INTERNATIONAL

BUSINESS
ENVIRONMENTS &
OPERATIONS
Daniels ● Radebaugh ● Sullivan

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 CHAPTER 12
Strategies for International Business
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 Introduction
Strategy: the framework that managers apply to
determine the competitive moves and business
approaches that guide a firm, i.e., the means used to
achieve objectives
◦ Strategy represents management’s idea on how to best:
◦ attract customers
◦ stake out a market position
◦ conduct operations
◦ compete effectively
◦ create value
◦ achieve goals

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11-4
Industry Structure,
Strategy, and Value
 The industry organization (IO) paradigm
 presumes that markets demonstrate perfect competition where no firm or
industry consistently outperforms others
 Large number of fully informed buyers and sellers
 No obstacles to entry and exit of firms
 Constant rates of returns for all the firms in the industry
 Firm’s performance depends on industry forces
 Anomalies
+ Imperfect markets with some firms always outperforming others
+ The power of innovative executives
+ bright executives exploit market imperfections to outperform rivals

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 Industry Structure,
Strategy, and Value
◦ There should be strong coordination among industry’s
structure, firm’s strategy and performance
◦ Strategy’s hallmarks are
◦ Value
◦ Strategy

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 Industry Structure
◦ Industry structure involves the relationships among
◦ Suppliers of inputs (suppliers’ bargaining power)
◦ Buyers of outputs (customers’ bargaining power)
◦ Substitute products (threat of switching)
◦ Potential new entrants
◦ Rivalry among competing firms (Overall intensity of competition in the
industry)
◦ New products, new firms, new markets and new managers trigger new
developments in rivalry, pricing, substitutes, buyers and suppliers.

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Industry Change
◦ Industry structure changes because of
◦ Competitor moves
◦ Government policies
◦ Shifting tastes and preferences of customers
◦ Technological developments
◦ Process innovations
◦ Diffusion of managerial and technical expertise across nations

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Creating Value Through Strategy

 Value
 the measure of a firm’s capability of
selling what it makes for more than the
costs incurred to make it
 exceeding customers’ expectations (value
for customers)
 Higher profits (value for firm)
 Strategy
 Is the managerial effort to build and
strengthen company’s competitive position
in order to create value

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Creating Value Through Strategy
 Create value using
 A cost leadership strategy
 make products for a lower cost than competitors
 Selling the products at below average prices
 Cost minimization across the value chain
 Targets a broad market with mass selling of standardized goods and services
 A differentiation strategy
 make products for which consumers are willing to pay a premium price
 High quality and innovation
 Rolls Royce, Rolex, Apple

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The Firm as a Value Chain
 The Value Chain
 the set of linked activities the company performs to design, produce, market,
distribute, and support a product
 The value chain consists of
 Primary activities
 Hold primary importance in manufacturing a product
 design, make, sell, and deliver the product
 Support activities
 Hold secondary importance
 Help in implementing primary activities

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The Firm as a Value Chain
Primary and Support Activities

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The Firm as a Value Chain
Primary and Support Activities of the Value Chain

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Managing the Value Chain
 A firm’s value chain determines its competitive advantage
 Configuration
 Deciding and distributing value chain activities around the world
 Depends on costs, logistics, buyers’ needs along with economic, cultural,
political and legal factors
 concentrated
 putting all value chain activities in one location
 dispersed
 performing different value chain activities in different locations
location economies

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 Managing the Value Chain
 When configuring the value, consider
 Customer Needs
 Keeping the service outlets closer to customers
 Selecting speedy and efficient distribution channels
 Cost Factors
 Differences in wage rates, workers’ productivity, inflation etc
 Cluster Effects
 Firms should take advantage of specialized clusters like Hollywood for mass media, London for global
finance, Mumbai for R&D outsourcing etc
 Logistics
 Logistics configuration depends on product nature and the degree to which JIT systems are crucial
 Digitization
 Firms should not bother themselves with the functions that can be outsourced to far off regions or can be
performed at cheaper rates by virtual workforce
 Scale Economies
 Few large centralized plants to acquire the economies rather than operating several small ones

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Managing the Value Chain
 Coordination
 linking the value chain activities
 Factors that influence coordination
 Operational obstacles
 Online miscommunication, language and cultural barriers across value chain
 E.g. Designed in Finland, produced in China, distributed in US
 Core competencies
 special outlook, skill, capability, or technology that runs through the firm’s
operations, threading disconnected activities into an integrated value chain
 Apple’s innovation and product design, Wal Mart’s well coordinated information
and distribution systems

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Managing the Value Chain
 Subsidiary Networks
 Growing global connectivity improves idea generation and knowledge
sharing
 To help increase firm value, managers should
 recognize that valuable skills can be developed anywhere within the firm’s global
network (not just at the corporate center)
 use incentive systems to encourage local employees to acquire new skills
 act as facilitators to transfer valuable skills within the firm

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Global Integration vs.
Local Responsiveness
◦ Firms face two conflicting pressures:
◦ Pressures for global integration
◦ the process of combining differentiated parts into a standardized whole
◦ maximize efficiency through large scale production of standardized goods

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 Pressures for Global Integration
◦ Drivers of global integration
◦ Increased homogeneity of products (consumers are interested in value rather
than company’s origin)
◦ Satisfying consumers’ identical needs for products like oil, steel and other
universally used products
◦ Technology helps standardize consumer preferences
◦ Global products have become popular
◦ allows for standardization of product design
◦ The efficiency gains of standardization
◦ Single product design (R&D), production economies through standardization and
choosing optimal locations for every value chain activity
◦ Cost reduction

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 Pressures for Local Responsiveness
◦ Pressures for local responsiveness
◦ the process of disaggregating a standardized whole into differentiated parts
 Packaging, product customization, marketing and advertising differences,
price differences etc
◦ Pressure for local responsiveness is driven by
◦ consumers’ tastes
◦ cultural predisposition
◦ buy local campaigns
◦ nationalism
◦ Host government policies
◦ Fiscal policies, trade and business regulations

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International Strategy
 International strategy
 leverage a company’s core competencies and home country innovations into
foreign markets
 critical elements of the value chain are centralized at headquarters and are
dominated by home office
 Subsidiaries can customize to a certain extent
 Microsoft, Google, Apple
 The strategy works well when
 the firm has core competencies that foreign rivals lack
 there is low pressure for global integration
 there is low pressure for local responsiveness

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Multidomestic Strategy
◦ Multidomestic strategy
◦ emphasizes responsiveness to the unique circumstances that prevail in a
country’s market
◦ value added activities are adapted to local markets using dispersed value
chains
◦ “Mini-Me” subsidiaries
◦ Unilever, Nestle, The Body Shop, Johnson&Johnson
◦ The strategy works well when
◦ When there are differences in customer preferences, industry,
characteristics, or government regulation
◦ there is high pressure for local responsiveness
◦ there is low pressure for global integration

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Global Strategy
 Global strategy
 Targets universal needs via standardized products that are marketed with
little adaptation to local conditions
 exploit location economies (concentrated for multiple locations) and scale
economies
 Low cost, high quality product with universal appeal to customers
 Toyota, Caterpillar, Nokia
 The strategy works well when
 the MNE is the cost leader
 there is low pressure for local responsiveness
 there is high pressure for global integration

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Transnational Strategy
 Transnational strategy simultaneously leverages core
competencies worldwide, reduces costs by exploiting location
economics, and adapts to local conditions too
 Tough to coordinate and configure the supply chain
 Coke, KFC
 The strategy works well when
 global learning and knowledge management through virtual interaction
 there is high pressure for local responsiveness
 there is high pressure for global integration

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