RICARDO PALMA UNIVERSITY

Global Business Administration School

Faculty of Economic and Business Science

Subject: Global business management and social responsibility

Professor: Hidalgo Cárdenas, Rafael

CHAPTER 13: THE STRATEGY OF INTERNATIONAL BUSINESS

Members:

Carrillo Aguilar, Daniel Eduardo

Choque Barrientos, Gonzalo Enrique

Ferreyros Pinillos, María de la Paz

López Rojas, Richard Michelle

Orozco Rosales, Kelly Milagros

Tello, Julio

Villegas Salinas, Gino

Arcila Corales, José María Alberto

Lima, Perú

2022 - I
 INDEX

INTRODUCTION

1. OBJECTIVE OF THE CHAPTER

2. VODAFONE CASES

3. FOUR BASIC STRATEGIES

3.1. GLOBAL STANDARDIZATION STRATEGY

3.1.1. OBJECTIVE OF THE STRATEGY

3.1.2. GLOBAL STANDARDIZATION CASE

3.2. LOCALIZATION STRATEGY

3.2.1. OBJECTIVE OF THE STRATEGY

3.2.2. LOCALIZATION STRATEGY CASE

3.3. TRANSNATIONAL STRATEGY

3.3.1. OBJECTIVE OF THE STRATEGY

3.4.2. TRANSNATIONAL STRATEGY CASE

3.4. INTERNATIONAL STRATEGY

3.4.1. OBJECTIVE OF THE STRATEGY

3.4.2. INTERNATIONAL STRATEGY CASE

4.THE EVOLUTION OF STRATEGY

4.1. EVOLUTION OF STRATEGY AT PROCTER & GAMBLE

4.2. THE EVOLVING STRATEGY AT IBM

CONCLUSIONS OF THE CHAPTER

 INTRODUCTION

When talking about strategy in international companies, it has a process by which it

focuses on continuous improvement against competitors, on how firms can increase their
profitability and reduce costs by expanding their operations into foreign markets.

We will discuss the different strategies that companies such as Avon, P&G, IBM,
using marketing and localization strategies, focusing on the latter in different ways, in the
culture to enter new markets.

This chapter seeks to talk about the strategies and their evolution in order to
understand how successful companies have been able to generate large profit margins and
reduce their costs to simply not lose a new market to generate revenue.

As Michael Porter talks about, cost reduction and differentiation are two basic
strategies to create value and attract a competitive advantage for the industry.

This improvement in profitability goes to firms that can create superior value and the
way to do this is through product differentiation which this chapter will discuss.
 CHAPTER 13: THE STRATEGY OF INTERNATIONAL BUSINESS

1. OBJECTIVE OF THE CHAPTER (Julio)

The objectives of this Chapter 13 are: Explain the concept of strategy; Recognize how
companies can benefit from expanding globally; Understand how cost reduction pressures
and local responsiveness pressures influence strategic choice; Identify the different strategies
to compete globally and their pros and cons. In this work we will focus on the last objective,
which is to identify the different strategies to compete globally and what their advantages and
disadvantages are. Within this point we will see the suitability of each strategy that we will
see below that will vary given the scope of the pressures for cost reduction, it refers to the
fact that one should try to reduce the costs of creating value through mass production of a
standard product in optimal locations around the world, and local responsiveness refers to
how well a company meets the needs of a particular market. Basically, how much do they
change from one market to another? It not only translates websites and mobile apps into other
languages, but also covers the entire customer experience, from checkout to images, product
options, and specifications.

2. VODAFONE CASES

The case of J-Phone and vodafone is clear why it is important to apply some of the
strategies of the international business.

Many years ago in 2002 Vodafone group acquired J-phone one of the important
wireless communications service companies in Japan and after four years Vodafone ended up
selling J-phone.

