INTERNATIONAL BUSINESS STRATEGY

Week 1

Session 1:

Intro to strategy

Strategy is the integrated set of choices that positions the business in its industry
so as to generate superior financial returns over the long run.

Strategy is a process, a set of consistent and reinforcing decisions and goal

-directed actions a firm takes to gain and sustain superior performance relative to
competitors.

The difference between success and failure lies in a firm’s strategy.

Strategy is a process = AFI

 Analysis
 Formulation
 Implementation
DSC CASE

1. What Industry does DSC operate? How would you characterize it?
Consumer goods  Personal Care Products (Oligopoly)
2. Has DSC outperformed its rivals? Why? Why not?

3. What is DSC’s strategy?

A technology enabled firm that has invaded market segments from the
bottom-up (with low-end/good enough razors) using a cost leadership
strategy, selling direct to consumers (B2C) through a Membership and
Razor Razorblade business model.

4. Did Unilever overpay for DSC? Why? Why Not?

No, Unilever boosted its digital transformation  Platform Ecosystem.
Complemented another bathroom brand. Counterattack its old-time
competitor Gillette

5. Lessons Learned for Gillette?

Disrupt yourself or die

Innovation – Uniqueness – Distinctiveness = Values, Plan, Mission, Vision, Values

proposition, Storytelling

The purpose of strategy is to create a competitive advantage that generates

superior, sustainable financial returns. It’s achievable by:

 Understanding of the business landscape

 The forces that shape competition

 Dynamics among players
 The drivers of industry evolution

 The choice of a position in the landscape

Competitive advantage is associated with creating a large gap between
customers’ willingness to pay and the company’s cost

Questions to analyze the willingness to pay in a simple manner:

 Who is the buyer?

 What does the buyer want?
 How well are the buyer’s needs being met?
 How can differences in meeting buyer’s needs be linked to activities?

The word strategy comes from the Greek strategos; which referred to military
command.

A good strategy provides clear answers to four key questions:

 Where/How do we compete?
 What unique value do we bring?
 What resources/capabilities do we use?
 How do we sustain unique value?

Ex. DollarShave Club created a value proposition of: B2C + Membership Business
Model

Prior to the second half of the 19th century, companies were small, with limited
capital, and no power to significantly influence their markets. Two key factors
changed that: The expansion of railroads provided better access to distant
markets; and Improved financial services provided better access to capital. This
changed dramatically how companies could choose where and how to compete.
Economies of scale or economies of scope was created due to the large-scale
investments and large developments.

Frameworks mentioned:
 SWOT (FODA): Matches a company’s strengths and weaknesses with its
opportunities and threats. Subsequent work focuses on defining a firm’s
distinctive competences and its translation to strategies.
 The Five Forces (Porter): Evaluates factors focusing on how they influence
industry profitability. Porter assesses the nature of rivalry among those
firms. It considers the suppliers the firms use, the customers they serve, and
 the relative power of each. And as threats he considers substitute products
and potential new entrants.
The sixth force: Compliments, goods or services that make those of another
firm more valuable. Co-opetition = Collaboration + Competition

o Threat of new entrants

New entrants, by introducing alternative products and capturing
market share can quickly erode profits by increasing competition.
The barriers of entrance are a key factor.
o Bargain power or suppliers
Is referred to the pressure that suppliers can put on companies by
raising their prices, lowering the quality, or reducing the availability
of their products. This power affects competitive environment and
profit potential of the buyers; it also shapes the competitive
landscape of an industry and help determine the attractiveness of an
industry.
o Bargain power of buyers
Buyer power gives customers the ability to squeeze industry margins
by pressuring firms (suppliers) to reduce prices or increase quality.
o Threat of substitute products
Substitutes: Multiple products from different industries all serve the
same purpose for customers
o Intensity of Rivalry
Refers to the extent which firms put pressure on one another and
limit each other’s profit potential.
o Opportunity of Complements
A firm has a complement when its goods are made more valuable by
those of another firm. The key factor in the power of complements is
how easily buyers and the complements themselves are able to
switch to alternatives. Buyers who can’t easily switch to another
platform give the complements significant power.

