The Strategy of International Business

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The Strategy of International Business

Chapter Outline

OPENING CASE: The Evolving Strategy of Coca-Cola

INTRODUCTION

STRATEGY AND THE FIRM

Value Creation
Strategic Positioning
Operations: The Firm as a Value Chain
Organization: The Implementation of Strategy
In Sum: Strategic Fit

GLOBAL EXPANSION, PROFITABILITY, AND PROFIT GROWTH

Expanding the Market: Leveraging Products and Competencies Location Economies
Experience Effects
Leveraging Subsidiary Skills
Summary

COST PRESSURES AND PRESSURES FOR LOCAL RESPONSIVENESS

Pressures for Cost Reductions
Pressures for Local Responsiveness

CHOOSING A STRATEGY

Global Standardization Strategy
Management Focus: Vodafone in Japan
Localization Strategy
Transnational Strategy
International Strategy
The Evolution of Strategy
Management Focus: Evolution of Strategy at Procter & Gamble

STRATEGIC ALLIANCES

The Advantages of Strategic Alliances
Management Focus: Cisco and Fujitsu
The Disadvantages of Strategic Alliances
Making Alliances Work

SUMMARY

CRITICAL THINKING AND DISCUSSION QUESTIONS

CLOSING CASE: IKEA – The Global Retailer

Learning Objectives

1. Explain the concept of strategy.

2. Understand how firms can profit by expanding globally.

3. Understand how pressures for cost reductions and pressures for local responsiveness influence strategic choice.

4. Be familiar with different strategies for competing globally and their pros and cons.

5. Explain the pros and cons of using strategic alliances to support global strategies.

Chapter Summary

This chapter focuses on the strategies that firms use to compete in foreign markets. At the outset, the chapter reviews the reasons that firms engage in international commerce, which range from earning a greater return from distinctive skills to realizing location economies by dispersing particular value creation activities to locations where they can be performed most efficiently. A major portion of the chapter is dedicated to the pressures that international firm's face for cost reductions and local responsiveness. These pressures place conflicting demands on firms. On the one hand, cost reductions are best achieved through product standardization and economies of scale. On the other hand, pressures for local responsiveness require firms to modify their products to suit local demands. The chapter also discusses the four basic strategies that firms utilize to compete in international markets. These strategies include a global standardization strategy, a localization strategy, a transnational strategy, and an international strategy. The advantages and disadvantages of each of these strategies are discussed. The chapter concludes with a discussion of international strategic alliances.

Opening Case: The Evolving Strategy of Coca Cola

Summary

The opening case describes the evolution of Coca Cola’s international strategy. When Coca Cola initially began its international expansion, the company took a localized approach to markets. Local subsidiaries were given significant latitude in determining which products were sold, how they were marketed and so on. In the 1980s and 1990s, the company moved to a more standardized approach, but then in 2000 reverted back to a more localized strategy which gave country managers more autonomy. Discussion of the case can revolve around the following questions:

QUESTION 1: Using the framework developed in this chapter, how would you describe Coca Cola’s strategy for competing internationally when it originally expanded internationally? Why did Coca Cola want to expand internationally?

ANSWER 1: Coca Cola initially began its international expansion in 1902. Just a couple of decades later, the product was sold in 76 countries,...
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