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INTERNATIONAL NETWORK& STRATEGY
Transcript of INTERNATIONAL NETWORK& STRATEGY
NETWORK & STRATEGY
Master in International Business Management Ed. Marzo 2014 (IMDGEI08)
- Strategies of integration into an international distribution channel
- Design and organization of international networks
- Degrees of involvement into the channe
Cost Reduction: Minimize the unit costs of production.
Local Responsiveness: Product differentiation to accommodate local demands.Inditex, Coca Cola, Burguer King
Benefits from international operation:
Transfer competencies and skills within enterprise
2 types of competitive pressure
Leverage Products and skills
Economies that arise from performing a value creation activity in the optimal location for that activity. (Hill, 2011)
Location economies is the process of finding a location based on economic, political, and cultural factors which will benefit each creative activity of a firm, also taking into consideration trade barriers and transportation costs. (Hill, 2011)
Efficiently and Effectively as possible
Two likely outcomes
"Lower the cost of value creation and help a firm achieve a low cost position, and/or
Enable a firm to differentiate its product offering" (Hill, 2011, p. 410)
What is an example of a multinational business taking advantage of location economies?
Lack comparable products into competitive foreign markets (Toyota vs Ford/GM)
Products developed at home selling them internationally increasing profit and growth rate.
Not just transferring but also creating new skills
Hill, C., W., L. (2011). International Business. Competing in the Global Marketplace (8ed). New York, NY: McGraw-Hill/Irwin.
= Can lower cost production, Enchance value in other operation in global networks
= Productivity increases over time as individuals learn the most efficient system.
Infrastructure and Traditional Practice
Consumer Taste and Preferences
Delegation of manufacturing and production functions
Stronger cultural differences increase pressure significantly
EX: MTV NETWORKS
Pressure on production and marketing functions
Pressures for Local Responsiveness
Pressures for Cost Reduction
Outsourcing functions for reduced costs
Great pressure on local suppliers, but not on low-cost foreign suppliers (Hill, 2011)
Increase in international competition leads to an increase in cost pressure
Utilizing an efficient distribution strategies
E-Osborne v Acesur
Dell was founded in 1984 by University of Texas student, Michael Dell, with an initial capital of $1000. (Dell & Freedman, 1999)
Dell, M. & Fredman, C. (1999). Direct from Dell: Strategies That Revolutionized an Industry. USA: Diane Publishing Company.
Dell adopts the Just-In-Time method of production in order to minimise production and inventory costs (Kraemer & Dedrick, 2002)
Global Standardisation Strategy
Kraemer K., L. & Dedrick, J. (2002)Dell Computer: Organization of a Global Production Network. Irvine, California: University of California, Center for Research on Information Technology and Organizations.
Pressure for Local Responsiveness
Pressure for Cost Reduction
Dell has different locations for different markets around the world
For the North America market - the assembly plant is located in Texas, USA.
For the South America market - the assembly plant is located in Brazil.
For the European and Middle East market - the assembly plant is located in Poland.
For the Asian market - the assembly plants are located in Malaysia and China.
(cc) photo by twicepix on Flickr
(cc) photo by tudor on Flickr
Before the European plant was in Poland, it was in Limerick, Ireland. This move was one of the most notable in terms of location economies for Dell.
Industry Week. (2009, December 2). Dell to Sell Polish Plant to Taiwan's Foxconn.
Production costs can be systematically decreased over its life cycle, which can be illustrated by an experience curve
(Hall & Howell, 1985)
Hall, G. & Howell, S. (1985). The experience curve from an economist's perspective. Strategic Management Journal, 6(1), 197-212.
The experience curve shows the relationship between production costs and cumulative output over time. Two concepts explain the relationship; learning effects and economies of scale.
Learning effects is all about learning, learning is a diminishing term - therefore, the more that is learned about something, the less there is to be learned.
The learning stage is only important in the early stages of a new process (Hall & Howell, 1985)
Organisations can implement learning sequences in order to improve the efficiency of a production line (Bingham & Davis 2012).
Bingham, C.,B. & Davis, J., P. (2012). Learning Sequences: Their Existence, Effect, and Evolution. Academy of Management Journal, 55(3), 611-641.
Besanko, D. & Dranove, D. (1996). Economies of Strategy. New York, USA: John Wiley & Sons.
Foreign Subsidiary Skills
How do all these improve profitability and growth?
Economies of Scale
Economies of scale allows fixed costs to be spread over a large magnitude. (Besanko & Dranove, 1996).
Economies of Scale is the process of reducing unit costs by producing in large quantities (Hill, 2011).
How do firm's expand in markets by operating internationally?
