Ing. Radek Čajka, Ph.D.
Department of International Business
The strategy of international
business – part 2
2MO202, 2MO252
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Outline of the lecture
• Cost pressures and pressures for local responsiveness
• Choosing a strategy
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Cost pressures and pressures for local
responsiveness
• Corporations face competitive pressures that place conflicting
demands
• Cost reduction pressures push a firm into minimizing its unit
costs
ØMore universal goods/services
• Local responsiveness pressures push a firm into more
differentiation of its products and marketing strategy, which can
raise costs
ØMore customized goods/services
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Pressures for cost reductions
• How can a company reduce costs (of production)? Typically,
by:
• Economies of scale
• Learning effect
• Location economies (offshoring)
• Outsourcing
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Pressures for cost reductions
• They can be intense in case of products where meaningful
differentiation is difficult – products that serve universal needs
• Tastes and preferences of consumers in different countries are similar
or identical
• Commodity products – steel, petroleum, sugar
• Industrial products – semiconductor chips, screens
• Very typical in B2B
• Price (at given quality) remains the main competitive weapon
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Pressures for local responsiveness
• Responding to pressures requires a firm to differentiate its
products and marketing strategy from country to country or
region to region
• That tends to raise costs
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Pressures for local responsiveness
• Differences in tastes and preferences
• When they differ significantly
• Historical or cultural reasons
• Globalization and transport costs have created conditions for
convergence of tastes and preferences – There are some successful
examples
• However, these differences can’t be ignored by any firm
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Pressures for local responsiveness
• Differences in infrastructure and practices
• They create a need to customize products
• Different voltage
• Driving on different sides
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Pressures for local responsiveness
• Differences in distribution channels
• Typical form of sale
• Marketing practices
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Pressures for local responsiveness
• Host-Government demands
• Standards and norms
• Pricing restrictions
• Local content rules
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Pressures for local responsiveness
• The rise of regionalism
• Convergence of previous issues in a broader region
• Can be based on historical, cultural or institutional basis
• This may lead to localization at the regional rather than national level
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Choosing a strategy
• Pressures for local responsiveness make it hard for a firm to
realize the full benefits of economies of scale, learning effect
and location economies
• The need to customize products lo local conditions may work
against the implementation of a strategy with global
marketplace, one production place and globally standardized
product and marketing
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Choosing a strategy
Source: HILL, Charles W. L. a HULT, G. Tomas M. Global business today.
International student edition. New York: McGraw-Hill Education, [2018]
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Choosing a strategy
• Global standardization strategy
• Cost oriented strategy on a global scale
• Production, marketing and R&D are concentrated in a few favorable
locations (location economies)
• Low or no level of customization → standardized product
• Markets with strong cost reduction pressures and minimal demand for
local responsiveness
• B2B products, consumer electronics, automotive, F&B, furniture
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Choosing a strategy
• Localization strategy
• Increasing profitability by customizing the firm’s products so
that they provide good match to local tastes and preferences
• When there are substantial differences across nations and cost
pressures are not too intense
• By customizing the firm increases value of its products
• Cost reduction typical for global strategy is limited, but costs
are still essential (as well as pricing)
• F&B, media, print and books, luxury products
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Choosing a strategy
• Transnational strategy
• When experiencing pressures both in terms of costs and localization
• Thus, paying attention to both, which is the most difficult task for
MNCs today
• Optimization of design, production and distribution of goods
• And focusing on regions rather than individual countries
• FMCG
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Choosing a strategy
• International strategy
• Low pressures in terms of costs and localization needs (typically
some sort of a universal need)
• Very fortunate position
• Competition is limited because of innovation, patents, unique product,
etc. (competitors are one or more steps behind you)
• R&D is typically centralized, while production and marketing is close
to final markets
• Xerox in 1960s
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Evolution of strategy
• Emergence of efficient competitors means that international
strategy may not be viable in long term
• Similar applies to localization strategy – sooner or later a firm
will be with aggressive competitors
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Evolution of strategy
Source: HILL, Charles
W. L. a HULT, G. Tomas
M. Global business
today. International
student edition. New
York: McGraw-Hill
Education, [2018]
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