HANDOUT 7 | The Strategy of International Business COLLEGE OF BUSINESS STUDIES
THE STRATEGY OF INTERNATIONAL BUSINESS
Learning Objectives:
1. Choose a global strategy for competing in the global marketplace. 2. Explain the
difference between global expansion, profitability, and profit growth.
Strategy and the Firm
A firm’s strategy can be defined as the actions that
managers take to attain the goals of the firm. For most
firms, the preeminent goal is to maximize the value of the
firm for its owners and its shareholders. Profitability can
be define as the rate of return that the firm makes on its
invested capital (ROI). Profit growth is measured by the
percentage increase in net profits over time. In general,
higher profitability and a higher rate of profit growth will
increase the value of an enterprise and thus the returns
garnered by its owners, the shareholders.
Value Creation
The way to increase the profitability of a firm is to create
more value. In general, the more value customers place
on a firm’s products, the higher the price the firm can
charge for those products.
However, the price a firm charge for a good or service is
typically less than the value placed on that good or
service by the customer this is because the customer
captures some of that value in the form of what
economists call a consumer surplus. The customer can
do this because the firm is competing with other firms for
the customer’s business, so the firm must charge a lower
price.
Figure 1. Value Creation
Source: International Business: Competing in the Global
Marketplace (12th ed.), 2017, p.366.
Figure 1 illustrates these value concepts. The value of a
product to an average consumer is V, the average price
that the firm can charge a consumer for that product is P,
and the average unit cost of producing that product is C.
The firm’s profit per unit sold (p) is equal to P − C, while
the consumer surplus per unit is equal to V – P. The firm
makes a profit so long as P is greater than C. The
difference between V and P is in part determined by the
intensity of competitive pressure in the marketplace; the
lower the intensity of competitive pressure, the higher the
price charged relative to V. In general, the higher the
firm’s profit per unit sold, the greater its profitability, all
else being equal. The firm’s value creation is measured
by the difference between V and C (V − C). A company
can create more value (V − C) either by lowering
production costs, C, or by making the product more
attractive so that consumers place a greater value on it (V
increases) and, consequently, are willing to pay a higher
price (P increases).
The Firm as a Value Chain
Figure 2. The value chain.
Source: International Business: Competing in the Global
Marketplace (12th ed.), 2017, pp.368.
The operations of a firm can be thought of as a value
chain composed of a series of distinct value creation
activities, including production, marketing and sales,
materials management, R&D, human resources,
information systems, and the firm infrastructure.
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HANDOUT 7 | The Strategy of International Business COLLEGE OF BUSINESS STUDIES
reduce cost (lower C), thereby creating more value. The
Primary Activities
Primary activities have to do with the design, creation,
and delivery of the product; its marketing; and its support
and after-sale service. Following normal practice, in the
value chain illustrated in Figure 2, the primary activities
are divided into four functions: research and
development, production, marketing and sales, and
customer service.
Research and development (R&D) is concerned with
the design of products and production processes.
Through superior product design, R&D can increase the
functionality of products, which makes them more
attractive to consumers (raising V).
Production is concerned with the creation of a good or
service. The production activity of a firm creates value by
performing its activities efficiently so lower costs result
(lower C) and by performing them in such a way that a
higher-quality product is produced (which results in higher
V).
The marketing and sales functions of a firm can help
create value in several ways. Through brand positioning
and advertising, the marketing function can increase the
value (V) that consumers perceive to be contained in a
firm’s product. If these create a favorable impression of
the firm’s product in the minds of consumers, they
increase the price that can be charged for the firm’s
product. After sales service are activities that take place
after a sale has been finalize.
Support Activities
The support activities of the value chain provide inputs
that allow the primary activities to occur (see Figure 2). In
terms of attaining a competitive advantage, support
activities can be as important as the primary activities of
the firm.
Information systems, when coupled with the
communications features of the Internet, can alter the
efficiency and effectiveness with which a firm manages its
other value creation activities.
The logistics function controls the transmission of
physical materials through the value chain, from
procurement through production and into distribution. The
efficiency with which this is carried out can significantly
International Business and Trade
combination of logistics systems and information systems
is a particularly potent source of cost savings in many
enterprises.
