Strategy, IBM, Firm internationalisation, Localisation, trans national, multi domestic

1. Business and Economics
INTERNATIONAL
BUSINESS MGF2351

2. Objectives
 Essays DONE!
 Group Presentation (20 Minutes, QnA 10 minutes)
 Tutorial Program Week 9
 EXAM PREPARATION

3. Group/Single Person Presentation
The foreign exchange rate is the rate at which one currency is
converted to another. The institutional arrangements that govern
these exchange rates are collectively referred to as the international
monetary system.
 What factors contributed to the establishment of the Bretton Woods
system as the preferred international monetary system in 1944? How
was it different from the gold standard?
 What factors lead to the collapse of the fixed exchange rate system
established at Bretton Woods? How did the Jamaica Agreement seek to
replace the fixed exchange rate system?
 How can firms engaging in international trade and investment manage
the opportunities and threats posed by a world of constantly fluctuating
exchange rates?

4. Key Terms
 Bringing back the ‘FIRM’
 Moving beyond the political economy!
 How firms can increase their profitability by expanding their operations
in foreign markets, the different strategies that firms pursue.
 TWO PRESSURES
– Local Responsiveness
– Cost Reduction
 Organisational Architecture and Organisational Strategy HAVE TO BE
ALIGNED

5. Investor Presentation
 You are a Founder and Manager!
 FORMULATE YOUR FIRM STRATEGY
 Preparation time : 5 minutes, Presentation Time: 3 MINUTES
 6 Groups.
 Things to answer:
Why are you internationalizing?
Which strategy is most suitable?(International, Multi-
domestic/localisation, Transnational or global standardisation)

6. Q1. What is Strategy? How does it relate to a firm’s profitability?
A firm's strategy can be defined as the actions that managers take to
attain the goals of the firm.
For most firms, the key goal is to maximize the value of the firm for its
owners. To maximize the value of the firm, managers must pursue strategies
that increase profitability, or rate of return the firm makes on its invested
capital. Managers can increase profitability by pursuing strategies that lower
costs and strategies that add value to the firm's products.
Q2. 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
The theory of comparative advantage: If there are no barriers or costs to
trade, then it is likely that many industries will be based out of the countries
that provide the best set of factor endowments. Given location economies, a
company can develop a global web of value-creation activities to take
advantage of differing factor endowments in differing locations.

7. Q3. What do you see as the main organisational problems that are likely to
be associated with implementation of a transnational strategy?
Implementation difficulties include communication issues, trust issues, multiple
roles, flexibility and culture issues, among many others. For example, with
GM, some European operations may need to collaborate with operations in
Latin America. Actions related to such a loss of autonomy might function as a
hurdle to implementation.
Q4. In what kind of industries does a localization strategy make sense?
When does a global standardization strategy make most sense?
A localization strategy makes sense when pressures for local responsiveness
are high. This situation is common when there are significant differences in
consumer tastes and preferences between markets, when differences in
infrastructure and traditional practices require customization, and when host
government demands require local adaptation. E.g. auto industry, fast food
industry.
When pressures for cost reductions are strong and there is little pressure for
local responsiveness, a global standardization strategy makes sense. E.g.
semiconductor industry and the bulk chemical industry.

8. Case: The evolving Strategy at IBM
(Hill, 2013, pp. 442-443)
 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?
 By the 1990s the classic multinational strategic
orientation was no longer working well for IBM. Why not?
 What are the strategic advantages to IBM of its globally
integrated enterprise strategy? What kind of
organizational changes do you think had to be made at
IBM to make this strategy a reality?


9. 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?
In 1972, IBM moved away from its international strategy where most
activities were undertaken in the United States and products were
then sold through overseas sales to a new multinational approach in
which the company established mini versions of itself in multiple
markets in several countries. This new strategy was attractive to IBM
because it allowed the company to cope with the barriers to cross-
border trade that effectively segmented markets. In addition, the
strategy enabled IBM to better meet the demands of local markets.

10. Q2. By the 1990s the classic multinational strategic orientation was no
longer working well for IBM. Why not?
The first was the emergence of the global economy.
The second trend was the more global nature of the company’s customers.
The third trend was the presence of strong new competitors from
developing countries.
IBM’s multinational approach did not provide the flexibility and integration
necessary to meet the changes associated with these trends.

11. Q3. What are the strategic advantages to IBM of its globally integrated
enterprise strategy? What kind of organizational changes do you think
had to be made at IBM to make this strategy a reality?
IBM refers to its new strategy as a global integration approach. Under this
strategy, IBM has integrated operations both vertically and horizontally, located
operations in the optimal place where ever in the world that may be, and thinks
of its workforce as being global rather than being associated with specific
countries, regions, or business units.

12. Q4. In terms of the strategic choice framework introduced in this chapter,
what strategy do you think IBM is pursuing today?

13. EXAM PREPARATION
50 %
2 hours!
2 Parts
Lots of choice!!
Get at least 50% in the Final Exam

14. PRACTICE
 Identify the three types of economic systems. Explain the
differences and similarities between them. Use valid
examples in your answer.
 Discuss the relationship between society and the nation-
state. Use valid examples in your answer.
 Briefly explain Vernon's product life-cycle theory. Use valid
examples in your answer.