Management Chapter 5 Homework Pricing Goods And Services Within Multidivisional Organization

Unlock access to all the studying documents.

View Full Document

INTERNATIONAL MANAGEMENT Chapter 5: Business and Functional Level Strategy

Chapter 5

BUSINESS- AND FUNCTIONAL-LEVEL STRATEGY

Learning Objectives

After studying this chapter, you should be able to:

2. Distinguish Business-level strategies—low cost versus differentiation and broad

versus narrow.

4. Explain functional strategies.

5. Explain Quality management.

General Teaching Suggestions

Introduce the topic of quality by referring to a leading brand. Students should be

encouraged to examine the strategic measures leading to exceptional quality standards.

Direct the discussion to business-level and functional level strategies.

Opening Case Discussion Guide

The case discusses HSBC’s modified global strategy which allows variations to conform

to various banking laws across the world. HSBC organizes itself into five major

_______________________________________________________________________

CHAPTER OUTLINE: KEY CONCEPTS AND TERMS

Sections I through IV of Chapter 5

_______________________________________________________________________

I. PORTER’S FIVE FORCES MODEL

1. Key Concepts

Porter’s Five Forces model is based on industrial organization (IO) economics

which argues that all firms in a particular industry face forces within their

industry that significantly affect profitability. Figure 5-2 summarizes the model.

• Bargaining Power of Buyers

The characteristics that determine if the power of the buyers is high include:

i. Concentration of buyers

• Bargaining Power of Suppliers

The factors that make suppliers powerful include:

i. Demand for supplier’s products

ii. Whether quality and performance of inputs are differentiated

iii. Ability of the industry to vertically integrate

INTERNATIONAL MANAGEMENT Chapter 5: Business and Functional Level Strategy

• New Entrants

Ease of entry into an industry also comes from its industry structure. Some of the

structural characteristics of an industry that affect access to that industry are:

i. Economies of scale.

ii. The relationship between size and capital costs.

• Substitute Products

The factors that impact the power of substitutes include:

i. Ability of customers to compare quality, performance, and price.

ii. Ability of a product to bring good-enough performance criteria to the

customer.

iii. Switching costs, or the cost of switching from the industry’s product to a

substitute.

• Rivalry

One of the key factors that affect rivalry is differentiation. The factors that affect

rivalry include:

i. Number of competitors

ii. Growing demand for the product

iii. Increasing payoff from successful strategic moves

iv. Exit barriers

make it easier to buy or use.

II. BUSINESS-LEVEL STRATEGIES

1. Key Concepts

In simplest terms, business-level strategy can be viewed using a two-by-two

matrix which describes four generic business-level strategies.

i. Broad-cost leadership

ii. Broad differentiation

INTERNATIONAL MANAGEMENT Chapter 5: Business and Functional Level Strategy

The two major categories of strategies are low cost and differentiation. In

practice, there is no strict dividing line between the low-cost and differentiation

categories.

• Competitive Scope

Competitive scope is typically divided into a dichotomous variable—broad or

narrow. The key to understanding competitive scope is if a firm tries to serve a

broad range of customers with a broad range of needs.

• Business-Level Strategic Risks

i. Risks are associated with each of the different strategies. For the low-cost

strategy, there is the danger that others may figure out how to offer the

same product at a lower cost. Another risk to the low-cost strategy is that

individuals no longer care as much about price but instead are willing and

able to pay more for a higher-quality product.

• Business-Level Strategies: Global versus Multi-domestic: The benefits of a

global strategy are that it helps to ensure the maintenance of a quality image of

the firm and its products, and ensures obtaining the maximum benefits from

economies of scale A multi-domestic approach to business strategy may also

confer some benefits. These include:

i. greater ability to match the needs of each market

ii. greater ability to hire locals to do key advertising and related activities

2. Key Terms

• Low-cost strategy – Where a business seeks to sell a product at or near the

lowest possible price in the firm’s chosen market segment.

• Differentiation strategy – Seeks to provide some aspect of a product or service

that differs from that of competitors, such as higher quality, to increase the

likelihood of customers paying a premium for the product.

III. FUNCTIONAL STRATEGIES

1. Key Concepts

Functional strategies should flow from the business-level strategy. The successful

use of strategy tactics is critical to the ultimate success of the business.

• Marketing

The marketing function covers a wide range of activities in an international firm,

• Finance

The functional finance strategy of a firm concerns principally the means in which

the firm funds its chosen activities. Financing for those activities must be present

before they can be carried out, and the financing should be consistent with the

INTERNATIONAL MANAGEMENT Chapter 5: Business and Functional Level Strategy

• Research and Development

Research and development (R&D) is a critical concern for business. Concerns

such as how to ensure the flow of information throughout an organization and

• Supply Chain Management

A value chain analyzes the inputs, both internal and external, of what a firm

produces, and breaks down a firm’s actions into primary and support activities.

