International Business: Comprehensive

Exam Preparation Guide

PART 1: FOUNDATIONS OF INTERNATIONAL STRATEGY
1.1 What is International Strategy?

International strategy deals with how firms expand and compete across borders by managing:

● Geographic scope
● Complexity
● Institutional differences

It's essentially a subset of corporate strategy focused on geographic diversification.

1.2 Key Strategic Tests for International Expansion

Better-Off Test: Does entering a foreign market create additional value?

● Examples: Selling excess capacity, leveraging a resource, accessing cheap labor

● Key question: Will the firm create more value by entering a new country?

Ownership Test: Does the firm need to own/control operations to capture value?

● Often justified by market failures

● Key question: Should the firm own operations or rely on licensing/exporting?

These tests determine whether a firm becomes a true Multinational Enterprise (MNE), which
coordinates operations across borders (not just exporting/importing).

1.3 Types of Scope Economies in International Business

Demand-Side Economies: Revenue/sales expansion

● Example: Coca-Cola selling in 200+ countries (replicating domestic strategy in new

markets)

Supply-Side Economies: Cost reduction through offshoring/scale

● Example: Apple sourcing parts from Asia to reduce costs

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1.4 Static vs. Dynamic Arbitrage

Static Arbitrage: Leveraging existing differences

● Example: Nike using cheaper labor in Vietnam

Dynamic Arbitrage: Reallocating resources in real-time to adapt to volatility

● Example: Becton Dickinson shifting production across regions based on currency

fluctuations

PART 2: GLOBAL STRATEGY FRAMEWORKS

2.1 Ghemawat's AAA Triangle Framework

Explains how firms add value internationally through three strategies:

Strategy Description Example

Adaptation Adjust products/services to local markets MTV adapting content to different

cultures

Aggregatio Achieve economies of scale by grouping Apple selling standardized iPhones

n similar markets globally

Arbitrage Exploit differences in factor costs Nike outsourcing to Vietnam for

lower labor costs

Key insight: Firms must prioritize one or more AAA strategies based on industry and context.

2.2 Bartlett & Ghoshal's Integration-Responsiveness Grid

Helps firms choose an international organizational model based on global pressures:

Model Global Integration Local Example

Responsiveness

Global High Low Intel, Boeing

Multidomestic Low High Unilever, Nestlé

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 International Low Low Harley-Davidson

Transnational High High ABB, P&G

Visual Representation:

High | Transnational | Global

Global | |
Integration | |
Low | Multidomestic | International
| |
Low High
Local Responsiveness

Key insight: Transnational is hardest to implement but offers the most flexibility and value.

2.3 Porter's Diamond Model

Explains why certain industries gain national competitive advantage through four factors:

1. Factor Conditions (e.g., skilled labor)

2. Demand Conditions (e.g., sophisticated local buyers)
3. Related & Supporting Industries
4. Firm Strategy, Structure & Rivalry

Additional factors: Government policies and chance events also affect competitiveness.

2.4 Dunning's OLI Paradigm (Eclectic Paradigm)

Component Meaning Implication

Ownership Firm-specific advantages (brand, Must exist to justify going abroad

tech)

Location Country advantages (cost, access) Select best market to exploit O-

advantages

Internalization Market failure risk Justifies FDI instead of licensing

Key insight: A firm goes multinational only when all three conditions are met.

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PART 3: UNDERSTANDING GLOBAL CONTEXTS
3.1 CAGE Distance Framework (Ghemawat)

Used to assess cross-country differences and the difficulty of operating abroad:

Distance Type Example Factors Real-world Impacts

Cultural Language, religion, norms Disney struggled in France due to cultural

misfit

Administrativ Laws, colonial ties, politics Indian firms prefer U.K. due to legal similarity
e

Geographic Physical distance, Japan-India trade harder than India-UAE

infrastructure

Economic Income, cost structures Walmart struggled in Germany due to pricing

gaps

Key insight: Helps firms identify challenges in market selection and adaptation.

3.2 Institutional Theory and Voids

Countries differ in:

● Rule of law
● Property rights
● Regulatory effectiveness

Institutional Voids (Khanna & Palepu):

● Voids = Lack of infrastructure (e.g., capital markets, legal enforcement, talent pools)
● More common in emerging markets
● MNEs may need to build missing institutions (e.g., Coca-Cola training distributors in rural
India)

Void Type Implication

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 Capital Market Limited financing or high cost

Labor Market Skills mismatch

Product Market Informal competitors

Legal System Weak enforcement of

contracts/IP

Key insight: High institutional voids often lead firms to internalize operations (FDI) rather than
outsource/license.

