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Global Business Today Eleventh Edition Chapter 12
12-15
Lecture Note: To extend this discussion, consider exploring Uniqlo’s expansion efforts in the
United States at https://www.cnbc.com/2017/03/29/as-retailers-close-stores-the-worlds-third-
largest-apparel-player-takes-another-run-at-the-us.html.
The Rise of Regionalism
I) Demand for local responsiveness is frequently a result of national differences. In addition, a
convergence of tastes, preferences, infrastructure, distribution channels, and host-government
demands can arise from regional differences. The European Union and NAFTA are both
examples of the rise of regionalism.
Choosing a Strategy
A) Firms use four basic strategies to compete in the international environment: global
standardization, localization, transnational, and international. The appropriateness of each
strategy varies with the extent of pressures for cost reductions and local responsiveness. Figure
12.9 in the text illustrates when each of these strategies is most appropriate.
CONNECT
Decision Generator
Choosing a Strategy
Summary
This activity focuses on strategy in the multinational firm. Choosing a strategy involves
balancing the competing pressures in the marketplace. Companies generally choose among four
main strategies: global standardization, international, transnational, and localization.
Activity
Students are asked to respond to a series of questions related to choosing a strategy.
Class Discussion
Understanding the competing pressures in the global marketplace along with its dynamic nature
is important to choosing a strategy. Choose several companies and discuss the pressures they are
facing and which type of strategy makes sense for each organization.
GLOBAL STANDARDIZATION STRATEGY
B) Firms that pursue a global standardization strategy focus on increasing profitability and
profit growth by reaping the cost reductions that come from economies of scale, learning effects,
and location economies. Their strategic goal is to pursue a low-cost strategy on a global scale.
This strategy makes sense when there are strong pressures for cost reductions and demands for
local responsiveness are minimal.
Global Business Today Eleventh Edition Chapter 12
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management FOCUS: Unilever’s Global Organization
Summary
This feature examines the strategy of Unilever, the Dutch-British company with co-headquarters
in London and Rotterdam. The company, the result of the merger of a Dutch margarine producer
and a British soap maker, has a portfolio of 400 brands, 14 of which are responsible for more
than €1 billion in sales annually.
Discussion Questions
1. What types of pressures is Unilever facing? How do these pressures affect its choice of
strategy?
Students will probably suggest that Unilever is facing pressures for both cost reductions and
local responsiveness. Students may note, for example, that while people all over the world use
products like soap and detergent, their preferences are likely to be different. Also at the same
time, the profit margin on these low-cost items makes it important for the company to keep costs
low.
2. Unilever is divided into four divisions: Foods, Refreshments, Home Care, and Personal Care.
Why might Unilever choose a different strategy for each division? Why might they be the same?
Discuss.
Choosing a strategy for competing involves assessing the pros and cons of each option. Students
should recognize that the variables in each of the four divisions at Unilever will vary. Students
might note, for example, that pressures for local responsiveness might be more intense in Foods
and Refreshments as compared to Home Care and Personal Care, whereas pressures for cost
reductions could be stronger in Home Care as compared to some of the other divisions. Students
should recognize that the organization will need to be structured to allow for the different
strategies/divisions to coordinate across markets as well.
Teaching Tip: To learn more about Unilever, go to https://www.unilever.com/news/press-
releases.
LOCALIZATION STRATEGY
C) A 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.
Localization is most appropriate when there are substantial differences across nations in
consumer tastes and preferences, and where cost pressures are not too intense.
TRANSNATIONAL STRATEGY
D) Firms pursuing a transnational strategy are trying to simultaneously achieve low costs
through location economies, economies of scale, and learning effects; differentiate their product
Global Business Today Eleventh Edition Chapter 12
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offerings across geographic markets to account for local differences; and foster a multidirectional
flow of skills between different subsidiaries in the firm’s global network of operations. A
transnational strategy makes sense when cost pressures are intense, and simultaneously, so are
pressures for local responsiveness.
INTERNATIONAL STRATEGY
E) When there are low-cost pressures and low pressures for local responsiveness, an international
strategy is appropriate. An international strategy involves taking products first produced for the
domestic market and then selling them internationally with only minimal local customization.
THE EVOLUTION OF STRATEGY
G) An international strategy may not be viable in the long term, and to survive, firms may need
to shift to a global standardization strategy or a transnational strategy in advance of competitors.
