Understanding International Business Strategy: 3-Part Tutorial Video

Introduction to International Business Strategy

• Hello everyone, welcome back to my YouTube channel. My name is Marco Rios, a university professor of business courses.

• Today, we are going to discuss international business strategy, which will be divided into three sections.

• The learning objectives of this tutorial include explaining the concept of strategy, understanding the benefits of global expansion for companies, and analyzing the influence of cost reduction and local adaptation on strategic decisions.

• We will also cover different strategies to compete globally, including their strengths and disadvantages, as well as the advantages and disadvantages of strategic alliances to support global strategies.

• The first section will focus on defining the basic form of strategy and the objectives it aims to achieve.

• All organizations, regardless of their profit status, have general and specific objectives that they must reach within a certain period of time.

• To achieve these objectives, organizations implement various strategies.

• The primary objectives of these strategies are to maximize the value of the company for its owners or shareholders, seek profitability, and achieve growth in profits over time.

• Profitability is measured by the rate of return on the capital invested, also known as ROI, and companies seek to increase their profitability and benefit from growth through various paths such as adding value, reducing costs, selling more in existing markets, and international expansion.

• The image illustrates the paths organizations can take to achieve greater success in the market.

• In the upcoming sections, we will delve deeper into each of these objectives and strategies to provide a comprehensive understanding of international business strategy.

Introduction to International Business Strategy

Strategies for Increasing Profitability in Business

• To achieve greater profitability, businesses can implement cost reduction strategies or add value to their offerings by increasing prices.

• Cost reduction strategies involve producing more efficiently, which requires a better development of all elements included in the production process.

• Another alternative for businesses to increase profitability is by adding value to their existing products or services. This added value justifies an increase in prices, leading to higher profitability.

• Businesses can also seek growth in profits by either selling more in existing markets or entering new markets.

• Selling more in existing markets can be achieved through sales strategies like up-selling, cross-selling, or expanding the product portfolio to provide more options for customers.

• Entering new markets allows businesses to expand their reach and capture new customer segments, thereby contributing to the overall value of the company.

• The components that determine the value of a company include production cost per unit, the set price per unit, and the perceived value of the product for the consumer.

• The value created per unit is calculated as the perceived value minus the production cost per unit, while the utility per unit is the price minus the cost.

Strategies for Increasing Profitability in Business

Understanding Consumer Surplus and Value Creation

• The consumer surplus is the perceived value of a product minus its price, representing the benefit gained by the consumer.

• A positive consumer surplus indicates that the customer perceives a greater value than the price paid, leading to repeated purchases and potential recommendations to others.

• Value creation analysis suggests that companies achieve greater profits by offering more value to customers at a lower cost.

• Companies can pursue two primary paths for value creation: low-cost strategies focused on efficient production and differentiation strategies aimed at enhancing the attractiveness of the product.

• Strategic positioning is crucial in value creation, where companies must clearly communicate their strategy to customers, whether it's differentiation through exclusivity or cost-efficiency.

• Michael Porter emphasizes the importance of explicit strategy communication to ensure that customers understand the company's positioning and value proposition.

Understanding Consumer Surplus and Value Creation

Analysis of Strategic Positioning in the International Hotel Industry

• In the international hotel industry, strategic positioning plays a critical role in determining a hotel's competitive advantage.

• The strategic choice in the hotel industry can be visualized using a matrix that consists of two axes: the horizontal axis represents cost, ranging from high to low, while the vertical axis represents added value or differentiation.

• The curve generated by considering these axes is known as the efficiency frontier, depicting the trade-off between cost and added value.

• Four Seasons, despite not offering greater added value than its competitors, such as Starwood or Marriott, is positioned closer to high added value on the vertical axis. However, it is also the most expensive among the three.

• Marriott, on the other hand, offers a perceived value and differentiation similar to that of Starwood but at a lower cost, making it an attractive option for cost-conscious consumers.

• The marginal difference in cost between Four Seasons and Starwood is overshadowed by the notable difference in added value, influencing consumer perceptions and choices.

• The value chain theory, developed by Michael Porter, divides a company's operations into primary and support activities, emphasizing the sequential process from obtaining inputs to delivering products and after-sales treatment.

Analysis of Strategic Positioning in the International Hotel Industry

Understanding Support Activities in the Value Chain

• In the context of Michael Porter's theory of the value chain, support activities play a crucial role in providing constant support to primary activities.

• The primary activities include research and development, marketing, sales, and customer service, forming a sequential process within the value chain.

• Support activities encompass functions such as information systems, logistics management, procurement, human resources management, and organizational infrastructure.

• Porter's concept of infrastructure refers to the organizational structure and support areas that provide necessary support to the primary activities and overall operations of the company.

• Control systems are also considered a part of primary activities, playing a key role in managing the operations of the organization.

• Additionally, the establishment of the company's culture, also known as organizational culture or corporate culture, is integral to the primary activities and overall functioning of the organization.

• The nature of the business greatly influences the implementation and interpretation of primary activities. For instance, production in a service-based business, such as a spa or a streaming company like Netflix, differs significantly from traditional manufacturing production.

• Even intermediary companies, such as supermarkets, have unique production processes that focus on staging, layout, and creating an appealing environment for customers to navigate and make purchases.

• It's important to recognize that the nature of production varies depending on the specific industry, and this understanding is essential in applying the concept of primary activities effectively.

• These insights into support and primary activities provide a comprehensive understanding of the value chain and its relevance across diverse industries and business models.

Understanding Support Activities in the Value Chain

Conclusion:

The tutorial provides an in-depth exploration of international business strategy, offering valuable insights into profitability, consumer surplus, value creation, strategic positioning, and support activities in the value chain. By understanding these key concepts, businesses can make informed decisions to succeed in the global market.

Q & A