Chapter 7 - International Business Strategies

INTERNATIONAL BUSINESS STRATEGIES
MSc. Nguyen Hong Tra My

FTU
The history of strategy …
 Ancient concept, long development history but mostly used
in army field
 Initial: way to get success in wars
 Formally noted in Gita (India – 4000 years BC)
 Sun Tzu officially mentioned in the “Art of war” ( year 450
BC)
 Firstly appeared in English dictionary in 1810 and
became a studying subject in late 19th century.
 Now: Being widely applied in many different areas such
as: management, business ..
What is Strategy?
Achieving the essential fit between
- Internal strength & Weakness
- External opportunities and threats
Techcombank is consistent with the strategy “Customers as
the center”
Walmart
- Walmart in Mexico: - Walmart in Canada:
Walmart in China
Performance of firm
Determinants of Enterprise Value
Reduce Costs
Profitability
Add Value and Raise Prices
Enterprise
Valuation
Sell More in Existing Markets
Profit Growth
Enter New Markets
Copyright McGraw-Hill Education.All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Value Creation
V = Value of product to an average

V-P V-C consumer
P = Price per unit
V P-C C = Cost of production per unit
P V - P = Consumer surpluss per unit
C C P - C = Profit per unit sold
V - C = Value created per unit
Increase profit by cost reduction
Increase profit by product differentiation
International business strategies
Corporates challenge with two main pressure:
• Pressures for local responsiveness
• Pressure of cost reduction
Why should we adapt the local demands….
• Differences in consumer tastes & preferences
• Differences in infrastructure & traditional practices
• Differences in distribution channels
• Host-Government requirements
 Diversifying product line: design, quality, tastes…
Why should we cut the cost….
• Emerging demand of global standardized products
• Major competitors are based in low-cost locations
• Consumers tend to be sensitivity and price elasticity
• Free trade and trade liberalization
 cutting the whole functional costs or some specific functional costs: marketing, r&d…
International Business basic strategies
High
Pressure of Cost reduction
Global Transnational
Strategy Strategy
Multi-
International
domestic
Strategy
Low
Strategy
Low Pressure of Local Responsiveness High

International strategy
“Centralize product development function at home (head quarter) and establish
manufacturing, marketing functions in local country but head office exercises tight control
over it”
• Think global – Act global
• First step to enter to global market, mostly use the export mode
• Create value by transferring valuable core competencies to foreign markets that
indigenous competitors lack
• Limit product customization.
• Effective for the first step to enter the global market and if firm faces weak pressures for
local responsive and cost reductions
Core competencies
“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 who lack them. (McDonalds)
• Examples:
– Consumer marketing skills of U.S. firms allowed them to dominate European
consumer product market in 1960s and 70s
Activity:
Study some Vietnamese companies:
- Do they have core competencies? (Identify and name if they have)
- Briefly draft some recommendations.
Multi-domestic strategy
“Customize product offering, market strategy including production, and R&D and
marketing according to the real national conditions”
• Think local – Act local
• Each market place – each product & service line
• Main aim is maximum local responsiveness
• Generally unable to realize value from experience curve effects and the economies of
scale
• Possess high cost structure
• Effective: where the consumer demands are diversified
Global strategy
“Production, marketing, and R&D concentrated in few favorable locations”
• Think global – Act global
• One product & Service for the whole global market place
• Focus is on achieving a low cost strategy by reaping cost reductions that come from
experience curve effects and economies of scale.
• Market standardized product to keep cost’s low
• Effective: where strong pressures for cost reductions and low demand for local
responsiveness
Economies of scale
“Refers to reduction in unit cost by producing a large volume of a product”
• Sources:
o Reduces fixed costs by spreading it over a large volume
o Ability of large firms to employ increasingly specialized equipment or personnel
Intel
Transnational strategy
“To meet competition firms aim to reduce costs, transfer core competencies while
paying attention to pressures for local responsiveness”
• Mixed strategy
• Exploit both the national similarities and differences
• Local Adjusting – Global learning system
• Effective: when MNEs challenge both the pressure of local responsiveness and cost
reduction
Global learning
• Valuable skills and knowledge (i.e: R&D) can develop in any of the firm’s world wide
operations (not only in the R&D favorable location or head – quarter)
• Transfer from foreign subsidiary to home country and across other foreign nation
subsidiaries
• Managers must create an environment where incentives are given to take necessary
risks and reward them
• Need a process to identify new skill development
• Need to facilitate transfer of new skills within the firm
Unilever
Pros & Cons of the 4 IB strategies
Strategy Pros Cons
Global - Exploit the experience curve (EC) effects and - Lack of regional responsiveness
the economy of scale (ES)
- Cost effectiveness
International - Transfer core competencies to foreign - Lack of regional responsiveness

markets - Unable to exploit the EC and ES
Multi- - Customize products and services along with - High cost

domestic the real demands of market
Transnational - Exploit the experience curve (EC) effects and - Require the good – structuring
the economy of scale (ES) organization
- Cost effectiveness
- Customize products and services along with
the real demands of market
- Develop the global learning system
Activity
Study the development history of Coca – Cola and
identify international business strategies which they
already implemented

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INTERNATIONAL BUSINESS STRATEGIES

MSc. Nguyen Hong Tra My

Add Value and Raise Prices

Sell More in Existing Markets

Enter New Markets

V = Value of product to an average

Low Pressure of Local Responsiveness High

International - Transfer core competencies to foreign - Lack of regional responsiveness

Multi- - Customize products and services along with - High cost

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