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.