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Wendy Jeffus

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Wendy Jeffus Harvard Summer School Chapter 12: ... ZipCar (Portugal) HeadH (Hungary) BlueT (Dominican Rep.) Group Projects Section 2 Group 1 Ritika Sethi Flavia ... – PowerPoint PPT presentation

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Title: Wendy Jeffus


1
International Business
  • Wendy Jeffus
  • Harvard Summer School

2
Introduction
  • Midterm Exam Results
  • Vineet Garg PG Approach to Globalization
  • Chapter 12 The Strategy of International
    Business
  • Case Study MTV Networks
  • Case Study Nestlé
  • Chapter 13 The Organization of International
    Business (Monday)
  • We Cant All Play the Violin
  • Monday The Great Globalization Debate!

3
Midterm Results
  • Average Score 88.5
  • Tricky Questions
  • 26. A firm's bargaining power is highest in all
    of the following situations except
  • when the government places a high value on what
    the firm has to offer
  • when the number of alternatives open to the firm
    is high
  • when the time frame involved is short
  • when the negotiation process is unhurried

4
  • The _________ suggests that trade is mutually
    beneficial because it allows for the
    specialization of production, the realization of
    scale economies, the production of a greater
    variety of products, and lower prices.
  • product life cycle theory
  • new trade theory
  • theory of competitive advantage
  • theory of comparative advantage

Chapter 5 (Summary p. 196) New Trade Theory
states that trade allows a nation to specialize
in the production of certain goods, attaining
scale economies and lowering the costs of
producing those goods, while buying goods that it
does not produce from other nations that are
similarly specialized. By this mechanism the
variety of good available to consumers in each
nation is increased which the average costs of
those goods fall.
5
Chapter 12 The Strategy of International Business
  • Wendy Jeffus
  • Harvard Summer School

6
Group Projects Section 1
Water (Morocco)
20/20 (India)
Oysho (China)
Credit (Russia)
Real E (Ukraine)
Water (Nigeria)
Group 7 Mohammad Barghouty Denis Kashapov Joost Christiaan Loeb Hongyi Su Gaura Dubey Project Credit Ratings - Russia Group 8 Jose Rafael Sanchez Simran Savlani Maryna Trubitsyna Stuart Smith Grace Leung Project Zipcar - Portugal
Group 9 Iolanda Vieira Franco Ankith Yeggina Jack Wu Artur Majsterek Joshua Warren Project Real Estate - Ukraine Group 10 Alicia Robayo Yunfeng Rong Sonali Raju Iyer Saloni Shah Nicholas van der Meulen Arvid Letzen Project Headhunters - Hungary
Group 11 Andrea Mario Fusero Tanya Tretyakova Katinka Kantor Karen Gousse Amelia Barbadoro Norman Lee Project Clean Water - Nigeria Group 12 Petro Firmino Ferreira Da Costa Manuel Muller Burcu Terzioglu Ambica Jain Javier Rodriguez Project Bluetooth Dominican Republic
Group 1 Panos Boutsikakis Zefeng You Devika Gupta Jochen Christian Hermanns Jordi Pujol Dilan Pathmaraj Project Clean Water Morocco Group 2 Aurora Vintilescu Alexsander Thelen Sapna Kalmadi Amy Shang Jorge Contreras Project Energy Saving Poland
Group 3 Justin Wei Quan Khoong Laura Narbutaite Ahmad Alhajri Devina Singh Pilar Laborde Sumit Kalia Project 20/20 Homes - India Group 4 Mariel Mestre Souffia Ekram Wadie Nassem Robert Lacher Muge Zhang Angad Singh Project Energy Saving U.S.
Group 5 Jose Raul Ayo Benitez Paranita Gujral Gizachew Kebede Emiru Selma Oezbayram Dick-Sun Yung Project Oysho China Group 6 Sheila Menzies Marco Scheller Lina Tanoto Shreya Sujanani Rajeev Sooreea Project Pace-makers - Mauritius
Energy (Poland)
Energy (U.S.)
Pace-M (Mauritius)
ZipCar (Portugal)
HeadH (Hungary)
BlueT (Dominican Rep.)
7
Group Projects Section 2
Group 1 Ritika Sethi Flavia Aquino Antonio Silva Murillo Gregorio Baracchi Julie Benmakhlouf Fatih Pehlivan Project Hogwarts U.S. Group 2 Bharath Thirumanilayur Ramesh Ellen Lerner Suchandra Choudhury Project ATIS U.S.
Group 3 Chamrong Sieng Vanessa Hui Ayla El Boustani Constance Kratsa Elizabeth Perry Project Healthy Vending France Group 4 Vittorio Savoia Rabia Shahab Hillary Howard Richa Agrawal Tiffany Sing Samer Younes Project Fruit Pakistan
Group 5 Cutberto Parra Nicolin Fernado Zolko Del Valle Kim Issa Sandeep Volam Project Barcode Readers Dubai Group 6 Vineet Garg Harold Zimmer Maissa Fatte Shweta Mahajan Kevin Lai Project Electric Scooter India
Hogwarts (U.S.)
ATIS (U.S.)
Vending (France)
Fruit (Pakistan)
Barcode (Dubai)
Scooter (India)
8
Strategy
  • Strategy actions managers take to attain the
    goals of the firm.
  • For most firms, the preeminent goal is to
    maximize the value of the firm for its owners