The human resource function can help create more
value in several ways. It ensures that the company has
the right mix of skilled people to perform its value creation
activities effectively. The human resource function also
ensures that people are adequately trained, motivated,
and compensated for performing their value creation
tasks.
The final support activity is the company infrastructure.
The infrastructure includes the organization structure and
culture of the firm. Because top management can exert
considerable influence in shaping these aspects of a firm,
top management should also be viewed as part of the
firm’s infrastructure. Through strong leadership, top
management can consciously shape the infrastructure of
a firm and, through that, the performance of all its value
creation activities.
Three Common Types of Organizational Structures
Functional Structure
The first and most common is a functional structure. Most
small-to-medium-sized businesses implement a
functional structure. Dividing the firm into departments
consisting of marketing, sales, and operations is the act
of using a functional organizational structure.
Figure 3. A typical functional structure
Source: International Business: Competing in the Global
Marketplace (12th ed.). 2018, p. 400
Divisional Structure
The second type is common among large companies with
many business units. A company that uses this method
structures its leadership team based on the products,
projects, or subsidiaries they operate.

HANDOUT 7 | The Strategy of International Business COLLEGE OF BUSINESS STUDIES
Figure 4. A typical product divisional structure Source:
International Business: Competing in the Global
Marketplace (12th ed.). 2018, p.400
Worldwide Product Divisional Structure
A worldwide product division structure tends to be
adopted by firms that are reasonably diversified and,
accordingly, originally had domestic structures based on
product divisions. Each division is a self-contained,
largely autonomous entity with full responsibility for its
value creation activities. The headquarters retains
responsibility for the overall strategic development and
financial control of the firm.
Figure 5. Worldwide product divisional structure Source:
International Business: Competing in the Global
Marketplace (12th ed.). 2018, p. 403
Choosing a Strategy:
Three Common Basic Strategies
Global Standardization Strategy
Firms that pursue a global standardization strategy focus
on increasing profitability and profit groThe production,
marketing, R&D, and supply chain activities of firms
pursuing a global standardization strategy are
concentrated in a few favorable locations.
Firms pursuing a global standardization strategy try not to
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International Business and Trade
customize their product offering and marketing strategy to
local conditions because customization can raise costs.
They also tend to use their cost advantage to support
aggressive pricing in world markets. Companies such as
Intel, Texas Instruments, and Motorola all pursue a global
standardization strategy.
Localization Strategy
A localization strategy focuses on increasing profitability
by customizing the firm’s goods or services so that they
provide a good match to tastes and preferences in
different national markets. Localization is most
appropriate when there are substantial differences across
nations concerning consumer tastes and preferences and
where cost pressures are not too intense.
International Strategy
Many of the enterprises have pursued an international
strategy, taking products first produced for their domestic
market and selling them internationally with only minimal
local customization. The distinguishing feature of many
such firms is that they are selling a product that serves
local and global needs. But still, they do not face
significant competitors because of the unique
technological know how they posses.
Xerox found itself in this position after its invention and
commercialization of the photocopier. Strong patents
protected the technology underlying the photocopier, so
for several years, Xerox did not face competitors—it had
a monopoly. The product serves universal needs, and it
was highly valued in most developed nations. Thus,
Xerox was able to sell the same basic product the world
over, charging a relatively high price for that product.
Since Xerox did not face direct competitors, it did not
have to deal with strong pressures to minimize its cost
structure.
Reference:
Hill, C. W., & Hult, G. T. (2018). International business:
Competing in the global marketplace (12th ed.). New
York: McGraw-Hill Education.
“Treat yourself like someone you lov
HANDOUT 7 | The Strategy of International Business
AIRAH JANE D. TIGLAO
Note: Print this page as well. Use this page to write down important notes.
Firm’s strategy
- can be defined as the actions that managers take
to attain the goals of the firm.
Strategy
- set of activities that the firm undertakes in order
to achieve its goal.
Firm
- one who formulates the strategy like
multinational enterprise or company and
international company.
- must formulate strategy to maximize the value
that they could give to their owners or
shareholders (main goal)
To maximize value:
Increase profitability
- measures org. profit in relative to org. expense
- measuring rate of return that the firm make on its
invested capital
- to calculate profitability, divide net profit to the
total invested capital of the firm
Increase profit growth rate
- measured by the percentage increase in net
profits over time
- higher profit growth increases the value of the
firm and returns to the owners/shareholders.
