The Strategy of International Business CHAPTER 12 The Strategy of International Business

Learning Objectives Shifting the focus form macro environment to Firm’s strategy What kind of pressures do firms experience in their attempts to expand globally?

Learning Objectives Strategies followed by International firms Multi-domestic firms Global firms Transnational firms

Learning Objectives Role of factors such as Standardization Price, Cost of production Location economies Economies of scale Local responsiveness Experience Curve Core competencies

Learning Objectives Strategies followed by Coca-Cola Dow Chemicals Proctor & Gamble Nokia

Chapter 12 1. There are two types of strategies: a. Low-cost Strategy: A firm lowers the costs of value creation. b. Differentiation Strategy: A firm adds value to its product by improving quality and service or by customizing the product.

Chapter 12 (cont) 2. There are two types of Competitive Pressures that firms face in a global economy. a. Pressures for cost reduction b. Pressures for local responsiveness

Competitive Pressures These pressures often place conflicting demands on a firm. To reduce the cost of production a firm will offer a standardized product, mass production, or choose a low-cost location for production. On the other hand, a firm will face pressures for local responsiveness by differentiating the product and marketing from country to country to accommodate differences in consumer tastes and preferences. However, this requires unnecessary duplication of plants and distribution channels etc. resulting in increased costs of production.

Chapter 12 (cont) 3. Pressures for cost reductions Such pressures are generally high for: commodity products where meaningful differentiation is difficult and price is an important factor. These products serve universal needs reflecting a similarity in consumer tastes and preferences. ex. Industrial Products:steel, sugar, bulk chemicals, petroleum, tires, Consumer Products: personal computers, handheld calculators industries where major competitors are in low-cost locations. low switching costs to the consumers consumers are powerful excess capacity Question: How does liberalization and favorable investment climate affect the cost pressures?

Chapter 12 (cont) 4. Pressures for Local Responsiveness differences in tastes and preferences (meaningful differentiation possible) ex/cars differences in infrastructure and traditional practices ex/ 110-220 volt system, left-hand or right-hand drive differences in distribution channels host country demands such as local content requirements