International Business Strategy Notes - PDF

What is Strategy? Michael Porter: Strategy is about being different – choosing a unique set of activities to deliver a unique mix of value. Henry Mintzberg: Strategy is a pattern in a stream of decisions. Alfred Chandler: Strategy is the determination of long-run goa...

What is Strategy? Michael Porter: Strategy is about being different – choosing a unique set of activities to deliver a unique mix of value. Henry Mintzberg: Strategy is a pattern in a stream of decisions. Alfred Chandler: Strategy is the determination of long-run goals, adoption of action plans, and resource allocations Levels of Strategy: 1. Corporate-level Strategy o Determines the mix of businesses and geographies a company should be in. o Quest for Economies of Scope – adding value through synergy across business units. o Even single-product firms require a corporate strategy (e.g., how to allocate resources, scale, manage risk). 2. Business-level Strategy o How an individual business unit competes in its market. o Quest for Competitive Advantage – cost leadership, differentiation, focus. 3. Operational-level Strategy o Functional plans to execute higher-level strategies. o Focus on efficiency, logistics, resource use. Paths to Diversification: Different industries: Entering unrelated markets (e.g., Amazon entering cloud services). Different geographies: Expanding to new regions/countries (e.g., Tim Hortons expanding into UAE). Within-industry diversification: Broader product line within the same sector (e.g., Uber Eats alongside ride-hailing). Why Do Firms Go Abroad? Access new customers, cheaper resources, innovation, and capability sourcing. Generic Strategies for Going Abroad: 1. Deployment: Replicate home advantage. Focus on standardization and aggregating demand. 2. Development: Learn from foreign markets and integrate new capabilities. 3. Deepening: Enhance existing advantages through international presence. Adjust to local preferences, strengthen WTP, and deepen stakeholder value. 3D’s for: Uber: Tim Hortons: Walmart: Wine War: 3-D Strategy vs 3-A Strategy: Strategy Type Focus Deployment (D) Standardize and replicate Development (D) Learn new skills/capabilities Deepening (D) Refine and localize offerings Aggregation (A) Achieve economies of scale Adaptation (A) Modify for local responsiveness Arbitrage (A) Exploit cost differences Challenges in New Markets: 1. Liability of Being a Foreigner o Legal restrictions, unfamiliar contract systems, time zones, cultural friction, investment caps 2. Paradox of Consistency o Balancing global standardization with local customization o Risk of losing internal consistency when trying to localize too much o Complex decision-making and potential dilution of brand/strategy Examples in: Uber: Tim Hortons: Walmart: Wine War: Economic Justification for Expanding Geographically: Demand-side Economies of Scope “Revenue Synergy” → Sell the same or similar product across different markets by leveraging a shared brand, marketing, or customer knowledge. Horizontal MNC = firms that sell the same thing in different countries  They benefit by reusing demand-side assets (e.g., marketing teams, branding, customer loyalty programs) across multiple geographies. Demand-side Synergy Means: A stronger brand can help open new markets (e.g., Apple leveraging global brand equity). Economies of scope by offering similar goods in multiple markets using the same customer data, advertising strategies, or product designs Supply-side Economies of Scope “Cost Synergy” → Set up cross-border operations where parts of the value chain are done in different countries based on cost, expertise, or resource advantages. Vertical MNC = firms that split their value chain across countries Supply-side Synergy Means: Reduced production costs by moving labor-intensive processes to lower-cost countries. Better resource allocation by placing operations where skills, infrastructure, or materials are most efficient Both aim to scale and replicate existing advantages across markets. Aggregation focuses on cost-efficiency and Aggregation Deployment standardization. Deployment focuses more broadly on replicating existing business models or capabilities in new markets. Both involve customization for local needs, but: Adaptation is about tailoring offerings to local preferences and conditions. Adaptation Deepening Deepening is more strategic — it’s about enhancing the firm’s advantage by adjusting without fully changing the core strategy. Both involve leveraging differences between countries: Arbitrage seeks cost/revenue benefits from wage, resource, or Arbitrage Development regulation gaps. Development seeks to build new capabilities by accessing unique knowledge, innovation, or skill sets globally. Economies of Scope: When doing more things together (products/services/markets) is cheaper and/or more profitable than doing them separately This happens through: 1. Shared use of resources (people, logistics, tech, brand) → Cost synergy 2. Complementary offerings that make the overall customer value higher Subadditivity of Costs - The **total cost of producing multiple products together is less than the cost of producing each separately. Key Triggers: Shared factories, suppliers, trucks, or storefronts  Using the same marketing team, supply chain, or HR for multiple offerings Centralized procurement to lower unit costs Superadditivity of Revenue: When offering multiple products/services together makes more money than selling them separately. This is a revenue advantage through bundling, upselling, and cross-selling Key Triggers: Customer spends more because the offerings work better together. Brand reputation in one category boosts trust in another Higher customer loyalty from wider offering (more reasons to come back) Mechanism Definition Walmart Tim Hortons Uber Wine War Shared Shared Shared One app Shared Subadditivity of operations logistics, kitchen for infrastructure distributor Costs lower total warehouse, many for multiple infrastructure cost store format products services Joint Basket- Coffee → Uber rides Cheap wine → Superadditivity offering building breakfast → Uber Eats premium upsell of Revenue increases across combo upsell