Value Creation
- set of activities that a firm carries out to deliver
value to the customer .
- to make the product more valuable it must
undergo this process (to set higher price to the
products)
- can be calculated by the difference of cost of
production and perceived benefit of the products
towards the customer.
V=Value of product to an average customer
P=Price per unit
C=Cost of production per unit
V-P=Consumer surplus per unit
P-C= Profit per unit sold
V-C= Value created per unit
COLLEGE OF BUSINESS STUDIES
Consumer surplus
- mas mababa ung actual na presyo na binayaran
ng customer sa willing niyang ibayad.
- difference between the actual price of the
product and amount of money that the customers
are willing to pay just to buy a particular product
Firm charge lower prices because of two reasons:
1.Consumer Surplus
2.Cost of competitive pressure
● Profit = Price per unit > Cost of production per
unit
● Loss = Price per unit < Cost of production per unit
● Lower competitive pressure = charged higher
prices to product
● Higher competitive pressure = charged lower
prices to product
A company can create more value:
1. Lowering production cost
2. Making the product more attractive
Value Chain
- set of activities that can create value to the
customer
- compose of primary and secondary activities
PRIMARY ACTIVITIES
Research and Development
- set of activities the firm undertakes in innovating
a product or introducing a product to an existing
market
- efficient R&D could lower production cost and
achieve economies of scale
- one of the key to attain cost savings
Production
- is concerned with the creation of a good or
service.
- producing tangible products ( manufacturing)
Marketing and Sale
 - the use of brand positioning and marketing in
order to communicate the value of the product to
customer
- if consumer perceived that the product is
valuable then we can set a higher prices
After sales service
- are activities that take place after a sale has
been finalized.
Brand Positioning
- business strategy that a firm employs in order to
differentiate their products to their competitors .
- to communicate their value proposition (highlight
why consumer should buy their products)
- strengthen the identity of the brand and its
product
- to also provide after sales service like installation,
quality assurance, customer service and training
SUPPORT ACTIVITIES
Information Systems
- used of electronic system in tracking inventory or
sales, pricing product, delivery of product or
addressing the concerns of consumers
- we use internet and database ( storage of info.
from the transactions )
Logistics Function
- there are 2 types of logistic :
● inbound ( activities related in receiving,
warehousing and inventory management) and
● outbound ( delivery, packaging, assorting and
shipping)
Human Resource Function
- choosing and selecting skilled people in order to
perform value creation activities effectively
COMPANY INFRASTRUCTURE
- leadership of the top management
- tatlong bumubuo dito: company culture,org.
structure and leadership
Three types of Leadership Style:
1. Coercive - leaders that demand immediate
compliance
2. Democratic/ Participative - leaders that create
concensus ( allows their employees to take part on
decision making process)
3. Transformational - their focus is to develop the skills
of their employees
Three common types of org. structures:
1. Functional Structure
- used by small to medium enterprise (US 500 less,
Europe 250 less)
- Dividing the firm into departments consisting of
marketing, sales, and operations is the act of
using a functional organizational structure.
- easiest org. structure
- flow of info. will come from the top and will be
delivered to different departments.
- Also called bureaucratic structure
2. Divisional Structure
- each of project or subsidiaries have their own
departments
- A company that uses this method structures its
leadership team based on the products, projects,
or subsidiaries they operate.
3. Worldwide product divisional Structure
- we are not just selling product domestically but
also globally
Three Types of Diversification:
1.Concentrix
- introducing new but related product lines to an
existing market
2.Horizontal
- offering a new product lines which is not related
to what they offer in the market
3.Conglomerate
- introducing new product lines to a new
market/industry
- merger and joint venture
Choosing a Strategy: Three Common Basic Strategies
Global Standardization Strategy
- using standardized strategy and brand
positioning
- we are not customizing the product which could
lower the cost
- They also tend to use their cost advantage to
support aggressive pricing in world markets.
Localization Strategy
- there is customization depends on the taste and
preference of the consumer in national markets
International Strategy
- selling the product first locally then
internationally