Similarly, localization may give a firm a competitive edge, but if the firm is simultaneously
facing aggressive competitors, the company will also have to reduce its cost structures, and the
only way to do that may be to shift toward a transnational strategy.
management FOCUS: Evolution of Strategy at Procter &
Gamble
Summary
This feature explores the evolution of Procter & Gamble’s global strategy. In 1915, Procter &
Gamble opened its first foreign operation in Canada. In the 1950s and 1960s, P&G expanded
into Western Europe, and then, in the 1970s, into Japan and other parts of Asia. Throughout this
expansion, the company maintained all product development at its Cincinnati, Ohio
headquarters, while each subsidiary took on the responsibility for manufacturing, marketing, and
distributing the products. P&G shifted its strategy in the 1990s, closing several foreign locations
and moving to a more regional approach to global markets. In 1999, the company implemented
“Organization 2005,” a business unit approach whereby different units are entirely responsible
for generating profits for a product group. Discussion of this feature can begin with the following
questions.
Discussion Questions
1. Discuss the evolution of Procter & Gamble’s strategy. Do you think P&G was reactive or
proactive in its approach to strategy in the late 1990s and early 2000s?
Global Business Today Eleventh Edition Chapter 12
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2. What factors have forced Procter & Gamble to change its strategy? As a competitor to P&G,
what can you learn from the company’s experiences?
3. How would you characterize Procter & Gamble’s current strategy? What challenges do you
foresee with the new strategy?
1533040191.
Strategic Alliances
A) Strategic alliances refer to cooperative agreements between potential or actual competitors.
Here, we are concerned specifically with strategic alliances between firms from different
countries.
THE ADVANTAGES OF STRATEGIC ALLIANCES
B) Strategic alliances may facilitate entry into a foreign market. Alliances allow firms to share
the fixed costs (and associated risks) of developing new products or processes. An alliance is a
way to bring together complementary skills and assets that neither company could easily develop
Global Business Today Eleventh Edition Chapter 12
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on its own. It can make sense to form an alliance that will help the firm establish technological
standards for the industry that will benefit the firm.
Lecture Note: Some experts have suggested that strategic alliances are an integral part of a
company’s strategy in the 21st century. To learn more, go to
https://www.forbes.com/sites/jimblasingame/2016/12/10/why-strategic-alliances-are-a-21st-
century-imperative/#23313f8d6864 and
https://home.kpmg.com/xx/en/home/insights/2017/11/strategic-alliances-real-alternative-to-m-
and-a.html.
THE DISADVANTAGES OF STRATEGIC ALLIANCES
C) Strategic alliances can give competitors low-cost routes to new technology and markets.
Unless a firm is careful, it can give away more than it receives.
MAKING ALLIANCES WORK
D) The failure rate for international strategic alliances seems to be high. The success of an
alliance seems to be a function of three main factors: partner selection, alliance structure, and
how the alliance is managed.
Lecture Note: The Association for Strategic Alliance Professionals maintains a website with
information on how to make alliances more successful. The site is available at
http://www.strategic-alliances.org.
Partner Selection
E) One of the keys to making strategic alliance work is to select the right kind of ally. A good
ally or partner has three principal characteristics. First, a good partner helps the firm achieve its
strategic goals, whether they are market access, sharing the costs and risks of new product
development, or gaining access to critical core competencies. In other words, the partner must
have capabilities that the firm lacks and that it values. Second, a good partner shares the firm’s
vision for the alliance. Third, a good partner is unlikely to try to opportunistically exploit the
alliance for its own ends: that it, to expropriate the firm’s technological know-how while giving
away little in return.
Lecture Note: Failed alliance can be devasting to organizations. To expand the discussion on
why some strategic alliances fail, consider
https://www.forbes.com/sites/kimberlywhitler/2014/10/24/why-strategic-alliances-fail-new-cmo-
council-report/#6754e99a2789.
Video Note: Strategic alliances are an important component in Cisco System’s competitive
strategy. However, not all of its alliances are successful. Cisco has identified why some of its
Global Business Today Eleventh Edition Chapter 12
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Alliance Structure
F) The alliance should be structured so that the firm’s risks of giving too much away to the
partner are reduced to an acceptable level. Alliances can be designed to make it difficult (if not
impossible) to transfer technology not meant to be transferred. Contractual safeguards can be
written into an alliance agreement to guard against the risk of opportunism by a partner. Both
parties to an alliance can agree in advance to swap skills and technologies that the other covets,
thereby ensuring a chance for equitable gain. Finally, the risk of opportunism by an alliance
partner can be reduced if the firm extracts a significant credible commitment from its partner in
advance.
Managing the Alliance
G) Once a partner has been selected and an appropriate alliance structure has been agreed upon,
the task facing the firm is to maximize its benefits from the alliance. Part of the trick of
managing an alliance successfully seems to be to build interpersonal relationships between the
firms' managers.
