Summary International Strategy

Lecture 1:
Globalization of markets: the merging of historically distinct and separate national markets into one
huge global marketplace
Causes:
 Falling barriers to cross-border trade and investment.
 Global tastes. (McDonald’s)
 Benefits small and large companies.
 Significant differences between national markets.
 Products that serve universal needs are global: oil.
 Competitors may not change among nations.

Globalization of products: Sourcing goods to take advantage of differences in cost and quality of
factors of production
 Factors of production include labor, energy, land, capital.
Early outsourcing was confined to manufacturing.
 Modern communications technology has advanced outsourcing today for service activities.

Impediments prevent optimal dispersion of activities:
 Formal and informal barriers to trade.
 Barriers to foreign direct investment.
 Transportation costs.
 Political and economic risk.
 Challenge of coordinating globally dispersed supply chain.

Institutions needed to help manage, regulate, and police global marketplace.
 World Trade Organization.
 International Monetary Fund.
 The World Bank.
 The United Nations.

Standards are the guidelines that describes the best way of doing something.
 ISO
 Fairtrade
 Sustainable Development Goals

Drivers of globalization:
1. Communications
 Development of the microprocessor single most important innovation since World War II.
 Moore’s Law predicts that the power of microprocessor technology doubles and its cost of
production falls in half every 18 months.
2. The Internet
 More than half of the world’s population uses the Internet.
 Global e-commerce sales over $2.5 trillion.
 The Internet acts as an equalizer.
3. Transportation Technology.
 Commercial jets, super freighters, and containerization have all “shrunk the globe.”

4. Implications for the Globalization of Production.

,  Locating production in geographically separate locations has become more economical.
5. Implications for the Globalization of Markets.
 Cultural distance has been reduced and has brought some convergence of consumer tastes
and preferences.

Changes in demographic of the global economy:
The Changing World Output and World Trade Picture (BRIC countries and China growing)
The Changing Foreign Direct Investment Picture
As barriers to the free flow of goods and services fell, non-U.S. firms increasingly invested across
national borders.
The Changing Nature of the Multinational Enterprise
The rise of Multi-Multinationals
The Changing World Order

Global Economy of the Twenty-First Century
 Barriers to the free flow of goods, services, and capital have been coming down.
 Strengthened by the widespread adoption of liberal economic policies by countries that had
opposed them.
 Globalization is not inevitable

Lecture 2:
International firms face two pressures:
1. Cost reduction
 Seek cost reduction through scale economies
 Capitalize on converging consumer trends and universal needs
 Provide uniform service to global consumers
 Conduct global sourcing of raw materials, components, energy and labor-
Monitor and respond to global competitors
 Take advantage of media that reaches buyers in multiple markets
2. Local responsiveness
 Leverage national endowments such as local talent
 Cater to local customer needs
 Accommodate differences in distribution channels
 Respond to local competition
 Adjust to cultural differences
 Meet host government requirements and regulations

The need to customize the product to local conditions
may work against the implementation of a global cost
reduction strategy:
Concessions may need to be made to local conditions.
Requires cost/benefit analysis and opportunity
assessment.

, Choosing a strategy:
 Global standardization (IKEA, Costco)
 Looks to reap the cost reductions that come from economies of scale, learning
effects, location economies.
 Avoids customization
 Goal is to pursue low-cost strategy on global scale
 Production, marketing, R&D, and supply chain activities are concentrated in a
few favorable locations.

 Localization strategy (Netflix, MTV)
 Customizes the firm’s goods or services so they are a good match to tastes and
preferences in different national markets.
 Most appropriate when:
o There are substantial differences across nations with regard to consumer
tastes and preferences.
o Cost pressures are not too intense.
 Customization limits the ability of the firm to capture the cost reductions
associated with mass-producing a standardized product for global consumption

 Transnational strategy (Bel -> La Vache qui rit, Babybel)
 Achieve low costs, differentiate product offerings to account for local
differences, foster multidirectional flow of skills between subsidiaries.
 Makes most sense when demands for local responsiveness are high but cost
pressures are moderate or low.
 Places conflicting demands on the company:
o Differentiating the product to respond to local demands in different
geographic markets raises costs, which runs counter to the goal of
reducing costs.

 International strategy (Microsoft)
 Taking products developed for domestic market and selling them
internationally with minimal local customization.
 For firms with low-cost pressures and low pressures for local responsiveness.
 Tend to centralize product development functions such as R&D at home but
establish manufacturing and marketing functions in each major country or
geographic region in which they do business.

Organizational architecture:
The totality of a firm’s organization, including formal organizational structure, control
systems and incentives, organizational culture, processes, and people.

Three dimensions: