Strategy of International Business
Chapter 12
International Business
October 15, 2007
Cho, Hee-Joo
Jang, Se-Yeop
Luo, Lin
Morger, Raffael
Content
Strategy and the Firm
Hee-Joo
Global Expansion
Luo Lin
Cost & Localization Pressure
Raffael Morger
Four Strategies
Se-Yeop
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Strategy and the Firm
Reduce Costs
Profitability
Add Value and
Raise Prices
Enterprise
Valuation
Sell More in
Existing
Markets
Profit Growth
Enter New
Markets
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Strategy and the Firm
Value Creation
V-P
V
V-C
P-C
P
C
V = Value of product to and average
consumer
P = Price per unit
C
C = Cost of production per unit
V – P = Consumer surplus per unit
V – C = Value created per unit
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Strategy and the Firm
Strategic Positioning
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Strategy and the Firm
Operations: the firm as a value chain
Support Activities
Company Infrastructure
Information Systems
R&D
Logistics
Production
Human Resource
Marketing
and
Sales
Customer
Service
Primary Activities
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Global Expansion, Profitability, and Profit Growth
What can firms do after expanding globally?
 Expanding the Market
 Realizing Location Economies
 Reducing Production Cost from Experience Effects
 Earning a Greater Return by Leveraging Subsidiary Skills
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Global Expansion, Profitability, and Profit Growth
 Expanding the Market
=>by selling products in international markets
•
•
Leveraging Products
e.g. Microsoft ;Volkswagen and Toyota
Core Competencies
e.g. Toyota
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Global Expansion, Profitability, and Profit Growth
 Realizing Location Economies
=>by dispersing individual value creation activities
•
•
Creating a Global Web
e.g. IBM’s ThinkPad X31 laptop computer
Some Warnings
e.g. New Zealand (high transportation costs);
Political risk
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Global Expansion, Profitability, and Profit Growth
Reducing Production Cost from Experience Effects
Unit Costs
=>by reducing the costs of value creation
B
A
Cumulative Output
Cumulative output increases over time, and unit costs
will lower gradually in one period. Why?
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Global Expansion, Profitability, and Profit Growth
Reasons
•
•
Learning Effects=>cost savings
e.g. Assembling airframe
Economies of Scale=> reductions in unit cost
e.g. In the automobile industry
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Global Expansion, Profitability, and Profit Growth
Earning a Greater Return by Leveraging Subsidiary
Skills
=>by leveraging any valuable skills developed in foreign
operations and transferring them to other entities
e.g. McDonald's restaurant in France
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High
Firm A
Firm C
Firm B
Low
Pressures for Cost Reduction
Pressures International Businesses
Low
High
Pressures for Local Responsiveness
--> Nowadays many companies are in the position of firm C
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Pressures for Cost Reductions
Companies have to lower cost of value creation
 Outsourcing: eg. Call Centers to India, bank back office to
developing nations
Pressures are particularly intense in commodity-type industries
e.g. bulk chemicals, petroleum, steel, sugar etc
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Local Responsiveness (1)
Differences in Customer Tastes and Preferences
-
Customer tastes and preferences
-
Deeply embedded historic or cultural reasons
 Marketing message have to be customized
e.g. Difference US vs. European automobile market
Differences in Infrastructure and Traditional Practices
-
Electrical system
-
Left side driving in Great Britain
-
Mobile networks
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Local Responsiveness (2)
Differences in Distribution Channels
-
Marketing strategies may have to be adapted
e.g. British and Japanese doctors will not accept or respond
favorably to a US style high pressure sales force
Differences Host Government Demands
-
Economic and political demands imposed by host-country
government may require local responsiveness
-
Threats of protectionism, economic nationalism
e.g. Pharmaceutical Companies are subject o local clinical
testing, registration procedures etc.
Railcar production must be in purchasing country
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Four Basic Strategies
High
Global
Standardization
Strategy
Transnational
Strategy
International
Strategy
Localization
Strategy
Pressures for
Cost Reduction
Low
Low
Pressures for Local Responsiveness
High
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Four Basic Strategies
High
- Product of universal needs
- No major competitors
- Starts from domestic market and expands internationally
Pressures for
Cost Reduction
- Tight control over marketing and product strategy
=> Microsoft, Procter & Gamble
International
Strategy
Low
Low
Pressures for Local Responsiveness
High
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Global Standardization Strategy
High
Global
Standardization
Strategy
Pressures for
Cost Reduction
- Low cost strategy on global Scale --> minimal adaptation
- Products usually serve universal needs
=> e.g. Samsung, Nokia
Low
Low
Pressures for Local Responsiveness
High
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Four Basic Strategies
High
- Customizing the product to local demands
- Value creation strategy in the local market
=> e.g. MTV
Pressures for
Cost Reduction
Localization
Strategy
Low
Low
Pressures for Local Responsiveness
High
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Four Basic Strategies
High
Transnational
Strategy
Pressures for
Cost Reduction
- Focuses on leveraging subsidiary skills
- Build centralized manufacturing of components with assembling
plants in each of its markets
=> e.g. Caterpillar
Low
Low
Pressures for Local Responsiveness
High
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The Evolution of Strategy - Xerox
-
Invention of photocopier in 1960
No major competition at first
Expanded globally => pursuing international strategy
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Emergence of Competitors
Japanese companies such as Canon invented their way
around Xerox’s patens.
1. produced their own photocopiers in very efficient
manufacturing system.
2. priced them below Xerox’s products.
- leads to Xerox’s failure in cost reduction
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The Evolution of Strategy
Mistake of Xerox: Failed in reducing cost before the
emergence of competitors
=> In the long run, international strategy will face cost or
localization pressure
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Questions
?
 Cho, Hee-Joo
Jang, Se-Yeop
 Luo, Lin
 Morger, Raffael
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