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International Strategic Management summary (IB RUG)
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Detailed summary of all International Strategic Management lectures and relevant articles, also includes exam questions examples.
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LECTURES ra eg is an integrated and coordinated set of commitments and actions, designed to exploit core
competencies, to gain a competitive advantage.
Competitive advantages:
Consumers → higher prices
Producers → lower costs
S ra egic managemen is the ongoing proce that evaluates the company, its competitors, and sets
goals and strategies to meet all e i ing and po en ial compe i or and then reassesses these to
determine whether it has succeeded or needs replacement by a new strategy.
In erna ional ra egic managemen is a management planning process aimed at developing strategies
to allow an organization o e pand abroad and compe e in erna ionall .
But why bother expanding internationally?
And why do we need to manage that process?
Let’s consider four “competitive configurations”:
Dome ic Config ra ion
a. Wha i i We operate in one country, source in one country and supply in one country
i. Example: Dutch Beer Producer (everything done in the NL)
. Growing wheat
. Processing wheat to brew beer
. Selling beer in the Netherlands
b Ho i al e genera ed
i. Labour capital product (beer)
ii. Consumers prefer beer to the money (consumer surplus)
iii. Consumers pay more than the cost of production (producer surplus)
iv. Everyone is happy: the Dutch consume liters per capita , billion litres of
beer in total
c Wha i he role for he in erna ionali a ion manager Not relevant
d Wha are he problem i h he model
i. Small market
ii. Limited growth potential
iii. High market dependance
. E por Config ra ion
a Wha i i Differentials in price (i.e. someone in another country is willing to pay more)
and/or demand (i.e. they are able to drink more) create opportunities abroad
i. Example: Dutch Beer Producer (everything done in the NL)
. Growing wheat
, . Processing wheat to brew beer
. Selling beer in the Netherlands
. Distribute internationally
b Ho i al e genera ed If the differential in price and demand are high enough, and
the costs of supply (transportation costs) are low enough, profit can be created
i. Everyone is happy: Dutch beer exports were with , billion
c Wha i he role for he in erna ionali a ion manager Defining market attractiveness
and selecting export markets
i. What makes an attractive export market? The beer consumption per capita?
The market size or global share? The total amount of (pure) alcohol consumed
per person? Or is it the country’s historical trend?
d Wha are he problem i h he model
i. Transportation costs create an inefficiency
M l ina ional Config ra ion
a Wha i i Replicating the firm's operations across countries and thus avoiding
transportation costs
b Ho i al e genera ed
i. Transportation costs are minimized
ii. Foreign consumers pay foreign prices for domestic goods
c Wha i he role for he in erna ionali a ion manager In addition to choosing markets,
the manager must consider:
i. Organizing subsidiary: what to set up, where, and with who?
ii. Managing international staff: who to hire, or who to send abroad?
d Wha are he problem i h he model Duplication of functions:
i. Inefficient use of resources
Global Config ra ion
a. Wha i i Firms split their supply chains across countries, to maximize profits at each
stage, exploit regional differentials in cost, supply and demand
b. Ho i al e genera ed Functions which are unprofitable in one country are moved to
locations in which they are profitable so value maximized across the entire supply chain
c Wha i he role for he in erna ionali a ion manager In addition to the tasks in the
previous models, the manager must:
i. Assign functions to countries
ii. Circulate managers and staff between functions
iii. Ensure communication between functions
d Wha are he problem i h he model
i. Nothing, it’s the most efficient model we now
ii. Global businesses have been made possible by “globalization” however that may
make it vulnerable
. What is globalization? The process of international integration arising
from the interchange of word views, products, ideas and other aspects
of culture
, a. Political: free market economists ( 0s) - free-trade creates the
most gains, individual politicians (Thatcher), political parties
(VVD), and political institutions (WTO) have pushed for
freer-markets
b. Technological: social barriers have disappeared, from invention
to commercialization (TV: , PC: iPad: )
c. Social: 0s Dutch language standardized, 00s FEB turns to
the English language, between 000 and 00 the number of
international students in the OECD increased by , due to all
this we see cultural convergence (people everywhere want the
same things)
. What has caused globalization?
. Is globalization here to stay?
Clearly internationalizing provides the firm with significant advantages:
Cost benefits (arising from the economic of scale):
○ Lower production cost
○ Lower transportation cost
Revenue benefits:
○ Arising from access to bigger markets with more consumers
Learning benefits (arising from the coordinated transfer of knowledge)
○ Learn from international failures
○ Learn from the cost country
Arbitrage benefits (arising by transferring resources in one country to another)
○ Resources are priced differently across the world so find expensive resources for
cheaper
And it all goes well? NO → Stadler et al looked at 0000 firms in 0 countries and compared the
performance of those that stayed home with those that internationalised
Domestic expansion: Return on Average (ROA) of after years, , after 0 years and
achieve an ROA exceeding
International expansion: Return on Average (ROA) of - after years, after 0 years and
0 achieve an ROA exceeding
, Four critical things that we need to be aware of:
Liabili of foreignne
a. What is it? The set of costs “based on a particular company’s unfamiliarity with and lack
of roots in a local environment”
b. “A stranger in a strange land”
c. The liability of foreignness means:
i. That you will not have the same success
ii. You will incur more costs in the foreign market
d. How large is the “liability” for your firm?
e. Is internationalisation still worth it?
Locali a ion ad an age
a. What are these? The advantages that come when the firm chooses to focus on serving
one (local) market, rather than all (global) markets
b. These advantages come from:
i. Cultural factors: tastes, attitudes, behavior, social norms (some brands just don’t
travel well)
ii. Commercial factors: distribution, customization, responsiveness
iii. Technical factors: standards, spatial presence, transportation, language
iv. Legal factors: regulation, National Security Issues
c. In a market with localization advantages internationalization implies:
i. Loss of flexibility
ii. Loss of proximity
iii. Loss of quick response abilities
d. In other words: in every industry there is one force pushing us to globalize and another
pushing us to localize
e. The question is which force dominates in your industry?
Crea ion of di ad an age
a. Threat of discrmination (TikTok accused to be a tool of the Chinese government and put
under pressure to sell itself to an American firm to continue its operations in the US)
Loca ion bo nd ad an age
a. Not all firms can internationalize, to understand why, we must:
i. Identify the firm's competitive advantage
. What is AH competitive advantage?
ii. Determine if it is location-bound
. If AH’s competitive advantage is that it is a Dutch institution, that
location advantage has no value in Peru. in this case AH’s competitive
advantage would be stuck in NL
. Competitive advantages are location bound if they:
a. Use immobile resources
b. Are based on things like local market reputation or knowledge
. Only non-location bound advantages can be transferred across borders
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