Achieving Internal Consistency

Business Models
The firm decides how to compete with its business model = how it operates, and
how it creates and captures value

Fundamental Considerations in any business model:

 The Value Proposition: based on

a. Differentiation: Product or service perceived to be better in some
ways than alternatives, increasing the customers’ willingness to pay.
Goal: Increase the price a lot while allowing costs increase only a
little.

b. Low Cost: Attraction of customers by offering lower prices or better

value at lower prices than its competitors.
Goal: Decrease prices to attract price-conscious customers, while
driving its relative cost position as far down possible.

 The Target Market, defined by scope:

a. Broad (Mass market)

b. Narrow (niche or focused)

The value proposition and the target market are the two fundamental strategic
choices for a firm because they shape all the other aspects of the business model.

Generic Business Models

 Subscription: Customers pay a recurring fee on a consistent basis to receive
a product or service regularly Ex. Netflix, DSC
 Pay-as-you-go: Customer pays a one-time cost for the product or service to
get access to it. Ex. PS4 cards, Apple cards
 Bundling: Focuses on packaging together complementary goods and/or
services into a single offering. Ex. Microsoft
 Freemium: Basic services to the customers for free while charging a certain
premium for extra add-ons Ex. Youtube, Dropbox
 Razor-Razorblade: Used by companies which deal in complementary or
companion products like razors and blades. Ex. PS4
 Platforms
Fit

For a business model to work, the firm’s chosen activities need to demonstrate fit.

 Simple consistency: Fit the firms value proposition and its target market.
Ex. BMW manufactures luxury automobiles, so they need to have high-
quality engineering and manufacturing to justify its premium price.

 Mutually reinforcing

 Optimization

Achieving External Consistency

Strategic positioning
A business model that is internally consistent, that fits with the realities of the
environment, and also is externally consistent. Finding and occupying these points
on landscape is strategic positioning.

There are some strategic options:

 Different Target Market

A more profitable point on the landscape.
Ex. Rather than compete for the household consumer market, it could
redeploy its skilled sales team to the institutional market (hotels, office
buildings, etc.)
 Different Business Model
Serving the same market but with a different business model.
Ex. The company rebrands and reposition itself as a luxury option for more-
discerning consumers willing to pay a premium.
 Different Positioning and New Target Market
Ex. Mousetrap design is repurposed to catch and protect small pets.
Customers willingness to pay is much higher, the relevant retail channel is
more fragmented, and competition is almost nonexistent.
Performance over the Long Run: Dynamic Consistency:

Threats:

 Imitation
Replication
 Substitution
It occurs when demands shifts as a result of changes in technology or
customer needs.
 Holdup
It occurs when the bargain power of a firm’s buyers, suppliers, or
complements increases, allowing them to capture more value.
 Slack
Internal threat that comes from poor management and suboptimal
performance

Sustaining Competitive Advantage

Competitive Advantage = Value Creation (value for customers)- Costs (required

to produce V)

Competitive advantage increases only if increase in value creation exceeds the

increase in costs

The greater the firm’s economic contribution, the more likely it will gain a
competitive advantage.

 Competitive Advantage: Superior performance relative to other

competitors in the same industry or the industry average.
 Sustainable Competitive Advantage: Outperforming competitors or the
industry average over a prolonged period of time.
 Competitive Disadvantage: Underperformance relative to other
competitors in the same industry or the industry average.
 Competitive Parity: Performance of two or more firms at the same level.
Hypercompetition
Global competition and increased flows of information, talent, and capital appear
to make it more challenging to attain outstanding result.

Age of hypercompetition, where a time of rapid strategic moves that erode

competitive advantage at ever greater speed

Companies that achieved superior performance for at least a decade appear to

find it more difficult today than they did in the past to extend their advantage
even further into the future.

