The Strategy of International

Business
&
Entering Foreign Markets
What is Strategy?
Actions that managers take to attain goals of
the firm
The preeminent goal for most firms is:
maximize shareholder value
How to achieve it?
Focus on increasing their profitability and
growth rate of profits over time
International Expansion

This is by bringing in the difference!
It enables the firms to earn greater returns

How??
Transfer the product offerings to the markets
from its core competencies i.e. the skills
not easily matched or imitated by
competitors

Value Creation
Increase the profitability of a firm to create more
value
Its measured as the difference between its costs
of production and the value consumers perceive
in its products
E.g. the more value customers place on a firms
products, the higher the price the firm can charge
for those products
How to maximize the value of the firm? Graph on
next page
Enterprise
Valuation
Profitability
Reduce Costs
Add value and
raise prices
Profit Growth
Sell more to
existing markets
Enter New
Markets
Operations: The Firm as a Value Chain
The various value-creation activities a firm
undertakes
This includes departments within the
Companys infrastructure:
R & D
Production
Marketing and Sales
Customer Service
Each department carries a significance in adding value to
the firm

R&D helps in designing of products and production
processes E.g. Carpet Industry

Production is concerned with the creation of a good or
service in the most efficient manner by lowering costs
and producing a high quality product E.g. Wal-mart and
Banks. Varies!

Marketing and sales by discovering consumer needs and
communicating with R&D!

Customer Services by providing support and valuing
feedback from customers


Organization: The Implementation of
Strategy
The Strategy of a firm is implemented through
its organization
This comprises of the Organizational
Architecture and Structure.
Where Architecture includes the structure
comprising of Control systems and incentives,
culture, processes and PEOPLE
These are all inter related and play a role in
carrying the strategy!

People
Structure
Incentives
and
Control
Culture
Processes
The Strategic Fit
This describes that the operations of the firm
must be configured in a way that supports the
strategy of the firm
Where as the organization structure matches
both; the operations and strategy of the firm

Diagram on the next slide



Supports



Operations
Strategy
Organization
Architecture
STRATEGY
Market
Conditions
Supports
Supports
Fits
The Experience Curve
Experience curve includes the Learning effect
and Economies of Scale

It has strategic significance
Moving down the experience curve allows a
firm to reduce its cost of creating value and
increase its profitability
Pressures for Cost Reductions
Competitive global markets
International business often face pressures for
Cost Reductions and Local Responsiveness

Where cost reduction happens when
universal needs arise i.e. the taste and
preferences of consumers in different nations
are similar if not identical

Pressures from Local Responsiveness
This arises due to the differences in the
following:
Consumer tastes and preferences
Infrastructure
Accepted business practices
Distribution channels, and
Host-government demands
The 4 types of Strategies in
International Business

1. Global Standardization Strategy
2. Localization Strategy
3. Transnational Strategy
4. International Strategy
As Competitors emerge, these strategies
become less viable
Strategic Alliances
Its definition

Examples

Advantages

And Disadvantages about it
Entering Foreign Markets
Which Foreign Markets to enter??

200 Nation-states in the world and they do not
all hold the same profit potential for a firm
looking for foreign expansion


Elaborate with examples!
4 important things to consider!

After the firm has identified attractive markets, it
should consider the following:
1. Timing of Entry
2. First-mover Advantages
3. First-mover Disadvantages
4. Pioneering Costs

Explain the above 4 with examples
Entry Modes
Once the firm decides to enter a market, next
comes which entry mode to follow. These are:
1. Exporting
2. Licensing
3. Franchising
4. Joint Ventures
5. Wholly owned subsidiary
Wholly Owned Subsidiary
(when the firm owns 100% of the stock)
Greenfield Venture
Gives the firm a much greater
ability to build the kind of
subsidiary it wants
No culture crash
You build the organization
culture then from scratch
rather than changing the
existing one at the acquired
unit
But its a slow venture
Involves sizable presence
E.g. McDonalds
Acquisitions
Quick to execute
Anticipate its global
competitors
Pre hand info on revenue
and profit stream
Or it may fail due to
overpaying the target
Cultures clash!
Failure to integrate
operations between the
two
Joint Ventures
Definition

Advantages
Disadvantages

Examples!
And we conclude.

Strategies and modes of entry play a significant role in
international business

There are no right decisions here but just decisions associated
with risk and reward

The higher levels of risk when entering a developed nation,
whereas lower levels of risk involved in entering developed
nations at a small scale

All the factors mentioned in the presentation
should be considered while choosing the
strategy and entry mode by the firms
planning to hit the foreign markets!