According to specialists, the mistake of the British giant (Vodafone) was to focus
solely on expanding the company globally, making it possible for users to use their phones
both inside and outside of Japan. A somewhat hasty decision since they had only a few years
after acquiring the company and when trying to expand they neglected their most important
target market "Japan", in addition to the fact that the users who used their equipment the most
were young people who didn't have to need to use equipment outside the country.
 On the other hand, its competitors focused on developing equipment with optimal
internet speed and that users can use it in Japan, and without much problem they quickly
gained market share, dethroning the J-Phone from the market.

The correct thing would have been for the company to make the changes step by step,
such as focusing on developing a good mobile device with good speed and 3G internet
coverage that works correctly in Japan, in addition to listening and implementing the needs of
its target audience (People young people from Japan) and thus achieve a position in Japan to
later think about expanding internationally.

3. FOUR BASIC STRATEGIES

3.1. GLOBAL STANDARDIZATION STRATEGY (José Maria)

A global standardization strategy consists of considering that the market is global for
the product. That is, despite the differences between nations, companies offer the same
product in all markets; helping to reduce adaptation costs and helping to identify them where
they are.

We have defined the concept of standardization as the phenomenon through which the
different global manufacturing processes converge towards a single style that predominates
worldwide and that seeks to establish similarities between each item regardless of where they
come from or where they go.

3.1.1. OBJECTIVE OF THE STRATEGY

The main objective of this global standardization strategy is to adopt a low-cost

strategy on a global scale and thus generate the maximization of shareholder value.
Therefore, in its definition, it is the strategy in which the different global manufacturing
processes converge towards a single style that predominates worldwide and that seeks to
establish similarities between them no matter where they come from.

Its characteristics are increased profitability, profit growth, cost reduction.

Standardization has the advantage of increasing the level of product quality, they use a single
campaign and have lower costs.
 There are some variables already identified that motivate the use of the
standardization strategy, such as:

● Economies of scale in production, marketing and management.

● Consistent and coherent image at an international level.
● Industrial products
● Legislation convergence
● Processes of economic integration.
● Homogenization of consumer tastes and demand

3.1.2. GLOBAL STANDARDIZATION CASE

Some cases that we can highlight are:

● Coke: It has the most recognized product in the world. Its international strategy of
standardization in its product is focused on aspects of design and communication,
adaptation in the creation for specific markets, distribution, etc.

Product: Traditional Coca Cola

● McDonald's:In all its locations, it has a clear objective in which its main value is to
deliver cheap food with a consistent taste, fast service and a clean family
environment.

Product: Big Mac

Among other examples we also find: Gillette, Cell phones, Lego, Intel, Marlboro. All
these examples have in their products the use, taste and custom standardized throughout the
world.

3.2. LOCALIZATION STRATEGY

As a brief summary of what a location strategy is, we've got that a localization
strategy focuses on increasing profitability by personalizing the goods or services of a
specific company so that it can be correctly adapted to the tastes and preferences of different
national markets. Localization is most appropriate when there are substantial differences
between countries with respect to consumer tastes and preferences, and when cost pressures
are not too intense. By trying to match this product offering to local demands, the company
increases the value of that product in the local market. On the negative side, we have that
because this type of strategy involves some duplication of functions and smaller production
runs, customization limits the company's ability to capture the cost reductions associated with
mass production of a standardized product.

3.2.1. OBJECTIVE OF THE STRATEGY

The main objective of this strategy is that at the same time, these multinationals try to
gain some economies of scale from their global volume by using common vehicle platforms
and components across many different ones, and manufacturing those platforms and
components in scaled-up factories. efficiently that they are optimally located. By designing
their products in this way, these companies have been able to localize their product offerings
while capturing some economies of scale, learning effects, and economies of location.

For global consumption. Similarly, the strategy may make sense if the added value
associated with local customization supports higher prices, allowing the company to recoup
its higher costs, or if it leads to substantially greater local demand, allowing the company to
reduce costs by achieving some economies of scale in the local market.

