Introduction to
International Business
Discussion Section
July 30, 2007
The Strategy of International Business;
Entry Strategy and Strategic Alliances
Agenda
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Distribute Midterms
Review Chapter 12
Discussion: Evolution of Strategy at
Procter & Gamble
Review Chapter 14
Discussion: The Changing Strategy
of General Motors
Chapter 12: The Strategy of
International Business
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What is a firm?
• A value chain that uses strategic positioning to create value
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How does expanding internationally lead to value creation?
• Leveraging product/core competencies
• Location economies
• Experience effects (learning effects, economies of scale, strategic
significance)
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What are the challenges of operating internationally?
• Cost pressures
• Pressures for local responsiveness (differences in customer tastes and
preferences, infrastructure and traditional practices; distribution
channels; host government demands)
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What strategies can a firm choose when expanding internationally?
• Global standardization strategy (high cost pressure, low customization
pressure)
• Localization strategy (low cost pressure, high customization pressure)
• Transnational strategy (high cost pressure, high customization
pressure)
• International strategy (low cost pressure, low customization pressure)
Critical Thinking Questions
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In a world of zero transportation
costs, no trade barriers and
nontrivial differences between
nations with regard to factor
conditions, firms must expand
internationally if they are to survive.
Discuss.
Critical Thinking Question
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Describe the position of the following firms
in terms of their strategies to expand
abroad:
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Procter & Gamble
Boeing
Coca-Cola
Dow Chemical
Intel
McDonald’s
Justify your answer.
Management Focus
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How would you characterize the
strategy pursued by GM in the (a)
developing world and (b) Europe
before 1997?
Management Focus
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What do you think were the likely
competitive effects of the pre-1997
strategy?
Management Focus
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How would you characterize the
strategy that GM has been pursuing
since 1997? How should this
strategy affect GM’s ability to create
value in the global automobile
market?
Critical Thinking Question
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What do you see as the main
organizational problems that are
likely to be associated with
implementation of a transnational
strategy?
Evolution of Strategy at Procter &
Gamble
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What strategy was Procter & Gamble
pursuing when it first entered foreign
markets in the period up until the
1980s?
Evolution of Strategy at Procter &
Gamble
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Why do you think this strategy
became less viable in the 1990s?
Evolution of Strategy at Procter &
Gamble?
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What strategy does P&G appear to
be moving toward? What are the
benefits of this strategy? What are
the potential risks associated with it?
Entry Strategy and Strategic
Alliances
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What are the basic entry decisions?
• Which foreign market? Time of entry? Scale of entry?
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How can firms enter a foreign market? (mode of
entry)?
• Exporting; Turnkey Projects; Licensing; Franchising;
Joint Venture; Wholly Owned Subsidiaries
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Which mode?
• How does core competency affect the entry mode?
• How do cost pressures affect the entry mode?
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If a firm wishes to enter via wholly owned
subsidiaries, should it choose “Greenfield” or
“acquisition?’
If a firm decides to form a strategic alliance,
• what are the pitfalls (disadvantages)?
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How to manage them?
• what are the advantages?
Critical Thinking Question
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Licensing proprietary technology to
foreign competitors is the best way
to give up a firm’s competitive
advantage. Discuss.
Critical Thinking Question
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Discuss how the need for control
over foreign operations varies with
firms’ strategies and core
competencies. What are the
implications for the choice of entry
mode?
Critical Thinking Question
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A small Canadian firm that has developed some
valuable new medical products using its unique
biotechnology know-how is trying to decide how
best to serve the European Union market. Its
choices are:
• Manufacture the product at home and let foreign sales
agents handle marketing
• Manufacture the products at home and set up a wholly
owned subsidiary in Europe to handle the marketing
• Enter into an alliance with a large European
pharmaceutical firm. The product would be
manufactured in Europe by the 50/50 joint venture and
marketed by the European firm.
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The cost of investment in manufacturing facilities
will be a major one for the Canadian company,
but it is not outside its reach. Which mode of
entry would you advise?
DHL Case Study
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1. DHL provides door-to-door service
for its customers using its own
agents. Discuss the service. What
are the advantages of having inhouse handling of packages when
shipping internationally rather than
using agents who work for several
different companies?
DHL Case Study
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2. When DHL moved into the U.S.
market, it made the decision to
acquire Airborne rather than build its
own operations. Discuss the
advantages and disadvantages of
this strategy.
DHL Case Study
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3. DHL’s U.S. gateway system
provides on-site customs clearance
services. Does this give DHL a
competitive advantage? Why or why
not?
DHL Case Study
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4. DHL believes that when considering
international express delivery
services, speed and reliability are key
issues for the customer. Using the
pressure for costs reduction/pressure
for local responsiveness grid,
consider the international shipping
business. Where do the major
players stand relative to one another?
Is any one player better positioned to
succeed?