Deck 13: The Strategy of International Business

Question 1

In the 1970s and 1980s Palmisano states that IBM was organized as a classic multinational enterprise. What does this mean? Why do you think IBM was organized that way? What were the advantages of this kind of strategic orientation?

Answer 1

A company which obtains at least twenty five percent of its revenue from operations that happen outside its host country is called a multinational country. A classic multinational enterprise refers to a corporation that operates in various countries though it is controlled and managed by one host nation.
Company I was structured as a multinational enterprise in the 1970s and 1980s. It undertook its activities in its home country and sold its products globally through its overseas sales offices. It is true that Company I wanted to capitalize on the products/services provided. This was enabled without any pressure to reduce its cost structure.
The advantages of this kind of strategic orientation are as follows:
• Raw materials are available at a lesser cost to the company.
• Resources are available at a cheaper cost since people from within the country can be employed.
• It provides job opportunities to the locals thus improving employee loyalty towards the company.

Question 2

In a world of zero transportation costs, no trade barriers, and nontrivial differences between nations with regard to factor conditions, firms must expand internationally if they are to survive. Discuss.

Answer 2

The theory of comparative advantage is a measure of profit gained from trade practices to an individual and nation. It suggests that the activities in the countries must be so efficient that can produce effective factors of production. If there were zero transportation costs, no trade barriers, and nontrivial differences between nations regarding factor conditions, then firms are said to provide the best set of factors of production.
As factor endowments evolve, the firm may want to disperse its value-creating activities to those markets that offer comparative advantages. If the firm is in a competitive market, this provides global exposure to establish new business operations.
A firm may be able to survive in a local market without international expansion, if the local market is not targeted by competitors that have taken advantage of the economies offered by dispersing their value-creation activities internationally. An example is an inefficient, high-priced locally-owned supermarket that has not yet faced the entry of Wal-Mart in its market.
When assuming location economies, a firm develops internationally its value creation activities, so that it can take advantage of different factors in different countries. The location of value creation activities "can have one of two effects i.e., it can lower the costs of value creation and helps to achieve a low-cost position.
Hence, well established firms in a country can offer the greatest set of factor conditions to produce their products, might not need to expand internationally. A firm's value creation activities may need to be scattered to other countries with a comparative advantage as factor conditions change.

Question 3

The globalization of multinational corporations impacts the product and service choices available to customers. As such, several classifications and rankings of multinational corporations are prepared by a variety of sources. Find the Global 2000 rankings publish by Forbes and identify the criteria used in evaluating top global companies. Extract the ranking of the top 20 companies paying particular attention to the home countries, industries, and asset level represented. Based on the data gathered, what generalizations can you make?

Answer 3

The Forbes 2000 listing is readily available and listed below. Use the "Global 2000" search term to locate the resource at http://globaledge.msu.edu/ResourceDesk/.  Also, this resource can be found under the globalEDGE category "Research: Rankings". Be sure to click on the Resource Desk link to search this area of the globalEDGE website.
Search Phrase: "Global 2000"
Resource Name: Forbes: Global 2000
Website: http://www.forbes.com/global2000
globalEDGE™ Category: "Research: Rankings"

Question 4

By the 1990s the classic multinational strategic orientation was no longer working well for IBM. Why not?

Question 5

Plot the position of the following firms on Figure 13.6: Procter Gamble, IBM, Nokia, Coca Cola, Dow Chemicals, US Steel, and McDonald's. In each case justify your answer.

Question 6

The top management of your company, a manufacturer and marketer of wireless devices, has decided to pursue international expansion opportunities in Africa. In order to achieve some economies of scale, your strategy is to minimize local adaptation. Focusing on the African country of your choice, prepare an executive summary that features aspects of the product where standardization will simply not be possible, and adaptation to local conditions will be essential.

Question 7

What are the strategic advantages to IBM of its globally integrated enterprise strategy? What kind of organizational changes do you think had to made at IBM to make this strategy a reality?

Question 8

In what kind of industries does a localization strategy make sense? When does a global standardization strategy make most sense?

Question 9

In terms of the strategic choice framework introduced in this chapter, what strategy do you think IBM is pursuing today?

Question 10

Reread the Management Focus on Procter Gamble, then answer the following questions:
a) What strategy was Procter Gamble pursuing when it first entered foreign markets in the period up until the early 1980s?
b) Why do you think this strategy became less viable in the 1990s?
c) What strategy does Proctor Gamble appear to be moving toward? What are the benefits of this strategy? What are the potential risks associated with it?

Question 11

What do you see as the main organizational problems that are likely to be associated with implementation of a transnational strategy?