77.
A firm that is pursuing a(n) _____ strategy is simultaneously trying to
achieve low costs through location economies, economies of scale, and
learning effects, and trying to differentiate its product offering across
geographic markets.
A.
global customization
B.
international
C.
localization
D.
transnational
Firms that pursue a transnational strategy are trying to simultaneously
achieve low costs through location economies, economies of scale, and
learning effects; differentiate their product offering across geographic
markets to account for local differences; and foster a multidirectional flow
of skills between different subsidiaries in the firm’s global network of
operations.
78.
A firm facing low pressures for cost reductions and low pressures for local
responsiveness, is most likely to follow a(n) _____ strategy.
A.
global standardization
B.
localization
C.
international
D.
transnational
There are multinational firms that find themselves in the fortunate position
of being confronted with low cost pressures and low pressures for local
responsiveness. Many of these enterprises have pursued an international
strategy, taking products first produced for their domestic market and
selling them internationally with only minimal local customization.
79.
For firms that are selling a product that serves universal needs, and that do
not face significant competition, a(n) _____ strategy makes sense.
A.
localization
B.
international
C.
transnational
D.
global standardization
Many enterprises have pursued an international strategy, taking products
first produced for their domestic market and selling them internationally
with only minimal local customization. The distinguishing feature of many
such firms is that they are selling a product that serves universal needs, but
they do not face significant competitors, and thus unlike firms pursuing a
global standardization strategy, they are not confronted with pressures to
reduce their cost structure.
80.
Which of the following is true of the international strategy?
A.
Product development tends to be highly decentralized.
B.
Manufacturing and marketing are typically located in the headquarters
location.
C.
Extensive production customization is common.
D.
The strategy is not viable in the long-run.
An international strategy may not be viable in the long term, and to survive,
firms need to shift toward a global standardization strategy or a
transnational strategy in advance of competitors.
Essay Questions
81.
What is strategy? How does strategy relate to a firm’s profitability?
A firm’s strategy can be defined as the actions that managers take to attain
the goals of the firm. For most firms, the key goal is to maximize the value
of the firm for its owners. To maximize the value of the firm, managers must
pursue strategies that increase profitability, or rate of return the firm makes
on its invested capital. Managers can increase profitability by pursuing
strategies that lower costs and strategies that add value to the firm’s
products.
82.
What is the difference between profitability and profit growth?
Profitability can be defined as the rate of return that the firm makes on its
invested capital which is calculated by dividing the net profits of the firm by
total invested capital. The percentage increase in net profits over time is
profit growth. In general, the value of the firm will increase when both
profitability and profit growth are high.
83.
How can a firm increase its profitability?
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.
In general, the more value customers place on a firm’s products, the higher
the price the firm can charge for those products.
84.
Discuss Michael Porter’s interpretation of value creation and competitive
advantage.
According to Michael Porter, low cost and differentiation are two basic
strategies for creating value and attaining a competitive advantage in an
industry.
Porter argues that those firms that create superior value will achieve
superior profitability. Porter notes that it is not necessary for a firm to have
the lowest cost structure or create the most valuable product; rather it is
only important that the gap between value and the cost of production be
greater than that of competitors.
85.
Discuss efficiency frontier. How does strategic positioning relate to the
efficiency frontier?
The efficiency frontier shows all of the different positions that a firm can
adopt with regard to adding value to the product and low cost assuming
that its internal operations are configured efficiently to support a particular
position. It is important that managers decide where a firm should be
positioned with regard to value and cost, configure operations accordingly,
and manage them efficiently to ensure the firm is operating on the
efficiency frontier. A central tenet of the basic strategy paradigm is that to
maximize its profitability, a firm must do three things: (a) pick a position on
the efficiency frontier that is viable in the sense that there is enough
demand to support that choice; (b) configure its internal operations, such as
manufacturing, marketing, logistics, information systems, human resources,
and so on, so that they support that position; and (c) make sure that the
firm has the right organization structure in place to execute its strategy.
86.
Consider the firm in terms of a value chain. What is the difference between
primary activities and support activities? Provide examples of each.
The operations of a firm can be thought of as a value chain composed of a
series of distinct value creation activities. Primary activities have to do with
the design, creation, and delivery of the product; its marketing; and its
after-sale-service. Normally, primary activities are divided into R&D,
production, marketing and sales, and customer service. The support
activities of the value chain provide inputs that allow the primary activities
to occur. Support activities include information systems, company
infrastructure, logistics, and human resources.
87.
How can the marketing and sales functions of a firm create value?
There are several ways the marketing and sales functions of a firm can help
create value. The marketing function can create value through brand
positioning and advertising. If the firm can create a favorable impression of
the firm’s product in the minds of consumers, it can increase the price that
can be charged. Marketing and sales can also create value by identifying
consumer needs and passing that information along to the R&D
department.
Resolving customer problems and supporting customers after they have
purchased the product can also create the perception of superior value.
88.
Describe the benefits of global expansion for firms.
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:
1. Expand the market for their domestic product offerings by selling those
products in international markets.
2. Realize location economies by dispersing individual value creation
activities to those locations around the globe where they can be performed
most efficiently and effectively.
3. Realize greater cost economies from experience effects by serving an
expanded global market from a central location, thereby reducing the costs
of value creation.
4. Earn a greater return by leveraging any valuable skills developed in
foreign operations and transferring them to other entities within the firm’s
global network of operations.