International Business

Chapter 8
Strategy of
International
Business
 Strategy: Definition and Features

 Strategy can be defined as the actions that

managers take to attain the goals of the firm.
 Strategy can also be defined as “A general direction
set for the company and its various components to
achieve a desired state in the future”.
 A strategy is all about :
1- Integrating organizational activities
2- Allocating and utilizing the resources within the
organizational environment.
3- Meet the objectives.
 Strategy: Definition and Features

Features of Strategy
 Strategy is Significant to foresee the future, the
firms must be ready to deal with the uncertain
events which constitute the business environment.

 Strategy deals with long term developments rather

than routine operations, i.e. it deals with probability
of innovations or new products, new methods of
productions, or new markets to be developed in
future.
 Strategy: Definition and Features

 Strategy is created to take into account the

probable behavior of customers and
competitors.

 The objective of a strategy is to maximize an

organization’s strengths and to minimize the
strengths of the competitors.

 Strategy, in short, bridges the gap between

“where we are” and “where we want to be”.
International Business Strategy and
Strategic Management

Strategic Management is all about

identification and description of the
strategies that managers can carry
out so as to achieve better
performance and a competitive
advantage for their organization.
 Steps of Strategic Management
Process
1. Environmental Scanning

 Environmental scanning refers to a process of collecting,

scrutinizing and providing information for strategic purposes.

 It helps in analyzing the internal and external forces

influencing an organization.

 After executing the environmental analysis process,

management should evaluate it on a continuous basis and
strive to improve it.
 Steps of Strategic Management
Process
2. Strategy Formulation

 Strategy formulation is the process of deciding

best course of action for accomplishing
organizational objectives and hence achieving
organizational purpose.

 After conducting environment scanning,

managers formulate corporate, business and
functional strategies.
 Steps of Strategic Management
Process
3- Strategy Implementation

 Strategy implementation implies making the strategy

work as intended or putting the organization’s
chosen strategy into action.

 Strategy implementation includes designing the

organization’s structure, distributing resources,
developing decision making process, and managing
human resources.
 Steps of Strategic Management
Process
4- Strategy Evaluation
 Strategy evaluation is the final step of strategy
management process.
 The key strategy evaluation activities are:
appraising internal and external factors that are the
root of present strategies, measuring performance,
and taking remedial / corrective actions.
 Evaluation makes sure that the organizational
strategy as well as it’s implementation meets the
organizational objectives.
 Steps of Strategic Management
Process
 These components are steps that are carried, in chronological order, when

creating a new strategic management plan.

Components of Strategic Management Process

 Present businesses that have already created a strategic management plan will

revert to these steps as per the situation’s requirement, so as to make essential

changes.
 Variables Affecting the Selection of
Business Strategy
Firms that compete in the global marketplace face two
types of competitive pressures:

1- Cost reduction
Responding to cost reduction requires that a firm tries to minimize its
costs.

2- Local Responsiveness
Responding to local responsiveness requires that a firm differentiate its
products offering and marketing strategies from one country to another in
an effort to accommodate the diverse demands arising from national
differences in consumers’ tastes, preferences, business practices,
competitive conditions and governmental policies.
 Strategic Choices

 Four basic strategies to enter and

compete in the international
environment:
– Global Standardization Strategy
– Localization Strategy (Multi domestic
strategy)
– Transnational Strategy
– International Strategy
 Global Standardization Strategy

Examples: Intel and Motorola

Firms that pursue a global standardization strategy focus
on increasing profitability and profit growth by reaping the
cost reductions that come from economies of scale(refer
to the reductions in unit cost achieved by producing a large
volume of a product), location economies (perform an
activity in the optimal location for that activity) and learning
effects(are cost savings that come from learning by doing),
Their strategic goal is to pursue a low-cost strategy on a global scale.
 These firms try not to customize their product offering and marketing
strategy to local conditions because customization involves shorter
production runs and the duplication of functions, which tend to raise
costs.
 Localization Strategy (Multi domestic
strategy)
Examples : MTV- Procter& Gamble- Automobile
Companies
A localization strategy focuses on increasing profitability by
customizing the firm’s goods or services so they provide a
good match to tastes and preferences in different national
markets.
 Localization is most appropriate where consumer tastes
and preferences differ substantially across nations and
cost pressures are not too intense.
 By customizing the product offering to local demands, the
firm increases the value of that product in the local market.
 Transnational Strategy

Example : Caterpillar
 What happens, however, when the firm simultaneously
faces both strong cost pressures and strong pressures for
local responsiveness?
 According to some researchers, the answer is to pursue
what has been called a transnational strategy.

 In today's environment, competitive conditions are so

intense that to survive, firms must do all they can to
respond to pressures for cost reductions and local
responsiveness.
 International Strategy

Example: Microsoft
 Firms that find themselves in the fortunate position
of being confronted with low cost pressures and low
pressures for local responsiveness.
 These firms take products first produced for their
domestic market and sell them internationally with
only minimal local customization.
 The distinguishing feature of these firms is that they
are selling product that serves universal needs but
they don’t face significant competitors.