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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
Chapter 13 ‒ The Strategy of International Business
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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.
Chapter 13 ‒ The Strategy of International Business
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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
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
Chapter 13 ‒ The Strategy of International Business
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Copyright © 2019 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
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
Chapter 13 ‒ The Strategy of International Business
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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
Chapter 13 ‒ The Strategy of International Business
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Exercise 2 Answer
