CHAPTER 12: THE STRATEGY OF INTERNATIONAL BUSINESS Strategy: the actio ! that "a ager!

ta#e to attai the goa$! o% the %ir"& The "ai goa$ o% e'ery %ir" i! to gai (ro%it& Pro%it )*+ , TR - TC TR , P . / )(rice ti"e! 01a tity+ TC , C . / )Co!t (er 1 it ti"e! tota$ 1 it! (ro21ce2+ A co""o goa$ o% the %ir"! i! to "a.i"i3e the ret1r o i 'e!t"e t& ROI , *4 I T5o 6a!ic co 2itio ! 2eter"i e %ir"7! (ro%it!: 8 8 The a"o1 t o% 'a$1e c1!to"er! ($ace o the %ir"7! goo2! or !er'ice!& The %ir"7! (ro21ctio co!t&

9 , Co !1"er 'a$1e P , :ar#et (rice C , Co!t o% (ro21ctio 98 P , Co !1"er !1r($1! P8 C , Pro%it "argi 98 C , 9a$1e a22e2 To gai (ro%it co"(a ie! "1!t try to i crea!e the 'a$1e a22e2 )98C+& There are t5o 5ay! to i crea!e thi!; 8 8 By $o5eri g the (ro21ctio co!t 5hich i! ca$$e2 $o5 co!t !trategy By "a#i g the (ro21ct "ore attracti'e thro1gh !1(erior 2e!ig ; %1 ctio a$ity; %eat1re!; 01a$ity etc& 5hich i! ca$$e2 2i%%ere tiatio !trategy& By %o$$o5i g thi! !trategy co !1"er! 5i$$ (ercei'e "ore 'a$1e a 2 5i$$ 6e rea2y to (ay (re"i1" (rice& Tho1gh the co!t %or !1ch !trategy "ay 6e high; a22itio a$ co!t 5i$$ ot a%%ect the (ro%it a! it 5i$$ 6e !1r"o1 te2 6y high (rice&

The %ir" a! a 'a$1e chai : The o(eratio ! o% a %ir" ca 6e tho1ght a! a 'a$1e chai co"(o!e2 o% a !erie! o% 2i!ti ct 'a$1e creatio acti'itie! 5hich are 2i'i2e2 i to t5o ty(e! Pri"ary acti'itie! Thi! i! 6ro#e i to %o1r %1 ctio !: re!earch a 2 2e'e$o("e t; (ro21ctio ; "ar#eti g a 2 !a$e! a 2 !er'ice&

R<=: Thro1gh !1(erior (ro21ct 2e!ig ; R<= ca i crea!e the %1 ctio a$ity o% (ro21ct! 5hich "a#e! the" "ore attracti'e to the co !1"er! rai!i g 9& A$ter ati'e$y; R<= "ay re!1$t i "ore e%%icie t (ro21ctio (roce!!e!; there6y c1tti g (ro21ctio co!t a 2 $o5eri g C& Pro21ctio : The (ro21ctio o% the %ir" create2 a22e2 'a$1e 6y (er%or"i g the (ro21ctio ta!# "ore e%%icie t$y a 2 th1! $o5eri g co!t& A$ter ati'e$y; 6y (er%or"i g tho!e i a 5ay that a "ore re$ia6$e a 2 higher 01a$ity (ro21ct i! (ro21ce2 5hich re!1$t! i i crea!e2 9& :ar#eti g a 2 !a$e!: Thro1gh 6ra 2 (o!itio i g a 2 a2'erti!i g "ar#eti g %1 ctio i crea!e 9 a 2 e a6$e co"(a ie! to charge higher (rice& :ar#eti g re!earch e a6$e co"(a ie! to i2e ti%y co !1"er!7 ee2! a 2 th1! o%%er "ore 'a$1e& A%ter !a$e! !er'ice: thi! ca a$!o create !1(erior 'a$1e a 2 e a6$e co"(a ie! to charge (re"i1" (rice& S1((ort acti'itie!: The !1((ort acti'itie! o% the 'a$1e chai (ro'i2e i (1t! that a$$o5 the (ri"ary acti'itie! to occ1r& :ateria$ "a age"e t %ro" (roc1re"e t; (ro21ctio to 2i!tri61tio !ho1$2 6e 2o e e%%icie t$y to re21ce co!t& H1"a re!o1rce: !#i$$e2 (er!o e$ i crea!e e%%icie cy a 2 re21ce co!t&

