Chapter 13 ‒ The Strategy of International Business
The Strategy of International Business
Learning Objectives
• LO13-1: Explain the concept of
global strategy.
• LO13-2: Recognize how firms
can profit by expanding globally.
• LO13-3: Understand how
pressures for cost reductions and
local responsiveness influence
strategic choice.
• LO13-4: Identify and choose the
different global strategies for
competing in the global
marketplace.
In this chapter, the focus shifts from the
environment to the firm itself and, in particular, to
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
13
Chapter 13 ‒ The Strategy of International Business
OUTLINE OF CHAPTER 13: THE STRATEGY OF
INTERNATIONAL BUSINESS
Opening Case: International Strategy in the Sharing Economy
Introduction
Strategy and the Firm
Value Creation
Strategic Positioning
Management Focus: AB InBev, Beer Globally, and Creating Value
The Firm as a Value Chain
Global Expansion, Profitability, and Profit Growth
Expanding the Market
Location Economies
Experience Effects
Leveraging Subsidiary Skills
Profitability and Profit Growth Summary
Cost Pressures and Pressures for Local Responsiveness
Pressures for Cost Reductions
Management Focus: IKEA’s Global Strategy
Pressures for Local Responsiveness
Chapter 13 ‒ The Strategy of International Business
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.
OPENING CASE: International Strategy in the Sharing Economy
Summary
The opening case describes the emergence of the sharing economy and how four
companies, Uber, Airbnb, Turo, and Lyft have successfully taken their concepts to
foreign markets. These companies have shattered traditional notions of business and
indeed products themselves creating value for customers by solving daily problems.
Discussion of the case can begin with the following questions:
QUESTION 1: How are companies in the sharing economy like Uber, Lyft, and Airbnb
changing the traditional norms of both business and products? Are there lessons that
more traditional companies can learn from those in the sharing economy?
ANSWER 1: For students who have grown up with the idea that ride-share services are
readily available or that it is perfectly normal to sell out a room in your house to a
stranger or for that matter rent a stranger’s home rather than a hotel room, the trailblazing
strategies of companies in the sharing economy may seem mundane. For students who
are old enough to remember when these sorts of companies did not exist, their advent and
Chapter 13 ‒ The Strategy of International Business
QUESTION 2: Many companies in the sharing economy have successfully taken their
business to foreign markets as well. What challenges do you see for these companies as
they expand into foreign markets?
ANSWER 2: Most students will probably agree that companies in the sharing industry
will face many of the same challenges that more traditional companies face as they
expand into foreign markets such as dealing with different exchange rates and cultures.
However, some students may suggest that for companies the international experience
could be problematic. Students might note, for example, that Uber has found itself
QUESTION 3: Discuss the notion of the sharing industry. Why did it start? Does it fill a
need that previously went unfilled? Do you see opportunities for new companies?
ANSWER 3: Most students will likely suggest that the emergence of companies like
Uber and Airbnb, now household names, is a direct result of technological advancements.
Neither company sells a product per se, nor does either carry inventory. The companies
don’t even have any significant number of employees; instead, they rely on outsiders who
offer their homes for rent or supply rides when they have the time to drive. Indeed, these
Chapter 13 ‒ The Strategy of International Business
LECTURE OUTLINE
This lecture outline follows the Power Point Presentation (PPT) provided along with this
instructor’s manual. The following provides a brief overview of each Power Point slide
along with teaching tips and additional perspectives.
Slide 13-3 Introduction
How can firms compete more effectively internationally?
Slides 13-4 – 13-13 Strategy and the Firm
A firm’s strategy can be defined as the actions that managers take to attain the goals of
the firm.
CONNECT
Click and Drag
Strategy and the Firm
Summary
This activity focuses on the choices managers make as they choose how their organization will
compete. Managers must pursue strategies that increase the profitability of the organization and
its growth over time.
Activity
Students are asked to match descriptions related to the choices a firm makes to the organization’s
strategy, operations, or organization.
Chapter 13 ‒ The Strategy of International Business
Strategic Positioning
Not all positions on the efficiency frontier are viable. Firms must choose a strategic
position that is viable.
Slides 13-14 – 13-22 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.
Expanding the Market
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).
CONNECT
Click and Drag
Global Expansion, Profitability, and Profit Growth
Summary
This activity focuses on global expansion, profitability, and profit growth. Firms can grow by
entering new markets and capitalizing on opportunities not available to companies that only
compete in the domestic marketplace.
Chapter 13 ‒ The Strategy of International Business
Location Economies
Location economies are the economies that arise from performing a value creation
activity in the optimal location for that activity.
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.
Profitability and Profit Growth Summary
Managers need to keep in mind the complex relationship between profitability and profit
growth when making strategic decisions about pricing.
Pressures for Local Responsiveness
Pressure for local responsiveness comes from differences in consumer tastes,
infrastructure, distribution channels, or host government demands.
The recent rise in regionalism, especially in the European Union and North America,
encourages firms to respond to regional rather than national differences.
Chapter 13 ‒ The Strategy of International Business
CONNECT
Click and Drag
Cost Reductions and Local Responsiveness
Summary
This activity focuses on the competing pressures of cost reduction and local responsiveness when
choosing a strategy. Organizations must balance these pressures as they make their choices
among the four main strategic postures.
Activity
Students are asked to match various descriptions to the correct category of pressures for cost
reduction or pressure for local responsiveness.
Slides 13-27 – 13-35 Choosing a Strategy
There are four basic strategies to compete in the international environment:
• global standardization
• localization
• transnational
• international
Global Standardization Strategy
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.