Global Business Today Eleventh Edition Chapter 12
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End-of-Chapter Resources
Critical Thinking and Discussion Questions
1. In a world of zero transportation costs, no trade barriers, and nontrivial differences between
nations with regard to factor endowments, firms must expand internationally if they are to
survive. Discuss.
2. Plot the position of the following firms on Figure 12.8: Procter & Gamble, IBM, Apple, Coca-
Cola, Dow Chemical, U.S. Steel, and McDonald’s. In each case, justify your answer.
Global Business Today Eleventh Edition Chapter 12
3. In what kind of industries does a localization strategy make sense? When does a global
standardization strategy make the most sense?
4. Reread the Management Focus: “AB InBev, Beer Globally, and Creating Value,” and then
answer the following questions:
a. With more than 200 brands and strong coverage internationally of the different brands,
strategically AB InBev is a unique and highly organized global company. Do they have
too many brands? Why or why not?
b. The company follows a focused brands strategy in which the majority of the resources are
devoted to those brands that have the greatest long-term growth potential. What positives
and negatives do you see with this approach?
c. Strategically, AB InBev has 10 principles driving everything they do. At the core, AB
InBev is focused on a shared dream that energizes everyone to work in the same direction
to be the best beer company in the world, bring people together, and aspire for the
betterment of the world. Additional principles cover people strengths, quality of teams,
striving for increased satisfaction, consumer focus, ownership, common sense and
simplicity, cost management, leadership, and hard work and responsibility. Should large
multinational corporations really be built on strong principles or do they need a more
flexible structure?
12-23
5. What do you see as the main organizational problems that are likely to be associated with the
implementation of a transnational strategy?
globalEDGE™ Research Task
Use the globalEDGE™ site (globaledge.msu.edu) to complete the exercises in the text.
Exercise 1
Search phrase: Composite Ranking
Resource Name: Forbes Global 2000
Website: http://www.forbes.com/global2000
globalEDGE™ Category: Rankings, Company Level
Additional Info:
This question requires students to identify and assess a so-called “composite ranking” of
companies. Composite rankings use multiple criteria to rank companies, and the Forbes Global
2000 ranking is a good way to illustrate how the largest 200 public companies in the world are
ranked any why. In extracting the list of the top 20 ranked companies, paying particular attention
to their home countries, the students will also get an appreciation for what type of companies and
where they are from in assessing the ranking.
Exercise 2
Search phrase: Global Connectedness
Resource Name: DHL Global Connectedness Index
Website:
http://www.dhl.com/en/about_us/logistics_insights/studies_research/global_connectedness_inde
x
globalEDGE™ Category: Country Level, Rankings
Additional Info:
The DHL Global Connectedness Index, released for the fourth time in 2016, provides a detailed
analysis of the state of globalization in the world. The index reports on the global connectedness
around the world, measured by cross-border flows of trade, capital, information, and people. The
issue for students to tackle was to identify the top three eastern European countries in which a
company can market its current product line of smartphones and to prepare an executive
summary to support the recommendations. The DHL index ranks some 140 countries and all
major Eastern European countries are included.
Global Business Today Eleventh Edition Chapter 12
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Sony Corporation: An International Innovator?
closing case
Summary
The closing describes Sony’s global strategy. Sony, the Japanese company that has been at the
forefront of electronics, semiconductors, computers, video games, and telecommunications
equipment since 1946, is organized into 12 distinct core segments. Integrating these segments is
the vision to use the company’s “passion for technology, content and services to deliver
groundbreaking new excitement and entertainment.”
Case Discussion Questions
1. Do you see Sony as an innovator in its industries of electronics, semiconductors, computers,
video games, and telecommunications equipment? Why or why not?
2. Sony has a vision of “using our unlimited passion for technology, content and services to
deliver groundbreaking new excitement and entertainment.” The mission is even clearer. Sony is
“a company that inspires and fulfills your curiosity.” Does Sony inspire and fulfill your
curiosity?
3. Sony has 12 core segments in its business. Is this too many or not enough? Are today’s
companies diversified like they used to be a few decades ago? Can Sony’s 12-segment business
model be sustainable?
4. The Future Lab Program, which is a part of Sony’s investment in R&D, embraces an approach
to technological R&D that emphasizes an open creative environment and direct lines of
communication with society, with the end goal being to co-create new lifestyles and customer
value. Does Sony create significant customer value? Does Sony create new lifestyles?
Global Business Today Eleventh Edition Chapter 12
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Teaching Tip: To learn more about Sony and its strategy, go to https://www.sony.com.
Lecture Note: To learn more about Sony’s new products, go to
https://www.sony.com/en_us/SCA/company-news/press-releases/sony-corporation-of-
america/2018/sony-unveils-its-new-products-at-ifa-2018.html.
