International Business

Strategies
Justin Paul
profjust@gmail.com
(Ref: Chap 21, International
Business, 6e, Justin Paul)
Chap 21 International Business, Justin Paul, Prentice Hall of India
 Strategy and the firm
—  Strategy: actions that managers must take to attain
the goals of the firm

—  Main goal usually to maximize long-term profit

International Business, Justin Paul, Prentice Hall of India

 Strategy in international
business

—  Strategy is concerned with identifying and taking

actions that will lower costs of value creation and/or
differentiate the firm’s product offering through
superior design, quality service, functionality, etc.

International Business, Justin Paul, Prentice Hall of India (PHI)

 Advantages/Disadvantages of global
expansion

—  Location economies

—  Cost economies
—  Leveraging core competencies
—  Leveraging subsidiary skills

—  P r o f i t a b i l i t y i s c o n s t r a i n e d b y p r o d u c t
customization and the “imperative of localization”.

International Business, Justin Paul, Prentice Hall of India

 Internationalization by
Innovation
—  Global Business by Innovation (Hybrid car Prius,
RAV 4 from Toyota)

—  DISCUSS THE BUSINESS MODEL OF THE

FOLLOWING.

—  Internationalization by Unique business model

(Google,

—  AIR BNB,

—  UBER etc.)

International Business, Justin Paul, Prentice Hall of India

 Location economies
—  Realized by performing a value creation
activity in an optimal location
—  Often arise due to differences in factor costs
—  Help in differentiation of products from
competitors

—  Global web:

International Business, Justin Paul, Prentice Hall of India

 Location Economies Assembly

Creating a Global Web

Parts
Sales

Advertising Design

Pontiac LeMans Parts

Parts
International Business, Justin Paul, Prentice Hall of India
 Caveats

—  Complications arise due to

—  Transportation costs
—  Trade barriers
—  Political and economic risks

.
International Business, Justin Paul, Prentice Hall of India
 Economies of scale
—  Refers to reduction in unit cost by producing a large
volume of a product

—  Sources:
—  Reduces fixed costs by spreading it over a large volume
—  Case (McDonald, Page 382, Book International
Business, Justin Paul). Show Video

International Business, Justin Paul, Prentice Hall of India

 Leveraging core competencies
—  Core competence: Skills within the firm that
competitors cannot easily match or imitate
—  Earn greater returns by transferring these
skills and/or unique product offerings to
foreign markets
—  Examples:
—  Marketing skills of U.S. firms allowed them
to dominate European consumer product
market in 1960s and 70s

International Business, Justin Paul, Prentice Hall of India

 Pressures for cost reductions
—  Meaningful differentiation on non-price
factors is difficult
—  Major competitors are based in low-cost
locations
—  Consumers are powerful and face low
switching costs
—  Liberalization of world trade and investment
environment

International Business, Justin Paul, Prentice Hall of India

 Pressures for local
responsiveness

—  Differences in infrastructure & traditional

practices
—  Consumer electrical system in North America &
Japan is based on 110 volts; in Europe on 240
volts (UK system is different from other european
countries). 4 types of plugs in the world.
—  Differences in distribution channels
—  Germany has few retailers dominating the food
market, while in Italy it is fragmented

International Business, Justin Paul, Prentice Hall of India

 Strategic choices for MNC
n  Four basic strategies to enter and compete in the
international environment:
—  Value Creation Strategy (International strategy)
—  Multi domestic strategy (Bata, IB Book Justin Paul)
—  Low Cost strategy (Ryan Air, IB Justin Paul)-(Low cost
global strategy)
—  Transnational strategy

International Business, Justin Paul, Prentice Hall of India

 1.Value Creation Strategy
(International strategy)

—  Create value by transferring valuable core

competencies to foreign markets
—  Centralize product development functions at
home
—  one way transfer of core competency from
parent to foreign subsidiary
—  Establish manufacturing and marketing
functions in local country but head office
exercises tight control
—  Limit customization of product offering and
market strategy
—  Strategy effective if firm faces weak pressures for local
responsiveness and cost reductions

International Business, Justin Paul, Prentice Hall of India

 2.Multidomestic strategy
—  Main aim is maximum local responsiveness

—  Customize strategy including production, and R&D

according to national conditions

—  Possess high cost structure

International Business, Justin Paul, Prentice Hall of India

 Global Low cost Strategy (Focus-Low
cost strategy)
n  Focus is on achieving a low cost strategy
that come from experience curve effects and
location economies
n  Produce & Sell standardized product to keep
cost’s low
n  Effective where strong pressures for cost
reductions and low demand for local
responsiveness
—  Semiconductor industry
International Business, Justin Paul, Prentice Hall of India
 Transnational strategy
(Transfer of core competency in all
the directions)
—  Global learning
—  Valuable skills can develop in any of the firm’s
world wide operations
—  Transfer of knowledge from foreign subsidiary
to home country, and to other foreign
subsidiaries

—  Transnational strategy - difficult task due to

contradictory demands placed on the
organization
International Business, Justin Paul, Prentice Hall of India
 Questions for studying
—  Page 385
1.

4. 6. 7. 8.

Page 386 - 9.

MCQ 6, 7 , 8, 9, 14

International Business, Justin Paul, Prentice Hall of India