CASE STUDY

INTERNATIONAL BUSINESS STRATEGY

28/05/2015

Submitted to:
MBA. Nguyn Mnh Cng
MBA. Phm Th Tun Linh

Submitted by:
Group 4
Vi Quc Bo

Nguyn Quc M

Nguyn Thu Hng

Nguyn Th Uyn

Trn Th t

Nguyn Th Qunh Hoa

Phm Th Tho

Nguyn Th Thanh Hng

H Th Trang

Dng Bo Lm

Case 1
Boeing versus Airbus: Two Decades of Trade Disputes
1. Do you believe Airbus could have become a viable competitor without subsidies?
No, I believe that Airbus would have been at a distinct disadvantage and could not
have become a viable competitor without the subsidies. Boeing was the recipient of both
direct and indirect subsidies which protected it at some levels from competition. The only way
for Airbus to be competitive with such a large and well entrenched company was for the
company to be subsidized.
2. Why do you think the four European governments agreed to subsidize the
establishment of Airbus?
The four European governments needed to subsidize Airbus as an infant corporation,
their initial market shares were not foreseen to amount to much, and as a newly formed
company it needed a competitive advantage entering into a market place dominated by two
major market holders. They have a direct tie to the European airlines so it is easy to
understand why they might be interested in protecting any perceived threat to the market. The
governments in Europe (France, Germany, and England) own domestic airlines, including
British Airways, Lufthansa, and Iberia airlines.
3. Is Airbuss position with regard to the long-running dispute over subsidies reasonable
Airbus' position is reasonable. It does not deny any of the subsidies it receives, but
says that the US government provides significant subsidies to the US firms indirectly via
NASA and defense spending. There is also the fact that the U.S. government, (for the first
fifty plus years of the century), provided funding for U.S. companies to develop new aircraft.
It would appear that the U.S. companies were provided a jump start through subsidies.
Conversely it would appear that Airbus was merely trying to catch up with their U.S.
counterparts. Airbus contends that another reason for its own success is the use of clever
product strategy as well as the availability of the latest technology. If you look at this from a
free-market economy perspective, it would appear unreasonable for the European
governments to provide subsidies for research and development of new airplanes that would
be directly competing with Boeings airplanes that are self-funded, causing their planes to be
more expensive and potentially less competitive in the market.

4. Do you think that the 1992 trade agreement was reasonable?

On the surface, the agreement appears to be reasonable. Obviously both companies
along with the governmental influences felt that it was reasonable at the time the agreement
was put into place. Pressures to perform and reach development goals placed pressure on
both companies to implement and to prepare evidence that the other is being dishonest only
aids to provide more customer support for one company over the other, allowing one to stand
at the top as the most viable candidate. It would be wise to have not taken action against the
agreement and to have simply monitored compliance or deviance from the agreement.
At this time it does not appear that there would be much reason to take action other
than monitor compliance with the 1992 agreement and take action only to address deviance
from the agreement. Trade disputes are normal actions in a world of highly competitive
global economic systems. Any disputes are said to be not only useful but to be expected as
well. The market success of each firm is highly dependent on the price and output decisions
of its competitor.
5. Why do you think that the U.S. industry reacted with caution to attempts by
politicians to reopen the trade dispute in 1993?
The industry responded with caution for quite a few reasons. To begin with, the
growth of business reduced the importance of the trade dispute; a short time had passed since
the agreement had actually been in place and the U.S. industry felt it needed more time to
determine how the agreement worked before changes were suggested; oftentimes politicians
will become a part of the problem and not the solution thus making a situation worse merely
from their involvement; the international business that this industry is involved in is vastly
significant and there is a great degree of collaboration with suppliers which was seen as
potential bad news on the international relations front and Airbus was not in a position to
change course in the middle of the game. Having a competitor who is healthy and acts in a
rational manner is far better than dealing with one who is struggling to survive and does
everything it can to hurt the industry.
6. In an era of global competition, what is the case for antitrust authorities to permit the
formation of large domestic firms through mergers and acquisitions?
Foreign competition that can utilize foreign markets to achieve cost advantages can
threaten smaller domestic companies who do not have the size to obtain the same cost
advantages and attack splinter markets across the globe. Antitrust authorities should not only

consider competitive dynamics and market share, but they should look at what is required by
local companies in order to compete in a global marketplace. The Airbus/Boeing presence is
stereotypical of a duopoly market. The market success of each firm is highly dependent on
the price and output decisions of its competitor. Fair market rules apply for optimum market
performance.
7. Was the threat by EU authorities to declare the BoeingMcDonnell Douglas merger
illegal a violation of U.S. national sovereignty?
In this argument, you will find two varying sides. On one side of the argument, it
should be entirely up to the U.S. government to say whether a merger of two U.S. companies
is appropriate or not. The EU intervening would be considered a violation of U.S. national
sovereignty. On the opposite side of the argument, because these two companies do business
globally, the merger would in turn affect other global companies.
For this reason, the EU could have a justifiable point in wanting to police companies
that do business in their backyard.

