International Business Strategy and Global Expansion

1. Strategy vs. Tactic

a) Strategy

• Is a long-term plan used to achieve a competitive advantage.
• It answers the question WHY.
• It is difficult to copy and not easily reversible because it involves committing many resources.

b) Tactic

• Is a concrete short-term action used to execute the strategy.
• It is easier to copy and more flexible.

Explanation

• The strategy is “expanding to Shanghai.”
• The tactic is “which plane to take and which route to use.”

2. GOST Framework

Goals → Objectives → Strategies → Tactics

• Each level of the organization translates the level above into something more concrete.

a) Organizational Hierarchy

• The Board of Directors defines the vision.
• The CEO defines the goal.
• The executive team defines the strategy.
• The work teams define the tactics and action plans.

3. Strategic Management and Competitive Advantage

a) Strategic Management

Is the set of analyses, decisions, and actions that a company uses to create and sustain competitive advantages.

b) Competitive Advantage

• Is something unique, valuable, and difficult to copy or substitute.
• It must be sustainable over time, not temporary.

Two Basic Questions

• How do we compete?: Through low cost or differentiation.
• How do we make that advantage sustainable?

4. Bounded Rationality and Bounded Reliability

a) Bounded Rationality

• Managers have incomplete information and limited capacity to process it.
• In international business, this problem is exacerbated by market complexity and future uncertainty.

b) Bounded Reliability

• Actors do not always fully keep their promises.

Causes of Unreliability

• Opportunism: Acting in bad faith or making false promises on purpose.
• Benevolent Preference Reversal: Promises made in good faith fail because priorities change over time.
• Identity-based Commitment: Acting according to a role or group identity rather than the original promise.

5. International Trade Theories

• Absolute Advantage (Adam Smith): Each country should produce what it does best.
• Comparative Advantage (David Ricardo): Countries should specialize in what they produce at a lower opportunity cost.
• Heckscher-Ohlin Theory: A country exports goods that intensively use its abundant factors (labor or capital).
• New Trade Theory (Krugman): Explains trade between similar countries based on economies of scale and consumer variety.

6. Porter’s National Diamond

Explains why some nations generate more competitive companies through four reinforcing factors:

• Factor Conditions: Home-grown resources like human capital and infrastructure.
• Related and Supporting Industries: Clusters of suppliers and complementary industries.
• Demand Conditions: Demanding local customers push companies to improve quality.
• Firm Strategy, Structure, and Rivalry: Strong domestic competition improves companies.

7. Internationalization Patterns

a) Trade vs. Foreign Direct Investment (FDI) Matrix

• High trade, low FDI: Trading industries (e.g., mining, agriculture).
• High trade, high FDI: Global industries (e.g., cars, semiconductors).
• Low trade, low FDI: Protected industries (e.g., taxis, laundries).
• Low trade, high FDI: Multidomestic industries (e.g., retail banking, hotels).

8. Firm-Specific Advantages (Verbeke Model)

• Location-Bound FSA (LB-FSA): Cannot be transferred abroad (e.g., local brand reputation).
• Non-Location-Bound FSA (NLB-FSA): Can be exploited globally (e.g., patents, proprietary technology).

9. Entry Modes

• Wholly Owned Subsidiary: Total control via 100% ownership.
• Joint Venture: Shared resources with one or more partners.
• Licensing: Granting rights to a third party for royalties.

10. Key Concepts

• Agency Problem: Conflict between managers' interests and shareholders' interests.
• Globalization: Increased consumer options and lower prices.
• M&A: Mergers and acquisitions as a corporate life cycle stage.
• Partial View of Strategy: External observers only see a fraction of the strategic picture.

11. Methods of International Expansion

• Licensing/Franchising: Fast income, low capital, but loss of control.
• Exporting: Low risk, but high transport costs and tariffs.
• Partnerships: Shared risk and local knowledge, but potential cultural conflict.
• M&A: Immediate infrastructure access, but expensive and slow.
• Employer of Record (EOR): Safest for legal compliance.
• In-house Management: Total control, but time-intensive.
• Greenfield Company: Total control, but high investment and risk.

12. M&A Evaluation Model

• Subtotal 1 (Country): Political stability, infrastructure, and corruption.
• Subtotal 2 (Target): Industry maturity and market size.
• Subtotal 3 (Combination): Cultural fit and integration gains.

13. Global Supply Chain

A complex network of organizations and processes representing roughly 70% of international trade.

Key Components

• Suppliers, Manufacturers, Distribution Centers, Retailers, and Customers.

Five Phases

1. Sourcing
2. Manufacturing
3. Warehousing
4. Logistics
5. Distribution

14. Free Trade Agreements

• Pacific Alliance: Chile, Colombia, Mexico, Peru.
• Mercosur: Customs union with common external tariffs.
• USMCA: Stricter rules of origin for North America.
• CPTPP: Trans-Pacific partnership for digital and trade harmonization.
• European Union: Single market with free movement of goods and capital.