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chapter 13 IB
| Question | Answer |
|---|---|
| Strategy | refers to the actions that managers take to attain the goals of the firm |
| Profitability | is the rate of return the firm makes on its invested capital |
| Profit growth | is the percentage increase in net profits over time |
| What can firms do to increase profitability and profit growth? | -add value -lower costs -sell more in existing markets -expand internationally |
| value creation | is the difference between V (the price that the firm can charge for that product given competitive pressures) and C (the costs of producing that product) |
| differentiation strategy | adding value to a product so that customers are willing to pay more for it |
| low cost strategy | lowering costs |
| operations | -are like a value chain composed of a series of distinct value creation activities: production, marketing, materials management, R&D, human resources, information systems, and the firm infrastructure |
| Value Creation activités can be categorized as: | 1. Primary activities -R&D:Production, Marketing and Sales and Customer Service 2. Support activities : information systems , logistics and human resources |
| How can firms increase profits through international expansion? 1. Expand their market- sell in international markets. 3. Realize greater cost economics from experience effects- serve an expanded global market from a central location | .2. Realize location economics-disperse value creation activités to locations where they can be performed most efficiently and effectively. .4. Earn a greater return- leverage skills developed in foreign operations and transfer them elsewhere in the firm. |
| Core competencies | skills within the firm that competitors cannot easily match or imitate-- allow firms to reduce the costs of value creation and/or to create perceived value so that premium pricing is possible |
| Location economies | arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be -- lower the costs of value creation and achieve a low cost position, and differentiate their product offering |
| global web | different stages of the value chain are dispersed to locations where perceived value is maximized or where the costs of value creation are minimized |
| experience curve | the systematic reductions in production costs that occur over the life of a product |
| Learning effects | are cost savings that come from learning by doing |
| Economies of scale | the reductions in unit cost achieved by producing a large volume of a product -spreading fixed costs over a large volume -utilizing production facilities more intensively -increasing bargaining power with suppliers |
| How can managers leverage subsidiary skills? 1.Recognize that valuable skills that could be applied elsewhere in the firm can arise anywhere within the firm's global network - not just at the corporate center | 2.Establish an incentive system that encourages local employees to acquire new skills 3.Have a process for identifying when valuable new skills have been created in a subsidiary 4.Act as facilitators to help transfer skills within the firm |
| What are two competitive pressures? | 1. for cost reductions 3. to be locally responsive |
| Pressures for cost reductions | force the firm to lower unit costs |
| Pressures to be locally responsive | require the firm to adapt its product to meet local demands in each market |
| Pressures for cost reductions are greatest.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 | 1.In industries producing commodity type products that fill universal needs (needs that exist when the tastes and preferences of consumers in different nations are similar if not identical) where price is the main competitive weapon |
| Pressures for local responsiveness arise from | 1.Differences in consumer tastes and preferences 2.Differences in traditional practices and infrastructure 3.Differences in distribution channels 4.Host government demands |
| Global standardizationThis strategy makes sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal | increase profitability and profit growth by reaping the cost reductions from economies of scale, learning effects, and location economies- goal is to pursue a low-cost strategy on a global scale-- |
| Localization increase profitability by customizing goods or services so that they match tastes and preferences in different national markets- | - This strategy makes sense when there are substantial differences across nations with regard to consumer tastes and preferences and cost pressures are not too intense |
| Transnational. tries to simultaneously achieve low costs through location economies, economies of scale, and learning effects-This strategy makes sense when both cost pressures and pressures for local responsiveness are intense | firms differentiate their product across geographic markets to account for local differences and foster a multidirectional flow of skills between different subsidiaries in the firm's global network of operations-- |
| International. take products first produced for the domestic market and sell them internationally with only minimal local customization-- | This strategy makes sense when there are low cost pressures and low pressures for local responsiveness |
Created by:
Syl593