GRO U P 8

The Strategy of
International
Business
Presented by: Ken Gonzales, David
Nash Mapa, Ivy Mae Cañobas and
Jennie Evangelista
 Topic Outline
1 Explain the concept of
strategy.
Recognize how firms can profit by expanding
2
globally.
Understand how pressures to cost reductions
3
and pressures for local
responsiveness influence strategic
choice.
Identify the different strategies for competing
4
globally and their advantages
and disadvantages.
STRATEGY AND THE
FIRM
STRATEGY
Maximize the value of the firm for its
owners and
PROFITABILITYshareholders.
Rate of return that the firm makes on its invested
capital (ROIC).
PROFIT GROWTH
Measured by the percentage increase in net
profits
over time.
DETERMINANTS OF
ENTERPRISE VALUE
 VALUE
ValueCREATION
Pr ice Cost
is the per ceived value that is put to a costs that ar e
wor th of a pr oduct or ser vice and incur r ed to cr eate
isthe r esult of a a pr oduct that is
pr oduct or
complex
set of calculations
ser vice in the intended f or sale
andr isk taking
ey es of customer s. to customers.
ability
the .
amount of
the higher the include DM , DL,
money
expected, r equir ed,
value, the higher and FOV.
or
given in pay ment
the pr ice the f ir m f or something.
can char ge
 V = Value of
product to an
average consumer
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
Value Creation
LOW- DIFFERENTIATIO
N STRATEGY
COST
STRATEGY A strategy that
A strategy that focuses primarily
focuses primarily on increasing the
o n lowering attractiveness of
production costs. a product.
 Shows all the
dif f er ent positions
that a f ir m can adopt
with r egar d to
adding value to the
pr oduct (V) and low
cost (C) assuming its
inter nal oper ations
ar e conf igur ed
ef f iciently to suppor t
a par ticular position.
INTERNAL
OPERATIONS ARE
WELL CONFIGURED
OPERATIONS ARE NOT
RUNNING AS
EFFICIENTLY AS THEY
M IGHT BE, AND THAT
ITS COSTS ARE TOO
HIGH.
 Central Tenet
1 Pick a position on the efficiency frontier that is
viable in the sense that there is enough demand
to support that choice.

2 Configure its internal operations, such as

manufacturing, marketing, logistics,
information systems, human resources, and
so on, so that they support that position.

3 Make sure that the firm has the right

organization structure in place to
its
execute
strategy.
 Operations
The Firm as a Value Chain

A VALUE CHAIN COM POSED OF A SERIES

OF DISTINCT VALUE CREATION
ACTIVITIES.

CATEGORIZE INTO PRIM ARY ACTIVITIES

AND SUPPORT ACTIVITIES
Pr imar y Activities
Operation: The Firm as a Value Chain

HAVE TO DO WITH THE DESIGN,

CREATION, AND DELIVERY OF THE
PRODUCT; ITS MARKETING; AND ITS
SUPPORT AND AFTER- SALE SERVICE.

IT IS DIVIDED INTO FOUR FUNCTIONS.

 A f ir m’s oper ations ar e
like a value chain
composed of a ser ies of
distinct value cr eation
activities: Pr oduction,
mar keting, mater ials
management, R&D,
human r esour ces,
inf or mation sy stems, and
the f ir m inf r astr uctur e.

All these activities must

be managed ef f ectively
and be consistent with
PRIMARY
ACTIVITIES
RESEARCH AND DESIGN PRODUCTION
(R&D) Concerned with the Concerned with the creation
design of products and of goods or services.
production processes.

Marketing and Sales CUSTOMER SERVICE

The provision of service to
Concerned on creating the
custom ers before, during
firms value in several ways.
and after a purchase.
 Suppor t Activities
INFORMATI HUMAN
ON LOGISTI
SYSTEM CS
The logistics
RESOURCE
These sy stems r ef er s f unction
contr ols
to the
tr ansmission of S
the electr onic sy stems phy sicalials thr ough This f unction can
mater
help
f or managing thevalue chain,
cr eate mor e value in
inventor y , tr acking pr focur
r omement thr ough
sever al w ay s. It also
sales, pr icing pr oduction and ensur es that people
pr oducts, selling intodistr ibution
ar e adequately
pr oducts, dealing .
tr ained, motivated,
 Ty pes Competitive
pr essur es exists in the
global marketplace.
Firms that compete in the global
marketplace face two conflicting types of
competitive pressures
- the pressures limit the ability of firms
to realize location economies and
experience effects, leverage, products, and
transfer skills within the firm.
TWO COM PETITIVE
PRESSURES
PRESSURES FOR COST REDUCTIONS
FORCES THE FIRM TO LOW ER THE UNIT COSTS.

PRESSURES TO BE LOCALLY RESPONSIVE

REQUIRE THE FIRM TO ADAP T ITS P RODUCT TO
M EET LOCAL DEM ANDS IN EACH M ARKET. (THIS
STRATEGY CAN RAISE COST)
Pressures for cost reductions
are greatest, when…
W here there is
persistent excess
In industries producing commodity
capacity.
type products that fill universal W here consumers are
needs (needs that exist when the powerful and face
taste and preferences of low switching costs.
consumers in different nations are
similar if not identical) where
W hen major competitors
price is the main competitive
are based in low-cost
weapon.
locations.
Pressures for local responsiveness arises from
DIFFERENCES IN CUSTOMER TASTES AND PREFERENCES
Strong pressures emerges when consumer tastes and preferences differ
significantly between countries.

DIFFERENCES IN TRADITIONAL PRACTICES AND INFRASTRACTURES

Strong pressures emerges when there are significant differences in
infrastructure and traditional practices between countries.

