Assignment-Chapter 12
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The document discusses international business strategies used by various companies. It explains that Procter & Gamble follows a transnational strategy with centralized R&D and localized production and marketing. Vodafone initially pursued a global strategy by standardizing its phone technology worldwide but failed to adapt to local Japanese preferences. Walmart had to expand internationally to continue growing after saturating the US market, and benefited from economies of scale and cross-border knowledge sharing, though it struggled at first to replicate its distribution system in Mexico and had to localize product offerings and partnerships.
Assignment-Chapter 12
- 1. Assignment-Chapter 12 <Critical Thinking and Discussion Questions> 1. The theory of comparative advantage suggests that activities should take place in the countries that can perform them most efficiently, given that different countries are endowed with different factors of production. If there are no barriers or costs to trade, then it is likely that many industries will be based out of the countries t hat provide the best set of factor endowments. Given location economies, a comp any can develop a global web of value-creation activities to take advantage of dif fering factor endowments in differing locations. For firms already located in the countries with the most favorable factor endowments for their industry, however, there may not be a need to expand internationally at a certain point in time. As f actor endowments evolve, the firm may want to disperse its value-creating activit ies to those markets that offer comparative advantages. If the firm is in a competi tive market, it will benefit from international expansion that includes its value-cre ating activities because of the cost position and product differentiation opportunitie s such expansion can confer. A firm may be able to survive in a local market wi thout international expansion, as long as the local market is not targeted by comp etitors who have taken advantage of the economies offered by dispersing their va lue-creation activities internationally. 2. Proctor & Gamble follows an international strategy moving towards transnational. Most of the R&D is done centrally, while the production and marketing is done locally. Their local competition lacks the marketing skills and R&D resources P&G possess. As their local competition becomes more sophisticated, they may move into a transnational strategy. Boeing follows a global strategy in that it faces high pressure on cost and exploits location economies in its relatively standardized product. Coca-Cola follows an international strategy. Its R&D and the general market approach originate in Atlanta. Subsidiaries do have some discretion in marketing. One could also argue that because Coca Cola has been acquiring local bottlers, they are pursuing a multi domestic strategy. Dow Chemical follows a global strategy in that most of its products are commodities, so there is no pressure for localization. Price competition is critical. Intel follows a global strategy. R&D, production and marketing are located in favorable locations and the product is relatively standardized. Cost pressures are high. McDonald’s has been placed in the international strategy quadrant historically. It transfers valuable skills and marketing knowledge into other markets, where it has faced limited local competition because the local firms lacked McDonald’s skill and knowledge. There is local adaptation to tastes. Increasingly McDonald’s is facing local competition in international markets from other quick service restaurants and local imitators. McDonald’s localizes marketing other than the brand positioning, its supply chain, its human resources, its real estate strategy, and its production. This place McDonald’s in the multi domestic strategy quadrant. 3. Implementation difficulties include communication issues, trust issues, multiple ro les, flexibility and culture issues, among many others. For example, with GM, so me European operations may need to collaborate with operations in Latin Americ a. Actions related to such a loss of autonomy might function as a hurdle to imple mentation.
- 2. 4. A. Vodafone’s vision was to build a global brand using a phone that would work anywhere in the world. To achieve that vision, the company offered consumers a standardized product with the same technology regardless of where they were located. b. By offering the same basic product everywhere, Vodafone would not only capitalize on a brand name, it would also capitalize on a streamlined production process. c. In Japan, the company was selling primarily to younger people who did not travel much, and did not value the global portability of the company’s phones. Instead, Japanese consumers were more interested in other features like games and cameras. d. In retrospect, Vodafone probably should have paid more attention to local preferences. The company delayed introduction of phones using 3G technology that would allow users to watch video clips and teleconference because it wanted to launch the technology only when it had a phone that would work inside and outside Japan. 5. a. Procter & Gamble took a reactive approach to its strategy in the early 1990s. b. The company’s initial reorganization was a reaction to a changing marketplace and sluggish profits, however, when it became apparent that the reorganization attempt was not really fixing the problems that existed, the company embarked on a new strategy. This time, rather than simply trying to adjust its existing strategy as the company had done in 1993, Procter & Gamble completely dismantled the structure that had been in place for a quarter of a century and reorganized as a company ready to operate in a global marketplace. c. Today, Procter & Gamble is trying to take a transnational approach to markets. The company has reorganized into business units, each responsible for its own profits. Each unit has been directed to develop global brands where possible, and keep costs low. While this new approach eliminates many of the problems facing the company under its old structure, it does introduce a new challenge in that there is little communication between business units which effectively minimizes the possibility of cross-unit learning and information sharing. <Closing case-Walmart’s global expension> 1. Wal-Mart really had no choice but to expand internationally if the company was to continue to grow. The company had reached a saturation point in the U.S. market, and needed to expand elsewhere in order to grow revenues. However, other benefits have accrued as a result of the international expansion including the ability to reap significant economies of scale from its global buying power, and gains from the cross-flow of ideas across the thirteen countries in which the company now competes. 2. While Wal-Mart is often considered to be the biggest retailer of its kind, competition is strong in foreign markets. Carrefour, for example, generates more than half its profits outside France. Wal-Mart has to be careful not to alienate customers or it will risk losing them to one of the other major hypermarket chains. Wal-Mart also has find just the right balance between meeting local needs and market conditions while at the same time maintaining the mass efficiencies that have provided it with so much success.
- 3. 3. Mexico represented Wal-Mart’s first foray into foreign markets. By teaming with its Mexican partner, Cifera, Wal-Mart not only gained immediate access to Cifera’s customers, distributors, and so forth, but it also was able to benefit from the company’s knowledge of the local market and ways of doing business. Only after Wal-Mart gained some international experience did it buy out its partner and move to a wholly owned operation. 4. Wal-Mart began its foreign operations with a joint venture in Mexico with local retailer, Cifera. Initially, the company experienced difficulties replicating its efficient distribution system in Mexico. As a result, prices in Mexican Wal-Mart stores were high, making it difficult for the company to gain market share. The company also had difficulty with its merchandising. Initially, Wal-Mart stocked its stores with products that were popular in the American market, rather than products that appealed to Mexican consumers. To resolve its distribution issues, Wal-Mart formed a partnership with a local trucking company. The company also changed its product mix to better reflect local tastes. Today, Wal-Mart’s operations in Mexico are strong, and the company has successfully expanded into several other foreign markets. Students will probably recognize that the company initially tried to pursue the same strategy that had been so successful in its domestic market, but quickly realized that a strategy that was tailored more to local market conditions was necessary, and so shifted toward a more transnational model.