3.2.2. LOCALIZATION STRATEGY CASE

A case of location strategy where we can see some factors that determine which
country to choose, would be the following: Five Flags, in Florida, an American chain

With 10 family amusement parks, he decided to expand abroad and open his first park
in Europe. Among the countries to choose are France and Denmark, to determine what
factors can influence the decision, the following table is available:

FACTORS WEIGHT FRANCE DENMARK

LABOR 0.25 70 60
AVAILABILITY

RATIO OF 0.05 50 60
PEOPLE TO
CARS

INCOME PER 0.10 85 80

CAPITAL
 TAX STRUCTURE 0.39 75 70

EDUCATION AND 0.21 60 70

HEALTH

TOTAL 1.00

Analyzing and calculating according to the data, we have the following results

TOTAL FRANCE DENMARK

(0.25)(70) = 17.5 (0.25)(60) = 15.00

(0.05)(50) = 2.50 (0.05)(60) = 3.00

(0.10)(85) = 8.50 (0.10)(80) = 8.00

(0.39)(75) = 29.30 (0.39)(70) = 27.30

(0.21)(60) = 12.60 (0.21)(70) = 14.70

TOTAL 70.4 68

So we can conclude by saying that it is preferable to establish an amusement

park in France

3.3. TRANSNATIONAL STRATEGY

For enterprises that look out for a sort of success when both cost pressures and a
strong local responsiveness exist. They do all they can with the global environment. try to
leverage them from a foreign subsidiary to their home country, or just straight from foreign to
foreign subsidiary. The same works for subsidiary skills. Even if the idea sounds appealing in
theory, it is not a simple strategy, and it often demands too much conflict in the company. It
raises costs, which is a direct counter hit to the goal of reducing costs.

3.3.1. OBJECTIVE OF THE STRATEGY

Is to deal with pressures for cost reductions and local responsiveness. The company
must redesign their production, by making similar components, and make a large scale of
those, in favorable locations to fill global demands. This is a complex and challenging task,
because often enterprises will create more problems in order to solve one, despite that the
control systems to manage this strategy are vast enough to drain a lot of resources.
3.4.2. TRANSNATIONAL STRATEGY CASE

The case of Caterpillar nails the exact definition of the strategy. The starting point is
the problem they faced against another big company, Komatsu of Japan. Their lower costs
and more appealing economy forced Caterpillar to look for greater cost economies and be
responsive to local demands. Those cost pressures made Caterpillar to change the
components for others alike and to go for large-scale components manufacturing facilities.
Later, The company augmented the centralized manufacturing of components with assembly
plants in each of their major global markets. In this way, Caterpillar was able to benefit from
the global manufacturing and differentiate its products among national markets at the same
time. Finally caterpillar went to take their market share from Komatsu and Hitachi, both
direct rivals with a cost advantage that soon began to disappear.

3.4. INTERNATIONAL STRATEGY

Multinational firms had found themselves in the fortunate position of being

confronted with low cost pressures and low pressures for local responsiveness. Most of these
firms have pursued what is called an International strategy, this is based on taking products
first produced for their domestic market and selling them internationally with only minimal
local customization. So, the distinguishing feature is that these firms sell a product that serves
universal needs, but they do not face significant competitors, and thus unlike firms pursuing a
global standardization strategy, they are not confronted with pressures to reduce their cost
structure.

Enterprises that are pursuing an international strategy follow a similar pattern as they
expand into foreign markets.They tend to centralize product development functions such as
R&D at local. However, they also tend to establish manufacturing and marketing functions in
each major country or geographic region in which they do business. This can raise costs, but
this is less of an issue if the firm does not face strong pressures for cost reductions.

