{"id":123,"date":"2015-07-29T22:27:34","date_gmt":"2015-07-29T22:27:34","guid":{"rendered":"https:\/\/courses.candelalearning.com\/intlbusx1xmaster\/?post_type=chapter&p=123"},"modified":"2017-01-09T19:17:06","modified_gmt":"2017-01-09T19:17:06","slug":"international-strategy","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/cerritos-internationalbusiness\/chapter\/international-strategy\/","title":{"raw":"Reading: International Strategy","rendered":"Reading: International Strategy"},"content":{"raw":"
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Learning Objectives<\/h3>\r\n
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  1. Know the trade-offs being made in terms of local responsiveness and global efficiency in regard to international strategies.<\/li>\r\n\t
  2. Distinguish among multidomestic, global, and transnational strategies.<\/li>\r\n\t
  3. Understand how the local environment can impact a firm\u2019s international strategy.<\/li>\r\n<\/ol>\r\n<\/div>\r\nAt the corporate level, firms choose to use one of three international strategies: multidomestic, global, or transnational (transnational is a combination of multidomestic and global). These three strategies reflect trade-offs between local responsiveness and global efficiency For firms to gain a competitive advantage, they have to devise strategies that take best advantage of the firm\u2019s core compentencies and that are difficult for competitors to copy.\r\n
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    Multidomestic Strategy<\/h2>\r\nMultidomestic strategy<\/span><\/span> maximizes local responsiveness by giving decentralizing decision-making authority to local business units in each country so that they can create products and services optimized to their local markets. A multidomestic strategy would be appropriate, for instance, where Thomas Friedman\u2019s flat-world thesis is not applicable. A multidomestic strategy focuses on competition within each country and maximizes local responsiveness. It assumes that the markets differ and, therefore, are segmented by country boundaries. In other words, consumer needs and desires, industry conditions (e.g., the number and type of competitors), political and legal structures, and social norms vary by country. Using a multidomestic strategy, the firm can customize its products to meet the specific preferences and needs of local customers. As a result, the firm can compete more effectively in each local market and increase its local market share.\r\n\r\nThe disadvantage of a multidomestic strategy, however, is that the firm faces more uncertainty because of the tailored strategies in different countries. In addition, because the firm is pursuing different strategies in different locations, it cannot take advantage of economies of scale that could help decrease costs for the firm overall. The multidomestic strategy has been more commonly used by European multinational firms because of the variety of cultures and markets found in Europe.\r\n\r\nAs mentioned earlier, Yum! Brands has a strong incentive to compete internationally with its restaurant concepts (i.e., KFC, Pizza Hut, Taco Bell, A&W Restaurants, and Long John Silver\u2019s). Yum! pursues a multidomestic strategy by trying to localize as much as possible. The firm doesn\u2019t open restaurants using only the US model. Wherever the company has locations, it consistently adapts to local tastes and negotiates well when cultural and political climates change: \u201cIn Japan, for instance, KFC sells tempura crispy strips. In northern England, KFC stresses gravy and potatoes, while in Thailand, it offers fresh rice with soy or sweet chili sauce. In Holland, the company makes a potato-and-onion croquette. In France, it sells pastries alongside chicken. And in China, the chicken gets spicier the farther inland you travel. More and more, if it\u2019s only an American brand without a regional appeal, it\u2019s going to be difficult to market.\u201d[footnote]Brian O\u2019Keefe, \u201cWhat Do KFC and Pizza Hut Conjure Up Abroad?,\u201d Fortune<\/em>, November 26, 2001, 102\u201310.[\/footnote]<\/span> Recognizing this constraint, Yum! introduces its products in those foreign markets that are the shortest \u201ctaste\u201d distance from its traditional home markets.[footnote]Pankaj Ghemawat, \u201cDistance Still Matters,\u201d Harvard Business Review<\/em> 79, no. 8 (2001): 147.[\/footnote]<\/span> So, it sticks to high-population areas in which American culture has some appeal as well.\r\n\r\n<\/div>\r\n
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    Global Strategy<\/h2>\r\nIn contrast to a multidomestic strategy, a global strategy<\/span><\/span> is centralized and controlled by the home office and seeks to maximize global efficiency Under this strategy, products are much more likely to be standardized rather than tailored to local markets. One way to think about global strategies is that if the world is flat, you can sell the same products and services in the same way in every country on the planet. The strategic business units operating in each country are assumed to be interdependent, and the home office attempts to achieve integration across these businesses. Therefore, a global strategy emphasizes economies of scale and offers greater opportunities to utilize innovations developed at the corporate level or in one country in other markets.