A warm welcome to International Business Strategy

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 Introduction to International Business Strategy

Week 1_Lecture1
03/10/23

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 Module leader

Diana Owusu-Yirenkyi
Office: City Campus, School of Management, Pemberton Building
Feedback Hours: Available on Ms Teams
Email: d.owusu-yirenkyi@bradford.ac.uk

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 Objectives of Lecture 1

Highlighting the method Understanding the

Introduction to the
of teaching delivery assignment requirements
module.
throughout the module. for this module.

Providing a comprehensive understanding of

Introducing key
FDI, including its characteristics, motivations,
theoretical concepts and
and the strategic postures of multinational
models.
enterprises.

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 Aims of the Module
To foster an appreciation for the complexity of
international strategy.

To enhance your understanding of the various

external and internal factors that can influence the
competitiveness and global performance of
companies.

To acquire knowledge and develop a critical

understanding of a range of key theories, concepts,
and frameworks relevant to strategic analysis and
decision-making in international business."
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 Relevance of the Module
This module is critical for understanding how corporate executives and other managers
formulate their strategies for success in international markets.

It is essential for comprehending the strategic conditions (e.g., resources, institutions)

that guide managers' strategic decisions.

It is crucial for demonstrating how companies can effectively compete internationally,

gain a competitive advantage (e.g., through global efficiency and localization), and
determine the strategic positions to adopt.
This module is vital for explaining how strategic positions are realized through entry
decision-making choices such as market location, entry timing, and mode selection.

It plays a pivotal role in understanding the significant strategic and operational challenges
that arise when competing on an international scale.

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 The module will be:
Theoretical –discussing a variety of theoretical understandings and
models of international strategies.

Practical –use theory to analyse the international context and explain

and inform real life international firm activities.

Critical –actively engage in questioning, evaluating, and potentially

critiquing the concepts, theories, and practices.

Linked up – All the topics and lectures in the module are

interconnected.

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7 Diana Owusu-Yirenkyi
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 Learning methods
Lectures:
• 2 hours per week.
• Used to introduce students to a variety of literature.
• Assigned textbook chapters are for preparation before lectures.

Tutorials:
• 1hour tutorial seminar every week (begins in week 2).
• Used to expose students to academic literature and debate.
• Opportunities for students to apply theory to real-life situations.
• Advance preparation is essential.
• Check your timetable and only attend the tutorial session that you are allocated in (Attendance
• will be checked).

Private Study:
• Private revision is critical. You will not pass this module without ongoing revision and
preparation for tutorials and assessment.
• Reading of learning materials and directed reading in advance of individual lectures.
• Reading preparation in advance of seminars.
• Research preparation, analysis, and writing.
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 Assessment
Individual coursework assessment: 100%

Answer three questions out of five.

Each question is marked 100%.

Maximum length: 1,000 words per question max

Final module mark will be the average on the three marks

Questions are closely based on both lecture & tutorial material

Discussion and critical evaluation type essay questions

Check the Assessment Brief on Canvas home page for details!

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 Supplementary Assessment

If you receive a failure mark (below 40%) for this module, you
may be required to sit for supplementary assessment.
The supplementary assessment for this module is also based
on coursework.

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 Topics to be explored

❖ Key Internationalisation theories

❖ Cross-cultural management in IB
❖ The strategy and structure of international business
❖ Entry strategy and corporate strategies that can influence
the competitiveness and international performance
❖ The Impact of Brexit and global pandemic on international
business

➔Check Module Handbook!!

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 Textbook Readings
Core textbook: Hill, C. W. L. (2022).
International business: competing in
the global marketplace, 14th Edition
New York, McGraw Hill.

NB: Move beyond the core readings

and read widely. Reading academic
journal articles offers a more in-depth
understanding.

Consult reading list on Canvas link/

see Module

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 Introduction to International Business Strategy

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 What is International Business?

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International Business Strategy-Lecture 1
 Why Study International Business?
❖ Globalization: In an increasingly interconnected world,
businesses operate on a global scale. Understanding
international business helps individuals and firms
navigate the complexities of global markets and take
advantage of opportunities worldwide.

❖ Market Expansion: International business knowledge

enables companies to expand their market reach
beyond their home country, leading to increased sales,
revenue, and growth opportunities.

