MGCR 382- International Business
Final on April 24th, 2025
2pm-5pm / Field House
Core Concepts & Definitions
What is Strategy?
Thinker
Definition
Michael Porter
Strategy is about being different — choosing unique activities to deliver unique
value.
Henry
Mintzberg
Strategy is a pattern in a stream of decisions.
Alfred Chandler
Strategy is setting long-term goals and allocating resources accordingly.
Three Levels of Strategy
Level
Corporate-level
Focus
Scope: Entire organization
Focus: Managing a portfolio
of businesses or deciding to
stay focused on one
Goal
Goal: Add value across
businesses (synergies,
economies of scope)
Key Questions:
●​ Should we expand
into new industries?
●​ Should we enter new
geographic markets?
●​ How do our different
business units fit
together?
Business-level
Scope: One business unit or
product line
Focus: Achieving competitive
advantage​
Key Questions:
-​ How do we
differentiate?
Goal: Beat rivals in the
same industry by
offering better value​
→ Competitive
advantage
Example
✅ Example:
Tesla deciding not to sue
competitors for using its
patents (strategic move
impacting all businesses
under Tesla Inc.)
✅ Example:
Tesla focusing on innovation
and design to gain a
competitive edge in electric
vehicles.
●​ Should we compete
on cost or
uniqueness?
●​ Who is our target
market?
Operational-lev
el
Scope: Day-to-day operations
and functions (marketing, HR,
logistics)​
Goal : Operational
effectiveness
Focus: Efficient execution
and alignment​
✅ Example:
Tesla’s manufacturing team
implementing lean production
techniques to reduce costs
and improve quality.
Key Questions:
●​ How do we hire the
right people?
●​ What processes
improve our
efficiency?
●​ How do we
implement systems
that support
strategy?
🧠 Note: Even single-business firms have corporate strategies (e.g., to not diversify).
🌍 Why Do Firms Go International?
To create and capture value on a global scale by:
1.​ Reaching new markets
2.​ Leveraging local resources
3.​ Gaining knowledge
4.​ Exploiting scale economie
Value Stick Framework
Here’s a value stick diagram to visualize value creation and capture:
Definitions:
●​
●​
●​
●​
Willingness to Pay (WTP): Max price a customer is willing to pay
Price: Set by firm
Cost: Cost to the firm
Opportunity Cost: What the supplier could earn elsewhere
🟩 Buyer’s Share = WTP – Price
🟨 Firm’s Share = Price – Cost​
🟥 Supplier’s Share = Cost – Opportunity Cost
Generic Strategies for Going Abroad
Strategy
Description
Deployment
Replicating home success (standardization, aggregating demand)
Development
Building new capabilities, leveraging location-based differences
Deepening
Enhancing competitiveness abroad via adaptation and integration efforts
Challenges When Going Abroad
Liabilities of Foreignness
●​
●​
●​
●​
●​
Local legal/regulatory barriers
Cultural mismatch
Import/export costs
Investment limits
Time zone and contract differences
The Paradox of Consistency
●​ Need for local adaptation vs.
●​ Risk of losing internal coherence and competitive advantage
Real-World Examples
Company
Country
Problem Type
Google
China
Regulatory barriers, censorship
Exit in 2010
Walmart
Germany
Labor laws, culture, competition
Exit in 2006
Starbucks
China
Cultural & regulatory complexity
Adapted successfully
Ownership & Better-Off Tests
Used to justify geographic expansion:
Outcome
Test
Focus
Ownership
Can we own and manage this business better than external alternatives ?
Better-off
Will the film be better off by entering the new market (create synergy) ?
