Opening case study : Standardizationglobal standardization strategy focuseson increasing profitability and profit growthby reaping the cost reductionsThe strategic goal is to pursue a low-coststrategy on a global scaleThis strategy makes sense when there arestrong pressures for cost reductions anddemands for local responsiveness areminimal
Opening case study : Standardization global standardization strategy focuses on increasing profitability and profit growth by reaping the cost reductions The strategic goal is to pursue a low-cost strategy on a global scale This strategy makes sense when there are strong pressures for cost reductions and demands for local responsiveness are minimal
What arethe determinantfactors influenceafirm'sdecisions of basic strategy?Company's core competenceLocation /factor endowmentMarket size/scalecompetitionIndustry /fields
What are the determinant factors influence a firm’s decisions of basic strategy? Company’s core competence Location /factor endowment Market size/scale competition Industry /fields
6.1 Strategyandthefirm6.1.1 Strategy and valueA firm's strategy refers to the actions that managerstake to attain the goals of the firmProfitability can be defined as the rate of returnthefirm makes on its invested capitalProfit growth is the percentage increase in net profitsovertimeExpanding internationally can boost profitability andprofitgrowth
6.1 Strategy and the firm 6.1.1 Strategy and value A firm’s strategy refers to the actions that managers take to attain the goals of the firm Profitability can be defined as the rate of return the firm makes on its invested capital Profit growth is the percentage increase in net profits over time Expanding internationally can boost profitability and profit growth
Figure : Determinants of Enterprise ValueReduce CostsProfitabilityAdd ValueandRaise PricesEnterpriseValuationSell More in ExistingMarketsProfitGrowthEnter NewMarkets
Figure : Determinants of Enterprise Value
6.1.2ValuecreatedV=Value of product to anaverage consumerV-pV-CP=PriceperunitP-CC-CostofproductionperunitV-P=ConsumersurplusperunitCCP-C=Profitper unit soldV-C-Valuecreatedper unitTwo basic conditions determine a firm's profit:(1) The amount of value customers place on the firm'sproducts; (V)(2) The firm's cost of production (C)
6.1.2 Value created Two basic conditions determine a firm’s profit: (1) The amount of value customers place on the firm’s products; (V) (2) The firm’s cost of production (C)