International Business (INE 2028)

 Instructor: MA. Nguyen Thi Phuong Linh

 Email: phuonglinhnt@vnu.edu.vn
 Phone: 0967257858
 Address: Room 407, E4, University of Economics and Business – VNU.
 Course calendar
Part 1: Introduction and
Part 2: Country difference
Overview
Chapter 1: Globalisation Chapter 2: National difference in Political Economy
Chapter 3: Differences in Culture
Chapter 4: Ethics in International Business

Part 3: Competing in a Global marketplace

Chapter 5: The strategy of IB Chapter 8: Global production, outsourcing &

Chapter 6: Entry strategy and Strategic Logistics
Alliances Chapter 9: Global marketing and R&D
Chapter 7: Exporting, Importing and Chapter 10: Global human resources management
Countertrade
Chapter 5:
The Strategy of
International Business
Learning Objectives

Explain Explain the concept of strategy

Recognize Recognize how firm can profit by expanding globally

Understand how pressures for cost reductions and pressures for local
Understand responsiveness influence strategic choice

Explain the pros and cons of using strategic alliances to support global
Explain strategies.
What Is Strategy?

A firm’s strategy refers to the actions that managers take to attain the
goals of the firm

Firms need to pursue strategies that increase profitability and profit growth

• Profitability is the rate of return the firm makes on its invested capital
• Profit growth is the percentage increase in net profits over time

In general, higher profitability and a higher rate of profit growth will increase
the value of an enterprise.
What Is Strategy?
 Strategic Positioning

• Michael Porter suggests that in order to

maximize long-run return on invested
capital, firms must
• pick a viable position on the efficiency
frontier
• configure internal operations to
support that position
• have the right organizational structure
in place to execute the strategy
 Operations: The firm as a value chain

 A firm’s operations can be thought of a value

chain composed of a series of distinct value
creation activities including production,
marketing, materials management, R&D, human
resources, information systems, and the firm
infrastructure

 Value creation activities can be categorized as

 Primary activities

 R&D, production, marketing and sales,

customer service

 Support activities

 Information systems, logistics, human

resources
Firms that
operate
internationally
are able to:
 Expanding the market:
leveraging products and competencies

❖ Firms can increase growth by selling goods or services developed at home internationally
❖ The success of firms that expand internationally depends on
o the goods or services they sell
o their core competencies - skills within the firm that competitors cannot easily match or imitate
✓ core competencies enable the firm to reduce the costs of value creation and/or to create
perceived value so that premium pricing is possible. Example of Competencies:
✓ Toyota's core competence: it can produce high-quality and beautifully designed cars with
lower distribution costs than any other company globally.
✓ McDonald's core competence: fast food business management
✓ Procter & Gamble's core competence: developing and marketing consumer product brands
✓ Starbuck's core competence: managing retail stores that sell a large volume of coffee-
containing beverages.
 Location Economies

 Location economies are the economies that arise from performing a value creation activity in the optimal location for
that activity, wherever in the world that might be
➢ Japan: excels in the production of cars and consumer electronics

➢ United States: excels in computer software, pharmaceuticals, biotechnology products, and financial services

➢ Switzerland excels in the production of precision instruments, watches, and pharmaceuticals

➢ Korea excels in semiconductor manufacturing

➢ China excels in garment manufacturing

 By achieving location economies, firms can:

➢ lower the costs of value creation and achieve a low-cost position

➢ differentiate their product offering

➢ take advantage of location economies in different parts of the world, create a global web of value-creation activities

➢ different stages of the value chain are dispersed to locations where perceived value is maximized or where the costs of value creation
are minimized

➢ But face with some caveats: transportation cost and trade barriers
 Experience Effects

 The experience curve refers to the systematic reductions in production

costs that occur over the life of a product. Two things explain this:
➢ Learning effects are cost savings that come from learning:
• Labor learns by repetition how to carry out a task, individuals
learn the most efficient ways to perform particular tasks
• managers learn how to manage the new operation more
efficiently
➢ Economies of scale refer to the reductions in unit cost achieved by
producing a large volume of a product. Sources of economies of
scale include:
• spreading fixed costs over a large volume
• A firm may not be able to attain an efficient scale of
production unless it serves global markets.
• increasing bargaining power with suppliers
Leverage Subsidiary Skills

• The development of valuable skills can just as well occur in foreign subsidiaries and be spread
out other subsidiaries and even headquarter of the company. Ex: Mc’Donald in France

 Managers should:

1. Recognize that valuable skills that could be applied elsewhere in the firm can arise anywhere
within the firm’s global network - not just at the corporate center

2. Establish an incentive system that encourages local employees to acquire new skills

3. Have a process for identifying when valuable new skills have been created in a subsidiary

4. Act as facilitators to help transfer skills within the firm

McDonald’s in the US
McDonald’s in France
 ❖ Firms that compete in the global marketplace
face two conflicting types of competitive
pressures:

Competitive 1. Pressures for cost reductions - force the firm to

Pressures In lower unit costs

2. Pressures to be locally responsive - require

The Global the firm to adapt its product to meet local

Marketplace demands in each market—a strategy that

raises costs

→ These competitive pressures place conflicting

demands on a firm.
 ❖ Pressures for cost reductions are greatest when:

1. In industries producing commodity-type products

that fill universal needs (needs that exist when the

When Are tastes and preferences of consumers in different

nations are similar if not identical) where the price
Pressures For is the main competitive weapon

Cost 2. In industries where major competitors are based in

low-cost locations, persistent excess capacity,

Reductions consumers are powerful and face low switching

costs
Greatest? 3. The liberalization of the world trade and
investment environment has recently increased
cost pressures.