\r\n\r\nAlthough pursuing a global strategy decreases risk for the firm, the firm may not be able to gain as high a market share in local markets because the global strategy isn\u2019t as responsive to local markets. Another disadvantage of the global strategy is that it is difficult to manage because of the need to coordinate strategies and operating decisions across country borders. Consequently, achieving efficient operations with a global strategy requires the sharing of resources as well as coordination and cooperation across country boundaries, which in turn require centralization and headquartered control. Whether the world is flat or flattening can often depend on the industry. In most cases, the world isn\u2019t flat, but in a few industries the market characteristics are fairly common. The cement and concrete industry is an example of an industry where the flatteners have taken effect. CEMEX, a Mexico-based cement and building materials company founded in 1906, pursued an international business strategy that led to its growth and position as one of the top building materials companies in the world today.[footnote]\u201cStrategically Positioned,\u201d CEMEX, accessed January 1, 2011, http:\/\/www.cemex.com\/tc\/tc_gl.asp<\/a>.[\/footnote]<\/span> CEMEX acquired companies to grow rapidly, took advantage of economies of scale, and used the Internet to lower its cost structure. Perhaps most crucial to its international expansion success was foreseeing the shifts in distribution technologies that would bring previously disparate regional markets closer together.[footnote]Daniel F. Spulber, Global Competitive Strategy<\/em> (Cambridge, UK: Cambridge University Press, 2007), 217\u201318.[\/footnote]<\/span>\r\n
    In 2009, CEMEX CEO Lorenzo H. Zambrano wrote a message to stakeholders regarding sustainable development:\r\n
    In 2009, as we coped with the worst crisis to hit the global economy, our industry, and our company in 75 years, we took important and decisive steps to strengthen not only our business model, but also our commitment to sustainable development. As a result, we are a stronger company, well positioned to take advantage of the recovery of the global economy. That is testimony to the quality of our employees, to our company\u2019s core values of collaboration, integrity, and leadership, and to the disciplined execution of sound strategies.\r\n\r\nWe made several difficult decisions during the year to adjust to a rapidly evolving and extraordinarily challenging market environment. For example, we sold assets, most notably our Australian operations, and reorganized our business to improve efficiency and productivity. Together, these measures brought about an unfortunate, but necessary, reduction in our workforce. However, these steps enabled us to weather the crisis and will position our company for long-term success.\r\n\r\nEven as the economic crisis unfolded, we deepened our commitment to our stakeholders. We continued our efforts to ensure the safety of our employees, and many of our country operations recorded solid improvements in their safety performance. However, despite our ongoing efforts, I am deeply saddened to report that 33 people\u2014including employees, contractors, and third parties\u2014died in incidents related to our operations during 2009. This is tragic and unacceptable. We are working harder than ever to identify and address the root causes of all fatalities and serious injuries in order to prevent their recurrence. For example, we are expanding and strengthening our efforts in key areas such as safety training for drivers and contractors. Above all, we remain committed to our global long-term goal of zero incidents.\r\n\r\nOn the environmental front, we continued to reduce our carbon footprint by improving the energy efficiency of our operations and expanding our use of alternative fuels. As a result, in 2009 we increased our use of alternative fuels to 16.4 percent, exceeding our target for 2015 ahead of time. In addition, Eurus, the wind farm project developed by ACCIONA Energ\u00eda, became fully operational during the year and can supply 25 percent of our plants\u2019 electricity needs in Mexico.\r\n\r\nFinally, we engaged the communities in which we operate through open and ongoing dialogue, social initiatives, and volunteer efforts. We continued to find ways to promote access to housing and community infrastructure. For example, we launched our most successful low-income housing solution, Patrimonio Hoy, in the Dominican Republic.\r\n\r\nAs a global company, we are deeply aware of our responsibility to address complex sustainability challenges. We are committed to further reducing our impact on the environment and recognize that we have many opportunities to improve. We reconfirm our commitment to address climate change and to the development of a low-carbon economy.\r\n\r\nWe actively engage with our global panel of sustainability experts, who provide important and valuable advice. On a personal note, I thank them for their feedback and for continuously challenging us to make further progress.\r\n\r\nWe present our 2009 sustainable development report within the framework of our overall sustainability website to better communicate our sustainability performance. We have provided an executive summary that highlights our performance on our key sustainability issues. We hope that you find the report engaging, transparent, and comprehensive, and we welcome your feedback.\r\n\r\nSincerely, Lorenzo H. Zambrano\r\n\r\nCEMEX Chairman of the Board and Chief Executive Officer[footnote]Lorenzo H. Zambrano, \u201cAddressing Complex Sustainability Challenges,\u201d CEMEX, accessed June 7, 2010, http:\/\/www.cemex.com\/su\/Su_oc_me.aspx<\/a>.[\/footnote]<\/span><\/blockquote>\r\n<\/div>\r\n<\/div>\r\n
