MNC Section V International Strategy
Notes
1. There are altogether 5 questions
2. Part A(Q1 to Q4) and Part B(Q.5)
3. Please read all the questions and Grading Criteria "description" for Part A(Q1 to Q4) and also find the attachments (Chap 13 and 14 )
Week 5: MNC Section V International Strategy
Part A. Examine your Multi-National Corporation (MNC) international strategy. (Home Country: Japan (Toyota Manufacturing Company, Host Country: United State of America)
Q.1 Which of the four international business strategies does your MNC (Toyota Manufacturing Company) use in the host country (United States)?
Q.2 What are the advantages/disadvantages of the chosen international strategy?
Q.3 Why do you believe that your MNC (Toyota Manufacturing Company) chose the strategy you argue?
Q.4 Would you have chosen a different one? Why or why not?
Course Project Criteria
Section |
Points |
Description |
|
Section V |
20 |
Examine your MNC’s international strategy. Which of the four international business strategies does your MNC use in the host country? How have they approached globalization, expansion, challenges, and opportunities? Provide an example of how your MNC has entered the host country market ( by using one of the six entry modes). |
Part B Q.5 International Business Strategy
Look at the below matrix taken from the Chapter 13 reading. Afterward, look at this week’s discussion questions and provide what you believe is your MNC's approach to entering your host country ( MNC-USA).
Give us your thought process. There is no objective right/wrong answer here, just your opinion, and state why you think this is the proper IB strategy used.
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©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Chapter 13
The Strategy of International Business
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©McGraw-Hill Education.
What Is Strategy? (1 of 3)
- A firm’s strategy refers to the actions that managers take to attain the goals of the firm
- Firms need to pursue strategies that increase profitability and profit growth
- Profitability is the rate of return the firm makes on its invested capital
- Profit growth is the percentage increase in net profits over time
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LO 13-1: Explain the concept of strategy.
©McGraw-Hill Education.
What Is Strategy? (2 of 3)
To increase profitability and profit growth, firms can
- add value
- lower costs
- sell more in existing markets
- expand internationally
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Managers can increase the profitability of the firm by pursuing strategies that lower costs or by pursuing strategies that add value to the firm’s products, which enables the firm to raise prices.
Managers can increase the rate at which the firm’s profits grow over time by pursuing strategies to sell more products in existing markets or by pursuing strategies to enter new markets. As we shall see, expanding internationally can help managers boost the firm’s profitability and increase the rate of profit growth over time.
©McGraw-Hill Education.
What Is Strategy? (3 of 3)
Determinants of Enterprise Value
Jump to Appendix 1 for long image description
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©McGraw-Hill Education.
How Is Value Created? (1 of 3)
- To increase profitability, a firm needs to create more value
- The firm’s value creation is the difference between V (the price that the firm can charge for a product given competitive pressures) and C (the costs of producing that product)
- a firm has high profits when it creates more value for its customers and does so at a lower cost
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©McGraw-Hill Education.
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The value of a product to an average consumer is V; the average price that the firm can charge a consumer for that product given competitive pressures and its ability to segment the market is P; and the average unit cost of producing that product is C (C comprises all relevant costs, including the firm’s cost of capital). The firm’s profit per unit sold (p) is equal to P – C, while the consumer surplus per unit is equal to V – P (another way of thinking of the consumer surplus is as “value for the money”; the greater the consumer surplus, the greater the value for the money the consumer gets). The firm makes a profit so long as P is greater than C, and its profit will be greater the lower C is relative to P. The difference between V and P is in part determined by the intensity of competitive pressure in the marketplace; the lower the intensity of competitive pressure, the higher the price charged relative to V. In general, the higher the firm’s profit per unit sold is, the greater its profitability will be, all else being equal.
©McGraw-Hill Education.
How Is Value Created? (3 of 3)
Profits can be increased by
Using a differentiation strategy
- adding value to a product so that customers are willing to pay more for it
Using a low cost strategy
- lowering costs
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©McGraw-Hill Education.
Why Is Strategic
Positioning Important? (1 of 2)
- Michael Porter argues that firms need to choose either differentiation or low cost, and then configure internal operations to support the choice
- So, to maximize long run return on invested capital, firms must
- pick a viable position on the efficiency frontier
- configure internal operations to support that position
- have the right organization structure in place to execute the strategy
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The strategy, operations, and organization of the firm must all be consistent with each other if it is to attain a competitive advantage and garner superior profitability. Operations refers to the different value creation activities a firm undertakes.
©McGraw-Hill Education.