Localization Strategy
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.
Chapter 13 ‒ The Strategy of International Business
Transnational Strategy
The transnational strategy tries to simultaneously:
• Achieve low costs through location economies, economies of scale, and learning
effects.
• Differentiate the product offering across geographic markets to account for local
differences.
• Foster a multidirectional flow of skills between different subsidiaries in the firm’s
global network of operations.
International Strategy
The international strategy involves taking products first produced for the domestic
market and then selling them internationally with only minimal local customization.
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.
CONNECT
Case Analysis
IKEA’s Global Strategy
Summary
This activity focuses on strategy in the international firm, and specifically on international
strategy at Danish home goods maker, IKEA.
Chapter 13 ‒ The Strategy of International Business
Class Discussion
It is important for international managers to understand the concept of value creation as the
cornerstone of a successful international strategy. Discuss how IKEA competes in the
international marketplace.
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
will push the firms toward the upper right-hand quadrant of Figure 13.6. However, it is
important to keep in mind as illustrated in both the Opening Case and the Closing Case,
that strategy is not static but rather evolves, and so then will the position of these firms in
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
in consumer tastes and preferences between markets, when differences in infrastructure
and traditional practices require customization, and when host government demands
QUESTION 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 create a better 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?
ANSWER 4:
a. Many students will probably suggest that the company has successfully grouped its
brands and that within those groups, the various brands make sense. The global brands of
Budweiser, Corona, and Stella Artois have a strong presence worldwide and are
considered leaders in the beer industry. The international brands of Beck’s, Leffe, and
Chapter 13 ‒ The Strategy of International Business
b. This question should generate some discussion among students. Many will agree with
the approach being used at AB InBev noting that by focusing resources on the products
with the most potential, AB InBev is hoping to maximize returns. Other students though,
may wonder whether this type of strategy could result in a resistance to strategic change,
c. Responses to this question will vary by student. Many will agree that strong principles
can create the foundation and framework that guides decision making in an organization.
Students may suggest that strong principles can be especially beneficial in a company
with investments in multiple countries because they help to establish a common culture
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
communication issues, trust issues, multiple roles, flexibility, and culture issues, among
CLOSING CASE: Red Bull: A Leader in International Strategy
Summary
The closing case describes international strategy at Red Bull GmbH. The company,
founded in Austria by Austrian Dietrich Mateschitz and Chaleo Yoovidhya of Thailand,
owns Red Bull, the bestselling energy drink on the market. Moreover, the company has
created a product that is standardized globally, yet most people think it is a local product.
Red Bull’s image and message focuses on having amazing energy, possessing a go-getter
attitude, and taking part in fun risk. To that end, the company markets its products at
various extreme sporting events around the world. Discussion of the case can begin with
the following questions:
Chapter 13 ‒ The Strategy of International Business
QUESTION 1: As an Austrian–Thai company, Red Bull has done a remarkable job of
positioning itself internationally by coming across as a local company in every country
where Red Bull is sold. Would you be more or less likely to buy Red Bull knowing the
brand is Austrian but with a strong Thai influence? Does it generally matter to consumers
where a product originates from?
ANSWER 1: Responses to this question will vary by student. Many students will suggest
that at least when it comes to food products, country of origin is important and could be a
factor in the decision to buy. Students may commend the company’s marketing strategy
noting that Red Bull has focused on developing a universal global brand that appeals to
QUESTION 2: Worldwide, Red Bull has the highest market share of all energy drinks,
with more than 6 billion cans sold annually (that’s almost one can for every person
worldwide). So, either you drink Red Bull or your friend does! Does the sheer number of
Red Bull cans sold—basically its popularity—make you more or less interested in
supporting the product with your purchase?
ANSWER 2: Responses to this question will depend on the preferences of students.
Many students will probably agree that the popularity of the product has little bearing on
QUESTION 3: Red Bull mass markets its products in a unique way. To support the
company’s international business strategy, Red Bull hosts a number of extreme sporting
events. Personally, how reachable are you as a customer via these extreme sporting
events, or does it even matter? Some marketers believe that just knowing the “brand
myth” and Red Bull “legend” is enough to make people buy the product. Do you agree or
no, and why?
ANSWER 3: Red Bull has chosen to market its product at various extreme sporting
events held around the world. While the events range from car racing to space diving to
hot air balloon racing, the common theme among all of the events, wherever they are held
in the world, is that they all carry an element of risk and skill. The events attract a range
of spectators—spectators who appreciate the challenges of the events they are watching.
Chapter 13 ‒ The Strategy of International Business
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
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.
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.
INCORPORATING globalEDGE™ 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
Chapter 13 ‒ The Strategy of International Business
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
Additional Info:
This question requires the student to analyze factors that may lead to adaptation of a
major kitchen appliance. There are many factors, including but not limited to: primary
language spoken, personal income, electricity consumption, voltage rates, climate,
urbanization, literacy rates, distribution channels, and marketing practices. Some of this
data is available directly on globalEDGE™ under Statistics and Economy pages. Others
will be available through many resources linked through from globalEDGE™ including
the U.S. Commercial Service Country Commercial Guides (linked from the home page of
each Country Insights page on globalEDGE™).
Exercise 2 Answer
Additional Info:
The Global Retail Development Index is an annual study that A.T. Kearney conducts,
ranking the top 30 developing countries for retail expansion worldwide. The index
analyzes 25 macroeconomic and retail-specific variables to help retailers identify
emerging market investment opportunities.