Incoterms 2010 and International Business - 101
International Business: Environments and Operations, 15e (Daniels et al.)
CHAPTER TWELVE: THE STRATEGY OF INTERNATIONAL BUSINESS
CHAPTER TWELVE: THE STRATEGY OF INTERNATIONAL BUSINESS
OPENING CASE: Value Creation in the Global Apparel Industry
[See Fig 12.1 and Map 12.1.]
Zara, a large clothing retailer headquartered in northwest Spain, has used an innovative strategy to power its global expansion. The company has grown to more than 1,292 stores in 72 countries since its founding in 1975. Zara has made extensive use of information technology and e-business methods to implement dramatic reductions in the time it takes to design, manufacture, and distribute fashionable clothing at moderate prices. Zara has achieved extraordinary speed and flexibility and can take a new design from the catwalk in Paris to its store shelf in New York in as little as two weeks, compared with the industry average of nine months to six weeks. Rather than having seasonal clothing collections, Zara has “live collections” in which no style lasts more than four weeks. The company purchases much of its fabric not yet dyed so it can make color changes quickly during and between seasons. Unlike many of its competitors, Zara produces its most time- and fashion-sensitive products internally. It employs more than 15,000 people in 20 company-owned factories to produce about 40 percent of Zara’s finished product. These factories are highly automated to control costs and further speed production. Sophisticated distribution centers in Spain, Brazil, and Mexico are used to keep inventory moving efficiently from factory and supplier to store. Most clothes are only in the distribution center a few hours, and none is ever there more than three days. Stores are located in high-profile locations, and store managers and staff choose their merchandise and keep in close touch with local trends. By constantly rotating merchandise, Zara creates a climate of scarcity and opportunity for loyal customers.
Questions
- Zara believes that finding store managers capable of effectively running the retail properties is the primary constraint on its global expansion. What skill do you think Zara seeks in its ideal candidates? Why should they be difficult to find?
Zara’s managers and sales associates are in charge of transmitting sales analysis, the product life cycles, and store trends to the designers. This allows the designers in Spain to develop the right products with the season to meet demand. Since these responsibilities go beyond that of a traditional store manager’s responsibility, it may be difficult to find individuals who are comfortable with these additional responsibilities. (LO: 3, Learning Outcome: To assess how managers configure and coordinate a value chain, AACSB: Analytical Skills)
- From the beginning, Zara’s business model differed from the norm. Today, its strategy depends on managing the connections between its various activities, notably design, sourcing production, and store operations. What do Zara’s managers, working out of “The Cube,” see as the most effective way to manage the relationships among these activities?
Communication and information technology are absolutely vital to managing the constant interface of their various business activities and management of the huge variety of product information. (LO: 3, Learning Outcome: To assess how managers configure and coordinate a value chain, AACSB: Analytical Skills)
Teaching Tips: Carefully review the PowerPoint slides for Chapter Twelve, as well as the opening case regarding Zara, which is cited throughout the chapter.
CLOSING CASE: Value Chains: Where, When, and Why
What type of strategies might international companies follow in the future? The changing nature of technologies and regulations that has led to a more globalized business environment has also led to a greater diversity of firms and strategies. In the future, the business world is likely to be populated by a variety of local firms, regional firms, firms that operate in a few countries, firms that operate in many countries, centralized firms, and networks of firms. IBM is a case in point in which the firm passed through three phases on its way to globalization – moving from a company in which it had basically a home country mentality, to an approach whereby it created smaller versions of the company overseas, to finally becoming a globally integrated enterprise.
Questions about the co-location of different places with different types of firms means strategy will emerge from the interplay among firms and places. One possibility is the emergence of the “metanational” as a new type of global corporation that thrives on the process of seeking out uniqueness that it might exploit elsewhere or that might complement its own existing operations. This type of company would build competitive advantage by uncovering and transferring knowledge from many locations around the world. The metanational’s value chain would be based on three core competencies—the capability to prospect for and access untapped pockets of technology and emerging consumer trends from around the world, to leverage knowledge scattered throughout its local subsidiaries, and to mobilize this fragmented knowledge to generate innovations that produce, market, and deliver value on a global scale.