9
Value Creation
  • Value Creation Activities allow a company to
    achieve superior efficiency, excellent quality,
    innovation, and customer responsiveness.
  • Product development, investments in human
    capital, manufacturing, marketing, and/or R D.
  • The way to increase the profitability of a firm
    is to create more value
  • The amount of value a firm creates is measured by
    the difference between its costs of production
    and the value that consumers perceive in its
    products

10
Value Creation
  • Example Cost per unit (C) 15,000 Price per
    unit (P) 20,000 Value to Customer (V) 22,000

20/20 (India)
Vending (France)
  • Example Cost per unit (C) 1,500 Price per
    unit (P) 2,000 Value to Customer (V) 2,500

Note (V) is the value to the average customer,
customers have different perceptions of value.
If you were a monopoly supplier, you could
charge a price closer to this price.
11
Strategic Positioning Value Creation
  • Michael Porter states that there are two basic
    strategies for creating value and attaining a
    competitive advantage in an industry
  • Low-Cost Strategy vs. Differentiation
  • Low Cost - value is created for the customer by
    offering low priced products.
  • Differentiation unique attributes that are
    valued by customers and that customers perceive
    to be better than or different from the products
    of the competition

12
Strategic Choice
  • Pick a position that offers enough demand to
    support your choice.
  • Configure internal operations, such as
    manufacturing, marketing, logistics, IT, and HR
    to support your position.
  • Connect this decision to your organizational
    structure.
  • Example
  • Where should the Skilled Labor Headhunter Service
    in Hungary position their services?
  • Where should Organic Fruit from Pakistan compete?

The Efficient Frontier shown below has a convex
shape due to diminishing returns
HeadH (Hungary)
Fruit (Pakistan)
Diminishing returns imply that when a firm has
significant value built into its product
offering, increasing value by a small amount
requires significant additional costs. A firm
with a low-cost structure, also may have to give
up a lot of value to obtain further cost
reductions.
13
Perceptions
  • Which red car with 2 doors is worth more?
  • Which brown bag is worth more?

2008 Mitsubishi
2008 Ferrari
http//allworldcars.com/wordpress/wp-content/uploa
ds/2007/07/windowslivewriter2008ferrari430scuderia
-1c202008-ferrari-430-scuderia-11.jpg http//fotog
rill.com/wp-content/uploads/2008/01/2008-mitsubish
i-lancer-evolution-x-front-and-side-1600x1200.jpg
http//www.thebudgetfashionista.com/images/eluxury
lv-thumb.jpg
14
The Firm as a Value Chain
  • Any firm is composed of a series of distinct
    value creating activities
  • Primary activities
  • Research development
  • Production
  • Marketing Sales
  • Activities associated with getting buyers to
    purchase the product, including channel
    selection, advertising, pricing, etc.
  • Customer Service
  • Customer support, repair services, etc.
  • Support Activities
  • Information systems
  • Process automation, and other technology
    development
  • Logistics
  • Inbound logistics include the receiving,
    warehousing, and inventory control of input
    materials.
  • Outbound logistics are the activities required to
    get the finished product to the customer,
    including warehousing, order fulfillment, etc.
  • Human resource
  • the activities associated with recruiting,
    development, and compensation of employees.