❖ Cultural Awareness: This is essential for building

effective relationships with partners, customers, and
employees from diverse cultural backgrounds.

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 Why Study International Business?
❖ Risk Management: International business
involves dealing with various risks, such as
political instability, currency fluctuations, and
legal complexities. Learning how to identify,
assess, and mitigate these risks is crucial for
success.

❖ Competitive Advantage: Companies that

understand international business can gain a
competitive edge by being able to enter new
markets more efficiently and effectively than
their competitors.

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 What is International Business Strategy?

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 Areas of strategy for IB
Corporate strategy:
❖ How to approach foreign markets?
❖ Key sources of competitive advantage?
❖ Degree of standardisation and customisation for
product/service and marketing mix?
❖ Degree of centralisation versus decentralisation
within decision-making?
❖ Organisational structure?

Entry strategy:
❖ Which entry and operating mode for servicing
foreign markets?
❖ At what pace do you internationalise?
Where to internationalise?
❖ When to enter? First or later mover?
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 External forces for international business

❖ Political: political stability, government policies,

trade agreements, tariffs, and regulations.

❖ Economic: exchange rates, economic stability,

inflation rates, and economic growth.

❖ Social: demographic changes, cultural differences

in customs, values, behaviours, and preferences.

❖ Technological: rapid pace of technological

change can create both opportunities and
challenges for international businesses.

❖ Environmental: Sustainability factors,

environmental standards and consumer demands
for sustainable products.

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 Critical questions for international businesses and
managers

International managers face very complex decisions when

operating foreign business.

Examples:
• What is the target market's size, growth potential, and
demographics?
• What are the risks and benefits associated with different
entry modes?
• What ethical and cultural norms do we need to consider
in our business practices?
• What communication and negotiation styles work best in
different regions?
• Staffing international subsidiaries?
• What Corporate Social Responsibility initiatives are
relevant and valued in different markets?
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 Organisational factors facilitating outward
internationalisation
Outward internationalization refers to the expansion of a company's operations,
products, or services into foreign markets, involving various strategies such as
exporting, franchising, joint ventures, mergers and acquisitions, or establishing
subsidiaries etc.

Factors facilitating Outward internationalization:

• Resources availability
• Knowledge development
• Communication networks
• Risks and uncertainty
• Control
• Commitment
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 Other factors driving Outward internationalization
Hostile Environment:
Companies may seek international expansion when facing a challenging domestic business
environment. Examples: high competition, saturated markets, or regulatory constraints.

Host Country Factors:

The attractiveness of potential host countries plays a crucial role in a company's decision to
internationalize. Examples: the presence of a robust legal framework and protection of intellectual
property rights.

Psychic Distance:
Psychic Distance refers to perceived cultural, linguistic, and institutional gaps between the home and
host country. A narrower psychic distance facilitates foreign market entry.

Individual Level Factors: CEO's international experience, the firm's international experience,
optimism, and risk-taking tendencies, among others.

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 Entry strategies (mode of entry)
The 'how' of internationalization: What degree of commitment to internationalization? e.g.,
exporting, licensing, joint ventures, acquisitions, etc.

The depth and diversity of operational methods adopted usually increase with time and
experience.

Not just about choice of entry or operating mode:

❖ Mode switching: the practice of a company changing its approach or method when
entering or operating in international markets.
❖ Mode combination: the practice of using multiple entry modes simultaneously or
sequentially when expanding into foreign markets.

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 Target market
Market selection involves a company carefully choosing
foreign markets that align with its goals, resources, and
capabilities, considering factors like market size, growth
potential, competition and regulatory environment.

Examples:
Cultural Compatibility: Businesses may consider cultural
factors when choosing a market. A fast-food chain might
select a market where there is a strong affinity for Western-
style dining.

Trade Agreements: Countries that have favourable trade

agreements with the company's home country may be more
attractive for expansion.

Growth Potential: a renewable energy company might focus

on countries with ambitious renewable energy targets, like
Germany or India

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 Primary factors influencing international
market selection (IMS)
CATEGORIES FACTORS INFLUENCING (IMS)

FIRM-SPECIFIC FACTORS a) Type of product

b) Management characteristics

c) Firm size

d) international experience

HOST COUNTRY FACTORS a) Market attractiveness

b) Country attractiveness

c) Marketing infrastructures

d) Competition

ENTRY BARRIERS a) Country risk

b) Tariff and non- tariff barriers

c) Psychic distance

d) Geographic distance

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 International investment

International investment: the process of businesses, or governments investing in ventures

located in foreign countries.
These investments can take various forms:
Portfolio Investment: investments in financial assets like stocks, bonds issued by foreign
entities. It is typically do not entail direct control or active management of the foreign
company. It is typically short-term.

