The Strategy of International Business
Learning objectives
Explain the concept of strategy.
Recognize how firms can profit by expanding globally.
Understand how pressures for cost reductions and pressures for local responsiveness
influence strategic choice.
Identify the different strategies for competing globally and their pros and cons.
In this chapter the focus shifts from the environment to the firm itself and, in particular,
to the actions managers can take to compete more effectively as an international business.
This chapter looks at how firms can increase their profitability by expanding their
operations in foreign markets, the different strategies that firms pursue when competing
internationally, and the various factors that affect a firm’s choice of strategy.
Subsequent chapters build on the framework established here to discuss a variety of
topics including the design of organization structures and control systems for
international businesses, strategies for entering foreign markets, the use and misuse of
strategic alliances, strategies for exporting, and the various manufacturing, marketing,
R&D, human resource, accounting, and financial strategies that international businesses
pursue.
The opening case describes how Swedish furniture and home goods retailer IKEA
adjusted its strategy to account for consumer tastes when expanding globally. Following
disappointing sales during its expansion into the United States in the 1980s, IKEA found
international success by localizing its store designs and product offerings. The closing
case explores the five global strategy “levers,” or dimensions, that determine how local or
global a company is on the international marketplace.
OUTLINE OF CHAPTER 13: THE STRATEGY OF INTERNATIONAL
BUSINESS
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Opening Case: Ikea’s Global Strategy
Introduction
Strategy and the Firm
Value Creation
Strategic Positioning
The Firm as a Value Chain
Global Expansion, Profitability and Profit Growth
Expanding the Market: Leveraging Products and Competencies
Location Economies
Experience Effects
Leveraging Subsidiary Skills
Management Focus: Leveraging Subsidiary Skills at ArcelorMittal
Profitability and Profit Growth Summary
Cost Pressures and Pressures for Local Responsiveness
Pressures for Cost Reductions
Pressures for Local Responsiveness
Management Focus: Local Responsiveness at MTV Networks
Choosing a Strategy
Global Standardization Strategy
Localization Strategy
Transnational Strategy
International Strategy
Management Focus: Evolution of Strategy at Procter & Gamble
The Evolution of Strategy
Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: Global Strategy Levers
CLASSROOM DISCUSSION POINT
Pick a few well-known international companies, such as McDonalds, Apple, or MTV.
Then, ask students to think about the strategies each of the firms use.
Next, ask students to identify the type of industry each firm is operating in, and jot their
response on the board. Try to organize the responses using the framework presented in
the text.
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McGraw-Hill Education.
Chapter 13 – The Strategy of International Business
Then, ask students to outline the basic strategies each firm uses, and organize their
responses using the framework on the board.
Finally, try to get students to recognize how each industry influences the type of strategy
each firm followed.
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The PPT slides include additional notes that can be viewed by
clicking on “view,” then on “notes.” The following provides a brief overview of each
Power Point slide along with teaching tips and additional perspectives.
Slides 13-3 through 13-5 Strategy and the Firm
How can firms compete more effectively internationally?
A firm’s strategy can be defined as the actions that managers take to attain the goals of
the firm.
Slides 13-6 through 13-8 Value Creation
If consumers perceive the value of a good to be much higher than the actual cost of
producing that good, profit margins will be higher. Porter emphasizes two basic strategies
to create value and attain competitive advantage: low cost strategy and differentiation
strategy.
Slides 13-9 through 13-10 Strategic Positioning
Not all positions on the efficiency frontier are viable. Firms must choose a strategic
position that is viable.
Another Perspective: Firms often face resistance when they change their strategic course.
To learn how to stay on track, consider
{http://www.businessweek.com/managing/content/aug2010/ca20100810_373428.htm}.
Slides 13-11 through 13-13 Operations and Value Creation
A firm’s operations are like a value chain composed of a series of value-creation
activities. Activities include primary activities (production, research and development,
marketing and sales, and customer service) and support activities (information systems,
logistics, and human resources management).
Slides 13-14 and 13-15 Global Expansion, Profitability, and Profit Growth
Expanding globally allows firms to increase their profitability and rate of profit growth in
ways not available to purely domestic enterprises.
Slides 13-16 and 13-17 Expanding the Market: Leveraging Products and Competencies
The success of firms that expand internationally depends on the goods or services they
sell, and on their core competencies (skills within the firm that competitors cannot easily
match or imitate).
Slides 13-18 and 13-19 Location Economies
Location economies are the economies that arise from performing a value creation
activity in the optimal location for that activity.
Slides 13-20 through 13-23 Experience Effects
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McGraw-Hill Education.
Experience effects are systematic reductions in production costs over the life of the
product. The speed with which a firm moves down the experience curve will determine
how much advantage it has over its competitors
Slide 13-24 Leveraging Subsidiary Skills
A global corporation can find vital skills developed in one foreign subsidiary and
leverage them in another part of the world. In order to take advantage of subsidiary skills
the company must have sophisticated processes that identify new skills that could be of
interest. Once these skills are identified, managers must have the capability to transfer
them elsewhere.
Managers need to keep in mind the complex relationship between profitability and profit
growth when making strategic decisions about pricing.
Slides 13-25 through 13-27 Cost Pressures and Pressures for Local Responsiveness
Firms that compete in the global marketplace typically face two types of competitive
pressures:
pressures for cost reductions
pressures to be locally responsive
Slide 13-28 Pressures for Cost Reduction
International businesses often face pressures for cost reductions because of the
competitive global market.
Slides 13-29 and 13-30 Pressures for Local Responsiveness
Pressure for local responsiveness comes from differences in consumer tastes,
infrastructure, distribution channels, or host government demands.
Slide 13-31 Think Like a Manager: Determine Your Strategy
Slides 13-32 through 13-37 Choosing a Strategy
There are four basic strategies to compete in the international environment:
global standardization
localization
transnational
international
The global standardization strategy focuses on increasing profitability and profit
growth by reaping the cost reductions that come from economies of scale, learning
effects, and location economies.
The localization strategy focuses on increasing profitability by customizing the firm’s
goods or services so that they provide a good match to tastes and preferences in different
national markets.
The transnational strategy tries to simultaneously:
achieve low costs through location economies, economies of scale, and
learning effects
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McGraw-Hill Education.
Chapter 13 – The Strategy of International Business
differentiate the product offering across geographic markets to account for
local differences
foster a multidirectional flow of skills between different
The international strategy involves taking products first produced for the domestic
market and then selling them internationally with only minimal local customization.
Slides 13-38 and 13-39 The Evolution of Strategy
Strategy is an evolutionary process. Firms need to change their strategic approach as the
environment changes.
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McGraw-Hill Education.