Case study
Starbucks FDI
page 308
• Over 16,000 stores
• More than 4000 in foreign countries
• Strategy: selling premium roasted
coffee and freshly brewed espresso
style coffee.
• People and customer service.
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Starbucks
• 1995 in Japan, by licensing its
format.
• Joint venture to control the formula
• To ensure that formula Starbucks
transferred some employees to the
Japanese operation.
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Starbucks
• What is the licensing agreement?
1.All managers and employees must
attend training classes.
2.Store design.
3.Stock options for all employees in
Japan.
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Starbucks
• Replicating US stores is very
important in the license.
• 2007 = over 700 stores in Japan
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Starbucks
1998 aggressive FDI
1. British Coffee Chain
2. Taiwan, China, Singapore, South Korea,
KSA, and now all over the world.
Licensing its format for royalty fee and
licensing fee.
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Starbucks
• From straight licensing into joint ventures
for more control.
• 2002 in Switzerland and then into China
favoring joint ventures and acquisitions
over licensing.
Answer the questions at the end of the
case to the best of you knowledge
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The strategy of
International Business
international business, 5th edition
chapter 12
The Strategy of International
Business
• Strategy and the firm
• Global expansion, profitability and
Profit Growth
• Cost pressure and pressure for local
responsiveness
• Choosing a strategy
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The Strategy of International
Business
• Can you explain the concept of strategy?
• How firms can profit by expanding globally?
• Do you know how pressure for cost reduction
and local responsiveness influence strategic
choice?
• Can you understand the different strategies for
competing globally?
• Can you explain the pros and cons of using
strategic alliances to support global strategies?
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The Strategy of International
Business
• First strategy and the firm
We talk in this section about: strategy,
profit, value creation, positioning,
the firm as a value chain.
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First section
strategy and the firm
• Strategy?
Strategy: the actions that managers
can take to attain the goals of the
firm.
Goal: maximize the value of the firm
Maximizing profitability will maximize
the value of the firm.
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First section
strategy and the firm
• See figure 12.1
• Profitability -----by reduce costs and
raise prices.
• Profitability growth-----by sell more
in current market and enter new
markets
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First section
strategy and the firm
• What is value creation?
• Profit leads value and value leads to
profit.
• Value = value perceived by
consumer – costs of production.
• This leads to consumer surplus in
the consumer mind. See figure 12.2
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First section
strategy and the firm
value creation
• So
• Value creation = V-C in figure 12.2
• So you as a manager you must
thing of increasing V and reducing
C!
• You must think of all ways to do
that.
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First section
strategy and the firm
Value creation
• As a result of either concentrating
on C or V you might want to use
one strategy over the other:
1.Low cost strategy-----C or
2.Differentiation strategy-------V
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First section
strategy and the firm
value creation
• Let us talk about Porter strategies for a
minute.
• Do you have any idea?
• Competitive advantage?
So value creation for the business can be
created by being competitive by
increasing the gap between V and C
against competitors.
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First section
strategy and the firm
and strategic positioning
• Look figure 12.3
• Efficiency frontier
• Differentiation Vs Cost structure
• Your strategic position in the mind of your
consumers.
• Diminishing return?
• Viable position?
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First section
strategy and the firm
and strategic positioning
To maximize profit:
Integration between three elements:
1- Viable position on the efficiency frontier.
Strategy
2- internal operations.
3- organization structure.
S.O.S- see wall-Mart- Gap, Al-Haram
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First section
strategy and the firm
operations
• Operations: the firm as a value chain
• Primary activities
• Support activities
Value via R&D, Marketing, Production and
customer service. You can increase
value by reducing the cost or improving
the quality. Caterpillar 24 hour spare
parts service.
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Second section
Global Expansion, profitability
and profit growth
By 1- expanding the market: Leveraging
products and competencies
To do that and enter new market you need
to offer something that is not offered, or
different.
Core competencies that competitors can
not match. Core competencies ----source of competitive advantage.
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Second section
Global Expansion, profitability
and profit growth
2- Location Economies: are the economies
that arise from performing a value
creation activity in the optimal location
for that activity. IBM select India, why?
It is the right location for IT services.
It must be that location enabling one of two
things:
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Second section
Global Expansion, profitability
and profit growth
It must be that location enabling one of two
things:
1. Lowering cost or
2. Differentiating the product.
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Clear Vision, the case in page 410,
represents both using China as a location
for low-cost production and Japan for
high quality design (two different
locations).
Second section
Global Expansion, profitability
and profit growth
How to create the global web?
Lenovo’s ThinkPad Laptop.
1. design-----US
2. Case, keyboard, hard drive---Thailand
3. Screen and memory----South Korea
4. The built-in wireless card-----Malaysia
5. Microprocessor--------------US
6. Assembly-----------------Mexico
7. Marketing and sales strategy--------US.
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Second section
Global Expansion, profitability
and profit growth
• Experience Effects
• Experience curve- figure 12.5 page
412.
• Economies of scale
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Section 3
Cost Pressures and Pressures
for Local Responsiveness
• Check figure 12.6 page 415
• Two forms of pressure:
1- Pressure for cost reductions
2- pressure for local responsiveness
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Section 3
Cost Pressures and Pressures
for Local Responsiveness
Let us start with number one:
Pressure for cost reductions
As an international company, what would you do to
reduce cost and encounter the competitive
pressure? As a bank for example?
Answer: moving the activity of Information
Processing to a developing country where
wages are lower to produce lower cost per unit.
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Section 3
Cost Pressures and Pressures for
Local Responsiveness
Cost pressure:
Mass production at optimal location in the world
and economies of scale.
Cost pressure forced IBM to run its global
professional services business from India not
the united states.
This always the case when moving through the
product life cycle- from introduction to growth, to
maturity and when the innovation is becoming
no more than a commodity.
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Section 3
Cost Pressures and Pressures for
Local Responsiveness
• Second type of pressure is the pressure for local
responsiveness (V not C).
• This pressure requires differentiation strategy
not cost strategy.
1- It is due to different customer tastes and
preferences from one country to another. In this
case standardization will not solve our
problems. Take for example BBC. Banks, cars,
mobile phone, Starbucks in KSA adapting to the
culture
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Section 3
Cost Pressures and Pressures
for Local Responsiveness
. 2- the second reason local
responsiveness is: differences in
infrastructure and traditional practices.
Examples of driving in the UK and
different voltage in electricity. And
different technical standards from one
country to another.
Whereas, standardisation makes life easy
more than customization some times not
all the time
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Section 3
Cost Pressures and Pressures
for Local Responsiveness
• http://www.alarabiya.net/articles/201
1/11/14/177090.html
• http://www.flynas.com/ar/index.aspx
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Section 3
Cost Pressures and Pressures
for Local Responsiveness
• Number three is:
3- differences in distribution channels: in some
countries like Japan they sell cars door to door
4- host Govt demands: country’s specific health
regulations, or tradition or cultural issues
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Section number four
Choosing a strategy
• Select your best str from figure 12.7 page 419.
1- Global standardization strategy with low pressure for
responsiveness and high for cost.
2- localization str with high degree of pressure for
responsiveness and low for cost.
3- transnational str with with high pressure from both.
4- international str. With low for both.
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Section number four
Choosing a strategy
• The evolution of strategy- Canon
against Xerox
• And see the evolution strategy at
Procter and Gamble page 423.
See also opening and closing cases.
Good luck
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