15
The Value Chain
Scooter (India)
Real E (Ukraine)
16
Global Expansion, Profitability, Growth
  • Expanding globally allows firms to increase their
    profitability and rate of profit growth in ways
    not available to purely domestic enterprises
  • Firms that operate internationally are able to
  • Expand the market for their domestic products
  • Realize location economies by dispersing
    individual value creation activities
  • Realize greater cost economies
  • Earn a greater return by leveraging any valuable
    skills developed in foreign operations

BlueT (Dominican Rep.)
Barcode (Dubai)
17
Leveraging Products Competencies
  • A company can increase its growth rate by taking
    goods or services developed at home and selling
    them internationally
  • Returns from such a strategy are likely to be
    greater if indigenous competitors in the nations
    a company enters lack comparable products
  • Success of multinational companies also rest upon
    the core competencies that underlie the
    development, production, and marketing of goods
    or services
  • Core competencies are skills within the firm that
    competitors cannot easily match or imitate
  • Core competencies are the bedrock of a firms
    competitive advantage and enable them to reduce
    the costs of value creation

18
What are the Core Competencies?
  • McDonalds
  • fast food
  • P G
  • brand marketing
  • Wal-Mart
  • logistics
  • Starbucks
  • Freshly brewed coffee
  • Toyota
  • Low cost, high quality
  • Boeing
  • Multisourcing
  • Dell
  • Inventory management
  • Apple
  • graphics

19
Location Economies
  • Consider the following
  • Where are the best designers?
  • Where is the low cost or skilled labor?
  • Who will develop the best marketing
  • strategy?
  • Location economies are the economies that arise
    from performing a value creation activity in the
    optimal location for that activity
  • Can have one of two effects
  • It can lower the costs of value creation and help
    the firm to achieve a low-cost position and/or
  • It can enable a firm to differentiate its product
    offering from those of competitors
  • One result of this kind of thinking is the
    creation of a 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

Note Transportation trade complicate the
picture.
Pace-M (Mauritius)
ATIS (U.S.)
20
Experience Effects
  • The experience curve refers to systematic
    reductions in production costs that have been
    observed to occur over the life of a product
  • There are two explanations for the experience
    effect
  • Learning effects refer to cost savings that come
    from learning by doing
  • Economies of scale refer to the reductions in
    unit cost achieved by producing a large volume of
    a product
  • The strategic significance of the experience
    curve is clear moving down the experience curve
    allows a firm to reduce its cost of creating
    value and increase its profitability

Credit (Russia)
Scooter (India)
Making the first electric scooter, is much more
expensive than making the 1000th
21
Leveraging Subsidiary Skills
  • Leveraging the skills created within subsidiaries
    and applying them to other operations within the
    firms global network may create value
  • Learning how to leverage the skills of
    subsidiaries presents a challenge for managers of
    multinational organizations
  • They must have the humility to recognize that
    valuable skills leading to competencies can arise
    anywhere within the firms global network
  • They must establish an incentive system that
    encourages local employees to acquire new skills
  • They must have a process for identifying when
    valuable new skills have been created in a
    subsidiary
  • They need to act as facilitators, helping to
    transfer valuable skills within the firm

22
Example McDonalds
  • Old McDonalds
  • New McDonalds

http//images.businessweek.com/ss/06/05/mcdonalds/
image/spring-road-interior-3.jpg http//www.danloc
kton.co.uk/research/images/mcdonaldsseating.jpg
23
Cost Pressure vs. Local Responsiveness
  • Firms that compete in the global marketplace
    typically face two types of competitive pressure
  • Pressures for cost reductions
  • Pressures to be locally responsive

24
Pressure for Cost Reductions
  • International businesses often face pressures for
    cost reductions because of the competitive global
    market
  • Pressures for cost reduction can be particularly
    intense in industries producing commodity-type
    products
  • Universal needs exist when the tastes and
    preferences of consumers in different nations are
    similar if not identical
  • Pressures for cost reductions are also intense
  • In industries where major competitors are based
    in low-cost locations
  • Where there is persistent excess capacity
  • Where consumers are powerful and face low
    switching costs

25
Pressure for Local Responsiveness
  • Differences in consumer tastes preferences
  • North American families like pickup trucks while
    in Europe they are viewed as a utility vehicle
    for firms
  • Differences in infrastructure traditional
    practices
  • Consumer electrical system in North America is
    based on 110 volts in Europe on 240 volts
  • Differences in distribution channels
  • Germany has few retailers dominating the food
    market, while in Italy it is fragmented
  • Host-Government demands
  • Health care system differences between countries
    require pharmaceutical firms to change operating
    procedures

