Session 1 – The strategy of international business

Required reading

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International strategy and industry structure

• International strategy as an ongoing process, that responds to or sometimes disrupts (!) industry structure– Consider the opening case on Zara and its actions in the

context of the forces of the industry structure

• Zara challenges the IO paradigm and offers support for a great by choice or resource based view

• Additional, optional links, sources– Spain’s Inditex (Zara’s parent) spins gold, NYT, November

2012, Watch the video (4 mins, 15 seconds) or Read the article

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Changes in industry structure• Why is international strategy an ongoing process?• Disruptions to structure of industry

– Competitive: Foreign players in Indian film industry– Product: Extremely smartwatches– Process: Developing ecommerce in Africa– Political: Turkey and India’s political flux

• Additional, optional links, sources– India’s film industry, FT, Jan 2014, (Video 6:20 – scroll down)– Disruptions, NYT, Dec 2013 (article)– German firms seed web shopping in Africa, WSJ, Jan 2014,

(Video 2:44)© Anu Phene

Creating value• Creating value through differentiation

and cost leadership– The premise of the Boeing Dreamliner– From the perspective of airlines –

offering a more pleasant experience while cutting down fuel costs

• Boeing’s challenges in managing the value chain – Global configuration but various

problems with components – Coordination difficulties that delayed

delivery date

• Additional, optional links, sources– On a plane of the future, FT, Jan 2014,

(Video 2:55)

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Managing the value chain• Configuration: Worldwide distribution

of activities, Nutella’s value chain– Business environment quality– Innovation context– Resource costs– Logistics– Digitization – Economies of scale

• Coordination: Linking activities– Operational obstacles– Core competency– Subsidiary networks

• Additional, optional links, sources– 40 more maps of the world, WP, Jan 2014,

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Global Integration & Local Responsiveness

• Pressures for global integration– Creation of global markets, such as in the Zara

case – Efficiency pressures that drive standardization

• Pressures for local responsiveness– Divergence in consumer preferences

• Mattel : Emphasizing learning rather than fun, offering greater value, adapting Barbie in China

• Twitter: Attracting users and advertisers

– Host country Government policies

• Additional, optional links, sources– Barbie gets a makeover in China, WSJ, Nov 2013,

(Video 1:28)– Twitter confronts obstacles abroad, WSJ, Nov 2013

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Types of Strategy

• Firm choice of strategy for competing internationally depends on – External pressures for global integration (cost reduction) and local

responsiveness– Company stance on response to these pressures

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International Strategy

• Firm leverages home grown core competencies internationally

• Industry demonstrates low pressures for global integration and local responsiveness

• Critical elements of value chain are concentrated and centralized at and controlled by headquarters

• Value creation by transferring skills and knowhow from home to international units

• Centralization and tight control by HQ limits efficiency, flexibility and local sensitivity

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Multidomestic Strategy

• Firm differentiates products for national markets• Industry demonstrates low pressures for global

integration and high pressures for local responsiveness

• Elements of value chain are dispersed and subsidairies have significant autonomy

• Value creation by responding to local preferences and conditions

• Costs of duplication of activities across multiple locations

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Global Strategy

• Firm makes and sells fairly standardized products worldwide

• Industry demonstrates high pressures for global integration and low pressures for local responsiveness

• Elements of value chain are concentrated and located at most optimal locations and supported by effective coordination

• Value creation by reducing costs associated with standardized products

• Requires effective configuration and coordination to deliver reduced costs, gives up on local learning opportunities

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Transnational Strategy

• Firm leverages specialized knowledge internationally • Industry demonstrates high pressures for global integration

and local responsiveness• Elements of value chain – major components are

concentrated and centralized at optimal locations while assembly and adaptation are dispersed to local markets –are supported by effective coordination

• Value creation by reducing costs (efficiency), differentiation to local markets (effectiveness) and global learning (innovation)

• Implementation difficulties – configuration, coordination, high costs of supporting infrastructure and cognitive limits

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Summary• Perspectives on international strategy

– The role of industry structure and resources

• Creating value in a global context• Fundamental forces in the international arena

– Global integration and local responsiveness

• Types of strategies for competing internationally• International, Multidomestic, Global and Transnational

• Next session……. The location decision

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