P Morici Fall 2012 Final Exam Pearls Benefits to the firm from global expansion Global web of value creation Globalization strategies Organizational structures characteristics advantages disadvantages International division worldwide area global matrix etc Types of control systems Pg474 scale of entry photograph page Modes of entry advantages disadvantages table Pioneering costs Export management company pg 527 Letter of credit Pg 525 discussion of dept of commerce Offset agreements Bill of exchange Minimum Scale of Plant Locating Production facilities pg 553 Advantages of make or vertical integration pg 557 logistics ISO 9000 Six Sigma TQM Lean manufacturing Mass customization Flexible machine cells Fragmented retail sector system Concentrated retail sector system Push vs pull marketing strategies pg 582 Global Advertising pg 584 Price discrimination pg 585 Cross cultural literacy Noise effects staffing policies chart Human resources management Push is direct marketing going directly to consumer Pull is consumer good with large market rely more on mass communication 1 Cultural myopia Chapters 12 13 and 18 Why firms go abroad Earn a Greater Return from Core Competencies Realize Locational Economies basing each value creation activity it performs at that location where economic political and cultural conditions are most conducive to the performance of that activity Global Web Lower Cost or Better Resources Global web of value creation activities with different stages of the value chain being dispersed to those locations around the globe where perceived value is maximized or where the costs of value creation are minimized Goal is to reduce costs add value and raise prices Value creation way to increase profitability of a firm Value is measured by the difference between the costs of production and the value consumers perceive in its products The more value customers place on a firm s product the higher the price the firm can charge for those products Customer captures some of that value in the form of consumer Low cost strategy surplus value for its customers and does so at a lower cost attractiveness of a product Differentiation strategy focuses primarily on increasing the Firm has high profits when it creates more Realize Economies of Scale refer to the reductions in unit cost achieved by producing a Gather Information large volume of a product Traditional Economies of Scale Learning Experience Curve Effects cost savings that come from learning by doing like labor for example learn by repetition and productivity increases over time as people learn most efficient way to perform tasks 2 Strategy Factors affecting choice Competitive Pressures to Reduce Cost pressure to lower costs of value creation Local Responsiveness differences between countries that may affect value chain or Might outsource marketing strategies Differences in Infrastructure and Traditional Practices Differences in Consumer Tastes and Preferences Differences in Distribution Channels Host Government Demands Implications Strategy Four Basic Choices International Localization Multidomestic create value by placing more complete autonomous units create value by transferring firm s core competencies abroad low cost pressures and low pressures for local responsiveness so minimal customization in foreign markets to accomplish local responsiveness locations to exploit locational and experience curve economies firm tries to simultaneously achieve low costs through location economies economies of scale and learning effects as well as differentiate product offering for local differences and foster a multidirectional flow of skills between firm s global ops network create value by placing activities in their most cost effective Global Standardization Transnational Matching Strategy to Environment 1 A firm s choice of strategy must address its competitive environment 3 Advantages and Disadvantages of Four Strategies KNOW CHART Structures 4 basic choices International Division Worldwide Areas Organize by Region or Country Worldwide Product Division Organize by Product Global Matrix Organizational structure decentralized The formal division into subunits such as product divisions national ops and functions Location of decision making responsibilities within that structure either centralized or Establishment of integrating mechanisms to coordinate the activities of subunits including cross functional teams or pan regional committees 4 Typical functional square Typical for domestic firms Most basic Centralized decision making Typical Product Division Structure Used to solve problems of coordination and control International Division Structure Happens when firms initially expand abroad Export products manufactured at home to foreign subsidiaries to sell Might prove more viable to manufacture the product in each country and production facilities added on country by country basis and replicating structure Disadvantages While widely used can create conflict and coordination problems between domestic and foreign ops Heads of foreign subsidiaries not given as much of a voice as heads of domestic Country manager is second tier which is inconsistent with strategy of trying to expand internationally Limit worldwide introduction of new products As firms continue to expand adopt worldwide area structure 5 Worldwide area structure activities World divided into geographic areas Each area is self contained and largely autonomous with own set of value creation Facilitates local responsiveness Encourages fragmentation bc too autonomous Difficult to transfer core competencies and skills between areas and to realize location and experience curve economies Consistent with location strategy but may make it difficult to realize gains associated with global standardization Worldwide Product Division Structure Each division self contained Designed to help overcome the coordination problems that arise with the international division and worldwide area structures Provides an organizational context that enhances the consolidation of value creation activities at key locations necessary for realizing location and experience curve Main problem is the limited voice given to area or country managers since they are seen as subservient to product division managers which can result in lack of local responsiveness Global Matrix Structure 6 Product division and geographic area Product division and various areas of firm should share responsibility for op decisions
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