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)