cross-sell via brand total income departments Basic Entry Decisions 1. Which markets to enter? Based on long-run profit potential Market size Current & future consumer wealth Local costs and risks Suitability of your products/services Strength of local competitors  2. When to enter? First-mover advantages: Build brand early Preempt rivals Lock in customers with switching costs Gain experience curve advantages First-mover disadvantages: High setup costs Regulatory and cultural learning curves Risk of failure & customer education burden 3. On what scale? Large-scale = Strong commitment, faster growth, more risk Small-scale = Learn before scaling, less exposure Mode Advantages Disadvantages - No need to set up in host country- - High transport cost- Exporting Can leverage home-country scale Tariffs/barriers- Less local market & experience control Turnkey - Less risky than FDI- Useful in - Creates competitors- No long-term Projects regulated markets interest- Loss of control post-project - No control over operations- Risk - Low cost/risk- Fast market entry- Licensing of IP leakage- Poor coordination Good for IP-based firms ability - Quality control issues- Limited - Fast expansion- Low capital Franchising global coordination- Harder to investment- Brand growth potential reallocate profits - Access to local market Joint Ventures - Potential conflict- Loss of control- knowledge- Shared cost & risk- (JV) Tech leakage risk Politically safer - Highest cost/risk- Requires full Wholly Owned - Full control & profit- Protects IP- market knowledge- Integration Subsidiaries Easier global coordination challenges  Mode Advantages Disadvantages - Quick market entry- Access to - Culture clash risk- Overpaying- Acquisitions customers & assets- May preempt Difficult integration rivals - Full control- Custom build your - Slowest method- High cost & risk- Greenfield operations & culture- Protect Vulnerable to competition while Ventures competencies scaling Strategic Alliances in Internationalization A strategic alliance = collaboration between two firms (often potential competitors) to enter or grow in a new market. Advantages: Easier entry into foreign markets Shared fixed costs, risk, and market knowledge Combine complementary skills (tech, marketing, distribution) Can help set industry standards (platforms, protocols) Disadvantages: Partner may become a low-cost competitor Loss of control over tech or key knowledge Uneven contribution = conflict risk How to Make Strategic Alliances Work 1. Partner Selection A good partner: Helps you meet goals Has needed skills or resources Is trustworthy, not opportunistic How to choose: Do due diligence Use third-party insights Spend time before formalizing partnership ⸻ 2. Alliance Structure Use contractual safeguards Cross-license tech/assets Pre-agree on how to share value & decision-making 3. Managing the Alliance Build relational capital (trust + history of cooperation) Respect cultural differences Establish clear governance and communication mechanisms Exporting as a Mode of Entry - Exporting = selling goods/services produced in one country to another. Offers revenue and profit opportunities with lower investment risk than FDI. Made easier today by: Decline in trade barriers Regional trade agreements (e.g., EU, USMCA) Better global communication and logistics tech Challenges in Exporting Lots of paperwork, formalities, and compliance issues (e.g., customs docs, border controls)  High time and cost for inexperienced exporters SMEs often reactive rather than proactive — due to lack of info, risk aversion, or intimidation by foreign complexity Export & Import Financing – Solving the Trust Problem Exporting involves dealing with foreign buyers you may never meet. To reduce risk and ensure payment: 1. Letter of Credit (LC): Bank guarantees exporter will get paid if they meet terms Importer pays a fee to bank 2. Draft (Bill of Exchange): Written order for importer to pay exporter Two types: Sight draft: pay immediately Time draft: pay later Can be accepted by banks or businesses (called banker’s or trade acceptance) 3. Bill of Lading: Serves as a receipt, shipping contract, and proof of ownership Can also be used as collateral for financing before importer pays Countertrade – Alternative to Cash-Based Trade Used when a country can’t pay in hard currency (common in developing economies). Types of Countertrade: Barter – direct goods-for-goods exchange Counterpurchase – exporter agrees to buy something back later Offset – exporter agrees to buy locally produced goods in return  Switch trading – third party helps trade counter-purchased goods Compensation/Buyback – exporter is paid partly in goods made from its equipment Why Firms Use It: Helps close deals where currency is unavailable Sometimes required by the importing country’s government Can be a strategic move to enter tough markets Limitations: Hard to resell or profit from goods received Not suitable for firms with narrow or local sales networks Firms usually prefer payment in cash or hard currency Improving Export Performance International Comparisons One big impediment to exporting is the simple lack of knowledge of opportunities. available: Need to collect information on how different countries operate Other countries may have more experience in trade. U.S. is behind countries such as Germany or Japan in creating institutional structure for promoting exports Service Providers That Support Exporting: Freight Forwarders – group shipments, reduce costs, manage logistics Export Management Companies (EMCs) – act as your outsourced export team Export Trading Companies – handle the full export process Packaging Experts – help optimize for shipping & compliance  Customs Brokers – navigate foreign customs rules Confirming Houses – act as buying agents for foreign customers Export Agents – buy, repackage, and resell your goods abroad Piggybacking – your product rides along another firm’s distribution Export Zones (FTZs/EPZs) – special zones with trade benefits Smart Export Strategy Tips Export consultants (EMCs), local personnel, focused initial markets, scale gradually Build relationships with customers/distributors Be proactive and adaptive with local production if needed