Page 291 - DMGT545_INTERNATIONAL_BUSINESS

International Business

notes 15.3.1 firm as a value chain

Firm can be treated as a value chain composed of series of value creation activities including
production, marketing, sales, materials management, R&D, human resources, information
systems and the firms infrastructure. We can categorize their value creation activities as primary
and support activities (see Figure 15.2).
figure 15.2: the value chain activities
Support Activities
Company Infrastructure
Human Resources
ormation Systems
Inf
Materials Management

R&D Production Marketing & Service
Sales

Primary Activities

15.3.2 Primary activities

Primary activities have to do with the design, creation and delivery of the product; its marketing;
its support and after sales service. In the value chain illustrated in figure 15.2 the primary activities
are broken into 4 functions; R&D, production, marketing and sales and service.
Research & Development (R&D) is concerned with the design of products and production
process. Although we think of R&D as being associated with the design of physical products
and production process in manufacturing enterprises, many service companies also undertake
R&D.

Example: Banks compete with each other by developing new financial products and the
new ways of delivering those products to customers. Online banking and smart debit cards are
two recent examples of new product development in the banking industry.
Through superior product designs, R&D can increase the functionality of products which makes
them more attractive to consumers (raising V). Alternatively R&D may result in more efficient
production process thereby lowering production costs (lowering C). Either way the R&D
functions and creates value.
!
Caution R&D is only associated with the design of products and production process and
not the design of physical products and its process of production.
Production is concerned with the creation of good or service. For physical products production
generally means manufacturing. For services such as banking or retail operations production
occurs when the service is delivered to the customer (for example, when a bank originates a
loan for a customer it is engaged in the production of the loan). The production activity of a firm
creates value by performing its activities efficiently with lower costs (lower C) or by performing
them into a more reliable and higher quality product (which results in higher V).

The marketing and sales function of a firm can create value in several ways. Through brand
positioning and advertising the marketing function can increase the value (V) that consumers
perceive in a firms product. If these create a favourable impression of the firms’ product

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