BBA-512

International
Marketing
Lecture 4
Instructor: Jehanzeb Sultan
University of Agriculture, Faisalabad
Lecture 3 - Recap

Scope of International Marketing

Level of Marketing

Marketing Orientation

Theories of International Marketing

Strategic Approaches to Market Internationally

Importance of International Marketing

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Lecture 4 - Contents

The Strategy of International Business

Strategy and Firm

Determinants of enterprise value

Global Expansion, Profitability, and Profit Growth

International Strategies

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Class groups

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 The Strategy of International Business

Shift from macro environment to the firm itself

Actions managers take to compete more effectively

How organizations can increase revenue (and profitability)

by expanding their operations in foreign markets

• Value creation 

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 Strategy and Firm

Basic Principles of Strategy

• Goal is to maximize the value of the firm for owners and shareholders
• Profitability
• Profit growth

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 Determinants of enterprise value

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 Strategy and Firm – Value Creation
Measured by the difference between a firm’s costs of production and the quality that consumers
perceive in its products

The more value customers place on a firm’s products, the higher the price the firm can charge for
those products.

Measured by the difference between V (value) and C (cost)

Two strategies
Low cost Differentiation
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 Strategy and Firm – Strategic Positioning

Explained by Michael Porter

• A firm should be explicit about its choice of strategic emphasis about value creation
(differentiation) and low cost.
• A firm should configure its internal operations to support that strategic emphasis.
• Efficiency frontier
• Diminishing returns

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Strategy and Firm – Strategic Positioning

To maximize profitability, a firm must:

• Pick a position on the efficiency frontier that is viable in the sense that there is
enough demand to support that choice
• Configure its internal operations, such as manufacturing, marketing, logistics,
information systems, human resources, and so on, so that they support that
position
• Make sure that the firm has the right organization structure in place to execute
its strategy

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Strategy and Firm – Strategic Positioning

The strategy, operations, and organization of the firm must

all be consistent with each other if it is to attain a
competitive advantage and garner superior profitability

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Strategy and Firm – The Firm as a Value Chain

Value creation activities

Marketing and Materials Human Information

Production R&D Infrastructure
sales management resources systems

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 Group Design a value chain for a fictional company

Assignment Explain your business services and domain

Answer all the aspect of value chain
Requirements
Word Document
Font Cambria
Headings – 14
Text – 12
Line spacing – 1.5 pt
Word count – At least 1000
Mention your contribution

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Strategy and Firm – The Firm as a Value Chain

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Strategy and Firm – The Firm as a Value Chain

• Design, creation, and delivery of the product

• Marketing, support, and after-sale service
• R&D is concerned with the design and production
Primary processes.
• Production is concerned with the creation of a good or

activities service.
• Marketing and sales can increase the perceived value
of a product and discover customer needs.
• Service activity provides after-sale service and support

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Strategy and Firm – The Firm as a Value Chain

• Provide inputs that allow the primary activities to

occur
• Information systems can alter the efficiency and
effectiveness with which a firm manages its other value

Support creation activities.

• Logistics controls the transmission of physical
materials through the value chain.
activities • Human resources ensures that the company has the
right mix of skilled people and ensures training,
motivation, and compensation.
• Infrastructure includes the organization structure,
control systems, and culture of the firm.

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Global Expansion, Profitability, and Profit Growth

Recognize how firms can profit by expanding globally.

Expanding the Market

Core competence
Leveraging Products and Competencies
• Bedrock of a firm’s competitive advantage

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Global Expansion, Profitability, and Profit Growth

Location Economies
Can enable a firm to
Can lower the costs of value
differentiate its product
creation and help the firm
offering from those of
achieve a low-cost position
competitors

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Location Economies

Advantages
Should create a competitive advantage vis-
Should be able to better differentiate its
product offering (thereby raising perceived
Creating a global web à -vis a firm that bases all of its value
value, V) and lower its cost structure (C)
creation activities at a single location
than its single-location competitor

Caveats
Transportation costs Trade barriers

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Experience Effect

Experience curve
Costs decline by some quantity about each time cumulative output doubles

Learning effects
Economies of scale Strategic significance

Moving down the experience curve allows a firm to reduce its cost of creating value and
increase its profitability.

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Experience Effect

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Leveraging Subsidiary Skills

Development of valuable skills can occur in foreign

subsidiaries.

Leveraging the skills created within subsidiaries and

applying them to other operations within the firm’s
global network may create value
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Leveraging Subsidiary Skills

Managers must:
Recognize that
valuable skills that Establish an incentive Have a process for
Act as facilitators,
lead to competencies system that identifying when
helping transfer
can arise anywhere encourages local valuable new skills
valuable skills within
within the firm’s global employees to acquire have been created in a
the firm
network, not just at the new skills subsidiary
corporate center

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

Pressures for Cost Reductions

Require a firm to try to lower
the costs of value creation
Greater in industries producing
commodity-type products
• Universal needs
Also, in industries where major
competitors are based in low-
cost locations, where there is
persistent excess capacity, and
where consumers are powerful
and face low switching costs.

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

Pressures for Local Responsiveness

Differences in customer tastes and preferences

Customer demands for local customization May require the delegation of
Differences in infrastructure and traditional
are on the decline worldwide in some manufacturing and production functions to
practices
markets, but not others. foreign subsidiaries

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

Pressures for Local Responsiveness

Differences in distribution channels

May necessitate delegation of marketing functions to national subsidiaries

Host-government demands
Threats of protectionism, economic nationalism, and local content
Economic and political
rules dictate that international businesses manufacture locally.

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

Pressures for Local Responsiveness

Rise of regionalism
Tendency toward the convergence of tastes, preferences, infrastructure,
distribution channels, and host-government demands with a broader Examples: EU, North America, Latin America
region that is composed of two or more nations

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Choosing a strategy

Identify and choose the

different global strategies Concessions may need to
for competing in the be made to local
global marketplace. conditions.

The need to customize

the product to local
conditions may work
against the
implementation of a
global standardization
strategy. 28
© McGraw Hill Companies, Inc., 2000
International Strategies

Global Localization Transnational International

standardization strategy strategy strategy

Four Basic International Strategies

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International Strategies

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International Strategies

Global Standardization Strategy

Makes the most sense

Production,
when there are strong
marketing, R&D, and
Goal is to pursue low- pressures for cost
supply chain activities
cost strategy on global Avoids customization. reductions and
are concentrated in a
scale demands for local
few favorable
responsiveness are
locations.
minimal.

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International Strategies

Localization Strategy

Most appropriate when:

• There are substantial differences across
nations with regard to consumer tastes and
preferences
• Cost pressures are not too intense
Customization limits the ability of the firm to
capture the cost reductions associated with
mass-producing a standardized product for
global consumption.

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International Strategies

Transnational Strategy

Differentiating the
product to respond to
Makes most sense when
local demands in
demands for local
Must focus on leveraging Places conflicting different geographic
responsiveness are high
subsidiary skills demands on the company markets raises costs,
but cost pressures are
which runs counter to
moderate or low
the goal of reducing
costs.

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International Strategies
For firms with low-cost
pressures and low
pressures for local
responsiveness
© McGraw Hill Companies, Inc., 2000
International Strategy
Tend to centralize product
Involves taking products development functions
first produced for their such as R&D at home, but
domestic market and establish manufacturing
selling them internationally and marketing functions in
with only minimal local each major country or
customization geographic region in which
they do business
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