The Strategy of International Business

Learning Objectives

• Explain global strategy.
• Profit potential from global expansion.
• Impact of cost reduction and local responsiveness on strategy.
• Identify global strategies.

Introduction

• Focus on the firm’s strategy and its performance in international markets.
• Increase profitability by expanding operations abroad.
• Analyze advantages and disadvantages of various strategies.

Basic Principles of Strategy

• Strategy aims to maximize firm value for owners/shareholders.
• Profitability: Return on invested capital.
• Profit growth: Percentage increase in net profits.

Value Creation

• Measured by the difference between perceived value (ear.Value) and cost (ear.Cost).
• Higher consumer value allows for increased pricing.
• Porter’s strategies: Low cost vs. Differentiation.

Strategic Positioning

• Explicit strategy choice in value creation.
• Configuration of operations must align with chosen strategy.
• Efficiency frontier: Balances value added and cost.

Operations & Value Chain

• Activities include production, marketing, R&D, etc.
• Support activities: Human resources, logistics, and infrastructure.

Global Expansion

• Benefits of expanding markets:
• Larger market size, location economies, cost efficiencies.
• Core competencies lead to competitive advantage in foreign markets.

Location Economies

• Optimal location for value activities reduces costs and differentiates products.
• Creating a Global Web: Distributing value chain activities globally to maximize value/ minimize costs.

Experience Effects

• Observed cost reductions over time (experience curve).
• Learning effects boost productivity; economies of scale reduce unit costs.

Strategic Responses to Cost/Local Pressures

• Cost pressures: Lower value creation costs, common in commodity industries.
• Local responsiveness pressures: Need for customization across different markets.
• Governed by consumer preferences, infrastructure, and government demands.

Choosing a Strategy

• Strategies based on cost reductions and local responsiveness:

1. Global Standardization Strategy: Low cost, minimal local customization.
2. Localization Strategy: High customization, moderate costs.
3. Transnational Strategy: Balance local adaptation with cost efficiency.
4. International Strategy: Minimal customization for low cost responsiveness.

Strategy Evolution

• Strategies may become less viable as competitors emerge or market demands shift.
• Necessity to adapt to avoid becoming obsolete.