Economies of Scale vs. Scope
Concept
Scale
Scope
Definition
Reduce average cost by increasing
volume
Increase efficiency by diversifying
products
Cost logic
Fixed costs spread over more units
Shared resources cut duplicate costs
Revenue logic
Bulk production
Cross-selling, bundle offerings
Example
Auto factory producing more cars
Apple making Macbooks + iPhones
together
Keywords:
●​ Subadditivity of costs → cost is lower when producing things together
●​ Superadditivity of revenue → revenue is higher when offering things toget
Real Examples of Failure Abroad
Company
Country
Issue
Outcome
Google
China
Great Firewall,
compliance barriers
Exit (2010)
Walmart
Germany
Cultural mismatch,
labor laws
Exit (2006)
Basic Entry Decisions
Key
Question
1. Which
markets?
What You Need to Know
Choose based on long-run profit potential: market size, consumer wealth, local
competition, product fit.
(You’re not just looking for big markets — you want ones where your product actually
makes sense and you can compete.)
2. When to
enter?
First movers get brand loyalty and market share early — but at higher risk and cost.
Late movers avoid risk but may enter saturated markets.
(First means risk + opportunity. Late means less cost, but also fewer open doors.)
3. Scale of
entry?
Large-scale = big commitment, signal of intent, faster impact — but high risk.
Small-scale = flexible, lower exposure — but slower.
(Start big if you're confident. Start small if you want to test the waters without
drowning.)
Modes of Entry
Mode
Exporting
Turnkey Projects
Licensing
Franchising
Advantages
Disadvantages
No need to build new facilities. Low
risk and cost to start.
High transport costs. May face tariffs or
poor local distribution.
(Best when your product is
ready-to-ship and the market is
accessible.)
(Works until logistics or customs make it
too expensive or inefficient.)
Easy way to earn revenue from
process/tech. Less long-term risk.
No future presence or growth. You may
be training your next competitor.
(You build it, hand over the keys, and
leave with a check.)
(They get your process. You get nothing
else.)
Quick, cheap, and good use of patents
or brands.
You lose control over quality and
operations. Tech leakage possible.
(Let someone else do the work, you
collect royalties.)
(Risky if what you’re licensing is your
secret sauce.)
Helps scale globally with lower risk.
Strong brand visibility.
Hard to ensure consistent quality.
Difficult to coordinate global strategy.
(Like licensing, but with more rules and
brand involvement.)
(If one branch flops, your reputation can
suffer globally.)
Joint Ventures
Wholly Owned
Subsidiary (WOS)
Shares cost and risk. Gives access to
local market knowledge.
Shared control = potential conflict. Risk
of losing tech or influence.
(Your local partner helps you navigate
culture, law, and politics.)
(You both own it, so you both fight over
it.)
Full control and 100% profit. Better
coordination of strategy and tech
protection.
Most expensive and risky. Setup is
complex, especially culturally.
(Ideal if what you offer is complex,
valuable, or secret.)
(You win big or lose big — no one to split
the bill with.)
Greenfield vs. Acquisition
Option
Greenfield
Use When
You're building from scratch — good for long-term control and transferring
company culture.
(Slow and steady. Best when you know what you want and no one else is doing it like
you.)
Acquisition
You need to enter fast, beat competitors, or the market has mature players already.
(Buy someone who already has the market — but beware of overpaying or culture
clashes.)
Factors Influencing Entry Mode
Factor
Implication
Technological
know-how
Avoid licensing/JVs unless your advantage is short-term.
Management
know-how
Safer to license/franchise — knowledge is embedded in systems, not just patents.
Cost pressures
Favor exporting or WOS for better global coordination and cost control.
( If your edge is your tech, don’t give others a chance to copy it.)
(You can spread the way you manage more safely than your secret formulas.)
(If costs are tight, control matters — and so does where you produce or earn.)
🤝 Strategic Alliances
✅ Advantages
●​
●​
●​
●​
Helps enter foreign markets more easily
Shared cost and risk
Combines complementary skills/assets
Can set industry standards (if tech is involved)​
A smart alliance gives you what you lack without needing to build it alone.