- Selling goods produced at home internationally
- Selling in a nation that lacks comparable products
"Toyota has a strong culture that is not easy to bring in other firms" (Taneja, Pryor & Sewell, 2012)
Another way multinational corporations become successful in international markets is based upon the core competencies.
Core competencies are the skills that competitors cannot easily imitate.
- These skills are present in value creation such as production, marketing, R&D, human resources, logistics, general management.Nespresso
- Core competencies enable the firm to reduce the costs of production, marketing, R&D, human resources, logistics, general management (value creation) and still be able to create value with good prices. Gourmet Meeting Point
- Crucial for competitive advantage in a foreign market. Chile in China
Core competencies are the source of a firm’s competitive advantage
The success of global expansion by manufacturing companies (such as Toyota) is based not just on leveraging products and selling them in foreign markets.
“Unlike physical assets, competencies do not deteriorate as they are applied and shared. They grow” (Prahalad & Hamel, 1990 as cited in Taneja, 2012)
It is important that companies are able to have the humility to recognize that valuable skills lead to competencies can arise anywhere within the world where the firm operates (Hill, 2011).
Transfer of competencies to foreign markets where competitors lack the same skill or information
- Check the International Philosofy of Custo
- Core Competence
- Tell me your opinion
- Tell me your suggestions
- Operating in the global market can be challenging for firms, in order to be successful, firms must have a core competency.
- Such a core competency has a positive impact on the development of global market knowledge competencies of the company.
- Companies that gain this information are also likely to realise location economies, cost economies and earn a greater return by leveraging valuable skills developed in the global market.
Companies expand into foreign markets in an attempt to gain new customers and capitalize on core competencies.
A firm that has succeeded in this is McDonald’s
Fast and cheap food
Currently the largest global fast-food chain in the world. (Pae et al, 2005)
- New Oportunity. Fast Good. Five Range.
Competencies and Competitive Advantage
Core competencies are the fundamental knowledge that the company owns (Taneja et al, 2012).
Yeniyurt (2005) suggests that operating in the global market is not a luxury any more, however it is a necessities for economic survival in a number of industries.
Knowledge competencies are vital as information is imperfect and costly, constituting an important comparative advantage for competition (Yeniyurt, Tamer Cavusgil, Tomas, & Hult, 2005)
Global market knowledge competency
- Global customer knowledge competence
- Global competitor knowledge competence
- Global supplier knowledge competence
E- Telefonica recive 1 million calls each day. CRM,CTI
Pae, C., Nguyen, Q., Rodman, J. & Perry, A. (2005, February 24) McDonald’s Case Analysis, Retrieved from: https://portfolio.du.edu/portfolio/getportfoliofile?uid=39088.
True or False:
Core competencies enable the firm to reduce the costs of value creation however still enable a firm to create value with good prices.
Foreign subsidiary skills involves the process of creating skills anywhere in the world where a multinational enterprise operates
1. Recognise a skill can be developed anywhere within the world
2. Encourage local workers through incentives
3. Identify when a new skill has been generated
4. Act as facilitators by transferring these skills within the enterprise
McDonald's Example (Leung, 2002)
Taneja, S., Pryor, M.-G. & Sewell, S.-M. (2012) Toyota Recalls: A Strategic Leadership Perspective. International Journal of Business and Public Administration, 9(2), 125-140.
Yeniyurt, S., Tamer Cavusgil, S., Tomas, G. & Hult, M. (2005) A Global Market Advantage Framework: The Role of Global Market Knowledge Competencies. International Business Review, 14, 1-19.
Leung, S. (2002, August 30). Armchairs, TVs and Espresso: Is it McDonalds? The Wall Street Journal, A1 - A6.
Which two concepts help describe the relationship between production costs and cumulative output?
Moving into a foreign market
Reducing production costs through comparative advantage
Reduce production costs by improving efficiency
Develop the organisation through learning new concepts
Move into a foreign market and learn new concepts relevant to these markets
Be able to specialise in skills which are relevant to certain markets
- Location economies and foreign subsidiary skills both involve an organisation needing to be able to expand to an international level.
- In order for an organisation to maximise both profit and growth, organisations need to be able to take advantage of locations economies, comparative advantage, economies of scale, learning effects, and foreign subsidiary skills.
-Although operating internationally has numerous advantages and benefits toward firms, pressure for cost reduction and local responsiveness will limit the extent to which these benefits will be able to promote growth and profitability towards the organisation.
Increase in international competition will significantly result in an increase in __________.
Transferring Competencies and Skills
(cc) photo by medhead on Flickr
What are the four major concepts?
Custo design in Barcelona
Custo produce in five factories in China
Custo control personally the factories