Chapter 13 – The Strategy of International Business
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The Strategy of International Business
Learning objectives
• Explain the concept of strategy.
• Understand how pressures for
cost reductions and pressures for
local responsiveness influence
strategic choice.
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
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
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
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OUTLINE OF CHAPTER 13: THE STRATEGY OF INTERNATIONAL
BUSINESS
Opening Case: Ikea’s Global Strategy
Introduction
Strategy and the Firm
Value Creation
Global Expansion, Profitability and Profit Growth
Expanding the Market: Leveraging Products and Competencies
Location Economies
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
Chapter Summary
Critical Thinking and Discussion Questions
Closing Case: Global Strategy Levers
Chapter 13 – The Strategy of International Business
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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.
OPENING CASE: IKEA’s Global Strategy
Summary
The opening 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
revolve around the following questions:
QUESTION 1: What are the characteristics of IKEA’s global strategy? Who are its target
customers? How does the design of its stores and offerings fit into this strategy and the
market that IKEA is trying to reach?
ANSWER 1: 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 2: How well does IKEA’s strategy translate in other cultures outside of
Western Europe? What are some advantages to maintaining a consistent global strategy?
What are some disadvantages?
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ANSWER 2: The basic formula of IKEA’s business-level strategy—to offer designer-
inspired furniture made affordable by an efficient global supply chain—works well in
QUESTION 3: IKEA found success in the international market by localizing its products
for different consumers’ needs. Discuss how the company may need to change its
strategies in response to evolving tastes around the world. For example, how might
consumer preferences in the United States have changed after the financial crisis of
2008? In what way will tastes in China evolve over the next 50 years?
ANSWER 3: Student answers will vary. In general, young consumers in the United
States have moved toward a more urban lifestyle since 2008, preferring to live in smaller
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.
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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 13-11 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 13-18 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.
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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
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 13-31 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 transnational strategy tries to simultaneously:
• achieve low costs through location economies, economies of scale, and
learning effects
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• differentiate the product offering across geographic markets to account for
local differences
• foster a multidirectional flow of skills between different
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
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
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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
CLOSING CASE: Global Strategy Levers
Summary
The closing case describes the five global strategy “levers,” or dimensions, that determine
how local or global a company is in the marketplace. The five levers are market
participation, products/services, supply chain management, marketing, and competitive
moves. A well-balanced approach to global competition requires paying relatively equal
attention to each of these five dimensions, though businesses tend to emphasize one or
two dimensions based on their organizational strengths and weaknesses. Discussion of
the case can revolve around the following questions.
QUESTION 1: Which global strategy lever do you think is the most universally
important across companies, and why? Which is the least important, and why?
ANSWER 1: Student answers will vary. Some may consider marketing to be the most
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QUESTION 2: Do you think your answers in Question 1 will change over time; if so,
how?
ANSWER 2: Responses to Question 1 may change as economic conditions change
around the world. During an economic downturn, for example, firms may find it
QUESTION 3: FedEx emphasizes supply chain management the least in driving its
corporate global strategy. But, it is viewed as a supply chain company—perhaps even a
transportation company. Why do you think the other global strategy levers are more
important for FedEx?
ANSWER 3: The global strategy levers most emphasized by FedEx are marketing,
competitive moves, and market participation. This indicates that FedEx is concerned with
QUESTION 4: Microsoft is known for making competitive moves globally but
competitive moves is its least-emphasized strategy lever; why do you think that is the
case?
ANSWER 4: The technology industry is dominated by just a few major companies:
QUESTION 5: If you could work for one of the 10 companies shown in the bar chart
based on their global strategy makeup, which company would it be, and why?
ANSWER 5: Student answers will vary, likely based on their responses to Question 1.
Chapter 13 – The Strategy of International Business
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competitors. Others may argue that such companies as Nokia and ABB, which emphasize
marketing, are in a better position to achieve brand recognition and attract customers.
MHE INTERNATIONAL BUSINESS VIDEO LIBRARY
Please click here to visit our International Business Video Library on Pinterest, which is
updated on a monthly basis. While there, be sure to “like” the clips that work well for
you, and add notes that might be helpful to your colleagues.
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–
Exercise 1 Answer
Search phrase: –
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
Exercise 2
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A.T. Kearney publishes an annual study to help retailers prioritize their global
development strategies by ranking retail expansion attractiveness of emerging countries
Exercise 2 Answer
Search phrase: Global Retail Development Index
Resource Name: A.T. Kearney: The Global Retail Development Index