Describe the
two basic ways that companies can create value. What role does the value chain
play in these methods?
Chapter 12 Strategies
for International Business
#Daniels #15edition #StrategiesforInternationalBusiness #Chapter12International Business: Environments and Operations, 15e, Global Edition (Daniels et al.)
Daniels, 15edition, Strategies for International Business, Chapter 12
Answer: Companies create value in two basic ways—cost leadership and differentiation. Cost leadership emphasizes high production volumes, low costs, and low prices to attract customers. Firms that choose this strategy strive to be the low-cost producer in an industry for a given level of quality. This strategy pushes a firm to sell its products either at average industry prices to earn a profit higher than that of rivals or below average industry prices to capture market share. A differentiation strategy spurs the company to provide a unique good or service that rivals find hard, if not impossible, to match or copy. Firms that choose this strategy aspire to develop products that offer unique attributes that they reason are highly valued by customers and that customers perceive to be better than or sufficiently different from products offered by other companies. The practices of successful MNEs advise managers to interpret the activities the firm performs as elements of a value chain. The value chain follows from the principle that "every firm is a collection of discrete activities performed to do business that occur within the scope of the firm." It specifies a clear-cut framework that lets managers deconstruct the abstraction of "create value" into a step-by-step system. Modeling its sequence requires MNEs configure functions and coordinate processes that move products from conception in R&D through sourcing materials, organizing manufacturing, supervising logistics, applying marketing, and setting-up service options.
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