When a company focuses on increasing its profitability by reaping cost reductions that come from economies of scale and location economies it is using?

defined as the actions that managers take to attain the goals of the firm.

can be measured in a number of ways, the most consistent is the rate of return that the firm makes on its invested capital (ROIC). - Calculated by dividing the net profits of the firm by total

invested capital.

is measured by the percentage increase in net profits over time.

-A firm has high profits when it creates more value for it's customers and does so at a lower cost.

-is measured by the difference between V and C (V-C); a firm creates value by converting inputs that cost C into a product on which consumers place a value of V. - A firm can create more value (V-C) either by lowering production costs, C, or by making the product more attractive through superior design, styling, functionality, features, reliability, after-sales service, and the like so that consumers place a greater value on it (V increases) and are willing to pay a higher price, P.

the different value creation activities a firm undertake.

have to do with the design, creation, and delivery of the product; it's marketing; and it's support and after-sale service.Four Main Functions: -Research and Development -Production -Marketing and Sales

-Customer Service

activities of the value chain provide inputs that allow the primary activities to occur.
-i.e. Logistics, Information Services, etc.

• refers to skills with the firm that competitors cannot easily match or imitate.
  
  
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    can exist in any value creation activity
  
  
  
  


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  Core competencies allow firms to reduce the costs of value creation and/or create perceived value so that premium pricing is possible.

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  economies that arise from performing a value creation activity in the optimal location for that activity, wherever in the world that might be.


• Two Main Effects:
  
  
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    Can lower costs of VC to achieve a low-cost position.
  
  
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    Enable a firm to differentiate its product from competitors.
  
  
  
  


• Firms that take advantage of location economies in different parts of the world, create a global web of value creation activites.
  
  
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    different stages of the value chain are dispersed to locations where perceived value is maximized or where the costs of value creation are minimized.
  
  
  
  

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.

• systematic reductions in production costs that have been observed to occur over the life of the product.
  
  
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    by moving down the experience curve, firms reduce the cost of creating value.
  
  
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    to get down the experience curve quickly, firms can use a single plant to serve global markets.
  
  
  
  

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  cost savings that come from learning by doing. -i.e. labor skills acquired through repetition.


• When labor productivity increases:
  
  
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    individuals learn the most efficient ways to perform particular tasks.
  
  
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    managers learn how to manage the new operation more efficiently.
  
  
  
  

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  reductions in the unit cost achieved by producing a large volume of a product.


• Profitability Achieved Through:
  
  
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    spreads fixed costs over a large volume
  
  
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    efficient scale of production achieved by serving global markets
  
  
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    Increased bargaining power with suppliers
  
  
  
  

exist when the tastes and preferences of consumers in diferent nations are similar if not identical.

Global Standardization Strategy

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  focus on increasing profitability and profit growth by reaping the costs reductions that come from economies of scale, learning effects, and location economies.


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  Strategic goal is to pursue a low-cost strategy on a global scale.


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  This strategy makes sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal.

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  focuses on increasing profitability by customizing the firm's goods or services so that they provide a good match to tastes and preferences in different national markets.


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  This strategy makes sense when there are substantial differences across nations with regard to consumer tastes and preferences and cost pressures are not too intense.

• focuses on 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.
  
  
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    firms differentiate their product 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.
  
  
  
  


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  This strategy makes sense when both cost pressures and pressures for local responsiveness are intense.

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  taking products first produced for their domestic market and selling them internationally with only minimal local customization.


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  This strategy make sense when there are low cost pressures and low pressures for local responsiveness.

** International and Localization strategies may not be viable in the long-term:

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  to survive a firm may need to shift to a global standardization strategy or a transnational strategy in advance of competitors.


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  If a firm is facing aggressive competitors, they may have to move away from a localization strategy to reduce it's cost structure and shift towards a  transnational strategy.

Profits can be increased by:

Michael Porter's Strategic Positioning Argument:

- firms need to choose either differentiation or low cost, and then configure internal operations to support the choice.

Value creation activities can be categorized as:

To increase profits, International firms can:

The success of firms that expand internationally depends on:

To leverage Subsidiary Skills managers should:

Two Competitive Pressures:

Pressures for cost reductions are greatest:

Pressures for local responsiveness arise from:

How Does Strategy Evolve?

Which Strategy Should a Firm Choose: