Basics
What is the definition of a firm’s strategy?
A firm’s strategy is the set of actions managers take to achieve the firm’s goals.
A company lowers prices by producing goods more efficiently worldwide. What strategy is this?
Global standardization strategy.
What are location economies?
Cost advantages from performing activities in optimal global locations.
What are cost reduction pressures?
The need to lower unit costs to stay competitive.
What is a global standardization strategy?
Producing standardized products globally to achieve low costs.
What is the main goal most firms pursue?
To maximize the value of the firm for shareholders.
A company focuses on producing goods at the lowest possible cost to compete on price. What strategy is this?
Low-cost strategy.
What is the experience curve?
Reduction in production costs over time as output increases.
When are cost pressures strongest?
When products are commodities, competition is intense, excess capacity exists, or switching costs are low.
What is a localization strategy?
Customizing products to match local market preferences.
What two key metrics determine firm value?
Profitability and profit growth.
A company moves production to a country with cheaper labor to reduce costs. What concept is this?
Location economies.
What are learning effects?
Cost savings from learning by doing and improving efficiency.
What is local responsiveness?
The need to adapt products and strategies to local market differences.
When should a firm shift strategies over time?
When competitive pressures change, especially rising cost pressures or need for responsiveness.
How is profitability measured (ROIC)?
By dividing net profits by total invested capital.
A company becomes more efficient and lowers costs as it produces more over time. What concept is this?
Experience curve.
How can firms leverage skills globally?
By transferring valuable skills across subsidiaries.
Name a cause of local responsiveness pressures.
Differences in consumer tastes and preferences, differences in traditional practices and infrastructure, differences in distribution channels, and host government demands.
What is an international strategy?
Selling domestic products internationally with minimal customization.
What must strategies achieve to increase firm value over time?
Increase profitability and sustain profit growth over time.
A firm both reduces costs globally AND adapts products to local markets. What strategy is this?
Transnational strategy.
What are the main risks/limits of global expansion? (Name at least 2.)
Transportation costs, trade barriers, political risks, and need for local adaptation.
Why does local responsiveness often increase costs?
Because customization causes duplication and reduces economies of scale.
A firm operates in an industry where both cost pressures and local responsiveness are high, but it struggles to implement a strategy due to conflicting organizational demands. Which strategy is it attempting?
Transnational strategy.