MCGR 388 - IB Strategy Final

Winter 2025 - Zavosh

Strategy (Porter)

“Deliberately choosing a different set of activities to deliver a unique mix of value.”

Strategy (Mintzberg)

“A pattern in a stream of decisions.”

Strategy (Chandler)

“The determination of the long-run goals and objectives of an enterprise, the adoption of courses of action, and the allocation of resources necessary for carrying out these goals.”

Corporate-level strategy

Decisions about which businesses to be in and how to add value across them (economies of scope).

Business-level strategy

How an individual business unit competes to achieve competitive advantage in its market.

Operational-level strategy

How functional areas (e.g., marketing, operations, R&D) support higher-level strategies through resources, processes, and people.

Better-off test

The criterion that a firm must create additional value by expanding into a new market.

Ownership test

Explains why a firm must perform cross-border activities internally due to market failures (e.g., weak contracts).

Demand-side scope economies (horizontal)

Value created by replicating a product/strategy in multiple markets to aggregate demand.

Supply-side scope economies (vertical)

Value created by exploiting lower-cost inputs or unique resources in foreign locations.

Liability of foreignness

Extra costs and disadvantages a firm faces when operating outside its home country.

Paradox of consistency

The more tightly a business model fits its home market, the harder it may be to replicate abroad.

Heterogeneity (in IB)

Institutional, cultural, legal, and market differences across countries that affect strategy.

Scale (in IB)

The potential to serve a larger combined market when operating in multiple countries.

Unpredictability (in IB)

Divergent economic and political conditions across countries that increase risk.

Willingness-to-Pay (WTP)

The maximum price a customer is willing to pay based on perceived value.

Price (in value-stick)

The actual amount charged by the firm for its product or service.

Cost (in value-stick)

The firm’s out-of-pocket cost to produce or deliver the product/service.

Opportunity cost

The next-best use cost of the resources employed by the firm.

Buyer’s Share

WTP minus the price; the value captured by the customer.

Firm’s Share

Price minus the opportunity cost; the value captured by the firm.

Supplier’s Share

Opportunity cost minus the firm’s production cost; the value captured by suppliers.

Deployment strategy

Replicate home-market advantage across countries via standardization and scale.

Development strategy

Locate abroad to acquire new capabilities and diffuse them firm-wide.

Deepening strategy

Enhance existing advantage by customizing or offshoring to deepen margins.

Aggregation

Synonym for Deployment: create value by aggregating demand across markets.

Arbitrage

Synonym for Development: create value by exploiting differences across locations.

Adaptation

Synonym for Deepening: create value by tailoring offerings to local tastes.

Economy of scale

Lower average cost per unit as total output increases.

Economy of scope

Cost or revenue synergy from serving multiple products or markets jointly.

Subadditivity of costs

Joint production of multiple products is cheaper than separate production.

Superadditivity of revenues

Bundling products/services yields higher combined willingness-to-pay.

Exporting (entry mode)

Selling home-country products abroad with minimal local investment.

Turnkey project

A firm designs and builds a facility abroad, then hands it over to local owners.

Licensing (entry mode)

Granting foreign firms rights to produce and sell your IP in exchange for fees.

Franchising

Allowing foreign operators to use your brand and business model for a fee and royalties.

Joint venture

A new entity co-owned by a firm and a local partner to share risk and knowledge.

Wholly owned subsidiary

A firm owns 100 % of its operations in a foreign market (via acquisition or greenfield).

Acquisition

Buying an existing foreign company to gain instant market presence.

Greenfield venture

Building a new, wholly owned operation from scratch in a foreign country.

Letter of Credit

A bank guarantee that the exporter will be paid if contractual conditions are met.

Draft / Bill of Exchange

A written order requiring the importer to pay at sight (immediate) or at a future date.

Sight draft

Payment required immediately upon presentation of shipping documents.

Time draft

Payment deferred to a specified future date after presentation of documents.

Bill of Lading

A document serving as a receipt, contract of carriage, and title to shipped goods.

Barter

Direct exchange of goods/services with no currency involved.

Counterpurchase

Firm sells goods to a country and agrees to buy unrelated goods in return.

Offset

A requirement that a foreign supplier purchases goods or services from the importing country.

Switch trading

A third party buys countertrade credits from the exporting firm to satisfy obligations.

Buy-back (Compensation)

Firm builds plant abroad and agrees to accept output as partial or full payment.

First-mover advantage

Benefits gained by entering a market early (brand loyalty, scale, patents).

First-mover disadvantage

Costs of pioneering (educating customers, learning curve, regulatory uncertainty).

Three basic entry decisions

Which markets to enter, when to enter them, and on what scale.

Potential paths for diversification

Expand across different industries, geographies, or within the same industry.

Value-stick model

A diagnostic showing how WTP, price, cost, and opportunity cost determine value shares.

Core competencies (and entry mode)

Firm skills that determine which entry modes protect and leverage its strengths.

Cost pressures (and entry mode)

Degree of pressure to reduce costs that shapes choice of exporting vs. full ownership.