Sources of Sustainability

Mechanisms that help shed light on enduring success:

 Taste-Based Loyalty
o Customers loyalty allows the market leader to raise prices because
rivals find it more difficult to lure away customers.
o A key factor is the order of market entry.
o It provides a competitive advantage that can span for generations.
 Uninformed Consumers
o A large responsible for the power of some brands is the lack of
information. If everyone was well informed, the market share of
some brands would fall by more than half.
o If no one bought name brands, the total expenditures for these
products would fall by almost 20%.
o Firms that can bias consumers’ perception of quality in their favor
are able to charge a premium.
 Switching Costs
o Ex. Customers are unlikely to switch to a different bank because they
invested time to set up online accounts, passwords, etc. OR Airline
frequent flyer and other loyalty programs. OR For years, individual
cell phone numbers discouraged customers from switching between
telecom providers.
 Network Effects
o In industries where network effects are present, the value of a
product or service increases with the number of people using it. They
 contribute to enduring financial performance because, as we will see,
they limit the number of companies that can enter an industry.
o 3 Types of network effects:
 Direct network effects: Ex. The leading US wireless carriers
benefit from strong network effects because calls are less
expensive for the carrier if the person being called is in the
same network.
 Indirect network effects: They operate through the market for
complements, enhance the value of a product by increasing
the number or quality of complements for that product. Ex.
Electric cars increase in value as more people drive them
because more parking lots are likely to install recharging
stations.
 Platform Businesses: Ex. Newspapers match readers and
advertisers OR Facebook creates value by matching consumers
and advertisers, it makes it more attractive to advertisers
(cross-side network effect = involves the relationship between
the two sides of the platform) OR As the number of advertisers
on Facebook increases, ads become more expensive, reducing
Facebook’s attractiveness to advertisers (same-side network
effects)
 Learning
o This is particularly a powerful source of a lasting advantage to
industries which cost leadership is the key to profitability.
 Economies of Scale
o Average costs decline as production volume increases
 Intellectual Property Rights
o Innovations that can be protected with the help of intellectual
property (IP) rights-patents, copyrights, trademarks, and trade
secrets – are more difficult to imitate.

But these mechanisms have the potential to harm customers too.

Firms positions (consumer preferences, technology trends, competitive dynamics)

need to be evaluated against the likelihood of government intervention, which
influences the probability that these positions are sustainable.
Session 2

External Analysis

Strategy Tripod

 Institution-Based View: Rules of the game (External Environment PESTEL)

 Industry-Based View: The positioning school (Industry Porter’s)
 Resource-Based View: The black box (The firm)

The PESTEL Framework

A firm’s external environment consists of all factors outside the firm that can
affect its potential to gain and sustain a competitive advantage.

Strategic leaders can mitigate threats and leverage (aprovechar) opportunities

PESTEL model provides a relatively straightforward way to scan, monitor, and

evaluate the important external factors and trends that might affect upon a firm.
Such factors create both opportunities and threats.

 Political Factors:
 Economic Factors: Growth rates, Levels of employment, Interest rates,
Price stability (inflation and deflation), Currency exchange rates.
 Social Factors: Society’s cultures, norms, values, health-conscious, age,
gender, family size, ethnicity, sexual orientation, religion, socioeconomic
class.
 Technological Factors: Lean manufacturing, Six Sigma quality,
biotechnology, nanotechnology, product innovations, artificial intelligence
 Environment Factors: Natural environment, global warming, sustainable
economic growth.
 Legal Factors: laws, mandates, regulations, court decisions

The Five Forces Model (Porter)

The structure of an industry is determined by elements common to all industries,
such as entry and exit barriers, number and size of companies, and types of
products and services offered.