26
Where Does Your Company Fit?
Hogwarts (U.S.)
ATIS (U.S.)
Vending (France)
Fruit (Pakistan)
Barcode (Dubai)
Scooter (India)
27
Where Does Your Company Fit?
Water (Morocco)
Energy (Poland)
20/20 (India)
Water (Nigeria)
Energy (U.S.)
Pace-M (Mauritius)
Credit (Russia)
Real E (Ukraine)
ZipCar (Portugal)
Oysho (China)
HeadH (Hungary)
BlueT (Dominican Rep.)
28
Choosing a Strategy
29
International Strategy
  • International Strategy transfer the skills and
    products derived from distinctive competencies to
    foreign markets, while undertaking some limited
    local customization.
  • Create value by transferring valuable core
    competencies to foreign markets that indigenous
    competitors lack
  • Centralize product development functions at home
  • Establish manufacturing and marketing functions
    in local country but head office exercises tight
    control over it
  • Limit customization of product offering and
    market strategy
  • Strategy effective if firm faces weak pressures
    for local responsive and cost reductions

30
Localization Strategy
  • Localization Strategy customize product
    offering, marketing strategy, and business
    strategy to national conditions
  • Local responsiveness
  • Main aim is maximum local responsiveness
  • Customize product offering, market strategy
    including production and RD according to
    national conditions
  • Generally unable to realize value from experience
    curve effects and location economies
  • Possess high cost structure

31
Global Strategy
  • Global Strategy focus on cost reductions
  • Experience curve effects systematic reduction
    in production costs that occur over the life of a
    product
  • Learning effects
  • Economies of scale
  • Location economies arise from performing a
    value creation activity in the optimal location
  • Focus is on achieving a low cost strategy by
    reaping cost reductions that come from experience
    curve effects and location economies
  • Production, marketing, and RD concentrated in
    few favorable functions
  • Market standardized product to keep costs low
  • Effective where strong pressures for cost
    reductions and low demand for local
    responsiveness exist
  • Semiconductor industry

32
Transnational Strategy
  • Transnational Strategy simultaneous focus on
    reducing costs, transferring skills and products,
    and being locally responsive.
  • To meet competition, firms aim to reduce costs,
    transfer core competencies while paying attention
    to pressures for local responsiveness
  • Global learning
  • Valuable skills can develop in any of the firms
    world wide operations
  • Transfer of knowledge from foreign subsidiary to
    home country, to other foreign subsidiaries
  • Transnational strategy difficult task due to
    contradictory demands placed on the organization
  • Caterpillar

33
The Evolution of Strategy
  • Over time competitors inevitably emerge
  • An international strategy may not be viable in
    the long-term so firms need to shift toward a
    global standardization strategy or a
    transnational strategy in advance of competitors
  • As competition intensifies
  • International and localization strategies tend to
    become less viable
  • Managers need to orient their companies toward
    either a global standardization strategy or a
    transnational strategy

34
The Evolution of Strategy
35
Managerial Implications Global Activities
  • Benefits
  • Greater return on core competencies
  • Location economies
  • Challenges
  • Consumer tastes and preferences
  • Infrastructure and traditional practices
  • Distribution channels
  • Host government demands

36
BCG Matrix (Chapter 12)
  • The BCG Matrix is based on the product life cycle
    theory and it became on of the most well-known
    portfolio management decision making tools in the
    early 1970's.
  • There are two dimensions - market share and
    market growth.

http//www.decide-guide.com/BCG-matrix.html http/
/www.decide-guide.com/porters-five-forces-model.ht
ml
37
5 Forces Analysis (Chapter 12)
  • Entry of competitors
  • How easy or difficult is it for new entrants to
    start competing?
  • What economies of scale does a competitor need?
  • Is there a learning curve?
  • Threat of substitutes
  • How easy can a product or service be substituted?
  • Can products be made cheaper ?
  • What are the switching costs?
  • Bargaining power of buyers
  • What buyer information is available?
  • What price sensitivity exists in the market?
  • Bargaining power of suppliers
  • Is there a monopoly of suppliers?
  • Is there presence of substitute inputs?
  • Rivalry among the existing players
  • Does strong competition between the existing
    players exist?
  • What barriers to exit exists?
  • What kind of industry growth exists?

http//www.decide-guide.com/porters-five-forces-mo
del.html
38
We Cant All Play the Violin.
  • By Wendy Jeffus

39
We cant all play the violin.
  • We need people to write the music.
  • Someone should direct the orchestra.
  • We need someone to design the building.
  • And someone should mow the lawn and take care of
    the flowers.
  • We also need people that can afford to buy the
    tickets.

40
We Cant All Play the Violin.
  • Happy Dependence Day!

41
Be safe.
42
Monday
  • The Great Globalization Debate
  • www.courses.fas.harvard.edu/sum/32268
  • There will be prizes for the best team!
  • Bring Your Cameras!
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