3.4.1. OBJECTIVE OF THE STRATEGY

The objective of the International Strategy is to make the firm a multinational one, so
they can manage the differences that arise when operating across multiple geographic and
cultural borders. The strategy allows firms to expand into foreign markets and help the
company achieve profitable growth in a global market.
3.4.2. INTERNATIONAL STRATEGY CASE

The international strategy at Procter & Gamble: Procter & Gamble is nowadays a
global colossus in consumer products with annual sales in excess of $50 billion, some of 54%
of which are generated outside of the United States. They sell more than 300 brands to
consumers in 160 countries. The international strategy they established started when they
developed new products in Cincinnati (their home) and then relied on semi autonomous
foreign subsidiaries to manufacture, market, and distribute those products in different nations.
In most cases, foreigh subsidiaries had their own production facilities and tailored the
packaging, brand name, and marketing message to local tastes and preferences.

4.THE EVOLUTION OF STRATEGY (Maria Paz).

The international strategy has some declines, and one of them is that over time,
competitions inevitably emerge, and if managers do not take proactive measures to reduce the
cost structure of their company, it will be quickly flanked by efficient global competitors.

This happened with Canon in a last instance, not adapting to new measures, new cases
of successes, and in such a way to take them as a remuneration, they have by law not update
and fail. To survive, companies must point to a global standardization strategy, in this way
they would be even more competitive and sustainable over time.

Speaking of location, this can give the company a competitive advantage, but if it
faces competitors simultaneously, the company itself would also have to reduce the cost
structure, and the only way to do it can be changing direction towards the direction towards
the Transnational strategy Therefore, as competition intensifies, internationalized and
location strategies become less viable, and managers need to guide their companies towards a
global stagnation strategy or a transnational strategy.

4.1. EVOLUTION OF STRATEGY AT PROCTER & GAMBLE

Over the years, Procter & Gamble has been considered an international company, one
of the main companies that has been able to apply internationalization strategies, to its
measure and on the rise, it works and is applicable.

Procter & Gamble's global strategy is well established, because it began in a specific
location and expanded towards other locations to cover other markets. In many cases, foreign
subsidiaries had their own production facilities and adapted the packaging, brand brand and
marketing message to local tastes and preferences.

However, the growth of the company was slowing down, the costs were being high,
and was simple due to the various facilities, factories, marketing and administrative areas
around the world.

The company destroyed its old organization, which was based in countries and
regions, and replaced it with one based into seven autonomous global business units, ranging
from baby care to food products. each business unit was given full responsibility for
generating profits of its products, and for the manufacture, marketing, and product
development.

4.2. THE EVOLVING STRATEGY AT IBM

At IMB, we normally talk about the evolution of global strategy in IT companies.

When we talk about IBM we must first understand that this company began to expand
internationally, in a classic way, following an "international" pattern of many companies,
doing most of its activities at home, and driving its products internationally through offices.
sales around the world.

In recent years, IBM has been moving away from this model and towards one that
characterizes itself as a "globally integrated company". The business environment is adequate
and is being integrated with those operations horizontally and globally.
 CONCLUSIONS OF THE CHAPTER (Todos)

In conclusion, regarding the Global Standardization Strategy, this is the best tool to
reduce costs and standardize a product globally without the need to adapt the product to the
market.

Some recommendations are that one way to further reduce costs is to assemble in
another country where export tariffs are the lowest.

He ended with a phrase from Theodore Levitt (1983):

“A powerful force is driving the world towards a unique and converging community,
this force is technology. It has proletarianized communication, transportation and travel,
making accessible, because of its ease and less cost, the most isolated places and for the
poorest multitudes of the world. Almost everyone, everywhere, wants the things they have
heard about, seen, or experienced through new technological means that drive their needs and
desires. This leads more and more towards the global community, thus homogenizing
markets everywhere”

In conclusion, The talking referred to the localization strategy is mainly focused on

achieving a drastic increase in the profitability in terms related with the help of personalizing
the services or even the goods, could be of a specific company, so that it can fit in the best
way, in a diversification of various existing markets.
 Talking about the Transnational strategy cannot be applied by every company, it
demands a lot of resources and solves a problem that can only be found in companies with a
high pressure, in both cost pressures and local responsiveness. This can also lead to
generating higher costs, if it is not applied correctly, meaning that it might be a favorable
strategy in theory, but we would need a lot of back support to accept this challenge.