3.3 Cultural Dimensions: Hofstede Framework

Culture Dimension Example

Power Distance High in India, Philippines

Uncertainty Avoidance High in Japan, low in US

Individualism High in US, low in China

Masculinity High in Japan, low in Sweden

Long-Term Orientation High in China, low in Pakistan

Key insight: These differences affect communication styles, negotiation behavior, and
leadership practices.

PART 4: MARKET ENTRY STRATEGIES

4.1 Entry Mode Framework
Entry Mode Ownershi Risk Contro Example
p l

Exporting None Low Low BMW cars from Germany to

USA

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 Licensing/Franchising Low Medium Low Disney theme parks,
McDonald's

Joint Venture (JV) Shared High Shared Sony-Ericsson

Wholly Owned Full High Full IKEA India

Subsidiary

Acquisition Full Very Full Tata buying Jaguar-Land Rover

High

Key trade-offs:

● Control vs. commitment

● Speed vs. flexibility
● Risk vs. strategic autonomy

4.2 Timing of Entry

Timing Advantage Risk

First Mover Brand recognition, pre-empt competition Market uncertainty, adaptation

cost

Late Entrant Learn from predecessors, reduce risk Face entrenched rivals, late loyalty

Staged internationalization:

1. Export
2. Local sales agent
3. JV or acquisition
4. Wholly Owned Subsidiary

4.3 Global Value Chain Decisions

Function Location Criteria

R&D Skilled talent, IP protection

Manufacturing Cost, infrastructure, risk

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 Marketing Local responsiveness

Distribution Logistics infrastructure

After-sales Proximity to customers

Key trade-offs:

● Centralized vs. decentralized production

● Standardized vs. customized products

PART 5: MANAGING GLOBAL OPERATIONS

5.1 Global Configuration of Activities

Global Value Chain Design Trade-Offs:

Dimension Centralization Benefits Decentralization Benefits

Production Economies of scale Local adaptation, risk dispersion

R&D Knowledge pooling Access local innovation

ecosystems

Marketing Brand consistency Cultural sensitivity

Distribution Cost efficiency Service responsiveness

5.2 Product Strategy for International Markets

Strategy Product Design Example

Standardized Global One-size-fits-all for scale Mars bar worldwide

Product

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 Customized for Local Tailored product mix Ford's smaller cars in Europe
Needs

Hybrid Core standard, minor local iPhones with region-specific

tweaks keyboards

5.3 Managing Global Risks and Volatility

Strategic Postures Toward Risk:

Posture Description Example

Hedger Locks in contracts, avoids volatility Airlines buying fuel futures

Arbitrageur Actively exploits fluctuation Becton Dickinson shifting production

Insurer Holds capacity to recover Toyota's multiple regional suppliers

Avoider Stays out of volatile markets Hershey focusing on U.S.

Risk Mitigation Strategies:

Decision Risk Mitigation

Multi-hub production Reduces disruption from any single region

Local R&D Insulates from regional shocks

Multiple sourcing Hedge against supply chain breaks

Key insight from COVID-19: Shift from Just-in-time → Just-in-case models

PART 6: ORGANIZATIONAL DESIGN FOR GLOBAL

STRATEGY

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6.1 Strategy-Structure Fit

"Structure follows strategy" – Alfred Chandler

Strategy Organization Form Decision Rights

Global Strategy Global product divisions HQ

Multidomestic Strategy Country subsidiaries with local autonomy Local managers

Transnational Strategy Matrix structure Shared across

axes

Key insight: Misalignment between strategy and structure leads to confusion, delays, and failed
execution.

6.2 Coordination Mechanisms

Successful global firms need:

● Clear authority lines (who controls product vs. geography)

● IT systems for knowledge flow
● Shared values to integrate distributed teams

6.3 Strategic Tensions in Global Organizations

Tension Implication

Global scale vs. local fit Standardized vs. customized

offerings

Central control vs. local autonomy HQ control vs. empowered local units

Efficiency vs. resilience Cost savings vs. robustness

PART 7: CASE STUDIES AND STRATEGIC LESSONS

7.1 Unilever

Strategy: Multidomestic

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 ● Replicates products in new markets (adaptation)
● Builds local responsiveness
● Creates global brands but adapts product formulations for each region

Lesson: Success in consumer goods often requires balancing global consistency with local
adaptation.

7.2 Nike

Strategy: Arbitrage

● Arbitrages labor cost across Asia

● Outsources production while controlling brand and marketing

Lesson: Value chain disaggregation allows firms to focus on high-value activities while
leveraging cost advantages.

