Profiting from global expansion

Expanding globally allows firms to increase their profitability

are and rate of profit growth in ways not available to only local
enterprises.
Firm who function internationally are able to:
 Expand the market for their local product offering by
selling those products internationally.
 Realize location economic by distributing individual value
creation activities to locations around the globe where they
can be performed most effectively and efficiently.
 By serving an expanded market from a primary location
one can achieve greater cost economic from experience
effects and thereby decreasing the costs of value creation.
 Earning a greater return by leveraging any valuable skills
developed in foreign operations and transferring them to
other area’s in a firm global network of operations.
Expanding the market: leveraging products and
competencies
Firms can increase growth by selling goods and services
created at home to global market and to be successful in the
global market the firms must depends on the goods and the
services they sell and their core competencies. Core
competencies reduce the costs of value creation in such a way
so that it is possible to use premium pricing.
 Location Economies
Companies go around the globe to find and operate under the
most optimum settings for their goods. Production of the goods
under the most optimum settings can give added advantage in
cost of productions over their competitors. This is known as
Location Economies.

By achieving location economies, firms can;

 Lower the costs of value creation and achieve a low cost
position.
 Differentiate their product offering.
Firms that take advantage of location economies in different
parts of the world and create a global channel of value creation
activities.
Experience effects
The models of the learning or experience curve effect express
the relationship between experience producing a good and
efficiency of production is experience effects.
Economic of scale refer to the reductions in unit cost achieved
by producing a large volume of a product.
Principles of economic of scale include:
 Spreading fixed costs over a large volume.
 Utilizing production facilities more intensively
 Increasing bargaining power with suppliers.
Leveraging subsidiary skills
Important for mangers to;
1) Recognize the valuable skills that could be applied
elsewhere in the firm can arise anywhere within the firm’s
global network.
2) Establish an incentive system that encourages local
employees to acquire new skill.
3) Have a process for identifying when valuable new skills
have been created in a subsidiary.