I %or"atio !y!te": Thi! he$( co"(a ie! to "a age a 2 coor2i ate other 'a$1e creatio acti'itie! e%%icie t$y& Strategy i i ter atio a$ 61!i e!!: I ter atio a$ 61!i e!! ha! 6eco"e e.tre"e$y co"(etiti'e 21e to the $i6era$i3atio o% the 5or$2 tra2e a 2 i 'e!t"e t e 'iro "e t& To 6e co"(etiti'e co"(a ie! "1!t 2eci2e their !trategic choice %ro" the %o$$o5i g t5o 6a!ic !trategie!: 1& Co!t $ea2er!hi( a 2 2& =i%%ere tiatio !trategy& E&g& C$ear 9i!io e.a"($e )(g >1?+ Pro%iti g %ro" g$o6a$ e.(a !io : A %ir"7! (ro%ita6i$ity 2e(e 2! o it! a6i$ity to i tegrate the %o$$o5i g %actor! i their g$o6a$ e.(a !io !trategy:

1& Locatio eco o"ie!: Locatio eco o"y ari!e! %ro" (er%or"i g a 'a$1e creatio acti'ity i the o(ti"a$ $ocatio %or that acti'ity; 5here'er that i! (o!!i6$e& It ca $o5er the co!t o% 'a$1e creatio a 2 he$( the %ir" to achie'e a $o5 co!t (o!itio ; a 24or it ca e a6$e a %ir" to 2i%%ere tiate it! (ro21ct o%%eri g %ro" tho!e o% co"(etitor!& =i%%ere t $ocatio ! ha'e co"(etiti'e a2'a tage i (ro21ctio o% 2i%%ere t (ro21ct!& Co1 trie! 5ith chea( $a6or ha'e co"(etiti'e a2'a tage i (ro21ctio o% $a6or i te !i'e (ro21ct! $i#e te.ti$e "ateria$!& Agai ; co1 trie! 5ith high tech !#i$$e2 5or#er! ha'e co"(etiti'e a2'a tage %or the (ro21ctio o% a1to"o6i$e!; e$ectro ic! etc& Thi! i! 5hat o(ti"1" $ocatio i! ca$$e2& E&g& C$ear 'i!io & By co 21cti g 2i%%ere t acti'itie! o% the 'a$1e chai i 2i%%ere t o(ti"1" $ocatio ! co"(a ie! ca create a g$o6a$ 5e6& E&g& G: co 21ct! 8 =e!ig i g i Ger"a y a! it i! o(ti"1" $ocatio %or e gi eeri g& 8 Pro21ctio o% co"(o e t! i @a(a ; Tai5a a 2 Si ga(ore a! the!e ha'e re$ati'e$y $o5 co!t 61t high !#i$$e2 $a6or 5hich are ee2e2 %or (ro21ctio o% co"(o e t!& 8 A!!e"6$y i !o1th Aorea a! they ha'e $o5 co!t $o5 !#i$$e2 $a6or a 2 %or a!!e"6$y ta!# high !#i$$e2 $a6or i! ot re01ire2& 8 A2'erti!i g i Britai a! Briti!h ha'e re(1tatio %or a2'erti!i g ta!#!& So"e ca'eat!: 8 8 8 Pro21ctio i o(ti"1" $ocatio ! i! o $y (o!!i6$e i% tra !(ortatio co!t a 2 tra2e 6arrier (er"it!& It i! ot (o!!i6$e to (ro21ce i Ne5 Bea$a 2 a 2 the !hi( to USA a! the tra !(ortatio co!t 5i$$ 6e too high& E&g& :e.ico a 2 NAFTA )(g >1C+ A other i"(orta t %actor! i! to co !i2er the (o$itica$ a 2 eco o"ic ri!#! e'e i% the co1 try i! the o(ti"1" $ocatio %or (ro21ctio o% the (ro21ct&