The concept of supply chain is related to the value chain, but it focuses mostly on

inputs to a firm and where that firm ships its output. Thus, supply chain

2. Key Terms

• Functional strategies – Those strategies that direct what occurs in individual

functional areas, such as marketing, finance, and accounting.

• Strategic tactics – Strategic actions that help to implement a strategy, such as a

new promotion program that would implement a focus on differentiation business

strategy.

IV. SUMMARY

1. Key Concepts:

• This chapter has examined business-level and functional strategies.

• Business-level strategies should be consistent with the chosen corporate-level

strategy, and functional strategies.

• The two broad categories of business-level strategy are low cost and

differentiation.

INTERNATIONAL MANAGEMENT Chapter 5: Business and Functional Level Strategy

• The value chain is a helpful tool for assessing a firm’s activities and their fit with

firm strategy.

• There are two basic concerns that overlap between different functional areas,

value chain management and quality management.

_______________________________________________________________________

END-OF-CHAPTER GUIDE

* MANAGERIAL GUIDELINES

* OPENING VIGNETTE DISCUSSION QUESTIONS

MANAGERIAL GUIDELINES

2. There are many different strategies a firm can pursue to be successful. A firm

needs to identify which is the right strategy, given its capabilities and industry.

4. Functional-level strategies of a business must be consistent with the business-

level strategies.

6. A checklist for different strategies – multi-domestic, global, or transnational – is

provided to help the student or practitioner.

OPENING VIGNETTE DISCUSSION QUESTIONS

1. Why would a differentiated product that charges a premium be more successful in

the banking industry than a clothing-store chain?

Porter’s Five-Forces model lists the factors that could affect the profitability of a

2. Do you think that a quality image is more important in a region of the world

where corruption and transparency are greater problems?

Student opinions may vary. It may be argued that a quality image is important

irrespective of the regional issues regarding corruption and transparency.

3. Do global banks, such as Citibank and HSBC, have an across-the-board

advantage over small, local banks? Or are local banks able to differentiate

themselves and their services from those of global banks?

Views on this might vary. Economies of scale are one of the key advantages of

DISCUSSION QUESTIONS

1. How should a firm’s business and functional-level strategies fit together?

2. What is the difference between a global and a multi-domestic strategy? Provide an

example of each.

With a global strategy, a business has operations in multiple countries with the

same business-level strategy in each country. The benefits of such a strategy are

that it:

3. Do you believe that Dr. Deming’s Fourteen Points would be practical in today’s

business environment?

Many quality programs in use today have certain features taken from Deming’s

INTERNATIONAL MANAGEMENT Chapter 5: Business and Functional Level Strategy

4. If you were in a large food-processing firm, such as Campbell Soup, would you

pursue a global or multi-domestic strategy? Why?

Student responses may vary. Refer the benefits and challenges of pursuing either

IN-CLASS EXERCISES

1. Separate into teams. Each team should think of how the different functional

strategies at a firm with a low-cost strategy, such as Wal-Mart or Southwest

Airlines, might be implemented.

Functional strategies are those strategies that direct what occurs in the individual

2. Create a generic business-level strategy matrix for the hotel industry in your

3. McDonald’s is positioned as a low-cost fast food restaurant in Hong Kong, but is

perceived as a more differentiated, higher quality restaurant in mainland China.

Discuss why McDonald’s is perceived differently in mainland China. How do you

think McDonald’s could implement that different positioning and benefit from it?

The cost relative to local chains and independent businesses, differences in per-

4. Why do you think European consumers value different aspects of the retail

experience differently? What does this mean to the average clothing retailer in

setting up business in the United Kingdom, Germany, and France, for example?

TAKE-HOME EXERCISES

1. Identify a corporation from outside your home country. Research that firm and

give its corporate strategy, the business-level strategy for one of its units in a

given country, and a functional strategy within that unit.

3. Develop a chart that contrasts low-cost airlines, such as Ryanair, with

differentiated carriers, such as Lufthansa.

4. How are fast-casual restaurants positioned in the generic strategies matrix

SHORT CASE QUESTIONS

1. What are the factors in a firm’s culture that may keep it from clearly choosing a

strategy (stuck in the middle) and also allow structured decision making similar to

that which led to the crash of Swiss Flight 111?

Research has found that the least profitable firms are those without a clear vision

2. Can you identify any firms in your home country that are stuck in the middle

today? Would you classify airlines that seek to be both low cost and

differentiation as being stuck in the middle?

3. What would be the means to avoid being stuck in the middle?

To avoid being stuck in the middle would mean to have clarity in the vision