Business School 101: International Strategy

Introduction to Global Marketplace Competitive Pressures

• Firms face two main competitive pressures:
  • Cost Reductions: Minimizing unit costs.
  • Local Responsiveness: Differentiating products and marketing strategies to accommodate diverse demands.
• Differentiation can lead to increased costs due to duplication and lack of standardization.

Competitive Pressures and Strategies

Pressures for Cost Reduction

• Firms aim to lower the cost of value creation by:
  • Mass production at optimal locations for economies of scale.
  • Outsourcing functions to low-cost suppliers (e.g., call centers in India/Philippines).
• Intense in commodity-type products where price is the main competitive factor.
• Universal needs products (e.g., smartphones, semiconductor chips) face strong cost pressures.
• Improved by liberalization of world trade.

Pressures for Local Responsiveness

• Customer Tastes and Preferences:
  • Differ significantly across countries, necessitating customization.
  • Example: Automobile industry’s failed world car strategy.
• Differences in Infrastructure and Traditional Practices:
  • Infrastructure differences (e.g., electrical systems) need product customization.
  • Traditional practices (e.g., driving sides) require adaptation.
• Distribution Channels:
  • Different systems require tailored marketing strategies.
  • Example: Pharmaceuticals’ adaptation in Britain/Japan versus the US.
• Host Government Demands:
  • Economic and political demands necessitate local manufacturing and adaptation.

International Strategies

1. Global Standardization Strategy

• Suited for industries with strong cost reduction pressures and minimal local responsiveness.
• Focus on global scale economies and low-cost strategy.
• Example industries: Semiconductors, industrial goods.

2. Localization Strategy

• Appropriate for markets with significant taste/preferences differences and moderate cost pressures.
• Focuses on customizing products to local markets.
• Example: Nestle’s market-specific products.
• Challenges include higher costs and limited economies of scale.

3. Transnational Strategy

• Balances strong cost pressures and local responsiveness.
• Aims for low costs through economies of scale while differentiating products.
• Example: Caterpillar’s global component manufacturing with local assembly.
• Difficult to perfect due to conflicting demands.

4. International Strategy

• Applicable when both cost and local pressures are low.
• Products developed for domestic markets sold internationally with minimal customization.
• Example: Proctor and Gamble, Microsoft.
• Long-term viability is weak if competitors emerge without cost structure adjustments.

Conclusion

• Firms often face pressures for cost reductions and local responsiveness.
• Strategy choice depends on the strength of these pressures:
  • Global standardization for strong cost reduction pressures.
  • Localization for local taste/preference differences.
  • Transnational for simultaneous strong cost and local pressures.
  • International for low cost and local pressures.
• Important to adapt strategies ahead of competitors to maintain advantage.

Questions/Thoughts: Leave comments below.

Thank you for attending the lecture. Feel free to ask questions or share your thoughts about international strategies.