Notes on International Business Strategy

Learning Objectives

• Understand Strategy
  • Definition: Actions taken by managers to achieve firm goals.
• Global Profitability
  • Firms expand globally to enhance profits.
• Cost Reduction vs. Local Responsiveness
  • Balancing cost reduction with adapting to local needs.
• Global Competing Strategies
  • Identify and evaluate strategies with pros and cons.
• Strategic Alliances
  • Assess advantages and disadvantages of strategic alliances for global strategies.

Opening Case: Red Bull

• Origin: Red Bull originates from Austria.
• Marketing Strategy: Hosts extreme sporting events.
• Brand Identity: Focus on freedom, fun, and user-generated content.

Strategy and the Firm

Key Definitions

• Profitability: Return on invested capital.
• Profit Growth: Percentage increase in net profits over time.

Value Creation

• Value Creation: Activities that enhance product value to consumers.
  • Key factors influencing profits:
  1. Perceived value of goods/services.
  2. Firm's production costs.
• Value Equation: V = P - C
  • Where:
  • V: Value to consumer
  • P: Price charged
  • C: Cost of production
  • V - P: Consumer surplus per unit
  • P - C: Profit per unit
  • V - C: Total value created per unit.

Strategic Positioning

• Importance of a strategic emphasis on either differentiation (adding value) or low cost.
• Example: AB InBev and how they create value in the global beer market.

Operations: The Firm as a Value Chain

Primary Activities

1. Production
2. Marketing and Sales
3. Customer Service
4. After-Sales Support

Support Activities

• Includes logistics, HR, R&D, and firm infrastructure that enable primary activities.

Implementation of Strategy

Organizational Architecture

• Key components include structure, processes, incentives, culture, and people.

Strategic Fit

• Alignment of market conditions, strategies, operations, and organizational structure is vital for performance.

Global Expansion: Profitability and Growth

Reasons for International Operations

1. Expand domestic product markets.
2. Achieve location economies by optimizing operational locations.
3. Cost reduction through expanded global market share.
4. Leverage skills from international operations.

Important Examples

• P&G: Developed products in the USA and sold globally.
• Microsoft: Early focus on international software sales.
• Volkswagen and Toyota: Grew through home-developed products sold internationally.

Competitive Pressures

Types of Pressures

1. Cost Reduction: Competing globally drives the need to minimize costs.
2. Local Responsiveness: Must adapt to local markets and preferences.

Pressures Explained

• For Cost Reduction: Increased global competition pushes firms to lower value creation costs.
• For Local Responsiveness: Factors include consumer preferences, infrastructure, distribution channels, and regulations.

Choosing a Global Strategy

• Four Strategies Based on Pressures:
  • Global Standardization
  • Localization
  • Transnational
  • International

Strategy Descriptions

• Global Standardization: Focus on cost reduction and economies of scale.
• Localization: Customize products/services for local markets.
• Transnational: Balance cost and local adaptations; complex execution.
• International Strategy: Minimal local customization; primarily export-driven.

Advantages and Disadvantages of Strategies

Global Standardization

• Advantages:
  • Exploit scale and learning effects.
  • Location economies.
• Disadvantages:
  • Lack of local sensitivity.

Localization

• Advantages:
  • Customization improves local acceptance.
• Disadvantages:
  • Struggles with scale economies.

Transnational

• Advantages:
  • Combines strengths of both global and local strategies.
• Disadvantages:
  • Difficult organizational challenges.

Strategic Alliances

Definition

• Cooperation agreements between firms in different countries.

Advantages

• Facilitate foreign market entry and share development costs.
• Combine complementary skills.

Disadvantages

• Risks of giving competitors access to technology and markets.
• Potential loss of more value than gained.

Making Alliances Successful

• Focus on partner selection, alliance structure, and effective management.

Implications for Business

• Corporate Success Factors: Includes efficiency, effectiveness, communication, management, technology, and strategic vision.
• Adaptation and innovation are critical for survival and growth in a global marketplace.