Which kind of strategy is using a firm trying to simultaneously achieve low costs and differentiate its product offering across geographic markets?

The actions that managers take to attain the goals of the firm
For most firms, this means maximizing the value of the firm for its owners/shareholders

Strategy focuses on profitability and profit growth.
(To maximize the value of a firm, managers must pursue strategies that increase the profitability of the enterprise and its rate of profit growth over time.)

What does strategy focus on?

The rate of return the firm makes on its invested capital (ROIC); (Net profits/total invested capital)

The percentage increase in net profits over time

To increase profitability, _____ must be created for the consumer.

_____ is measured by the difference between V (the price that eh firm can charge for that product given competitive pressures) and C (the costs of producing that product)

In general, the more value customer's place on a firm's products, the ______ the price the firm can charge for those products.

The price that gets charged tends to be _____ than the value placed on the product by many customers b/c of various factors (i.e. customer's reservation price)

1) differentiation
2) low cost

2 basic strategies for value creation:
1)_________
2)________

Value creation in terms of differentiation and low cost

Superior value creation relative to rivals doesn't necessarily require a firm to have the lowest cost structure in an industry, or to create the most valuable product in the eyes of the consumers. It does require that the gap between value (V) and cost of production (C) be > the gap attained by competitors.

Organizational architecture

Totality of a firm's organization: formal organizational structure, control systems and incentives, organizational culture, processes, and people

The formal division of the organization into subunits.
The location of decision-making responsibilities within that structure.
The establishment of integrating mechanisms to coordinate the activities of subunits including cross functional teams and/or pan-regional committees.

4 ways to globally expand

Expanding globally allows firms to increase their profitability and rate of profit growth in ways not available to purely domestic enterprises. Firms that operation internationally are able to expand in ____ ways.

1st way to globally expand: Leveraging products and competencies

Expand the market for their domestic product offerings by selling those products in international markets.
Leveraging products and competencies

Leveraging products and competencies (1st way to globally expand)

To increase growth, a firm can sell products or services developed at home in foreign markets.
Success depends on the type of goods and services and the firm's core competencies

A firm's skills that competitors cannot easily match or imitate.
Enable the firm to reduce the costs of value creation.
Create perceived value so that premium pricing is possible.

2nd way to globally expand: Location economies

Realize location economies by dispersing individual value creation activities to those locations

Cost advantages from performing a value creation activity in the optimal location for that activity.
Economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.

1) can lower the costs of value creation
2) can enable a firm to differentiate its product offering from those of competitors

Locating value creation activities in optimal locations can:
1)_____________
2)_____________

Multinationals that take advantage of location economies create a ________ of value creation activities

When different strategies of the value chain are dispersed to those locations around the globe where value added is maximized or where costs of value creation are minimized.

experience curve; doubles

(3rd reason to globally expand: Experience effects)

Systematic reductions in production costs that have been observed to occur over the life of a product.
A product's production costs decline by some quantity about each time cumulative output _______.

Learning effects
(3rd reason to globally expand: experience effects)

Cost savings that come from learning by doing.
Labor productivity increases when individuals learn the most efficient ways to perform particular tasks and management learns to manage the new operation more efficiently.

1) Learning effects
2) Economies of scale

What 2 factors explain experience effects?

Experience curve deals with the ______ aspect, while learning effects deal more with the _________.

The reductions in unit cost achieved by producing a large volume of a product.

2:
1) the ability to spread fixed costs over a large volume
2) the ability of large firms to employ increasingly specialized equipment or personnel

Sources of economies of scale include: ____.

Experience effects (3rd reason to globally expand)

Serving a global market from a single location is consistent with moving down the experience curve and establishing a low-cost position...reduces cost of value creation

Attaining economies of scale _______ a firm's unit costs and _______ its profitability.

