The Strategy of International Business (With Real World Examples) | International Business

Summary

In this video, Dr. Yang explores how firms in global markets navigate two primary competitive pressures: cost reduction and local responsiveness. These pressures often create conflicting demands, leading to the need for different international strategies. The four strategies discussed include Global Standardization, Localization, Transnational, and International strategies. Each strategy is suited to varying levels of cost reduction and local responsiveness pressures. The video emphasizes how firms can balance these pressures and adapt their strategies accordingly to succeed in the global marketplace.

Takeaways

• 😀 Firms in the global marketplace face two main competitive pressures: cost reduction and local responsiveness.
• 😀 Pressures for cost reductions require firms to minimize unit costs through strategies like mass production, outsourcing, and economies of scale.
• 😀 Pressures for local responsiveness arise from differences in customer tastes, infrastructure, distribution channels, and government regulations across countries.
• 😀 Global standardization strategy is most effective when cost reduction pressures are high, and local responsiveness demands are low.
• 😀 Localization strategy works best when there are significant differences in consumer preferences across nations, and cost pressures are not too intense.
• 😀 Transnational strategy aims to balance cost reductions and local responsiveness by leveraging economies of scale while customizing products to local needs.
• 😀 International strategy is used when cost and local responsiveness pressures are low, with firms selling products with minimal customization.
• 😀 Outsourcing and relocating production to low-cost locations, like outsourcing call centers to India, is a common method for reducing costs.
• 😀 Global competition and consumer needs that are similar across countries lead to intense cost pressures in industries producing commodity-type products.
• 😀 The automobile industry in the 1980s showed that the global car model strategy often failed due to significant differences in consumer preferences across regions.
• 😀 The international strategy can be effective in the short term but may not be sustainable in the long run without proactive cost reduction measures.

Q & A

What are the two main types of competitive pressures that firms face in global markets?

The two main types of competitive pressures are pressures for cost reductions and pressures to be locally responsive.

How does responding to pressures for cost reduction affect a firm's strategy?

Responding to pressures for cost reduction requires a firm to minimize its unit costs, often by mass-producing standardized products and exploiting economies of scale, location economies, and learning effects.

Why do firms face strong pressures for local responsiveness?

Firms face strong pressures for local responsiveness when there are significant differences in customer tastes and preferences, infrastructure, traditional practices, distribution channels, and host government demands across countries.

What are Universal needs, and how do they relate to cost reduction pressures?

Universal needs exist when the tastes and preferences of consumers in different countries are similar or identical. Products that address these needs, such as bulk chemicals or smartphones, often face strong cost reduction pressures as they can be standardized and mass-produced.

How do cultural and historical differences affect local responsiveness in a firm's strategy?

Cultural and historical differences can lead to significant variations in customer preferences across countries, requiring firms to adjust their product offerings and marketing strategies to cater to local tastes and demands.

What are the four major international strategies a firm can pursue?

The four major international strategies are global standardization strategy, localization strategy, transnational strategy, and international strategy.

When is a global standardization strategy most appropriate?

A global standardization strategy is most appropriate when there are strong pressures for cost reductions and minimal demands for local responsiveness, such as in industries dealing with universal needs or industrial goods.

What is the focus of a localization strategy, and when is it suitable?

A localization strategy focuses on customizing products to local tastes and preferences. It is suitable when there are substantial differences across nations regarding consumer preferences, and cost pressures are not too intense.

What makes a transnational strategy unique, and what are the challenges of pursuing it?

A transnational strategy aims to achieve low costs through economies of scale and location, while also meeting local demands through customization. The challenge lies in balancing the competing pressures for cost reduction and local responsiveness.

In what scenarios would a firm pursue an international strategy, and what are its limitations?

A firm would pursue an international strategy when facing low-cost pressures and low local responsiveness demands. It involves selling a domestic product internationally with minimal local customization. The limitation is that over time, competitors may catch up, and the firm could be outflanked by more efficient global competitors.