Others argue that the evolutionary nature of the multinational is a matter of size. Instead of being large firms that straddle the globe, clever, small companies become multinationals from day one. These so called micro-multinationals begin operating internationally, rather than first starting in their home market. Another emerging organizational form is the cybercorp, a company that operates exclusively in cyberspace and is not impacted by the physical geography of lines on a map. Strategically, the cybercorp looks to develop competences that make it ready to react in real time to changes in its customers, competition, industry, and environment. The cybercorp will be built for speed, emphasizing the ability to learn, evolve, and transform in a rapidly changing virtual environment. Whatever new organizational forms and strategies emerge in the future will likely be also firmly rooted in the past. No successful firm can abandon the traditional principles of superior value creation, superb core competencies, and bright management who can articulate clear visions and practical goals consistent with the real and virtual context.
Questions
12-3 Assume you have a choice to work for either a globally integrated enterprise, a metanational, a Glorecalized MNE, a micro-multinational, or a cybercorp. Which would you choose? Why?
Student responses to this question will differ based on personal preferences and career objective. However, with the evolving Internet technology, the cybercorp might be the one setting standards in the future employee. (LO: 3, Learning Outcome: To assess how managers configure and coordinate a value chain, AACSB: Analytical Skills)
12-4 Based on the material presented in the chapter, what sort of environmental conditions, institutional agendas, and technology trends support the emergence of the cybercorp?
National boundaries no longer organize consumers, markets, or industries to the cybercorp. Rather evolving Internet technologies, not the physical geography or lines on a map, define the boundaries of cyberspace. Cybercorps develop competencies that let them react in real time to changes in customers, industry, and environment. They engage perspectives and strategy that bias value chains toward virtuality in order to link competence within dynamic networks. (LO: 3, Learning Outcome: To assess how managers configure and coordinate a value chain, AACSB: Analytical Skills)
- What sort of management skills and executive perspectives do you believe would make you an attractive candidate for a micronational?
Micro multinationals are nimble, small firms that are born global and operate worldwide from day one. Unlike the bigger counterparts, they expanded by gradually entering new markets. The ideal individual would be someone who has an entrepreneurial zeal, is independent and is capable of taking a more thoughtful, determined, and energetic approach to exercising available choices, and who has a desire for greater career flexibility. (LO: 3, Learning Outcome: To assess how managers configure and coordinate a value chain, AACSB: Analytical Skills)
- Looking out over the next decade, estimate the likely standards of how an MNE will create value. In your opinion, which form of the MNE of the future is best designed to succeed? Why?
The “globally integrated enterprise” is the future, and it is one that puts investments, people, and work anywhere in the world based on the right cost, right skills, and the right business environment with work flowing to the places where it will be done most efficiently and to the highest quality. (LO: 1, Learning Outcome: To evaluate industry structure, firm strategy, and value creation, AACSB: Reflective Thinking)
12-7 Presuming IBM’s evolutionary perspective best represents the path to the future of change, please speculate what type of MNE will eventually replace the idea of the global enterprise.
This is a great question where students can incorporate what they have learned in previous chapters. Knowledge of business practices around the world, cultural implications, personality factors like flexibility and risk tolerance should all be included in their list of attractive characteristics. The answers will vary based on where the student is from and is currently living. A student who grew up in Chicago will answer this question differently than a student who grew up in New Delhi. (LO: 3, Learning Outcome: To assess how managers configure and coordinate a value chain, AACSB: Multicultural and Diversity Understanding)
12-8 The MNE of the future, in whatever form it takes, will more than likely face pressures for global integration, along with those clamoring for local responsiveness. In your opinion, which form will best manage the challenge?
The student responses to this question can vary. However, previously configuration and coordination barriers constrained knowledge flows, production opportunities, and organizational options. Now, because of the Internet, the globally integrated enterprise designs its strategy, configures its activities, and coordinates its processes to connect everything, everywhere 24/7. The cybercorp should be the form that will best manage that challenge. (LO: 3, Learning Outcome: To assess how managers configure and coordinate a value chain, AACSB: Analytical Skills)
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