International Business Strategy301REN

Defining International

Business

Unit: 2 Knowledgecast: 1

• Demonstrate a sound appreciation of current strategic management concepts

• Assess current developments in the organisational environment and alternative responses related to strategy

Module Learning Outcomes

“Strategy is the (international) direction and scope of an organisation over the long term: which achieves advantage in a changing (international) environment through its configuration of resources and competences with the aim of fulfilling stakeholder (international) expectations.”

Adapted on Johnson & Scholes 2008:3

International Business Strategy

Protect & Build -Consolidation

- Market Penetration

Product Development -Modified products

-New products

Market Development-New segments

-New uses-New geographical markets

NationalInternational

Diversification-Related

-Unrelated

Mar

kets E

xist

ing

New

ProductsExisting New

International Market Development Strategy

“ Performance of trade and investment activities by firms across national borders.”

(Cavusgil et al 2008:4)

What is International Business?

The Nature of International Business

• All value-adding activities—including sourcing, manufacturing, and marketing—can be performed in international locations.

• International trade can involve products, services, capital, technology, know-how, and labor.

• Firms internationalize through various entry strategies, such as exporting and foreign direct investment.

• Globalization of markets: Ongoing economic integration and growing interdependency of countries worldwide.

• International trade: Exchange of products and services across national borders, typically through exporting and importing.

Key Concepts in International Business

• Exporting: Sale of products or services from a base in the home country or a third country to customers located abroad. Boeing and Airbus export billions of dollars in commercial aircraft products every year.

• Importing or Global Sourcing: Procurement of products or services from suppliers located abroad for consumption in the home country or a third country. Toyota imports many parts from China when it manufactures cars in Japan.

Key Concepts (cont.)

• International portfolio investment: Passive ownership of foreign securities, such as stocks and bonds, in order to generate financial returns.

• International investment: Transfer of assets to another country or the acquisition

of assets in that country. Also known as “foreign direct

Investment” (FDI). We will focus on this type of investment.

Key Concepts (cont.)

• Foreign countries must offer location-specific advantages

To motivate the company to invest there

• Company must have strategic capabilities or ownership-specific advantages

To counteract its relative unfamiliarity with foreign markets

To get better returns from leveraging strengths internally rather than through external market mechanisms such as contracts and licenses

Pre-requisites for Internationalisation

• Classic internationalization process:

Incremental process of increasing commitment and understanding of foreign market (Uppsala Model)

• Today many companies short-cut this process

In an Internet Age, many are even “Born Global”

Process of Internationalisation

Evolving MentalityStrategies Emerging from the Integration Responsiveness

International

Global Transnational

Multinational

Home Replication Strategy• The firm views international business as separate from, and

secondary to, its domestic business.

• Expansion abroad is an opportunity to generate incremental sales for domestic product lines.

• Products are designed for domestic customers, and international business is pursued mainly to extend the life of domestic products and to replicate home market success.

• Management holds little interest in foreign markets and expects little knowledge to flow from foreign operations.

12-14

Multidomestic Strategy• The firm develops subsidiaries or affiliates in each of its foreign

markets, and appoints local managers to operate independently and be locally responsive.

• Products and services are adapted to suit the needs and wants of buyers in each country.

• Because headquarters acknowledges differences among national markets, subsidiaries are allowed to vary products and practices by country.

• Country managers are often nationals of the host country, and generally don’t share knowledge and experience with managers in other countries.

Global Strategy

• Headquarters seeks substantial control over all country operations in order to minimize redundancy and to achieve maximum efficiency, learning, and integration worldwide.

• • Global strategy asks, “Why not make the same thing, the same

way, everywhere?” Products, marketing, and company practices are relatively standardized.

• R&D, manufacturing, marketing, and other activities tend to be concentrated at headquarters, where they can be centrallycoordinated and controlled.

• Management views the world as one large marketplace.

Transnational Strategy

• A coordinated approach to internationalization in which the firm strives to be more responsive to local needs while retaining sufficient central control of operations to ensure efficiency and learning.

• The firm seeks to combine the major advantages of multidomestic and global strategies while minimizing their disadvantages.

• It’s a flexible approach: standardize where feasible; adapt where appropriate.

• However, most firms find implementing transnational strategy very challenging

Process of Internationalisation

Export (agent

or distributor)

Joint venture (local

partner)

Wholly-owned

subsidiary

Franchising

Licensing

IndirectExport

High

High

Low

Low

Amount of resources committed to foreign market

Cont

rol o

ver

fore

ign

acti

viti

es

• Demonstrate a sound appreciation of current strategic management concepts

• Assess current developments in the organisational environment and alternative responses related to strategy

Knowledgecast Summary

Whirlpool’s Dramatic Turnaround Through Internationalisation

Read the closing case on page 57 of your required textbook by Cavusgil, Knight and Reisenberger ‘International Business’ in preparation for this seminar.

Remember that this is group work were participation is expected. You are to prepare powerpoint presentation and be ready to present and answer questions on you analysis.

Individual contributions will be assessed during the seminar session.

Seminar

Assessment PreparationThis is your first opportunity as a group to read through the major

casestudy and the assessment brief (see Unit 5) collectively and highlightkey points.

Discuss as a team;1. What are the key activities involved in this assessment2. Who will be responsible for each activity3. When the activities will need to be completed4. How you can guarantee SUCCESS (what will success

look/feel/sound like?)

Be prepared to share your plans with your tutor.

Group Activity