978-1259929441 Chapter 13 Part 2

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Chapter 13 ‒ The Strategy of International Business

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The Evolution of Strategy

Strategy is an evolutionary process. Firms need to change their strategic approach as the

environment changes.

CRITICAL THINKING AND DISCUSSION QUESTIONS

QUESTION 1: In a world of zero transportation costs, no trade barriers, and significant

differences between nations with regard to factor conditions, firms must expand

internationally if they are to survive. Discuss.

ANSWER 1: The theory of comparative advantage suggests that activities should take

place in the countries that can perform them most efficiently, given that different

countries are endowed with different factors of production. If there are no barriers or

costs to trade, then it is likely that many industries will be based out of the countries that

provide the best set of factor endowments. Given location economies, a company can

QUESTION 2: Plot the position of the following firms on Figure 13.6: Procter &

Gamble, IBM, Apple, Coca Cola, Dow Chemical, Intel, and McDonald’s. In each case

justify your answer.

ANSWER 2: Most students will probably agree that Procter & Gamble, Apple, Coca

Cola, and McDonalds are facing pressures for localization as well as cost pressures. This

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QUESTION 3: In what kind of industries does a localization strategy make sense? When

does a global standardization strategy make most sense?

ANSWER 3: A localization strategy makes sense when pressures for local

responsiveness are high. This situation is common when there are significant differences

QUESTION 4: Reread the Management Focus on Procter & Gamble, and then answer the

following questions:

a. What strategy was Procter & Gamble pursuing when it first entered foreign markets in

the period up until the early 1980s?

b. Why do you think this strategy became less viable in the 1990s?

c. What strategy does Procter & Gamble appear to be moving toward? What are the

benefits of this strategy? What are the potential risks associated with it?

ANSWER 4:

a. Many students will probably suggest that Procter & Gamble took a reactive approach

to its strategy in the early 1990s, but was more proactive in the late 1990s and early

2000s. The company’s initial reorganization was a reaction to a changing marketplace

b. Numerous factors prompted Procter & Gamble to change its strategy. Because of its

country-by-country approach to the market, the company had extensive duplication of

manufacturing, marketing, and administrative facilities that was driving up costs. In

c. Today, Procter & Gamble is trying to take a transnational approach to markets. The

company has reorganized into business units, each responsible for its own profits. Each

unit has been directed to develop global brands where possible, and keep costs low.

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McGraw-Hill Education.

While this new approach eliminates many of the problems facing the company under its

old structure, it does introduce a new challenge in that there is little communication

between business units, which effectively minimizes the possibility of cross-unit learning

and information sharing.

Another Perspective: Students can explore Procter & Gamble’s strategy in more depth by

going to the company’s website at {http://www.pg.com/en_US/index.shtml}. Click on

“Worldwide Sites” to compare the domestic site to those in numerous foreign locations.

QUESTION 5: What do you see as the main organizational problems that are likely to be

associated with implementation of a transnational strategy?

ANSWER 5: This is a student judgment question. Implementation difficulties include

Another Perspective: In an effort to recapture lost market share, P&G is currently

undergoing additional restructuring. To learn more, go to:

{https://www.bloomberg.com/news/articles/2017-11-16/p-g-ceo-needs-more-than-

natural-deodorant-to-keep-peltz-happy}.

CLOSING CASE: IKEA’s Global Strategy

Summary

The closing case describes IKEA’s global strategy and the way the company tailors its

offerings to meet customer demands. When IKEA first expanded to the United States in

the 1980s, it saw disappointing sales as U.S. consumers expected its products to be larger

than was typical in Western Europe (where IKEA was founded). Once IKEA developed

larger sizes to accommodate American tastes, sales improved. IKEA built on this

experience when expanding into China in the early 2000s and found success by reshaping

its stores and offerings to accommodate Chinese culture. Discussion of the case can begin

with the following questions.

QUESTION 1: IKEA is very Sweden-centric; that is, they like doing it the Swedish way,

from the names of the furniture to the management of the company. Sweden is a neutral

country so maybe this is the way to go for a global company, but, really, is it smart to be

too centric to a specific country when you are a global corporation?

ANSWER 1: Student answers will vary. Some may consider marketing to be the most

important strategy lever, since it can directly influence consumers’ decision-making

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argue that products/services are most important, since they determine the extent to which

a company responds to differences in consumer tastes. Some observers, however, suggest

that firms allocate a nearly equal amount of effort to each of the five levers to avoid

ceding an advantage to competitors.

QUESTION 2: IKEA is also very “IKEA–centric.” For example, the IKEA store itself

will be laid out as a maze that requires customers to walk through every department

before they reach the checkout stations. This forced path can seem constraining to their

customers who naturally are more free spirited than the IKEA management model. Can

this spell trouble in the near future or is the IKEA way a sustainable business model?

ANSWER 2: IKEA’s target customers are upwardly mobile consumers in their 20s and

30s who are seeking affordable but stylish furniture and accessories. Its stores are

QUESTION 3: Strategically, having more than 1,000 suppliers results in a complex task

of managing those suppliers, ensuring the quality of the products, and maintaining the

IKEA brand. While we will address global supply chains later on, from a global strategy

standpoint how would you manage IKEA’s global suppliers?

ANSWER 3: IKEA’s suppliers are an important link in the company’s quest to provide

relatively standardized, quality, low-priced products to its market. Most students will

Another Perspective: To learn more about IKEA’s strategy, especially in the United

States, go to {https://www.cnbc.com/2017/01/15/ikeas-strategy-stick-to-the-retail-basics-

and-expand-in-the-us.html}.

Teaching Tip: To extend the discussion of IKEA, consider EU Investigates IKEA Over

Tax Affairs in the International Business Library at http://bit.ly/MHEIBVideo. Click

“Ctrl+F” on your keyboard to search for the video title.

MHE INTERNATIONAL BUSINESS VIDEO LIBRARY

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Please click here to visit our International Business Video Library which provides an

ongoing stream of updated video suggestions correlated by key concept and major topic.

Every new clip posted is supported by teaching notes and discussion questions. Please

feel free to leave comments in the library that you feel might be helpful to your

colleagues.

INCORPORATING globalEDGE™ EXERCISES

Use the globalEDGE™ site {globaledge.msu.edu/} to complete the following exercises:

Exercise 1

Your company, a white goods manufacturer (primarily major kitchen appliances) based

in the United States, has decided to pursue international expansion opportunities in sub-

Saharan Africa. In order to achieve some economies of scale, your strategy is to minimize

local adaptation. Focusing on a comparison of two sub-Saharan African countries of your

choice, prepare an executive summary that features aspects of the product where

stabilization will simply not be possible and adaptation to local conditions will be

essential.

Exercise 2

A.T. Kearney publishes an annual study to help retailers prioritize their global

development strategies by ranking retail expansion attractiveness of emerging countries

based on a particular set of criteria. Find the latest version of this Global Retail

Development Index. What criteria are used to identify the attractiveness of the retail

environment in emerging countries? Categorize the top 10 countries by world region. Are

there any of these countries that surprise you? Why (or why not)?

Answers to Exercises

Exercise 1 Answer

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Exercise 2 Answer