Introduction to International Business Discussion Section July 30, 2007 The Strategy of International Business; Entry Strategy and Strategic Alliances

Agenda Distribute Midterms Review Chapter 12 Discussion: Evolution of Strategy at Procter & Gamble Review Chapter 14 Discussion: The Changing Strategy of General Motors

Chapter 12: The Strategy of International Business What is a firm? A value chain that uses strategic positioning to create value How does expanding internationally lead to value creation? Leveraging product/core competencies Location economies Experience effects (learning effects, economies of scale, strategic significance) What are the challenges of operating internationally? Cost pressures Pressures for local responsiveness (differences in customer tastes and preferences, infrastructure and traditional practices; distribution channels; host government demands) What strategies can a firm choose when expanding internationally? Global standardization strategy (high cost pressure, low customization pressure) Localization strategy (low cost pressure, high customization pressure) Transnational strategy (high cost pressure, high customization pressure) International strategy (low cost pressure, low customization pressure)

Critical Thinking Questions In a world of zero transportation costs, no trade barriers and nontrivial differences between nations with regard to factor conditions, firms must expand internationally if they are to survive. Discuss.

Critical Thinking Question Describe the position of the following firms in terms of their strategies to expand abroad: Procter & Gamble Boeing Coca-Cola Dow Chemical Intel McDonald’s Justify your answer.

Management Focus How would you characterize the strategy pursued by GM in the (a) developing world and (b) Europe before 1997?

Management Focus What do you think were the likely competitive effects of the pre-1997 strategy?

Management Focus How would you characterize the strategy that GM has been pursuing since 1997? How should this strategy affect GM’s ability to create value in the global automobile market?

Critical Thinking Question What do you see as the main organizational problems that are likely to be associated with implementation of a transnational strategy?

Evolution of Strategy at Procter & Gamble What strategy was Procter & Gamble pursuing when it first entered foreign markets in the period up until the 1980s?

Evolution of Strategy at Procter & Gamble Why do you think this strategy became less viable in the 1990s?

Evolution of Strategy at Procter & Gamble? What strategy does P&G appear to be moving toward? What are the benefits of this strategy? What are the potential risks associated with it?

Entry Strategy and Strategic Alliances What are the basic entry decisions? Which foreign market? Time of entry? Scale of entry? How can firms enter a foreign market? (mode of entry)? Exporting; Turnkey Projects; Licensing; Franchising; Joint Venture; Wholly Owned Subsidiaries Which mode? How does core competency affect the entry mode? How do cost pressures affect the entry mode? If a firm wishes to enter via wholly owned subsidiaries, should it choose “Greenfield” or “acquisition?’ If a firm decides to form a strategic alliance, what are the pitfalls (disadvantages)? How to manage them? what are the advantages?

Critical Thinking Question Licensing proprietary technology to foreign competitors is the best way to give up a firm’s competitive advantage. Discuss.

Critical Thinking Question Discuss how the need for control over foreign operations varies with firms’ strategies and core competencies. What are the implications for the choice of entry mode?

Critical Thinking Question A small Canadian firm that has developed some valuable new medical products using its unique biotechnology know-how is trying to decide how best to serve the European Union market. Its choices are: Manufacture the product at home and let foreign sales agents handle marketing Manufacture the products at home and set up a wholly owned subsidiary in Europe to handle the marketing Enter into an alliance with a large European pharmaceutical firm. The product would be manufactured in Europe by the 50/50 joint venture and marketed by the European firm. The cost of investment in manufacturing facilities will be a major one for the Canadian company, but it is not outside its reach. Which mode of entry would you advise?

DHL Case Study 1. DHL provides door-to-door service for its customers using its own agents. Discuss the service. What are the advantages of having in-house handling of packages when shipping internationally rather than using agents who work for several different companies?

DHL Case Study 2. When DHL moved into the U.S. market, it made the decision to acquire Airborne rather than build its own operations. Discuss the advantages and disadvantages of this strategy.

DHL Case Study 3. DHL’s U.S. gateway system provides on-site customs clearance services. Does this give DHL a competitive advantage? Why or why not?

DHL Case Study 4. DHL believes that when considering international express delivery services, speed and reliability are key issues for the customer. Using the pressure for costs reduction/pressure for local responsiveness grid, consider the international shipping business. Where do the major players stand relative to one another? Is any one player better positioned to succeed?