❌ Disadvantages
●​ Risk of your partner learning your tech
●​ Potential future competition​
Be careful: what you share could come back and bite you.​
Making Alliances Work
Stage
Best Practices
Partner
Selection
Choose someone with shared goals and complementary strengths.
Alliance
Structure
Use legal safeguards, define what’s shared (and not), include exit strategies.
Managing the
Alliance
Build trust. Respect cultural differences. Maintain communication and monitor the
relationship.
(Do your homework. A bad partner is worse than no partner.)
(Protect what’s yours and know how to break up in case it goes wrong.)
(Don’t assume alignment will stay — good management keeps it together.)
Exporting as a Mode of Entry
Why Export?
What to Watch Out For
Minimal investment, low operational risk, high
revenue potential.
(You can enter foreign markets without opening a
branch or building a factory.)
Exporting can feel bureaucratic, especially for small
firms.
(Paperwork, customs, compliance, and delays can
discourage first-timers.)
Easier now thanks to tech and lower trade
barriers ù
(Think internet + trade deals = global reach.)
Smaller firms tend to be reactive, large ones more
proactive.
(Small businesses might hesitate due to perceived
complexity.)
Export & Import Financing: The Trust Problem
Main Issue
Why It Matters
Lack of trust between exporter and importer
(You don’t know them, they don’t know you,
and you're in different legal systems.)
Misunderstandings and defaults can derail deals.
(International trade needs mechanisms to bridge
that trust gap.)
Key Financial Tools
Instrument
What It Does
Letter of Credit
Bank guarantees payment on behalf of importer. Trusted middleman.
(“Don’t worry, if they don’t pay, the bank will.”)
Draft (Bill of
Exchange)
A written promise to pay: can be at sight or after a period (sight vs. time draft).
(Formal document that ensures you won’t ship goods without a payment plan in
place.)
Bill of Lading
Functions as a receipt, contract, and document of title.
(Also used as collateral for financing.)
Countertrade
What Is It?
When Is It Used?
Trading goods/services for goods/services
instead of using cash.
Common in developing countries that lack foreign
currency reserves.
(“We can’t pay you in dollars, but we can trade
oil/coffee/equipment.”)
Types of Countertrade
Type
Description
Barter
Direct exchange of goods/services with no money.
Counterpurchase
Seller agrees to buy goods from buyer's country in the future.
Offset
Seller helps buyer earn foreign exchange by buying from them or
helping them export.
Switch Trading
Third party resells goods from a countertrade deal.
Buybacks/Compensation
Supplier is paid with output from equipment it sold/installed.
✅ Pros & ❌ Cons of Countertrade
Pros
Cons
●​ Allows exports when normal payment isn’t
possible. (Useful in currency-short
economies.)
●​ Can be required by government. (Some
countries mandate it for trade access.)
●​ Can be a marketing tool if used well. (May
give you leverage in niche or emerging
markets.)
●​ May receive low-quality or hard-to-sell
goods in return. (You might get paid in
stuff you don’t even want.)
●​ Not ideal for firms that can’t redistribute
acquired goods.
●​ Most suited for large multinationals
with global distribution networks.
Improving Export Performance (Appendix)
U.S. vs. Others
●​ U.S. lags behind Germany and Japan in institutional support for exporters
●​ Many firms fail to export because of simple lack of knowledge.​
Support Services for Exporters
Provider
What They Do
Freight Forwarders
Consolidate shipments, handle logistics, paperwork.
Export Management Companies
(EMC)
Act as your agent — handle documents, sales, compliance.
Export Trading Companies
All-in-one export service providers.
Export Packaging Cos.
Help optimize packaging for export costs/space.
Customs Brokers
Navigate foreign import laws and documentation.
Confirming Houses
Represent foreign buyers who want your goods.
Export Agents/Merchants
Buy, repackage, relabel, and sell your goods.
Piggyback Marketing
Your product “rides along” with a bigger firm’s international
sales.
