CHAPTER 3

INTERNATIONAL BUSINESS STRATEGY

 CONTENTS

1 Business strategy

Global expansion, profitability

2 and profit growth

3 Choose a business strategy

4 Alliance Strategy
 1.1 Corporate strategy

Corporate strategy is the activities that managers take

to achieve the goals of the business.
The primary goal of businesses is to maximize business
value through increasing profits
The increase in profit is done in 2 ways:
Increased profitability (net profit/total sales).
Increase gross profit.
Determinants of enterprise values
 1.2 Measures to increase corporate
profitability

 Low cost strategy: reduce production cost => less difference.

 Differentiation strategy: make the product more attractive to
consumers => increased costs.
 The choice of low-cost strategy or differentiation strategy
depends on the characteristics of products, services and
customers of the business.
 Enterprise capabilities in setting up internal activities such as
production, marketing, logistics, human resources, etc. to
support that choice.
 Solutions to increase the profit rate
of the business
Business activities of enterprises as a chain of value creation
 Primary activities increase the profit ratio
of enterprises

 Research and development (R&D): help increase product features

-> attract consumers. R&D also helps to improve the production
process -> save production costs.
 Production: the production process is carried out efficiently to save
costs. Efficient manufacturing also contributes to better value
products.
 Primary activities increase the profit ratio
of enterprises

 Marketing and sales: brand positioning makes consumers

appreciate the company's products => increase the price paid for
the product. Marketing and sales help discover customer needs =>
do R&D to improve the product.
 Customer service: solving customers' problems during product use
=> customers have a higher awareness of the product's value.
 Support activities to increase business profits

 Information system: helps to manage inventory, sales, capture

customer needs more effectively.
 Logistics: helps save costs in purchasing raw materials,
transporting and distributing products to consumers.
 Human resources: ensure that businesses have the right individuals
to perform the work effectively. Multinational companies have the
advantage of attracting high-quality human resources from all over
the world.
 Group discussion
The groups present 2 real-life examples of how to
create value in R&D, Marketing, corporate
customer service, logistics, management
information systems, manufacturing, and human
resources.
 2. Global expansion, profitability and
profitable growth

Why does the company need to expand globally?

Expand the product consumption market.
Save costs by distributing value-creating activities in different
niche locations around the world.
Cost savings through taking advantage of economies of scale
and experiential effects.
Acquire new experiences and skills while operating abroad
and transferring to other units in the whole system.
 2.1 Expanding product consumption market

 Expanding product consumption markets to different

countries helps to increase revenue => increase profits.
 Multinational companies achieve this by taking advantage of
their core values ​or competitive advantages.
 The core values ​or competitive advantages of multinational
companies are factors that are difficult for domestic
companies to imitate.
 2.2 Take advantages of each country or region

 Each country or territory has a certain comparative advantage

over other countries or territories in the production of certain
products.
 The multinational company allocates each stage of the
production process to countries where the economic, political
and cultural characteristics are suitable for doing so.
 Allocating the production process to the right locations helps
to save production costs or add value to the product.
 2.3 Take advantage of scale and
experience effects

 The experience effect is the reduction in production costs as

the number of products produced increases. The experience
effect comes from learning, accumulating experience of
employees or managing the company in the production
process => reducing costs.
 Economies of scale: the reduction in product costs when a
firm produces in large quantities.
 What causes economies of scale?
 Allocation of costs over a large volume of products.
 Enterprises take advantage of large scale to negotiate prices
with suppliers of the same level of raw materials or receive
government support to ensure social security.
 2.4 Leveraging the skills of subsidiaries

 Multinational companies can learn useful skills from branches

in their global network.
 To be able to accumulate useful skills, multinational
companies need a mechanism to encourage innovative and
creative ideas of all employees in the global network..
 3. Choosing a business strategy

During its operation, MNE always faces two pressures: cost

pressure and local adaptation pressure.
Cost pressure is the fact that businesses have to reduce
production costs to compete with other businesses.
Cost pressures increase sharply in industries that manufacture
products of a universal nature. These products have very little
non-valued differentiation and the product price is the main
weapon of competition. For example: iron and steel, cement,
gasoline, semiconductor chips, pocket computers, LCD screens,
washing powder, etc.
 Pressure for local adaptation: is the fact that businesses
have to change product design, change marketing strategies,
and distribute products to adapt to differences between
countries in terms of consumption habits, infrastructure,
distribution channel characteristics, government regulation.
 Pressures for local adaptation make it impossible for firms to
take advantage of economies of scale, learning effects, and
regional advantages in the production process.
 GROUP DISCUSION

The groups discuss and give 2 examples of enterprises in

each case Company A, Company B and Company C in the
diagram.
3.1 International business strategies
 Global Standardization Strategy: This strategy focuses on
increasing profitability and profit growth by reducing costs by
taking advantage of economies of scale, learning effects, and
regional economies.
 Product manufacturing, marketing and R&D activities are
carried out at each location that is most convenient for each
activity. Businesses that follow this strategy are less likely to
customize their products and marketing strategies. Businesses
take advantage of costs to lower the selling price of their
products.
NUMBER OF ENTERPRISE IN COUNTRIES SUPPLYING COMPONENTS FOR IPHONE
 Localization strategy: businesses customize products and
services to fit the needs and tastes of different countries. This
strategy helps businesses to price their products higher.
However, this also limits the cost-cutting from mass
production of a product for global consumption.
 Transnational Strategy: Firms strive to achieve low costs by
taking advantage of economies of scale and learning effects.
At the same time, businesses also try to customize products
and services to adapt to different needs in different localities.
 International strategy: businesses can only implement this
strategy when there is less pressure to cut costs and less
pressure to customize products to adapt to the needs and
preferences of customers local.
• Products are manufactured domestically and then exported to
foreign countries.
• Enterprises trade in products with popular demand but few
competitors. Ex: Microsoft software.
 DISCUSSION QUESTION

The groups locate the following businesses in the figure

above: Coca Cola, KFC, Toyota, Procter & Gamble, Intel
and Ferrari and explain why?
3.2 Change of strategies over time
 Over time, enterprises implementing an internationalization
strategy will be under competitive pressure and have to
change to a global standardization strategy or a transnational
strategy.
 Businesses that implement a localization strategy over time
will also be under competitive pressure to reduce the selling
prices of products and services. These enterprises will also
have to gradually switch to a transnational strategy.
 GROUP DISCUSSION
Read the article “AB InBev, Beer Globally, and Creating
Value” page 378 (page 372 PDF file) and answer the
following questions:
1/ What international business strategy is AB Inbev
applying? Why should the company choose this international
business strategy?
2/ The company focuses its resources to develop a number of
key brands with long-term growth potential. Please state the
pros and cons of this approach.
 GROUP DISCUSSION
Read IKEA's Global Strategy on page 388 (PDF file 381
pages).
1/ In your opinion, what international business strategy is
IKEA applying when operating in the European market? As
they expand into the North American market, what
international business strategy do they turn to in China?
2/ If IKEA products are sold in Vietnam, how do you think
these products should change to suit the Vietnamese market?