 The Threat of Entry: Describes the risk of potential competitors entering

the industry. Potential new entry depresses industry profit potential in two
major ways: Reduces the industry’s overall profit potential and Increases
spending among incumbent (establecidas) firms. Entry Barriers:
o Economies of scale
o Network effects
o Customer switching costs
o Capital requirements
o Advantages independent of size
o Government policy
o Credible threat of retaliation

 The Power of Suppliers: Captures pressures that industry suppliers can

exert on an industry’s profit potential. The bargain power of suppliers is
high when:
o The supplier’s industry is more concentrated than the industry it sells
to.
o Suppliers do not depend heavily on the industry for a large portion of
their revenues.
o Incumbent firms face significant switching costs when changing
suppliers
o Suppliers offer products that are differentiated
o There are no readily available substitutes for the products or services
that the suppliers offer
o Suppliers can credibly threaten to forward-integrate into the industry

 The Power of Buyers: Relates to the pressure an industry’s customers can

put on the producers’ margins by demanding a lower price or higher
product quality. Factors that increase buyer power:
o Few buyers and each buyer purchase large quantities relative to the
size of a single seller
o The industry’s products are standardized or undifferentiated
commodities
 o Buyers face low or no switching costs
o Buyers can credibly threaten to backwardly integrate into the
industry

 The Threat of Substitutes: The idea that products or services available from
outside the given industry will come close to meeting the needs of current
customers. Is high when:
o The substitute offers an attractive price-performance trade-off. Ex.
Rental movies vs. buying DVD’s
o The buyers cost of switching to the substitute is low

 Rivalry Among Exiting Competitors: Describes the intensity with which

companies within the same industry jockey for market share and
profitability. Is determined by:
o Competitive industry structure: size and number of competitors, the
firm’s degree of pricing power, type of product or service, height of
entry barriers
o Industry growth
o Strategic commitments
o Exit barriers
 6 Force Co-opetition = Collaboration + Competition: A product, service or
th

competency that adds value when used with the original product.
o Complements increase demand for the primary product
o Enhances the profit potential for the industry and the firm
Session 3

Internal Analysis: Resources, Capabilities, and Core Competencies

A firm’s ability to gain and sustain competitive advantage is partly driven by core
competencies, they allow a firm to differentiate its products and services from,
those of its rivals, creating higher value for the customer or offering products and
services of comparable value at lower cost.

Core Competencies (Organizational Capabilities)

Unique strengths rooted deep whitin a firm, that are critical to gaining and
sustaining competitive advantage.

Core Competencies allow a firm to differentiate its products and services from
those of its rivals, creating higher valuer for the customer or offering products and
services of comparable value at lower cost.

Competitive advantage is frequently the result of a firm’s core competencies.

Resource-Based View
This model systematically aids in identifying core competencies.

The model sees certain types of resources as key to superior firm performance, it
includes any assets as well as any capabilities and competencies that a firm can
draw upon when formulating and implementing strategy

Critical Assumptions:

 Resource Heterogeneity: The bundle (paquete) of resources, capabilities,

and competencies differ across firms.
 Resource Immobility: Resources tend to be “sticky” and don’t move easily
from firm to firm.
The VRIO Framework

What resource attributes support competitive advantage?

¿Qué atributos de los recursos sustentan la ventaja competitiva?

For a resource to be basis of a competitive advantage it must be:

  Valuable: A resource that enables the firm to exploit an external
opportunity or offset an external threat
 Rare: A resource is rare if only one or few firms possess it.
 costly to Imitate: A resource is costly to imitate if firms that do not possess
the resource are unable to develop or buy the resource at a reasonable
price. (Imitation and substitution)
 Organized (the firm) to capture the value of the resource: A firm must have
in place an effective organizational structure and coordinating system to
fully exploit the competitive potential of its resources, capabilities, and
resources.
“It is often better to look at the entire organization and the financial results
to make a call”

VRIO DECISION TREE

If the answer is “yes” four times to the attributes listed in the decision tree, only
then is the resource in question a core competency that supports a firm’s
sustainable competitive advantage.

