COMMERCE 4SA3 Chapter Notes - Chapter 11: Ford Expedition, Lincoln Navigator, Experience Curve Effects
24 Jan 2019
School
Department
Course
Professor
Chapter 11 – Global Strategy
Ford shifted from a localization strategy (selling different cars for NA and Europe) to a ‘global
standardization strategy’ where there’s only one ford model in effort to have cost reductions
Strategy and the firm
A common strategy for firm to increase profitability could be to lower costs or add value. A firm
has high profits when it creates more value for its customers and does so at a lower cost
- According to Porter, this means going after low-cost or differentiation strategy. Value
creation is measured as difference between V & C.
- Efficiency frontier shows a firm’s position with regard to value and cost. It’s convex
because of diminishing returns (i.e. when a firm has significant value built, increasing
value by small amount require high costs). To maximize profitability, firm must 1) pick
point on efficiency frontier 2) configure internal operations to support that position and
3) have right org. structure to execute strategy
- Value creation activities are broken down into primary activities (i.e. R&D, Production,
marketing & sales, and after-sales service) and support activities (i.e. company
infrastructure, HR, information systems and material management)
Ex. Ford’s Lincoln Navigator costs $10k more than Ford Expedition by increasing perceived value
with marketing. Dell’s information system can reduce its costs by lowering inventory Dell has at
factories
- Strategy is usually concerned with taking actions that lower costs of value creation
and/or differentiate the firm’s products through design, quality, service, etc.
Profiting from global expansion
1. Location economies; dispersing a firm’s value creation activities to the optimal location
as it can help reduce costs or differentiate its product offerings (Ex. if best designers are
in France, firm should have its design operations there. If best marketers are in U.S.,
formulate marketing strategy there). However, also have to consider trade barriers and
transportation costs (i.e. Firms moving production from Asian countries to Mexico)
along with political & economic risks
2. Experience effects; production costs as cumulative output increases and is caused by
two things. Learning effects refers to cost savings by learning to do a task quicker and
more efficiently. Economies of scale results large fixed costs are spread over large
volume and economies of scope means lowering costs across 2 or more product types. A
global firm can increase volume and move down the experience curve (lowering costs of
value creation)
3. Leveraging core competencies; Firms with unique/valuable skills can gain large return by
applying those skills to foreign markets where indigenous competitors lack similar skills
and products (i.e. MTV)
4. Leveraging subsidiary skills; recognizing that valuable skills and competencies can arise
anywhere in the global network, not just HQ. Should encourage employees to take risks
with new skills (i.e. McD’s)
Pressures for cost reductions and local responsiveness
Cost reductions
Document Summary
Ford shifted from a localization strategy (selling different cars for na and europe) to a global standardization strategy" where there"s only one ford model in effort to have cost reductions. A common strategy for firm to increase profitability could be to lower costs or add value. A firm has high profits when it creates more value for its customers and does so at a lower cost. According to porter, this means going after low-cost or differentiation strategy. Value creation is measured as difference between v & c. Efficiency frontier shows a firm"s position with regard to value and cost. It"s convex because of diminishing returns (i. e. when a firm has significant value built, increasing value by small amount require high costs). To maximize profitability, firm must 1) pick point on efficiency frontier 2) configure internal operations to support that position and: have right org. structure to execute strategy.
