ml>Voyevodins" Library _ "International Business: competing in the worldwide Marketplace" / Charles W.L. Hill ... Chapter 12 ... Legal risk, legal system, Leontief paradox, letter the credit, licensing, local content requirement, place economies, location-specific advantages, logistics, Maastricht Treaty, maker, managed-float system, administration networks, industry economy, sector imperfections, market makers, market power, industry segmentation, marketing mix, masculinity versus femininity, massive customization, products management, mercantilism, MERCOSUR, minimum efficient scale, MITI, blended economy, money management, Moore"s Law, ethical hazard, mores, multidomestic strategy, Multilateral covenant on invest (MAI), multilateral netting, multinational companies (MNE), multipoint competition, multipoint pricing, brand-new trade theory, nonconvertible currency, norms, phibìc American free Trade covenant (NAFTA), oligopoly, company for Economic teamwork and breakthrough (OECD), outflows that FDI, calculation controls, Paris Convention for the protection of industrial PropertyVoevodin"s Library: legitimate risk, legit system, Leontief paradox, letter that credit, licensing, neighborhood content requirement, place economies, location-specific advantages, logistics, Maastricht Treaty, maker, managed-float system, management networks, industry economy, market imperfections, sector makers, market power, industry segmentation, marketing mix, masculinity matches femininity, massive customization, materials management, mercantilism, MERCOSUR, minimum efficient scale, MITI, blended economy, money management, Moore"s Law, moral hazard, mores, multidomestic strategy, Multilateral agreement on invest (MAI), multilateral netting, multinational companies (MNE), multipoint competition, multipoint pricing, new trade theory, nonconvertible currency, norms, north American totally free Trade covenant (NAFTA), oligopoly, organization for Economic teamwork and advance (OECD), outflows of FDI, calculation controls, Paris Convention because that the security of industrial Property



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Chapter 12 Outline

Pressures for price Reductions and Local Responsiveness that company that complete in the worldwide marketplace typically face two types of vain pressure. They challenge pressures for expense reductions and pressures come be locally responsive (see number 12.3). This competitive pressures place conflicting requirements on a firm. Responding to pressures to reduce expenses requires the a firm shot to minimize its unit costs. Attaining together a goal might necessitate that a firm basic its productive tasks at the most favorable low-cost location, wherever in the world that can be. It may additionally necessitate that a firm offer a standardized product come the global marketplace come ride down the endure curve as easily as possible. In contrast, responding to pressure to be locally responsive requires that a firm distinguish its product offering and marketing strategy from country to country in an effort to accommodate the diverse demands the arise indigenous national distinctions in consumer tastes and preferences, service practices, distribution channels, compete conditions, and also government policies. Since customizing product offerings to different national Figure 12.3 pressure for cost reduction and Local Responsiveness