The Value Chain and Strategic Activity Systems

The value chain describes the internal activities a firm engages in when
transforming inputs into outputs: each activity adds incremental value

Primary Activities add value directly as the firm transforms inputs into outputs
 Supply Chain Management
  Operations
 Distribution
 Marketing and Sales
 After-sales service
Support Activities add value indirectly
 R&D
 Information Systems
 Human Resources
 Accounting and Finance

VALUE CHAIN

Session 4

Strategy Tripod
Organizational Capabilities

*Organizational Capabilities are a INTANGIBLE

SWOT (FODA)

Diagnosis:

Strategic
Challenge

Business
Opportunity
Sweet Spot

Strategic SWOT Questions:

 How can the firm use strengths to exploit opportunities?

 How can the firm use strengths to reduce the likelihood and
impact of threats?
 How can the firm overcome / mitigate weaknesses that prevent
the firm from leveraging opportunities?
 How can the firm overcome / mitigate weaknesses to reduce
threats?

Sweet Spot
Session 5

Business Strategy: Differentiation, Cost Leadership, and Blue Oceans

Business-level strategy details the goal-directed actions managers take in

their quest for competitive advantage when competing in a single product
market. It concerns the broad question: “How should we compete?”

Generic Business Strategies

Are called “generic” because they can be used by any organization in the
quest for competitive advantage, independent of industry context.

Differentiation
Seeks to create higher value for customers than the value that competition
creates, by delivering products or services with unique features.

The competitive advantage can be achieved as long as its economic value

created (V-C) is greater than that of its competitors.

Value drivers:
 Product Features
 Customer service: Ex. Two-way free shipping
 Complements: Ex. Smartphones and cellular services

Cost-leadership
Seeks to create the same or similar value for customers by delivering
products or services at a lower cost than competitors, enabling the firm to
lower prices to its customers.

Cost drivers:
 Cost of input factors: Ex. Raw materials, capital, labor and regulations
 Economies of scale
 Learning-curve effects: Underlying technology remain constant while
only cumulative output increased.
 Experience-curve effects: Underlying technology changes while
holding cumulative output constant.
Blue Ocean Strategy = Differentiation + Cost Leadership

It allows a firm to offer a differentiated product or service at a low cost

Value Innovation (ERRC)

 Eliminate (to lower costs): Which of the factors that the industry takes
for granted should be eliminated?
  Reduce (to lower costs): Which of the factors should be reduced well
below the industry’s standard?
 Raise (to increase perceived consumer benefits): Which of the factors
should be raised well above the industry’s standard?
 Create (to increase consumer benefits): Which factor should be
created that the industry has never offered?

The Strategy Canvas

The value curve is the basic component of the strategy canvas. It graphically
depicts a company’s relative performance across its industry’s factors of
competition.

Is a central diagnostic tool and action framework that graphically captures,

in one simple picture, the current strategic landscape and the future
prospects for an organization.

It allows to see all the factors an industry competes on and invests in, what
buyers receive, and what the strategic profiles of the major players are
Horizontal axis: The range of factors that an industry competes on and
invests in.
Vertical axis: The offering level that buyers receive across all of these key
competing factors.
Value curve or strategic profile: The graphic depiction of a company’s
relative performance across its industry’s factors of competition.

Session 6

Session 7

Global and International Strategies

Advantages and Disadvantages of Going Global

Advantages

1) Gain access to a larger market: Economy of scale

2) Gain access to low cost input factors and skilled workers
3) Develop new competencies

Disadvantages
 1) Liability of foreignness
2) Loss of reputation (Alstom)
3) Loss of intellectual property (Microsoft in China)

CAGE Framework

Helps assess the external environment when expanding overseas

It guides MNE decisions on which countries to enter

Cultural
Administrative and Political
Geographic
Economic
Foreign Market Entries

Integration-Responsiveness Framework

International Companies:
Global Standization:
M