Why Is Strategic
Positioning Important? (2 of 2)
Strategic Choice in the International Hotel Industry
Jump to Appendix 3 for long image description
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The convex curve is what economists refer to as an efficiency frontier. The efficiency frontier shows all of the different positions that a firm can adopt with regard to adding value to the product (V) and low cost (C) assuming that its internal operations are configured efficiently to support a particular position (note that the horizontal axis is reverse scaled—moving along the axis to the right implies lower costs). The efficiency frontier has a convex shape because of diminishing returns. Diminishing returns imply that when a firm already has significant value built into its product offering, increasing value by a relatively small amount requires significant additional costs. The converse also holds, when a firm already has a low-cost structure, it has to give up a lot of value in its product offering to get additional cost reductions.
©McGraw-Hill Education.
How Are a Firm’s
Operations Configured? (1 of 3)
- A firm’s 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
- All of these activities must be managed effectively and be consistent with firm strategy
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©McGraw-Hill Education.
How Are a Firm’s
Operations Configured? (2 of 3)
Value creation activities can be categorized as
Primary activities
- R&D
- Production
- marketing and sales
- customer service
Support activities
- information systems
- logistics
- human resources
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©McGraw-Hill Education.
How Are a Firm’s
Operations Configured? (3 of 3)
The Value Chain
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The operations of a firm can be thought of as a value chain composed of a series of distinct value creation activities including production, marketing and sales, materials management, R&D, human resources, information systems, and the firm infrastructure. We can categorize these value creation activities, or operations, as primary activities and support activities (see Figure 13.4). If a firm is to implement its strategy efficiently and position itself on the efficiency frontier shown, it must manage these activities effectively and in a manner that is consistent with its strategy.
©McGraw-Hill Education.
How Can Firms Increase Profits Through International Expansion?
International firms can
Expand their market
- sell in international markets
Realize location economies
- disperse value creation activities to locations where they can be performed most efficiently and effectively
Realize greater cost economies from experience effects
- serve an expanded global market from a central location
Earn a greater return
- leverage skills developed in foreign operations and transfer them elsewhere in the firm
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LO 13-2: Recognize how firms can profit by expanding globally.
©McGraw-Hill Education.
How Can Firms Leverage Their Products and Competencies? (1 of 2)
- Firms can increase growth by selling internationally goods or services developed at home
- The success of firms that expand internationally depends on
- the goods or services sold
- the firm’s core competencies
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©McGraw-Hill Education.
How Can Firms Leverage Their Products and Competencies? (2 of 2)
- Core competencies – skills within the firm that competitors cannot easily match or imitate
- can exist in any value creation activity
- Core competencies allow firms to reduce the costs of value creation and/or to create perceived value so that premium pricing is possible
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©McGraw-Hill Education.
Why Are Location
Economies Important? (1 of 2)
- Location economies are economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be
- By achieving location economies, firms can
- lower the costs of value creation and achieve a low cost position
- differentiate their product offering
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©McGraw-Hill Education.
Why Are Location
Economies Important? (2 of 2)
- Firms that take advantage of location economies in different parts of the world, create a global web of value creation activities
- different stages of the value chain are dispersed to locations where perceived value is maximized or where the costs of value creation are minimized
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©McGraw-Hill Education.
Why Are Experience
Effects Important? (1 of 4)
- The experience curve refers to the systematic reductions in production costs that occur over the life of a product
- by moving down the experience curve, firms reduce the cost of creating value
- to get down the experience curve quickly, firms can use a single plant to serve global markets
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©McGraw-Hill Education.
Why Are Experience
Effects Important? (2 of 4)
- Learning effects are cost savings that come from learning by doing
- When labor productivity increases
- individuals learn the most efficient ways to perform particular tasks
- managers learn how to manage the new operation more efficiently
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©McGraw-Hill Education.
Why Are Experience
Effects Important? (3 of 4)
The Experience Curve
Jump to Appendix 4 for long alternate description
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©McGraw-Hill Education.
Why Are Experience
Effects Important? (4 of 4)
- Economies of scale – the reductions in unit cost achieved by producing a large volume of a product
- Sources of economies of scale include
- spreading fixed costs over a large volume
- utilizing production facilities more intensively
- increasing bargaining power with suppliers
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©McGraw-Hill Education.
How Can Managers
Leverage Subsidiary Skills?
Managers should
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
Establish an incentive system that encourages local employees to acquire new skills
Have a process for identifying when valuable new skills have been created in a subsidiary
Act as facilitators to help transfer skills within the firm
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©McGraw-Hill Education.
What Types of Competitive Pressures Exist in the Global Marketplace? (1 of 3)
- Firms that compete in the global marketplace face two conflicting types of competitive pressures
- the pressures limit the ability of firms to realize location economies and experience effects, leverage products, and transfer skills within the firm
- Dealing with both pressures is challenging
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LO 13-3: Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice.
©McGraw-Hill Education.
What Types of Competitive Pressures Exist in the Global Marketplace? (2 of 3)
Two competitive pressures:
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
- but, this strategy can raise costs
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©McGraw-Hill Education.
What Types of Competitive Pressures Exist in the Global Marketplace? (3 of 3)
Pressures for Cost Reductions and Local Responsiveness
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