identify market segment
Value Chain activities
Primary: R&D, Production, Marketing & Sales, Customer service
Secondary: Information systems, Company Infrastructure Logistics, HR
3 ways to achieve cost advantage
1) Location economies value creation activities are dispersed to locations where they can be
performed most efficiently &
effectively (perceived value maximised or cost of value creation minimized)
- Different stages of value chain dispersed to different locations (e.g. Dell
notebook, Lenovo Thinkpad)
2) Experience curve effects systematic reductions in production costs over product lifetime
- Production costs fall as people learn to work more productively &
management organise work
more efficiently
3) Economies of Scale Reductions in unit cost achieved by producing a large volume of a product
- Can be improved by going international
International Environmental Analysis PESTEL
P Political/legal (is the govt protectionistic/pro-free-trade? Stable? Product safety?)
E Economic
S Social
T Technological
E Environment
MiniMax Analysis SWOT + 4 questions
Internal
Strengths
Weaknesses

External
Opportunities
Threats

Maximise
Minimise

- How to maximise strengths to take adv of


opportunities?
- How to make use of strengths to minimise
threats?
- How to maximise opportunities to minimise
weaknesses?

CAGE Distance Framework: Country-level analysis (there are still important differences
betw countries despite globalisation)
Cultural: Language, race, social norms, values
Administrative: Political & institutional differences (e.g. lack colonial ties, different legal system)
Geographical: Physical distance
Economic: Consumer incomes, infrastructure, human talent
Notes:

1) PESTEL Analysis feeds into Opportunities & Threats of SWEOT (external environment)
2) Difference betw PESTEL & CAGE: CAGE looks at the difference betw firm & country
(distance)
Ghemawats AAA model (3 types of business models)
Aggregation overcome differences, create economies of scale using grouping devices & intragroup
coordination mechanisms
- e.g. Product standardisation, regional hubs, shared service centres (geographical
aggregation)

Adaptation Adjust to differences, offer diff products, tailor policies, positioning, advertising & pricing
(can be expensive)
Ideas: - Focus on activities/products that require less adaptation across markets
- Externalize costs of adaptation by working w local partners
- Design basic product such that flexibility of final product is increased
- Organize innovation processes with effectiveness of variation in mind
Arbitrage Exploits differences betw national or regional markets by locating diff parts of supply chain
in diff places
- Find location with lower labour costs, lower resource or assembly costs, cheaper capital, tax
advantages
4 international business strategies based on AAA model
1) International (home replication) strategy
Conditions: Low cost reduction pressures, low local responsiveness pressures
- Replicate internationally home country-based competencies (e.g. brand) and products/services
- Take products produced for domestic market and sell internationally with minimal local
customisation
- Disadvantage - Not viable in long-run
Ghemawats model: None
2) Localisation (multi-domestic) strategy
Conditions: Low cost reduction pressures, high local responsiveness pressures
- Each country/region as a stand-alone market worthy of significant adaptation & attention
- Increase profitability by customising goods/services to match tastes & preferences in different
national markets
Ghemawats model: Adaptation
3) Global standardisation strategy
Conditions: High cost reduction pressures, low local responsiveness pressures
- Develop and distribute standardised products/services worldwide to reap economies of scale &
shared product development
- Increase profitability & profit growth by reaping cost reductions from EOS, experience curve
effect & location economies
Ghemawats model: Aggregation
4) Transnational strategy
Conditions: High cost reduction pressures, high local responsiveness pressures
- Differentiate product offering across geographic markets, foster multidirectional flow of skills
betw diff subsidiaries in companys network of operations
- Simultaneously achieve low costs through EOS, experience curve effect & location economies
Ghemewats model: Aggregation & Adaptation
Conditions:
Pressures for cost reductions greatest:
- In industries producing products that meet universal needs, where price is main competitive
weapon
- When major competitors are based in low-cost locations
- Where there is persistent excess capacity
- When consumers are powerful and face low switching costs
Factors for pressures for local responsiveness:
- Differences in consumer tastes & preferences
- Differences in traditional practise and infrastructure
- Differences in distribution channels
- Host government demands (e.g. economic/political demands)
Chapter 8: competitive strategy for international business
Porters five forces
-to identify an industrys structure
1. Rivalry between competitors
- direct competitor

Degree of rivalry increase when:


-competitors are of roughly equal size
- aggressive in seekin ldrship
- market is maturing or declining
- high fixed cost
- high exit barrier
- low differentiation of G&S
2. Threat of entry by new rivals and barriers to their entry
- Threat of entry is low when barrier to entry is high
-high fixed cost
- superior info abt customers
- high exp needed
- difficult to access supply and distribution chain
- difficult govt restriction
3. Threat of substitutes
-price/performace ratio is high
-substitute benefit from innovation at improves customer satisfaction
4. Bargaining power of buyers
-buyers have low switching cost
-buyers can supply their own inputs
-few buyers
5. Bargaining power of suppliers
-v few supplier providing rare input
- buyer is insignificant to supplier
- high switchin cost
Critics: -neglect the growing imptance of complementors assume too much stability in the
environment
Generic strategies:
1. Cost ldership
-low cost
- relentless drive to cut costs might compromise value that customers desire
-on competing on price leaves little room for competitive manoeuvre
2. Differentiation
-delivers product that customer perceive to be valueable and different
-target smaller segments who are willing to pay premium prices
-low olume high margin approach
3. Focus strategy
-concentrates on the needs of a particular segment of an industry.
-smaller sharper focus
Resource based competition- VRIO
1. Value : resource and capability valued by customers and provide CA
2. Rarity : rare, few competitors possess
3. Imitability: difficult to replicate the resource/ capability direct duplication and substitution
More difficult, hard to acquire what
competitor acquire over a long time
4. Organisation: how the company organise itself to develop and leverage the full potential of its
resource and
Capabilities
-using complementary assets effectively; managing social complexity effectively;
leveraging invisible
Relationships that can add value (makes imitation more difficult)

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