2& E.(erie ce e%%ect!: The e.(erie ce c1r'e re%er! to !y!te"atic re21ctio i (ro21ctio co!t that ha'e 6ee o6!er'e2 to occ1r o'er the $i%e o% a (ro21ct& U it co!t o% (ro21ctio re21ce! a! the o1t(1t acc1"1$ate!& Thi! ha((e ! 21e to t5o rea!o !; 8 Lear i g e%%ect: thi! re%er! to the co!t !a'i g that co"e %ro" $ear i g 6y 2oi g& Lear i g ha((e ! i t5o !tage!D %$oor $e'e$ a 2 "a ageria$ $e'e$&

At %$oor $e'e$; $a6or (ro21cti'ity i crea!e! o'er ti"e a! i 2i'i21a$! $ear the "o!t e%%icie t 5ay! to (er%or" (artic1$ar ta!#!& At "a ageria$ $e'e$; "a ager! $ear ho5 to "a age the e5 o(eratio "ore e%%icie t$y o'er ti"e& It ha! 6ee !1gge!te2 that re21ctio i 1 it co!t 21e to $ear i g e%%ect occ1r! 21ri g the %ir!t t5o to three year! a%ter the !tart o% e5 o(eratio a 2 a%ter that the e%%ect cea!e& A y re21ctio i (ro21ctio co!t a%ter that ha((e ! 21e to eco o"ie! o% !ca$e& 8 Eco o"ie! o% !ca$e: Thi! re%er! to the re21ctio ! i 1 it co!t achie'e2 6y (ro21ci g a $arge 'o$1"e o% (ro21ct& E&g& i (har"ace1tica$ i 21!try; co!t o% R<= re21ce! i% a $arge 'o$1"e o% "e2ici e i! (ro21ce2 a 2 !o$2&

Eco o"ie!8o%8!ca$e a$!o ari!e! %ro" the a6i$ity o% $arge %or"! to e"($oy i crea!i g$y !(ecia$i!e2 e01i("e t or (er!o e$& B1t %or that $arge 'o$1"e ee2! to 6e (ro21ce2 to o'erco"e the co!t o% "a#i g a !(ecia$i!e24 c1!to"i3e2 "achi e& Strategic !ig i%ica ce: Ser'i g the g$o6a$ "ar#et %ro" a !i g$e $ocatio e a6$e co"(a ie! to (ro21ce i $arge 'o$1"e! 5hich he$( to achie'e $ear i g e%%ect a 2 eco o"ie! o% !ca$e a 2 co !e01e t$y; "o'e 2o5 the e.(erie ce c1r'e a 2 $o5er co!t& E& Le'eragi g core co"(ete cie!: Core co"(ete ce re%er! to !#i$$! 5ithi the %ir" that co"(etitor! ca ot ea!i$y "atch or i"itate& =i%%ere t co"(a ie! ha'e core co"(ete cy at 2i%%ere t $e'e$! o% the 'a$1e chai acti'itie! - (ro21ctio ; "ar#eti g; R<=; h1"a re!o1rce!; ge era$ "a age"e t etc& G$o6a$ e.(a !io i! 5ay to 1ti$i3e the!e !#i$$! a 2 co"(ete cy i i ter atio a$ "ar#et! 5here i 2ige o1! co"(etitor! $ac# !1ch !#i$$!& E&g& Coca8co$a; P<G ha'e co"(ete cy i 6ra 2i g a 2 a2'erti!e"e t 5hich their co"(etitor! i "o!t "ar#et $ac#& So they $e'erage the!e !#i$$! i i ter atio a$ "ar#et! a 2 gai (ro%it& >& Le'eragi g !16!i2iary !#i$$!: S#i$$! ca 6e create2 a y5here 5ithi a :NC! g$o6a$ et5or# o% o(eratio !& Le'eragi g the !#i$$! create2 5ithi !16!i2iarie! a 2 a(($yi g the" to other o(eratio ! 5ithi the %ir"7! g$o6a$ et5or# "ay create 'a$1e& E&g& See :c=o a$2! e.a"($e )(g >22+ To create !#i$$ at !16!i2iary $e'e$ three thi g! ee2 to 6e e !1re2 8 Fir!t; co"(a y "1!t ha'e the h1"i$ity to recog i3e that !#i$$! "ay ari!e a y5here i the g$o6a$ et5or#