Foreign Direct Investment (FDI): is a strategic approach that businesses use to

internationalize their operations and expand into foreign markets.
It involves establishing a significant presence in a foreign country by investing in or
acquiring assets, such as subsidiaries, joint ventures, or wholly-owned enterprises.
FDI is a long-term commitment
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 Foreign Direct Investment

Foreign Direct Investment (FDI) is

a key internationalization strategy
employed by businesses to
expand their operations beyond
their domestic borders.

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 Foreign Direct Investment

Foreign direct investments: the capital flows made to secure a

significant managerial stake (comprising 10% or more of the
voting shares) in a business operating within an economy
different from that of the investor. It is the sum of equity capital,
reinvested profits, additional long-term and short-term
investments, as shown in the balance of payments (World Bank).

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 Significance of FDI

Market Access: FDI provides businesses access to new markets, allowing

them to tap into a larger customer base and increase revenue streams.

Resource Acquisition: It enables firms to access resources, such as raw

materials, skilled labour, or technological expertise, that may not be
readily available in their home country.

Risk Diversification: Diversifying operations across multiple countries can

help mitigate risks associated with economic downturns or political
instability in a single market.

Competitive Advantage: FDI can enhance a firm's competitive advantage by

leveraging the strengths of both the home and host countries.

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 Market Seeking: Firms invest in foreign markets to
serve local customers and gain a competitive edge
over rivals.

Resource Seeking: Companies invest to access

valuable resources like raw materials, technology, or
skilled labour.

Efficiency Seeking: FDI may be driven by the desire

Motivations to reduce production costs, enhance operational
for FDI efficiency, or take advantage of economies of scale.

Strategic Asset Seeking: Firms may invest abroad to

acquire strategic assets, such as patents, brands, or
distribution networks.
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 Challenges and Risks of FDI
Political and Regulatory Risks: FDI can be exposed to changes in
government policies, regulations, or political instability in the host country.

Cultural and Operational Challenges: Differences in culture, language, and

business practices can pose challenges in managing foreign subsidiaries.

Economic Fluctuations: Exchange rate fluctuations, economic crises, and

market volatility can affect the profitability of FDI.

Competitive Risks: FDI may face competition from local or global rivals in
the host market.

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 Types of FDI
Characteristics: The company
• Horizontal FDI: occurs when a replicates its existing
company invests in the same business activities abroad.
industry or line of business in a Aims to tap into new markets
FDI takes on various foreign country as it does in its
or gain a competitive
forms, each serving
home country.
advantage.
different strategic
purposes for
companies expanding
globally.
Example: McDonald's opening fast-food
outlets in various countries worldwide,
maintaining the same menu and brand.

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 Types of FDI a. Backward Vertical FDI: Occurs when a company invests in
an upstream stage of the production process in a foreign
country. Often done to secure access to raw materials or
reduce production costs.

Vertical FDI: is a strategic Example: An automobile manufacturer establishing a

form of international factory in a foreign country to produce essential
components like engines or tires.
investment where a
company extends its
operations across b. Forward Vertical FDI: Involves investment in a
downstream stage of the production process, such as
international borders by distribution or marketing, in a foreign country. Aims to
investing in different expand market access or enhance distribution efficiency.
stages of the production
process in foreign
countries. Example: An electronics company setting up retail stores in
a foreign country to sell its products directly to consumers.

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 Further readings
Chapter 8 in Hill, C. (2022). International Business: Competing in the
Global Marketplace, 14th Edition, McGraw-Hill, New York.

Chapter 6 and 7 in Cohen, S. D. (2007). Multinational corporations and

foreign direct investment: avoiding simplicity, embracing complexity.
Oxford University Press, NY.

Contractor, F.J., Dangol, R., Nuruzzaman, N. and Raghunath, S., 2020.

How do country regulations and business environment impact foreign
direct investment (FDI) inflows?. International Business Review, 29(2),
p.101640.

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 Next week

Internationalization
Theories

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