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Samenvatting International Strategic Management International Business
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Samenvatting International Strategic Management International Business
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International strategic management - IBWeek 1
Strategy
is an integrated and coordinated set of commitments and actions designed to exploit core
competencies to gain a competitive advantage. > doing the same things as your
competitors but than in some way better.
- Consumers – higher prices > consumers are willing to pay more for Coca Cola or
Apple than for other brands.
- Producers – lower costs > it can be that I am more profitable because my efficiency
in production, supply or so is higher because it is on lower costs.
Strategic management
- is an ongoing process that evaluates the company, its competitors, and sets goals
and strategies to meet all existing and potential competitors; and reassesses these
to determine whether it has succeeded or needs replacement by a new strategy.” >
example when amazon entered the Dutch market of bol.com.
International strategic management
- is a management planning process aimed at developing strategies to allow an
organization to expand abroad and compete internationally. > expanding Albert
Heijn to Germany or Belgium.
Why expanding internationally? And why to manage that process?
Four competitive configurations:
- Domestic configuration
▪ A. What is the idea: Operate in one country, source in one country and
supply in one country.
o 1 Growing Wheat
o 2 Processing Wheat to Brew Beer
o Selling Beer in the Netherlands.
▪ B. How is value created?
o Labor + capital = product (beer)
o Consumers prefer beer to the money (consumer surplus).
o Consumers pay more than the cost of production (producer surplus).
▪ D. What is the problem with a domestic configuration?
o Small market in global terms.
o Limited growth potential.
o High market dependence.
- Export configuration
▪ A. What is the big idea: Differentials in price (i.e. they are willing to pay more)
and/or demand (i.e. they are able to drink more) create opportunities
abroad.
o 1. Growing wheat in the Netherlands.
o 2. Process wheat to brew beer in the Netherlands as well.
, o 3. Selling it in the Netherlands.
o 4. Sell it internationally (shipping).
▪ B. How is value generated?
o If the differential in price and demand are high enough, and the costs
of supply (transportation costs) are low enough, profit can be created.
▪ C. What is the role of the international business manager?
o Defining market attractiveness. Selecting export markets. What
makes an attractive export market? >
• the consumption per capita for example?
• The total market size or global share?
• Or maybe the total amount of pure alcohol consumed
per person?
• Or is it the historical trend and future prospects?
▪ D. What is the problem with an export configuration?
o Transportation costs create an inefficiency.
- Multinational configuration
▪ A. What is the big idea?
o Replicating the firm’s operations to avoid transportation costs. Instead
of producing it in the Netherlands, produce in every country you are
selling to locally.
▪ B. How is value generated?
o Transportation costs are minimized.
o Foreign consumers pay foreign prices for domestic goods. > Chinese
operation might be twice as efficient as the Dutch operation,
producing is way cheaper but the Chinese pay the same costs as in
the Netherlands.
▪ C. What is the role of the international business manager?
o In addition to choosing markets, the manager must consider:
• Organizing subsidiary: what to set up, where, and with who?
• Managing international staff: who to hire, or to send abroad?
▪ D. What is the problem with multinational configuration?
o Duplication of functions:
o Inefficient use of resources. >
• Bottling etc doing the same in China but production costs
differ per region. For China, it will be more profitable but
building a manufacturing base in Sweden will be more
expensive.
- Global configuration
▪ A. What is the big idea?
, o Firms split supply chain across countries, to maximize profits at
each stage, to exploit regional differentials in costs, supply and
demand.
▪ B. How is value generated?
o Functions which are unprofitable in one country are moved to
locations in which they are profitable. Value maximized across entire
supply chain.
▪ C. What is the role of the international business manager?
o In addition to the tasks in previous models, the manager must:
• Assign functions to countries.
• Circulate managers and staff between functions.
• Ensure communication between functions.
▪ D. What is the problem with the Global configuration?
o Nothing. It’s the most efficient model we know...
o Global businesses have been made possible by globalization,
however, and that may make it vulnerable. > America first policy,
Brexit, COVID’19, Pollution (sustainability).
▪ Globalization
o The process of international integration arising from the interchange
of world views, products, ideas and other aspects of culture.
1. Political Factors.
• Free Trade (WTO)
• Deregulation (EU, NAFTA)
• Foreign Investment (FDI)
• Free-market economic schools.
2. Technological factors.
• A reduction in travel costs
• Increase in communications
• Economies of scale.
3. Social factors
• Linguistic standards.
• Advertising and tastes
• Cultural convergence > people everywhere want the same
things.
4. Competitive Factors
• Push factors.
• It is good to go, it lowers costs.
• You have a disadvantage if you don’t split your supply
chains, you will lose your competitive advantage.
Advantages of internationalization
- Cost benefits
• Lower production costs
, • Lower transportation costs
- Revenue benefits
• Bigger markets with more consumers
- Learning benefits
• Learn from international failures
• Learn from the host country
- Arbitrage benefits
• Find expensive resources cheaper in other parts of the world.
Does internationalization all goes right? Nope
Stradler et al. (2015) looked at 20,000 firms, in 30 countries, and compared the
performance of those that stayed home with those that internationalized.
- Domestic expansion: ROA of +1% after 5 years, +2.4% after 10 years. 53% achieve
in ROA exceeding 3%. (return on assets)
- International expansion: ROA of -1% after 5 years, +1% after 10 years. 40% achieve
a ROA exceeding 3%.
Four things to be aware of: > VERY IMPORTANT FOR THE EXAM
1. Liability of foreignness.
▪ The set of costs “based on a particular company’s unfamiliarity with and
lack of roots in the local environment”
▪ “A stranger in a strange land”.
▪ A Dutch firm internationalizing to Indonesia is a stranger, why would
they cooperate and become partner with the Dutch firm?
▪ So it means:
o 1. That you will not have the same success
o 2. You will incur more costs in the foreign market
• How large is the liability for your firm?
• Is internationalization then still worth it?
o For example, selling and manufacturing chips is less risky than food or
services due to differences between countries.
2. Localization advantages.
▪ Localization advantages are the advantages that come when the firm
chooses to focus on serving one (local) market, rather than all (global)
markets.
▪ In a market with localization advantages internationalization implies:
1. Loss of flexibility
2. Loss of proximity
3. loss of quick response abilities
▪ These advantages come from:
o Cultural factors (tastes vary), in one country brand is cool in the
other they violate norms > the baby buggy is very appealing in one
market and in another market it was considered unresponsible
because of three wheels instead of four.
o Commercial factors: > demand in Groningen to supply local energy in
Groningen so it loses connection to consumer in other regions.
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