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    Transnational Strategy<\/h2>\r\nTransnational strategy<\/span><\/span> seeks to combine the best of multidomestic strategy and a global strategy to get both global efficiency and local responsiveness. For many industries, given the differences across markets and the similarties being fostered by the flatteners, this form of strategy is highly desirable and appropriate. The difficulty is that combining the multidomestic and global strategies is hard to do because it requires fulfililng the dual goals of flexibility and coordination. Firms must balance opposing local and global goals. On the positive side, firms that effectively implement a transnational strategy often outperform competitors who use either the multidomestic or global corporate-level strategies.[footnote]John Child and Yanni Yan, \u201cNational and Transnational Effects in International Business: Indications from Sino-Foreign Joint Ventures,\u201d Management International Review<\/em> 41, no. 1 (January 2001): 53\u201375.[\/footnote]<\/span>\r\n\r\nThe Ford Motor Company and BMW are examples of firms pursuing a transnational strategy. Ford, for example, is focusing on the \u201cworld car,\u201d building one core car that will be sold globally. This strategy lowers Ford\u2019s development costs, because rather than developing different cars for different countries or regions, Ford will sell the same car to all markets. The world car strategy, however, poses a major hurdle: how to design a car that appeals to consumers in many different countries. To tackle the issue, Ford took a page from BMW, which uses the concept of \u201cfashion forward\u201d when designing its 3 Series cars for multiple markets. The secret, according to Verena Kloos, president of BMW\u2019s DesignworksUSA studio in California, is to \u201cshow consumers what the next big thing is, not reflect what they think now.\u201d As James D. Farley, Ford\u2019s global marketing chief, sees it, the global appeal of the 3 Series rests on trust and aspiration. People worldwide see the same design, which builds trust through ubiquity and familiarity and leads them to aspire to own the car themselves.[footnote]David Kiley, \u201cCan Ford\u2019s \u2018World Car\u2019 Bet Pay Off?,\u201d BusinessWeek,<\/em> accessed June 7, 2010, http:\/\/www.businessweek.com\/magazine\/content\/09_24\/b4135058974279.htm?campaign_id=rss_innovate<\/a>.[\/footnote]<\/span>\r\n
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    International Strategy and the Local Environment<\/h2>\r\nSometimes, firms expanding into new geographic markets find that they must adapt certain components of their strategies to accommodate local environments. In the United States, for instance, Dell is famous for the business model that allows it to skip middlemen and go directly to suppliers and customers. In its early years, Dell experimented with a brick-and-mortar retail strategy but quickly retrenched. As it expanded into international markets, however, Dell has found that it has to suspend its direct model, at least temporarily. Why? Basically because it needs local intermediaries to help develop both a base of business and acceptable levels of customer awareness and sophistication. Such has been the case first in India and then in China, which constitute huge markets for Dell.\r\n
    \r\n\r\n[caption id=\"\" align=\"aligncenter\" width=\"500\"]\"Dell<\/a> Figure 10.5<\/strong> Dell\u2019s Local Operations in Xiamen, China. Courtesy of Dell, Inc.[\/caption]\r\n\r\n<\/div>\r\nWhile Dell provides a good example of adaptation, most global firms tend to approach corporate strategy from the perspective of their domestic market constraint, which can be problematic. Microsoft is a case in point. The United States and the European Union (EU) have very different traditions and models of competition, which in turn means that strategies must vary across these important markets. Had you not been aware of these differences, you might think that Microsoft followed an ideal resource-based corporate strategy in its diversification into Europe. It bundled its Windows operating system with the Internet Explorer browser and other software to increase the company\u2019s perceived value and, therefore, customers\u2019 willingness to pay. It also used its extensive experience with home-computer software, operating systems, and applications to better penetrate the server market for software and operating systems, where customers are primarily businesses. Finally, Microsoft tried to lock out competitors by including its Windows Media Player as a standard feature in both its server and home PC operating systems.\r\n\r\nThe EU, however, has made these Microsoft tactics illegal: the bundling strategy \u201cdeters innovation and reduces consumer choice in any technologies which Microsoft could conceivably take an interest in and tie with Windows in the future.\u201d[footnote]\u201cEU Lowers Boom on Microsoft,\u201d Wired<\/em>, March 24, 2004, accessed November 10, 2010, http:\/\/www.wired.com\/techbiz\/media\/news\/2004\/03\/62789<\/a>.[\/footnote]<\/span> The EU signaled its disapproval by imposing a fine of over $600 million and giving Microsoft ninety days to release versions of its Windows operating systems for home PCs and servers without the Windows Media Player and to begin providing rivals access to the details of the code underlying its proprietary server systems, used primarily in business settings. This is not the first time such differences in regulatory environments have been ignored or underestimated by global firms. Just a few years earlier, the European Commission\u2019s ruling dealt a fatal blow to the all-but-done merger between Honeywell and General Electric (GE), citing that the merger would reduce competition in the aerospace industry.[footnote]Yusaf Akbar, \u201cGrabbing Victory from the Jaws of Defeat: Can the GE-Honeywell Merger Force International Competition Policy Cooperation?,\u201d World Competition<\/em> 25, no. 4 (2002): 26\u201331.[\/footnote]<\/span>\r\n
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    Key Takeaways<\/h3>\r\n