In 2001, the EU struck down the merger between

Honeywell and General Electric because they felt the newly formed company would not
benefit the consumers in Europe. This action taken by the EU lessens the validity of their
control.
8. Do you think the EU Commission had a strong case in its attempts to wring
concessions from Boeing regarding the merger with McDonnell Douglas? Was Boeing
right to make significant concessions to the EU? What might have occurred if the
concessions were not made?
The EU did not have a strong case in respect to the merger. If the U.S. government
affirmed the merger as acceptable that should have been the end of it. If two European firms
were to merge, it would be highly unlikely that the U.S. government would have acted in the
same fashion as the EU did in this case. Boeings concessions to the EU were inappropriate
because the EU had no authority to force the concessions.
By Boeing agreeing to the concessions, it only made the EU appear stronger and they
received support from the European consumer (Andrews, 1997). If the concessions had not
been made, it would have made it very difficult for the EU to move forward on the Honeywell
and General Electric merger and the European consumer would have lost confidence in the
EU as a whole (Ahearn, 2006).

9. Why did the U.S. government decide to reopen the long-running trade dispute
between Boeing and Airbus in 2004? Do you think the U.S. position is reasonable? What
about the EUs countercharges? Are they reasonable?
The U.S. government decided to re-open the trade agreement dispute because the
government felt that Airbus was receiving subsidies to build the A350 and the amount they
were receiving was too much (Hill, 2011). While one could argue that when Airbus was
formed over 40 years ago that it needed the subsidies in order to stand on its own two feet.
Today, that is not that case when you look at the market share that the company has achieved.
The U.S. governments position does appear to be reasonable based on that information alone.
The EU made countercharges against Boeing that they too were receiving lavish
indirect subsidies. These subsidies come in the form of defense contracts and NASA for
military research (Hill, 2011). The EU misunderstands the benefits that the commercial
aircraft side of the business receives from these agreements. The EUs case is a poor excuse
of an argument against the U.S. claims, holds no merit, and will only end with causing both
sides certain humiliation.
10. Now that the dispute has gone to the World Trade Organization, what do you think
would be a fair and equitable outcome?
A fair and equitable outcome from the World Trade Organization would be to put a
stop to illegal subsidies. It appears that both Boeing and Airbus receive subsidies from their
individual governments but Airbus is being offered below market rates for their loans and this
should be resolved so that both organizations are on an even playing field when it comes to
support in order for them to remain competitive. Given the political nature of the decisions
involved, the WTO seems poorly suited to resolving this case. We think of WTO as being a
forum for resolving technical disputes about whether each side has met its obligations. It is a
political dispute in that it is difficult to find an economic rationale for future subsidies. But
they accomplished their mission and settled the dispute finding in favor of Boeing.
The ruling is apparently a victory for Boeing, with the WTO finding that the U.S.
aerospace company had been harmed over the years.

How Airbus could be punished

remained unclear, though, along with what it would need to do to rectify that financial
advantage. If it fails to take action, however, the U.S. eventually could impose billions of
dollars in punitive tariffs or other sanctions (Blumenthal, 2010).

Case 2
Nestle: Global Strategy
1. Does it make sense for Nestl to focus its growth efforts on emerging markets? Why?
It does not make sense for Nestle to focus its growth on emerging markets because it
currently already has a significant presence in most segments of the market in developed
markets, and further growth requires either taking market share from competitors or entering
new product segments. Both of these are expensive undertakings that must be continually
repeated to sustain growth above the level of economic growth. By contrast, if it gets a good
foothold in emerging markets, it will be in a good position to grow with the market as the
purchasing power of consumers increases. It can also progressively bring new products to
these markets, accelerating its growth.
2. What is the companys strategy with regard to business development in emerging
markets? Does this strategy make sense?
Nestle tries to enter emerging markets ahead of competitors, and build a substantial
position in basic foodstuffs. As income levels rise, the company progressively moves from
these niches into more upscale items. It very much focuses on developing local goods for
local markets, and places relatively less emphasis on its global brands in emerging markets. It
also localizes its distribution and marketing strategy to the requirements of the local market.
When good opportunities are available, Nestle acquires local firms. Given significant
differences in various developing markets, and different food preferences of different cultures,
this customized approach makes sense.
3. From an organizational perspective, what is required for this strategy to work
effectively?
For this strategy to work it is important that local units be given a great deal of
autonomy to make decisions that will best serve the interests of the local market. Excessive
oversight or direction from headquarters will not only constrain the decisions of local

managers, but may keep them from considering options that might seem offbeat or strange
back at headquarters.

4. How would you describe Nestles strategic posture at the corporate level; is it
pursuing a global strategy, a multidomestic strategy, an international strategy, or a
transnational strategy?
Nestle owns some 8,500 brands, yet sells just 80 of them in more than 10 countries.
Instead, Nestle tends to focus on locally recognized products in each market. Some students
will probably conclude that based on this, the company is clearly not pursuing a global
strategy, but instead is closer to a multi domestic approach.

5. Does this overall strategic posture make sense given the markets and countries that
Nestle participates in? Why?
This strategic approach seems to make sense for Nestle. Clearly there is a need for
regional coordination and leveraging competences. The existence of a number of global
brands also means that purely multidomestic strategy would be sub optimal. Likewise, there
are few cost pressures that would make a global or transnational strategy appropriate.

6. Is Nestles management structure and philosophy aligned with its overall strategic
posture?
Nestle is divided both by geographic areas and by business units. While many
decisions are handled at the local level, Nestle also has a group of expatriate managers who
move from country to country to bring the various operations together. In addition, the
company strives to create a more unified organization by holding regular training programs
that involve managers from around the world. Most students will probably agree that Nestles
management structure and philosophy is generally in line with its overall strategic posture.