4th reason to globally expand: Leveraging subsidiary skills

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

4th reason to globally expand: Leveraging subsidiary skills

To help increase firm value, managers should:
-Recognize that valuable skills can be developed anywhere within the firm's global network (not just at corporate center)
-Use incentive systems to encourage local employees to acquire new skills
-Develop a process to identify when new skills have been created
-Act as facilitators to transfer valuable skills within the firm

1) Entering markets where competitors lack similar competencies
2) Realizing location economies
3) Exploiting experience curve effects
4) Transferring valuable skills within the organization

Firms that expand internationally can increase their profitability and profit growth by:

1) Pressures for cost reductions
2) Pressures to be locally responsive

(Places conflicting demands on firm)

Firms that compete in the global marketplace face 2 types of competitive pressures:

Needs that exist when the tastes and preferences of consumers in different nations are similar if not identical

1) Industries producing commodity type products that fill universal needs
2) When major competitors are based in low cost locations
3) Where there is persistent excess capacity
4) Where consumers are powerful and face low switching costs

Pressures for cost reductions are greatest in...

To respond to cost reduction pressures, firms need to lower the costs of ___________.

1) differences in consumer tastes and preferences
2) differences in traditional practices & infrastructure
3) differences in distribution channels
4) host government demands

Pressures for local responsiveness arise from?

products; marketing strategy

Firms facing local responsiveness pressures need to differentiate their ________ & __________ in each country

There are 4 basic strategies to compete in the international environment.

How do pressures for cost reductions and local responsiveness influence a firm's choice of strategy?

1) global standardization
2) localization
3) transnational
4) international

What are the 4 basic strategies to compete in the international environment?

Global standardization strategy.

A ______ strategy focuses on increasing profitability and profit growth by reaping the cost reductions that come from economies of scale, learning effects, and location economies.
The goal is to pursue a low-cost strategy on a global scale.
Makes sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.

Give an example of a company that would use the Global standardization strategy

A ______ strategy focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets.
Makes sense when there are substantial differences across nations with regard to consumer tastes and preferences, and where cost pressures are not too intense.

What's an example of a company that would use localization?

A _______ tries to simultaneously:
-Achieve low costs through location economies, economies of scale, and learning effects
-Differentiate the product offering across geographic markets to account for local differences
-Foster a multidirectional flow of skills between different subsidiaries
Makes sense when there are both HIGH cost pressures and HIGH  pressures for local responsiveness

What is an example of a company with a transnational strategy?

A _______ involves taking products first produced for the domestic market and then selling them internationally with only minimal local customization.
Makes sense when there are LOW cost pressures and LOW pressures for local responsiveness

Name an example of a company/product that uses the international strategy

As competition increases, international and localization strategies become less viable.
To survive, firms may need to shift to a global standardization strategy or a transnational strategy in advance of competitors.

Is the choice of strategy (G, T, I, F) static?

Cooperative agreements between potential or actual competitors.

1) Formal joint ventures
2) Short term contractual arrangements

Give 2 examples of strategic alliances

False.

The number of strategic alliances has risen significantly in recent decades.

The number of international strategic alliances has fallen in the recent decades.

True or False?

1) Facilitate entry into a foreign market
2) Allow firms to share the fixed costs (and risks) of developing new products/processes
3) Bring together complementary skills and assets that neither partner could easily develop on its own
4) can help establish technological standards for the industry that will benefit the firm

Why form a strategic alliance...name the advantages.

1) Can give competitors low-cost routes to new technology and markets
2) Unless a firm is careful, it can give away more in a strategic alliance than it receives

What are the disadvantages to forming a strategic alliance?

1) Partner selection
2) Alliance structure
3) Manner in which alliance is managed

How can firms increase the success of their alliances? (B/c many international strategic alliances run into problems.)
Name the 3 ways.

Which strategy makes the most sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal?

What strategy applies best to firms that are selling a product that serves universal needs but don't face significant competitors?

Which of the following refers to systematic reductions in production costs that have been observed to occur over the life of a product?

What are the four main strategic postures that firms can use when competing globally?