CONNECT
Geography
Summary
This activity is designed to test the student’s knowledge of geography. Questions related to
chapter material are asked, requiring students to understand the topics and the locations of the
countries involved.
Activity
Students are asked to respond to a series of question related to the geographic location of several
countries.
Class Discussion
Understanding the geographic location of countries is essential to the understanding of
international business. Ask students to discuss the implications of the geographic locations of the
countries in this exercise on the subject matter.
Global Business Today Eleventh Edition Chapter 12
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Continuous Case Concept
When the big three Japanese auto companies initially expanded into the U.S., they changed their
strategies to meet the needs of the new market. Similarly, BMW and Mercedes changed their
strategies when they began to manufacture in the U.S. Now, as China and India become growth
markets, the world’s automakers are responding with new strategic changes. Already, Ford’s
existing factory in China is too small, and the company is looking for a new facility. Similarly,
Daimler AG is ramping up production in China. Nissan is expanding its lineup in China and
increasing production capacity to meet new demand. Toyota reported a strong increase in its
sales in China over the previous year.
• Ask students to reflect on the strategic changes made by the auto companies. What
factors have contributed to the changes the companies have made?
• Next, ask students, to discuss, based on what they already know about Toyota, Nissan,
and Honda, the notion of creating a global web of value creation activities. How does this
concept play out with the Japanese auto companies? Does the response to this question
differ if the American auto companies are considered?
• Then, ask students to consider whether, given that consumer preferences in America
appear to be quite different from those of Japanese consumers, there any way for
automakers to realize the traditional benefits of selling in multiple markets?
• Finally, ask students of the four basic international strategies described in the textbook,
which strategy is the most appropriate for most global automobile companies? Why?
Global Business Today Eleventh Edition Chapter 12
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Additional Readings and Sources of Information
GM restructures global strategy, EV executives
http://www.autonews.com/article/20180921/OEM02/180929917/gm-executives-electric-mobility
Sustaining the global expansion
https://www.brookings.edu/blog/future-development/2018/06/13/sustaining-the-global-
expansion
Starbucks: Aggressive Global Expansion Means Growth Percolating
https://www.newsmax.com/finance/benreynolds/starbucks-global-expansion-
percolating/2018/10/01/id/884301
Bored with Netflix? As it goes global the selection is about to explore
https://www.digitaltrends.com/movies/netflix-global-expansion
Marsh & McLennan CEO’s Motto: There is No Innovation Without Dissent
http://fortune.com/2017/12/21/marsh-mclennan-dan-glaser-ceo-tips
10 Key Steps To Expanding Your Business Globally
https://www.forbes.com/sites/allbusiness/2015/03/04/10-key-steps-to-expanding-your-business-
globally/#5c1c4bb63803
Deutsche Bank Just Announced a Major Strategic Overhaul and Capital Raise
http://fortune.com/2017/03/06/deutsche-bank-capital-raise
Can P&G Find Its Aim Again?
http://fortune.com/procter-and-gamble-david-taylor-fortune-500
GM to Move Work to Canada From Mexico in Labor Deal, Union Says
http://www.bloomberg.com/news/articles/2016-09-20/gm-reaches-tentative-deal-with-canada-
auto-union-to-avert-strike
Ford Profit Miss Imperils 2016 Target as U.S. Demand Stalls
http://www.bloomberg.com/news/articles/2016-07-28/ford-profit-misses-full-year-targets-at-
risk-despite-truck-boom
VW Said to Weigh Asset Sales in End to Era of Empire Building
http://www.bloomberg.com/news/articles/2016-06-14/volkswagen-said-to-plan-merging-
components-unit-asset-reviews
Vodafone Is Biggest Spender as India’s Airwave Auction Flops
http://www.bloomberg.com/news/articles/2016-10-06/india-raises-9-85-billion-in-spectrum-
auction-amid-weak-bidding
Global Business Today Eleventh Edition Chapter 12
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P&G Just Missed an Opportunity
https://www.bloomberg.com/gadfly/articles/2016-07-20/procter-gamble-just-missed-an-
opportunity-in-dollar-shave-club
Ford’s Crown Jewel, the F-150, Has a Big Problem
http://www.bloomberg.com/news/articles/2016-06-16/ford-s-crown-jewel-the-f-150-has-a-big-
problem-after-overhaul
Ikea Lovers Find Middlemen on Web as Retailers Shun Ukraine
https://www.bloomberg.com/news/articles/2016-05-29/ikea-lovers-find-middlemen-on-web-as-
retailers-shun-ukraine
Ikea Said to Plan $1 Billion Sale of European Real Estate
http://www.bloomberg.com/news/articles/2016-05-17/ikea-said-to-plan-1-billion-sale-of-real-
estate-across-europe