→ Cost-leading strategy
 ❖ Pressures for local responsiveness are
greatest when:
1. Difference in consumer tastes and preferences

❖ Ex: Large cars are favored in Australia, but small cars are

When Are
favored in Europe; Dove

2. Differences in traditional practices and infrastructure

Pressures For ❖ North America: Electricity 110V, Europe: 240V → suitable

electrical equipment

Local ❖ UK: Driving on the right, in other European countries:

driving on the left → the vehicle must be designed

Responsiveness 3.
appropriately.

Differences in distribution channels

Greatest? ❖ USA: direct selling, Japan: Soft sale - selling by persuasion

4. Host government demands

❖ requirements on medical accreditation, procedures of the

Government

→ Differentiation strategy
What Types Of
Competitive
Pressures Exist
In The Global Firm D

Marketplace?
Which
Strategy
Should A
Firm
Choose?
 Which Strategy
Should A Firm Choose?

❑ There are four basic strategies to compete in international markets

• the appropriateness of each strategy depends on the pressures for cost reduction and
local responsiveness in the industry

 1. Global standardization strategy

• makes sense when there are strong pressures for cost reductions and demands for local
responsiveness are minimal
• goal is to pursue a low-cost strategy by marketing a standardized product worldwide and
using economies of scale, learning effects, and location economies.
• Applicable industry: the industry that produces products that serve universal needs
• Companies applying this strategy are: Ford, Samsung, Apple, Roche, Siemens, Intel ...
 Which Strategy
Should A Firm Choose?

 1. Global standardization strategy

❑ Case study: Video: Starbuck in Australia
• Link youtube:
https://www.youtube.com/watch?v=_FGUkxn5k
ZQ&t=1s
• Question:
1. What is the international strategy Starbuck used
in Australia? Why did it fail? What are benefits
and drawbacks of the strategy?
2. What other coffee brand that are successful in
Australia? Why?
3. What is the future business plan of Starbuck in
Australia?
Case Study: Global strategy of Ford
 Which Strategy
Should A Firm Choose?

 2. Localization strategy
• makes sense when there are substantial differences across nations with
regard to consumer tastes and preferences and when cost pressures are
not too intense
• Goal is to customize goods or services to match local demand.
• Applied industry: food industry, cosmetics industry
• Applicable enterprises: KFC in China

❑ Case study: KFC in China

• Link youtube: https://www.youtube.com/watch?v=GWDxTUdxo9A&t=196s
• Question:
1. What is international strategy KFC use in China? Why does it success?
What are benefits and drawbacks of the strategy?
2. Why other fast food brand like Mc’donald does not success in China?
 Which Strategy
Should A Firm Choose?

3. Transnational strategy

• makes sense when cost pressures are intense and

pressures for local responsiveness are intense.

• goal to simultaneously achieve low costs through

location economies, economies of scale, and
learning effects and customize the products to fit
with the local need.

• Case study: IKEA - Global retailer

 Which Strategy
Should A Firm Choose?

4. International strategy

• makes sense when there are low-cost pressures and low pressures
for local responsiveness.

• Goal to take products first produced for the domestic market and
sell them internationally with only minimal local customization

• They tend to centralize product development functions such as

R&D at home and establish manufacturing and marketing functions
in each country where they do business.

❑ Case study: Strategic revolution at Procter&Gamble

 How Does Strategy Evolve?

❑ An international strategy may not be viable in the

long term

• to survive, firms may need to shift to a global

standardization strategy or a transnational strategy in
advance of competitors

❑ Localization may give a firm a competitive edge,

but if the firm is simultaneously facing aggressive
competitors, the company will also have to
reduce its cost structures

• would require a shift toward a transnational strategy

Review Question

Which of the following is not an example of a primary activity?

a) Logistics
b) Marketing and sales
c) Customer service
d) Production

12-31
Review Question

What is created when different stages of a value chain are dispersed to locations where value
added is maximized or where the costs of value creation are minimized?

a) Experience effects

b) Learning effects

c) Economies of scale

d) A global web

12-32
Review Question

Which of the following is not a pressure for local responsiveness?

a) Excess capacity
b) Host government demands
c) Differences in consumer tastes and preferences
d) Differences in distribution channels

12-33
Review Question

Which strategy tries to simultaneously achieve low costs through location economies, economies of

scale, and learning effects, and differentiate the product offering across geographic markets to account for
local differences?

a) Internationalization

b) Localization

c) Global standardization

d) Transnational

12-34
Review Question

Which strategy makes sense when pressures are high for local responsiveness,
but low for cost reductions?

a) Global standardization strategy

b) International strategy

c) Transnational strategy

d) Localization strategy