8 8

Seco 2; there "1!t 6e i ce ti'e !y!te" that e co1rage! e"($oyee! a 2 !16!i2iarie! to ta#e ri!# a 2 2i!co'er e5 i2ea!& Thir2; there "1!t 6e "echa i!"! to i2e ti%y that !#i$$! are create2 a 2 a$!o there !ho1$2 6e 5ay! to tra !%er that !#i$$ to other !16!i2iarie! a 2 hea2 o%%ice a! 5e$$&

Pre!!1re %or co!t re21ctio a 2 $oca$ re!(o !i'e e!!: The e.ta t o% the!e t5o (re!!1re! 2eter"i e 5hether co"(a ie! 5i$$ 6e a6$e to attai the!e %o1r %actor! 2i!c1!!e2 a6o'e a 2 6a!e2 o that co"(a ie! a2o(t their !trategic choice! i i ter atio a$ "ar#et!& Pre!!1re %or co!t re21ctio : Re!(o 2i g to (re!!1re! %or co!t re21ctio re01ire! a %ir" to try to $o5er the co!t! o% 'a$1e creatio 6y "a!! (ro21ci g a !ta 2ar2i3e2 (ro21ct at o(ti"a$ $ocatio i the 5or$2& For thi! co"(a ie! ee2 to achie'e $ocatio eco o"ie! a 2 e.(erie ce c1r'e eco o"ie!& Pre!!1re %or co!t re21ctio i! high 5he 8 8 8 Pro21ct i! co""o2ity ty(e a 2 "ea i g%1$ 2i%%ere tiatio i! ot (o!!i6$e& Fhe "aGor co"(etitor! are 6a!e2 i $o5 co!t $ocatio ! Fhere co !1"er! are (o5er%1$ a 2 %ace $o5 !5itchi g co!t

E&g& Tire i 21!try )(g >2>+ Pre!!1re! %or $oca$ re!(o !i'e e!!: 1& =i%%ere ce! i co !1"er ta!te! a 2 (re%ere ce! 8 There are hi!toric a 2 c1$t1ra$ rea!o ! %or the!e 2i%%ere ce!&

E&g& :c=o a$2! 1!e "1tto (attie! i !tea2 o% 6ee% (attie! i I 2ia& Le'itt arg1e2 that "o2er co""1 icatio a 2 tra !(ortatio tech o$ogie! ha'e create2 the co 2itio ! %or co 'erge ce o% ta!te! a 2 (re%ere ce! o% co !1"er! o% 2i%%ere t atio !& 2& =i%%ere ce! i i %ra!tr1ct1re a 2 tra2itio a$ (ractice! 8 =1e to 2i%%ere ce! i i %ra!tr1ct1re a 2 tra2itio ! (ro21ct! "ay ee2 to 6e c1!to"i3e2 to the 2i!ti cti'e i %ra!tr1ct1re a 2 (ractice! o% 2i%%ere t atio !& For e.a"($e; i USA co !1"er e$ectro ic! !y!te"! are 6a!e2 o 11H 'o$t!; 5hi$e i !o"e E1ro(ea co1 trie! 2>8 'o$t !y!te"! are !ta 2ar2&

