Bartlett & Ghoshal (Worked Answer to

Brompton Bicycle Paper 2 Practice Case

Study Question)
 Levels: A Level
 Exam boards: AQA

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Here is a suggested answer to the  16-mark "open" question  on the relative pressures of costs
and local responsiveness for success in international markets (Bartlett & Ghoshal).

Question:

Brompton does not adapt its products for international markets, but faces competitors
operating with lower costs. To what extent do you think that cost pressures are more
important than pressures for local responsiveness for any business wishing to succeed in
international markets? (16 marks)

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For Brompton, cost pressures seem to be increasingly important in determining their success
in international markets. By keeping production located in the UK where labour costs are
likely to be higher than in locations such as China, and then adding in the transportation costs
of exporting, Brompton may be at a cost disadvantage against domestic producers with lower
unit costs by using production that is less labour-intensive and uses generic components.
Unless Brompton can ensure that their products are price-competitive as well as high quality,
they may find themselves at a disadvantage against competitors with lower prices and
acceptable quality – particularly if competitors “copy” Brompton’s distinctive designs. On
the other hand, Brompton may find it has more pressure to be responsive to local market
needs than cost pressure when they enter new product segments (such as e-bikes) where
customers may be more demanding. Demand for innovative new products is often less price-
sensitive, and if Brompton can design new products that are clearly differentiated and more
tailored to local market needs, this may overcome any increased pressure to reduce costs as
the products become more widely bought.

There are many other situations where businesses need to be highly globally integrated in
order to succeed, particularly in markets where it is important to have efficient operations
located in each country they want to compete in. The logistics industry is a good example –
firms like FedEx and UPS have to ensure that their systems are tightly integrated across the
globe to offer customers the kind of reliable delivery service they expect. High pressure for
global integration is also increasingly important in situations where businesses produce
relatively standardised products, with little differentiation. Here, economies of scale and high
efficiency are vital in order to be competitive – e.g. car manufacturing. On the other hand,
customers in some international markets now demand greater authenticity in the goods and
services they buy and businesses that fail to respond to local market needs may find
themselves losing out to domestic competitors who are both efficient and locally responsive.
Starbucks discovered this in Australia where, despite being efficient, it misjudged what
customers wanted in terms of product.

In most international markets, however, it is cost pressures that are the most important to
determining business success. I justify this because, even if a business is highly responsive to
local market needs, it can be undercut by a domestic business that is similarly responsive to
customer needs, but is more efficient. This is often how domestic businesses are able to
compete against multinationals trying to enter international markets. Of course, where
customers demand product differentiation and/or where they want to buy branded products,
then cost pressures may be less important. Although sooner or later it is likely a competitor
that is both efficient and responsive to market needs will gain a competitive advantage over
inefficient firms.