7.3 Microsoft in China

Strategy: Internalization due to ownership test

● Refused to license source code due to risk of IP theft

● Market failure led to internalizing operations

Lesson: IP protection concerns often drive internalization decisions in weak institutional

environments.

7.4 Becton Dickinson

Strategy: Dynamic arbitrage

● Maintains parallel manufacturing in 3 regions

● Reacts to currency shifts, political disruption
● Moves production dynamically

Lesson: Design for modular scalability and build infrastructure to reallocate resources rapidly.

7.5 Boeing's Global Production Network

Strategy: Global sourcing

● Over 50% of components for 787 Dreamliner sourced globally

● Goal: leverage comparative advantages (cost, tech, trade relationships)
● Challenge: supply chain coordination risk, delays due to part mismatches

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Lesson: Global sourcing enhances efficiency but raises coordination complexity; balance
efficiency with resilience.

7.6 Philips vs. Matsushita

Contrast:

● Philips: Highly decentralized, slow to integrate globally

● Matsushita: Centralized but rigid, faced issues in adapting

Lesson: Balance between central control and local responsiveness is hard to master; need
organizational design that supports global coordination and local learning.

7.7 ABB (Transnational Strategy)

Evolution:

● Managed multiple products in multiple geographies

● Decentralized to the extreme → lost strategic focus
● Later, rebalanced central control

Lesson: Coordination must evolve with scale; transnational strategy requires high overhead but
offers high rewards if done right.

7.8 P&G in Japan

Strategy evolution:

● Initially failed due to lack of local insight

● Recovered by:
○ Hiring local talent
○ Decentralizing decision-making
○ Tailoring product designs

Lesson: Large MNEs must invest in local knowledge and responsiveness; entry into culturally
distant countries requires organizing for learning.

7.9 Jollibee's Entry Strategy

Approach:

● Adapted products (spaghetti with ketchup!)

● Failed in China initially due to insufficient localization
● Re-entered with better understanding and local partnerships

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Lesson: Cultural adaptation is crucial; standardization works only when value proposition
translates across markets.

7.10 Vodafone in India

Challenges:

● Telecom liberalization opportunity

● High subscriber base potential
● Regulatory ambiguity + tax issues

Lesson: Regulatory risk is real; need for local political intelligence and compliance agility.

PART 8: EMERGING TRENDS IN INTERNATIONAL

BUSINESS
8.1 Shift from Global Integration to Resilience

Pre-2020:

● Focus on lean, efficient, just-in-time global supply chains

Post-COVID & Geo-political Risk:

● Shift toward de-risking and resilience

● Nearshoring, friend-shoring, and multi-sourcing gaining traction

8.2 Rise of Emerging Market MNEs

● MNEs are no longer only Western

● Examples: Tata, Huawei, Haier
● FDI inflows to developing nations > developed countries (post-2010 trend)

8.3 Digital Transformation of International Business

● International entrepreneurship and born-global firms disrupting legacy giants

● Platform-based expansion (firms like Amazon, Uber replicate their platform in new
countries)

PART 9: STRATEGIC CAPABILITIES FOR GLOBAL

SUCCESS

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9.1 Strategic Capabilities for Execution

● Ability to operate across time zones, cultures, and legal systems

● Cross-border coordination mechanisms (e.g., regional hubs, matrix orgs)
● Real-time data for risk monitoring and dynamic reallocation

9.2 Strategic Coherence

A successful global firm must:

● Choose one dominant international strategy

● Align entry, org structure, and value chain decisions with that strategy
● Adjust only when external conditions shift (e.g., supply chain risk → resilience focus)

9.3 Strategic Flexibility

Capability Role

Global Footprint Diversify exposure, reduce

dependence

Reconfigurability Shift activities as conditions change

Information Systems Enable fast decision-making

Supported by decentralized control, real-time analytics, and local empowerment.

FINAL EXAM PREPARATION TIPS

1. Focus on frameworks: Be ready to apply AAA, CAGE, IR Grid, and OLI to case
scenarios
2. Understand trade-offs: International strategy always involves balancing competing
priorities
3. Connect concepts: Link entry mode choices to institutional context and strategic
objectives
4. Practice case analysis: Use the provided case examples to practice applying
frameworks
5. Think strategically: Consider how firms align structure, process, and strategy in global
operations

Remember that successful international strategy requires:

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● Strategic fit between international strategy and structure
● Context sensitivity to cultural, legal, and institutional factors
● Thoughtful configuration choices about where to locate and how to organize globally
● Managing execution complexity across products, geographies, and functions
● Building resilience and flexibility to absorb shocks and respond rapidly

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