Economic Processing Zones
Special trade zones to ease customs, duties, or production for
exports.
Export Strategy Tips
1.​ Hire an EMC or experienced consultant​
You don’t need to go it alone — professionals can simplify the process.
2.​ Start small​
Test one or two markets first to learn without losing everything.
3.​ Scale gradually​
Enter small, then expand based on results.
4.​ Commit time and people​
Exporting isn’t passive — it takes attention and ongoing management.
5.​ Build strong local relationships​
Good local distributors or partners can make or break your success abroad.
6.​ Hire local personnel​
They bring cultural understanding, networks, and trust.
7.​ Be proactive​
Don’t wait for clients to come to you — go find them.
8.​ Keep local production as an option​
If demand grows, making locally may save costs and improve responsiveness.
Session 12 — Final Review & Exam Prep
Value Creation & Appropriation (Value Stick Recap)
💡
Not tested in depth on the final — but useful context to understand how firms create and
capture value.
Key Concepts
Clarifications
Value Created = WTP - Opportunity Cost
The total pie created in the transaction (buyer, firm, and supplier
share it).
Buyer’s Share = WTP – Price
How much more the buyer values the product than what they
paid for it.
Firm’s Share = Price – Cost
The company’s profit per unit.
Supplier’s Share = Cost – Opportunity
Cost
The value the supplier earns above what they could earn
elsewhere.
⚠️
Creating value ≠ capturing value → internal politics, power dynamics, and non-economic
factors matter!
Key Topics to Focus On (You WILL Be Tested On These)
1. Generic Strategies for Going Abroad
●​ Deployment: Copy-paste home strategy​
e.g., same product everywhere​
●​ Development: Gain new capabilities abroad​
e.g., access local knowledge or resources​
●​ Deepening: Strengthen existing advantage​
e.g., refine offering to local needs​
2. A-A-A vs. D-D-D Frameworks
Framework
Focus
A-A-A
Aggregation, Adaptation, Arbitrage Standard IB strategy framework — tested via cases.
D-D-D
Deployment, Development, Deepening Alternative view — helps explain how firms
evolve abroad.
📝
Know examples of each — like how Starbucks adapted in China or how Tesla deploys its IP
globally.
3. Challenges in New Markets
●​ Liability of Foreignness: legal/cultural/market barriers that disadvantage foreign firms​
e.g., different laws, unfamiliar consumer behavior, local competitors with home advantage​
●​ Paradox of Consistency: tension between adapting and staying strategically coherent​
e.g., changing too much = brand dilution; changing too little = failure to connect locally​
4. Geographic Expansion — Economic Justification
Concept
Meaning
Economies of Scale
Reduce cost per unit by producing more Spread fixed costs over more
output.
Economies of Scope
Reduce average cost or boost revenue by offering multiple products Share
resources across offerings.
Subadditivity of Cost
Cheaper to produce two products together than separately
Superadditivity of
Revenue
Can generate more sales when offering complementary products
✨
Know these two for synergy-based questions — they show up in cases and MCQs.
5. Modes of Entry (Big One on the Final)
Mode
Good For
Watch Out For
Exporting
Simple, low risk
Costly logistics & weak local
presence
Turnkey Projects
Temporary presence, infrastructure
sales
Creates competitors
Franchising
Fast expansion
Control and consistency issues
Joint Ventures
Shared risk, local insight
Conflicts, tech leakage
Wholly Owned Sub.
Full control, long-term strategy
High cost, complexity
Acquisition
Speed, access to established market
Integration risk, overpaying
Greenfield
Total control, clean start
Time-consuming, higher startup
risk
📝
Understand which entry mode fits which business context.​
For example: Exporting is great for newcomers with limited experience. Joint ventures are
ideal where local knowledge or political approval is critical. Greenfield works well when you
want to build from scratch and maintain control, but it takes time and money. Franchising is
ideal for fast-growing B2C businesses like fast food, while acquisitions suit time-sensitive
markets or where you need instant access to infrastructure.
