CHAPTER 13

THE STRATEGY OF INTERNATIONAL BUSINESS

 COMPETITIVE PRESSURES IN THE GLOBAL
MARKETPLACE
• Firms that compete in the global marketplace face two conflicting types of competitive
pressures

Two competitive pressures:

• Pressures for cost reductions- forces the firm to lower unit costs

• Pressures to be locally responsive- requires the firm to adapt its product to meet local
demands in each market, since there are national differences in consumer tastes and
preferences, business practices, distribution channels, competitive conditions and
government policies.
But, this can raise costs
COST REDUCTION PRESSURE
Pressures for cost reductions are greatest
•In industries producing commodity type products that fill universal needs where price is
the main competitive weapon

• Universal needs: needs that exist when the tastes and preferences of consumers in
different nations are similar if not identical. Examples are: bulk chemicals,
petroleum, agricultural products etc.
 LOCAL RESPONSIVENESS PRESSURE
Pressures for local responsiveness arise from:
1.Differences in consumer tastes and preferences (MTV example on pg. 395)
• strong pressure emerges when consumer tastes and preferences differ
significantly between countries
• North American consumers have a strong demand for pick-up cars, whereas such
cars are seen as utility vehicles by the Europeans and are simply not as popular.
• When selling cell phones to the US consumers, manufacturers focused more on
slim good looks. But, consumers in Asia and Europe preferred text messaging
and web browsing features.
 LOCAL RESPONSIVENESS PRESSURE
2. Differences in traditional practices and infrastructure (example on pg. 396)
• strong pressure emerges when there are significant differences in infrastructure
and/or traditional practices between countries
• In North America, consumer electrical systems are based on 110 volts, while in
European countries 240-volt systems are standard.

4.Differences in distribution channels (example on pg. 396)

• need to be responsive to differences in distribution channels between countries
• In Brazil supermarkets account for 36% of food retailing, in Poland is 18%, and in
Russia less than 1%.
LOCAL RESPONSIVENESS PRESSURE

4. Host government demands (example on pg. 396)

•economic and political demands imposed by host country governments may require
local responsiveness

•For example, pharmaceutical companies are subject to local clinical testing,

registration procedures and pricing restrictions which vary from country to country.
All these make it necessary that manufacturing and marketing of a drug meet local
requirements
CHOOSING A STRATEGY
 1. GLOBAL STANDARDIZATION STRATEGY
Global standardization - increase profitability and profit growth by serving a standardized,
uniform product worldwide, reaping the cost reductions from economies of scale, learning
effects, and location economies
•Goal is to pursue a low-cost strategy on a global scale

•This strategy makes sense when

• Strong pressures for cost reductions exists
• Demands for local responsiveness are minimal
• Often seen in industrial products, which serve universal needs and there are global standards. For example,
semiconductors, sugar, fuel, petroleum, chemicals etc
• In the consumer goods market, its more common in agricultural products.
2. LOCALIZATION
Increase profitability by customizing goods or services so that they match tastes and
preferences in different national markets.

This strategy makes sense when

• there are substantial differences across nations with regard to consumer tastes and
preferences
• cost pressures are not too intense
• By customizing the product offering to meet local demands, the company increases
the value of that product in the local market

•E.g. US (pick-up trucks); Europe & Japan (small fuel efficient cars)
 3. TRANSNATIONAL STRATEGY
Simultaneously achieve low costs through location economies, economies of scale, and
learning effects.

• firms differentiate their product across geographic markets to account for local
differences
• foster a multidirectional flow of skills between different subsidiaries in the firm’s
global network of operations (Ex of Caterpillar on pg. 399-400)

•This strategy makes sense when

• both cost pressures and pressures for local responsiveness are intense
4. INTERNATIONAL STRATEGY

Take products first produced for the domestic market and sell them internationally with
only minimal local customization. (Example of Xerox/Microsoft on pg. 400)

•This strategy makes sense when

• there are low pressure for low cost
• low pressures for local responsiveness