International business final

what are the three level of strategy?

corporate

business

operational

what are three paths for companies to diversify?

different industries

geographies

within-industry diversification

what are the 4 components of value created?

Willingness to pay

Price

Cost

Opportunity cost

Define price vs willingness to pay and of what share are they part of?

price: the amount a firm charges customer for product/service

wtp: maximum price a customer is willing to pay based on the perceived value they receive

*part of the buyer’s share

how can a firm increase the willingness to pay?

by improving quality, customer experience or offering unique features

Define cost and opportunity cost and what part of share are they in?

they are in the supplier’s share

1. Cost of Resources (what the supplier charges you)

This is the agreed price (negotiated) you pay the supplier.

Formula:
👉 Cost = Quantity of resource × Negotiated cost per unit

✅ Example:
If a supplier gives you 10 hours of a worker at $20/hour,
Cost = 10 × $20 = $200

2. Opportunity Cost of Resources (what the supplier sacrifices)

This is what the supplier gives up by using their resources for you instead of elsewhere.

Formula:
👉 Opportunity Cost = Quantity of resource × Opportunity cost per unit

✅ Example:
If the same worker could’ve earned $30/hour working for another client,
Opportunity Cost = 10 × $30 = $300

🧮 Why this matters:

You compare both values to see:

• What the supplier is paid vs.

• What the supplier could’ve made elsewhere

That helps calculate the supplier’s true share of value created — not just what they invoiced, but also what they gave up

what are the 3Ds for the generic strategies of going abroad ?

Deployment

Development

Deepening

what does deployment mean?

general idea: taking what works at home and doing the same in other countries

Key ideas:

• Copy-paste your competitive advantage to new markets

• Target customers with similar needs

• Keep products/services standardized

• Save money by aggregating demand

what does development mean?

Definition:
Going abroad to learn, build, or gain new capabilities you don’t have yet.

Key ideas:

• Find locations with new knowledge or skills

• Use those capabilities to strengthen your advantage

• Choose countries that are different enough to bring something valuable

• Focus on knowledge arbitrage (getting unique expertise from abroad)

what does deepening mean?

Definition:
Expanding your existing advantage by adapting slightly, without changing your core business.

Key ideas:

• Adapt to local tastes to increase value

• Lower costs by taking advantage of global scale

• Show global presence to impress customers, partners, or investors

what are the two biggest challenges in new markets?

1. liability of being a foreigner

2. paradox of being consistent

what is the liability of being a foreigner?

the disadvantages faced by a company when expanding abroad, may include:

-local laws favor domestic irms

-import/export costs

-cultural differences

-caps on foreign investment

-separate time zones can be a liability

-different contract structures

what is the paradox of being consistent?

the challenge of maintaining a consistent brand image and standards while adapting to diverse local markets and conditions. It involves balancing global strategies with local adaptations.

*if you’re too consistent you may alienate local customers, but if adapt too much you may lose your identity, so you must balance global consistency with local relevance

to justify a firm’s expansion across geographies there are two tests, what are they?

the better off test

the ownership test

what is the better off test?

A criterion used to evaluate whether a firm will achieve superior performance in a new market compared to its current operations, assessing if the expansion adds value to the company.

what are the two values of the better off test?

demand-side scope economy: Use something you already have (like a brand, product, or customer base) to sell more in the new country.

supply-side scope economy: Go to another country to get something valuable (like cheaper labor, materials, or tech) and use it at home

what is the ownership test?

It helps companies decide whether they should own operations in a foreign country instead of just licensing their product or service.

Companies prefer ownership over licensing when:

• Contracts aren’t safe in the country, and

• Their product is based on sensitive information.

what are the 3 A’s strategies to compete on the global stage?

adaptation (customization)

aggregation (scale economies)

arbitrage (exploit differences)

how do expenses hint at strategy?

• High advertising → Adaptation

• High R&D → Aggregation

• High labor cost → Arbitrage

how should AAA be approached?