🤝
Strategic Alliances (Complement to Entry Modes)
●​ Used when firms want to share risk, enter hard-to-access markets, or combine skills.​
●​ Know how to manage alliances: choose the right partner, structure agreements, build trust.​
Exporting, Importing & Countertrade (Lightly Tested)
You’re expected to understand the mechanics, advantages, and when they’re used — not deep
technical stuff.
●​ Export financing tools: Letter of Credit, Bill of Exchange, Bill of Lading​
●​ Countertrade types: Barter, Counterpurchase, Offset, Switch, Buybacks​
●​ Risks: quality of goods, complexity, limited resale options​
Final Exam Format
Section
What to Expect
A: 20 MCQs
Concept understanding, terminology, basic application
B: 4 Case Qs (15 pts)
Strategy analysis based on cases (e.g., Walmart’s international moves)
✨
Tips for Success:
●​ Focus on lecture notes, case discussions, and key frameworks​
●​ Review Walmart case — especially entry modes and A-A-A/D-D-D strategies​
●​ Check myCourses discussion board for review & clarification​
💬
Sample Questions Preview
1.​ Which entry mode is best for a company with limited international experience?​
→ A) Exporting​
Exporting is the least risky and least costly mode of entry — perfect for beginners who want to
learn about a foreign market without a major commitment.​
2.​ Main advantage of using a letter of credit?​
→ C) It helps international traders engage in trade with trust.​
Because both sides may be working across legal systems and languages, a letter of credit gives
peace of mind by guaranteeing payment through a reputable third-party bank.​
​
Session — Optimal Scope of Geographic Markets
What Is “Optimal Scope”?
It's about deciding how far a company should expand internationally — not just whether
to go abroad, but where, how much, and how fast.
Factors That Influence Geographic Scope
Factor
Why It Matters
Market Potential
Expanding where demand is high increases ROI.
(Bigger, wealthier, or faster-growing markets offer better payoff.)
Cost Structure
Some countries allow for lower production/distribution costs. Helps firms gain
economies of scale or reduce labor/material expenses.
Competitive
Landscape
Avoiding or targeting markets based on intensity of competition. Enter where
you can differentiate or avoid entrenched players.
Cultural &
Institutional Fit
High misalignment = higher costs and risk. The more similar a market is to your
home base, the smoother the entry.
Global Integration
Need
The more global coordination your industry needs, the broader your scope
may have to be. E.g., aerospace, pharma — must manage operations worldwide to
stay competitive.
Geographic Diversification: Pros and Cons
✅ Advantages
❌ Disadvantages
Spreads risk across markets
Higher complexity (operations, legal, culture)
More growth opportunities
Lower profitability if not executed efficiently
Leverages scale economies
Dilutes focus and internal consistency if overextended
Increases resilience to local market shocks
Management strain — harder to coordinate and align
globally
When Is More Not Better?
📌 There is a limit to how far and wide a firm should go. After a certain point, adding more
markets may hurt performance.
●​ Think of it like diminishing returns — early markets give a strong boost, but later ones may
drain resources.​
●​ There’s often an optimal number or mix of countries to be in, based on a company’s resources,
strategy, and structure.​
📝 Smart international firms focus on “smart expansion” — not just “more expansion.”
Strategic Choices in Geographic Scope
●​ Focus Regionally First: Often easier and more manageable.
●​ Selective Globalization: Go global, but only where it makes sense.
●​ Avoid Overcommitment: Don’t spread too thin, especially if organizational capacity is limited
Key Takeaway
The optimal geographic scope is not one-size-fits-all. It depends on:
●​
●​
●​
●​
The firm’s capabilities
Its industry
Its product offering
The target markets' dynamics​
📌 Going global is not about everywhere, it’s about anywhere that aligns with your strategy.