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requirements can involve significant duplication and also a absence of product standardization, the result may be to progressive costs. While some firms, such as Firm A in number 12.3, face high pressures for cost reductions and low pressure for local responsiveness, and also others, such together Firm B, challenge low pressures for expense reductions and high pressure for regional responsiveness, numerous firms are in the position of certain C. They face high pressure for cost reductions and also high pressures for neighborhood responsiveness. Handling these conflicting and also contradictory pressures is a an overwhelming strategic challenge for a firm, primarily due to the fact that being in your ar responsive has tendency to progressive costs. In the remainder the this section, we will look at the source of pressure for price reductions and also local responsiveness. In the next section, us look in ~ the strategies firms embrace to resolve these pressures. Pressures for price Reductions Increasingly, global businesses challenge pressures for cost reductions. This calls for a firm to shot to reduced the prices of value creation by mass creating a standardization product in ~ the optimal location in the people to shot to establish location and also experience curve economies. Pressures for expense reductions can be specifically intense in industries producing commodity commodities where systematic differentiation ~ above nonprice factors is difficult and price is the key competitive weapon. This tends to be the situation for products that serve global needs. Universal demands exist when the tastes and also preferences of consumer in various nations room similar. This is the instance for conventional commodity commodities such as bulk chemicals, petroleum, steel, sugar, and the like. It additionally tends to be the case for plenty of industrial and also consumer commodities (for example, handheld calculators, semiconductor chips, an individual computers, fluid crystal screen screens). Pressure for expense reductions are also intense in markets where significant competitors room based in low-cost locations, wherein there is persistent overfill capacity, and also where consumer are an effective and confront low convert costs. Plenty of commentators have also argued that the liberalization the the people trade and investment environment in recent decades, by facilitating better international competition, has normally increased price pressures.14 cost pressures have actually been intense in the worldwide tire sector in current years. Tires are basically a commodity product where systematic differentiation is complicated and price is the key competitive weapon. The major buyers that tires, car firms, are an effective and challenge low switching costs, so they play tires firms against each various other to get lower prices. And the decrease in global demand because that automobiles in the beforehand 1990s developed excess volume in the tire industry, through as lot as 25 percent of civilization capacity was standing idle. The result was a an international price war with practically all tires firms suffering heavy losses in the at an early stage 1990s. In an answer to the resulting expense pressures, many tire firms space trying to achieve a low-cost position. This includes moving production framework to low-cost facilities and also offering worldwide standardized assets to realize endure curve economies.15 Pressures for regional Responsiveness pressures for local responsiveness arise indigenous a variety of sources including (a) distinctions in customer tastes and preferences, (b) differences in infrastructure and also traditional practices, (c) differences in distribution channels, and (d) host federal government demands. Differences in consumer Tastes and Preferences solid pressures for neighborhood responsiveness arise when consumer tastes and also preferences different significantly in between countries--as they may for historical or cultural reasons. In together cases, product and/or marketing messages need to be customized come appeal to the tastes and preferences of local consumers. This generally prompts delegating production and also marketing attributes to nationwide subsidiaries. because that example, there is a solid demand amongst North American consumer for pickup trucks, specifically in the South and West where many families have actually a pickup truck together a second or 3rd car. In contrast, in europe countries, pickup trucks space seen completely as utility vehicles and are purchased generally by firms rather than individuals. Together a consequence, the marketing message needs to it is in tailored come the different nature of demand in north America and also Europe. yet Harvard organization School Professor Theodore Levitt has argued that customer demands for regional customization are decreasing worldwide.16 according to Levitt, modern communications and transportation innovations have produced the problems for a convergence the the tastes of consumer from various nations. The an outcome is the emergence of enormous an international markets for standardized consumer products. Levitt cites global acceptance the McDonald"s hamburgers, Coca-Cola, Levi Strauss jeans, and Sony tv sets, all of which are sold as standardization products, as proof of the enhancing homogeneity the the an international marketplace. Levitt"s argument, however, has been characterized as extreme by numerous commentators. For example, Christopher Bartlett and Sumantra Ghoshal have observed the in the customer electronics industry, consumers reacted come an overdose the standardized global products by showing a renewed choice for products that are distinguished to local conditions.17 They keep in mind that Amstrad, the fast-growing brothers computer and electronics firm, gained its start by recognizing and responding to local customer needs. Amstrad captured a significant share of the brothers audio player industry by relocating away from the standardized, inexpensive stereo solution marketed by worldwide firms such as Sony and Matsushita. Amstrad"s product is encased in teak fairly than metal and also has a manage panel tailor-made to appeal to British consumers" preferences. In response, Matsushita had to turning back its earlier prejudice toward standardized an international design and place an ext emphasis on regional customization. Differences in Infrastructure and Traditional Practices pressures for neighborhood responsiveness emerge when over there are distinctions in infrastructure and/or traditional practices between countries. In such circumstances, tailoring the product to the distinctive infra-structure and also practices of different nations might necessitate delegating manufacturing and also production attributes to foreign subsidiaries. Because that example, phibìc American customer electrical systems are based upon 110 volts, while in some European countries, 240 volt systems space standard. Thus, domestic electrical appliances have to be customized because that this distinction in infrastructure. Timeless practices also often vary across nations. Because that example, world drive on the left side of the roadway in Britain, developing a demand for right-hand journey cars, yet in surrounding France, human being drive ~ above the right side of the road, creating a demand for left-hand drive cars. Automobiles have to be customized to satisfy this difference in classic practices. Differences in distribution Channels A firm"s marketing tactics may have to be responsive to differences in circulation channels in between countries. This may necessitate the delegation the marketing features to nationwide subsidiaries. In wash detergents, because that example, five retail chains manage 65 percent the the sector in Germany, yet no chain controls an ext than 2 percent the the industry in neighboring Italy. Thus, sleeve chains have considerable buying strength in Germany, but relatively little in Italy. Taking care of these distinctions requires detergent firms to usage varying marketing approaches. In the medicine industry, the British and Japanese distribution systems room radically different from the united state system. British and also Japanese physicians will not accept or answers favorably come an American-style high pressure sales force. Thus, pharmaceutical firms have actually to adopt different marketing techniques in Britain and Japan contrasted to the United says (soft offer versus tough sell). Host federal government Demands Economic and political demands enforced by host-country federal governments may necessitate local responsiveness. Because that example, the politics of health care roughly the people requires that pharmaceutical firms manufacture in many locations. Pharmaceutical firms room subject to local clinical testing, registration procedures, and pricing restrictions, all of which need that the manufacturing and marketing that a drug accomplish local requirements. Also, because governments and also government agencies manage a significant portion the the health care spending plan in many countries, they can demand a high level of neighborhood responsiveness. risks of protectionism, financial nationalism, and local contents rules (which call for that a certain percentage that a product be manufactured locally) every dictate that international businesses produce locally. Take into consideration Bombardier, the Canadian-based manufacturer of railcars, aircraft, jet boats, and also snowmobiles. Bombardier has 12 railcar factories throughout Europe. Part argue that the duplication that manufacturing framework leads come high costs and also lowers benefit margins, yet Bombardier managers say that informal rule in Europe favor companies that use regional workers. To offer railcars in Germany, lock claim, you must manufacture in Germany. The same goes because that Belgium, Austria, and France. To deal with its cost structure in Europe, Bombardier has central its engineering and also purchasing functions, however it has no plans come centralize manufacturing.18 Implications pressure for neighborhood responsiveness suggest that it might not be possible for a certain to establish the full benefits from suffer curve and also location economies. Because that example, it may not be feasible to serve the an international marketplace indigenous a solitary low-cost location, producing a around the world standardized product and also marketing it an international to attain experience curve expense economies. The need to customize the product come local problems may work against such a strategy. Auto firms, because that example, have found that Japanese, American, and also European consumers demand different kinds of cars, and also this necessitates producing products that are customized for neighborhood markets. In response, firms such as Honda, Ford, and also Toyota are developing top come bottom design and production infrastructure in every of these regions so castle can far better serve regional demands. While together customization brings benefits, it likewise limits a firm"s capacity to realize far-reaching experience curve economies and location economies. In addition, pressure for regional responsiveness imply that it might not be possible to transfer the an abilities and products associated with a firm"s core competencies totality sale from one country to another. Concessions regularly have to it is in made to neighborhood conditions. Despite being shown as "poster boy" for the proliferation that standardized global products, also McDonald"s has actually customized its product (i.e., the menu) come account because that national differences in tastes and preferences (see the Management emphasis for details).