DIFFERENCES IN DISTRIBUTION CHANNELS

Need to be responsive to differences in distribution channels between
countries.

HOST GOVERNMENT DEMANDS

Economic and political demands imposed by host country governments may
require responsiveness.
GLOBAL EXPANSION,
PROFITABILITY,
AND PROFIT
GROWTH
 Expanding the Market: Leveraging
Products and Competencies
•A company can increase its growth rate by
taking goods or services developed at home
and selling them intentionally.

• Its not just about the goods or services

they sell but also upon the core
competencies CORE COMPETENCIES

CORE COMPETENCE – refer to skills within

the firm that competitors cannot easily
match or imitate.
 LOCATION SOME CAVEATS
ECONOMIES
Lower cost of Tra nsporta tio
value creation n Cost
and help the firm
to achieve a low- Trade Barriers
cost positon.
Firm can differ Political Risks
if product
offering from Economic
those of Risks
competitors.
EXPERIENCE EFFECTS
Experience curve
systematic reductions in productions cost
that have been observed to occur the life

P roduction cost decline by some quantity

each time cumulative output doubles

Two things to explain this:

• Learning Effects
• Economies of scale
 Learning Effects
EXPERIENCE CURVE
Learns by repetition how to carry
out a task in most efficient ways

Production costs decline due to

increasing labor productivity and
management deficiency that causes
to increase the profitability of the
firm
 Economic of Scale
Reductions in unit cost achieved by producing
a large volume of a product.
SOURCES
Fixed cost spread over a large
volume

Firms serves global market

Global sales increase the size of the

enterprise, bargaining power
with
supplier increases
Leveraging Subsidiary
Skill
Leveraging the skills
created within
subsidiariesand applying
them to other operations
within the firm’s global
netw ork m ay create
value.
 So what is
Internationalization
Strategy?
It’s about taking your business to the next
level and expanding your horizons. A
strategy through which the firm sells its
goods or services outside its domestic
market. International markets yield plenty
of new opportunities for your business to
GLOBAL STANDARDIZATION
ST RATEGY
High in Global Integration and Low on
Local
Responsiveness

This focus on increasing profitability

and profit growth by reaping the cost
reduction that come from economies
of scales, learning effects, and
location economies. Their strategy
goal is to pursue low-cost strategy
ADVANTAGES DISADVANTAGES
An instantly Broad standardization
recognizable global process to purse such
brand as investing into some
An integrated local markets, solid
approach across interaction with your
different countries customers through
Homogenized products websites, mobile app,
to minimize costs and even the packaging and
reach a broad many more.
audience
 LOCALIZATION STRATEGY
Low on Global Integration and High on Local
Responsiveness
A localization strategy
focus on increasing
p r o f i t a b i l i t y by By customizing the product
customizing the firm’s offering t o l o c a l
goods and services so demands, the firm
t h a t they provide good increases the value of
match t a s t e s and t h a t product in the l o c a l
preferences in d i f f e r e n t market
n ation al markets.
 ADVANTAGES
Localized product that directly
matches customer tastes and
preferences.
Easily access local competitive
advantages, such as labor, shipping lanes,
and natural resources.
Gain a stronger foothold in a local market
more quickly.
Control a portfolio of local subsidiaries that
you can scale up and down based on
performance.
TRANSNATIONAL STRATEGY
High on Global Integration and High on
Local Responsiveness
The transnational business strategy is one
of the most intricate methods that
businesses can employ when expanding
internationally, and can be seen as a
combination of the global and localization
strategies. This means that the business is
still operating from its headquarters in its
country of origin, however, it also allows
the company to expand with full-scale
operations in foreign
 ADVANTAGES
Create a standardized brand that’s
immediately recognizable but
accommodate differences in
market preferences.
Be able to flex between a high-level
strategic overview of investments without
losing customer-centricity with local
markets.
Centralize and streamline operations,
getting the advantage from economies of
scale.
 INTERNATIONAL
STRATEGY
Low on Global Integration and Low on Local
Responsiveness
Using an i n t e r n a t i o n a l
s t r a t e g y means focusing Products a r e produced in
on exporting products and the company’s home
services t o foreign country and send t o
markets, o r conversely, customers a l l over the
importing goods and world. This s t r a t e g y is
resources from o th e r a l s o often r e f e r r e d t o as
countries f o r domestic an exporting s t r a t e g y
use.
 ADVANTAGES
Quick way to test out the
global appeal of your
product without making
significant investments in
infrastructure or staffing in
other markets.
Build a standardized,
immediately recognizable
brand.
Consolidate management
processes and lower costs.
Simplify your product
portfolio based on what
DISADVANTAGES
With an export-driven
strategy, you’re stuck
paying higher taxes and
tariffs every time you
export.
Initiating sales offices
abroad, managing global
logistics, and making sure
that your company
complies with foreign
trade regulations.
Global Strategy Transnational
High in Global Strategy
Integration and High on
Low on Local Global
Responsiveness Integration and
High on Local
Responsivenes
s

Localization
Internationa
Strategy
l Strategy
Low on
Low on Global
Global
Integration and
Integration and
Low on Local
High on Local
Responsivenes
Responsiveness
s
 Evolution Str ategy
According to the Achilles's heel
of the international strategy, The same can be said
that over time, competitors
about localization
inevitably emerge and if
strategy,
managers do not take proactive
so the only way to do is
steps to reduce their firm's cost
may be to shift toward
structure it will be rapidly
transnational strategy.
outflanked by efficient global
competitors.
Thank
you