• Start with one strategy, then add others

• Use integration tools

• Consider alliances/partnerships to help integrate

what are economies of scale?

reduction of average cost per unit as output rises

what are economies of scope?

cost advantages due to a firm producing a variety of products instead of specializing in one.

what are the two types of economies of scope?

subadditivity of costs

super additivity of costs

what is subadditivity of costs, and how is it achieved?

when total cost of producing multiple products together is less than the cost of producing each product separately

achieve through sharing resources, such as technology, expertise, or facilities, the firm avoids duplicate costs and spreads fixed costs over a wider array of activities

Why it matters:
It supports aggregation – combining operations to reduce costs through shared resources.

Example:
A company that makes both shampoo and conditioner in the same factory saves money compared to two separate companies each making one.

what is super additivity of revenue?

Selling products together generates more revenue than selling them separately.

Why it matters:
It supports adaptation or bundling – combining offerings to increase customer value.

Example:
A phone + data plan bundle sells better (and for more) than selling them separately.

what are the 7 modes of entry in a market?

exporting, turnkey projects, licensing, franchising, joint ventures, wholly owned subsidiaries, greenfield venture, acquisition

what is exporting and what are its pros and cons?

selling goods made in one country to another

pros:

-no setup cost

cons:

-high transport costs

-tariff barriers

-less suitable if cheaper option exists abroad

what is turnkey projects and its pros and cons?

def: build a facility abroad, hand it over ready to operate

pros:

-less risk than foreign direct investment

cons:

-no long term presence

-may create long term competitors

-loss of competitive advantage

what is licensing and its pros and cons?

def: allowing another firm to use your IP (intellectual property) for a fee

pros:

-low cost and risk

-easy market entry

cons:

-no control over operations or strategy

-hard to coordinate globally

-risk of tech misuse

what is franchising and its pros and cons?

def: granting a franchisee the right to use brand and business model

pros:

-lower costs

-fast global expansion

cons:

-hard to move profits

-control and quality issues

-need to manage franchises

what are joint ventures and their pros and cons?

def: partnership with a local firm in the target country

pros:

-access to local knowledge

-share costs/risks

cons:

-tech control risks

-conflict over decision-making

what are wholly owned subsidiairies and its pros and cons?

def: full ownership of operations in foreign country

pros:

-full control

-protect tech

-keep all profits

cons:

-high cost and risk

-acquisition challenges

what is acquisition and its pros/cons?

def: buy an exisiting company in a foreign market

pros:

-fast market entry

-block rivals

-may be less risky

cons:

-can overpay

-culture clashes

best when: you need speed and competitors already exist

what are greenfield ventures and its pros/cons?

def: build a new operation in a foreign country from the ground up
pros: -complete control -tailored operations cons: -time consuming -higher initial costs

• Best when: No strong firms to buy; your advantage is in your unique way of doing things

what are the pros and cons of strategic alliances for internationalization?

Strategic alliances are partnerships between companies from different countries to pursue mutual benefits while maintaining their independence.

pros:

-easier entry into foreign market

-share fixed costs

-bring together skills and assets

cons: -dependence on partner -potential for conflicts -share profits

-may give competitors a low-cost route to new technology and market

what increases exporting?

ower trade barriers, regional agreements, tech & communication advances

What are the two types of export readiness?

product readiness

company readiness

What are common exporting challenges?

Paperwork, delays, costs, documentary & border compliance.

How do firms differ in exporting behavior?

Large firms are proactive; SMEs are reactive or intimidated.

What is the main risk in international trade?

Lack of trust between unfamiliar parties across borders

What is a letter of credit?

A bank guarantee to pay the exporter on behalf of the importer.

Who requests a letter of credit?

The importer requests it from their bank.

What is a draft (bill of exchange)?

A formal payment document for international trade.

What are the two types of drafts?

Sight draft (pay now), time draft (pay later).

What is a bill of lading?

A document that acts as a receipt, contract, and title of goods (whoever holds the goods).

Why is the bill of lading important?

it allows exporters to use it as loan collateral.

what is countertrade?

trade where payment is in goods/services, not money.

Why is countertrade used?

In countries with limited access to foreign currency.

What are the 5 types of countertrade?

• Barter – direct exchange

• Counter purchase – buyback later

• Offset – buy local goods

• Switch trading – sell credits to a third party

• Buybacks – get paid in goods from original exported equipment

Pros of countertrade?

Enables deals without cash, sometimes required by governments.

Cons of countertrade?

Risk of unusable goods, no hard currency, complex handling.

Who benefits most from countertrade?

Large multinationals with global networks.