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Chapter 7

ADMS 4900 Chapter 7: Chapter 7

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Administrative Studies
ADMS 4900
Kelly Thompson

Chapter 7 “International strategy: creating value in Global Markets” LO 2: FACTORS AFFECTING A NATION’S COMPETITIVENESS PORTER’S DIAMOND OF NATIONALADVANTAGE 1. FACTOR ENDOWMENTS: nation’s position in factors of production necessary to compete in given industry ex. skilled labour, infrastructure — factors of production that are industry and firm specific must be developed (Ex. reliant on scientific technology for growth must have a human resource pool to draw on which must be invested in through industry specific talent and knowledge — speed & efficiency with which resources are deployed is also important Firm specific knowledge and skills within a country (that are valuable, rare, difficult to imitate, rapidly & effectively deployed) are the factors of production that lead to a nation’s competitive advantage 2. DEMAND CONDITIONS: nature of home market demand for the industry’s product or service — demands consumers place on an industry for goods and services 3. RELATED & SUPPORTING INDUSTRIES: presence or absence in nation of supplier industries and other related industries that are internationally competitive — close working relationships or joint research & development among similar firms or related industries provides potential to gain competitive advantage — related industries create probability that new entrants will appear on the market, increasing competition and forcing existing firms to become more competitive thorough efforts (ex. cost control, product innovation) combined provide home country’s industries w competitive advantage 4. FIRM STRATEGY, STRUCTURE AND RIVALRY: conditions in nation governing how companies are created, organized, and managed as well as the nature of domestic rivalry — rivalry high in nations w strong consumer demand, strong suppliers & high new entrant potential from related industries. Rivalry increases efficiency that which with firms develop, market, and distribute products and services within home country — sets conditions necessary for global competitiveness LO 3: MOTIVATION, BENEFITS, RISKS ASSOC W. INTERNATIONAL EXPANSION —main reason companies expand internationally is to: increase the size of potential markets for a firm’s products/services which enables firm to attain economies of scale, advantages include: - spreading of fixed costs which reduces costs of research & development as well as operating costs Advantages of international expansion: - taking advantage of arbitrage (buying s/t that is cheap in one place and selling in another that commands a higher price) opportunities — extend life cycle of product that is in maturity stage in home country but has greater demand potential elsewhere (introduction, growth, maturity, decline) — optimize physical location for every activity in its value chain —> can lead to strategic advantages: performance enhancement, cost reduction & risk reduction PERFORMANCE ENHANCEMENT: — location decisions can affect quality with which activity is performed in terms of availability of needed talent, speed of learning, & quality of external and internal coordination COST REDUCTION: — location decisions that affect cost structure are based on availability of local manpower and other resources, transportation and logistics, and government incentives and local tax structure RISK REDUCTION: — w. foreign currency exchange rates constantly changing, one way to manage currency risks has been to spread high cost elements of their manufacturing operations across a few select and carefully chosen locations around the world POTENTIAL RISKS OF INTERNATIONAL EXPANSION POLITICALAND ECONOMIC RISKS — social unrest, military turmoil, demonstrations, violent conflict and terrorism can pose serious threats. Such conditions increase likelihood of destruction of property and non payment for goods — can arise from boycotts directed toward home government of a corporation and its policies — firms rich in intellectual property have encountered financial losses as imitations of their products have grown though lack of law enforcement of intellectual property rights CURRENCY RISKS — currency fluctuations pose a huge risk and companies w operations in several countries must monitor exchange rate bw own country and host country MANAGEMENT RISKS — challenges managers face when they must respond to differences in foreign market ex. culture, customs, language, income levels, customer preferences, distribution systems LO 4: 2 OPPOSING FO
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