E& =i%%ere ce! i 2i!tri61tio cha e$! =i%%ere ce! i 2i!tri61tio cha e$ "ay ece!!itate the 2e$egatio o% "ar#eti g %1 ctio ! to atio a$ !16!i2iarie!& E&g& Briti!h; @a(a e!e a 2 US "e2ici e 2i!tri61tio !y!te"& >& Ho!t go'er "e t 2e"a 2! Eco o"ic a 2 (o$itica$ 2e"a 2! i"(o!e2 6y ho!t8co1 try go'er "e t "ay ece!!itate a 2egree o% $oca$ re!(o !i'e e!!& I"($icatio : =1e to thi! re!(o !i'e e!! it i! ot a$5ay! (o!!i6$e to (ro21ce !ta 2ar2i3e2 (ro21ct! a 2 gai the %1$$ 6e e%it o% e.(erie ce c1r'e a 2 $ocatio eco o"ie!& Strategic choice!: I ter atio a$ Strategy: I I I I I Create 'a$1e 6y tra !%erri g 'a$1a6$e core co"(ete cie! to %oreig "ar#et! that i 2ige o1! co"(etitor! $ac# Ce tra$i3e (ro21ct 2e'e$o("e t %1 ctio ! at ho"e E!ta6$i!h "a 1%act1ri g a 2 "ar#eti g %1 ctio ! i $oca$ co1 try 61t hea2 o%%ice e.erci!e! tight co tro$ o'er it E&g& :c=o a$2!; :icro!o%t )See (g >2C+ Li"it c1!to"i3atio o% (ro21ct o%%eri g a 2 "ar#et !trategy - Strategy e%%ecti'e i% %ir" %ace! 5ea# (re!!1re! %or $oca$ re!(o !i'e a 2 co!t re21ctio !

:1$ti2o"e!tic Strategy: I I I I I :ai ai" i! "a.i"1" $oca$ re!(o !i'e e!! C1!to"i3e (ro21ct o%%eri g; "ar#et !trategy i c$12i g (ro21ctio ; a 2 R<= accor2i g to atio a$ co 2itio ! Ge era$$y 1 a6$e to rea$i3e 'a$1e %ro" e.(erie ce c1r'e e%%ect! a 2 $ocatio eco o"ie! Po!!e!! high co!t !tr1ct1re E&g& Phi$i(!

G$o6a$ Strategy: I I Foc1! i! o achie'i g a $o5 co!t !trategy 6y rea(i g co!t re21ctio ! that co"e %ro" e.(erie ce c1r'e e%%ect! a 2 $ocatio eco o"ie! Pro21ctio ; "ar#eti g; a 2 R<= co ce trate2 i %e5 %a'ora6$e %1 ctio !

I I

:ar#et !ta 2ar2i3e2 (ro21ct to #ee( co!t7! $o5 E%%ecti'e 5here !tro g (re!!1re! %or co!t re21ctio ! a 2 $o5 2e"a 2 %or $oca$ re!(o !i'e e!! - Se"ico 21ctor i 21!try )I te$+

Tra ! atio a$ Strategy: I I To "eet co"(etitio %ir"! ai" to re21ce co!t!; tra !%er core co"(ete cie! 5hi$e (ayi g atte tio to (re!!1re! %or $oca$ re!(o !i'e e!! G$o6a$ $ear i g - 9a$1a6$e !#i$$! ca 2e'e$o( i a y o% the %ir"7! 5or$2 5i2e o(eratio ! - Tra !%er o% # o5$e2ge %ro" %oreig !16!i2iary to ho"e co1 try; to other %oreig !16!i2iarie! Tra ! atio a$ !trategy 2i%%ic1$t ta!# 21e to co tra2ictory 2e"a 2! ($ace2 o the orga i3atio - E.a"($e : Cater(i$$ar