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AOF Business in a Global Economy
Lesson 9International Business Strategy
Teacher Resources
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Teacher Resource 9.1 Presentation and Notes: Why Companies Globalize (includes separate PowerPoint file)
Teacher Resource 9.2 Answer Key: Modes of Entry into Foreign Markets Defining Format Table
Teacher Resource 9.3 Rubric: SWOT Analysis Poster
Teacher Resource 9.4 Key Vocabulary: International Business Strategy
Teacher Resource 9.5 Bibliography: International Business Strategy
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Teacher Resource 9.1
Presentation Notes: Why Companies GlobalizeBefore you show this presentation, use the text accompanying each slide to develop presentation notes. Writing the notes yourself enables you to approach the subject matter in a way that is comfortable to you and engaging for your students. Make this presentation as interactive as possible by stopping frequently to ask questions and encourage class discussion.
Globalization is a path of risk and reward for businesses. The rewards can include access to a larger customer base, increased profitability, and increased profit growth. The pitfalls include investment losses, failed product launches, and maybe political unpopularity at home. There can also be geopolitical issues beyond the control of the company.
This presentation uses MTV’s global expansion as an example of why companies globalize and what they need to do to be successful. Although MTV began to expand globally at an early stage of its history, back in 1987, it made a few mistakes along the way. MTV executives have learned about how to market their business to draw a large global audience and how to do that profitably. Other firms can learn a lot from the difficulties MTV encountered and how it overcame them to achieve success.
Presentation notes
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Globalization helps firms save money by:
• Sending production activities to the places where they are most efficient, with high productivity and low cost (These are called location economies.)
• Manufacturing a larger quantity of products so fixed costs are divided by more units, thus lowering the cost of each unit produced
Let’s look at MTV as an example of why a firm decided to globalize. MTV launched in the United States in 1981. The idea was that two of the most popular American art forms, music and film, could be combined in a television station that would appeal to a very attractive market for advertisers: teenagers and young adults. Executives felt the success of MTV could be transferred to other countries, so in 1987 they launched MTV Europe. Today, after many successes and failures, MTV operates in dozens of countries.
Presentation notes
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Globalization offers access to more potential customers. In 2015, 22.62 million out of 124.6 million households in the United States watched MTV. But because MTV expanded to serve a global market, MTV’s various music television channels are now watched in approximately 387 million households in 164 different countries.
However, globalization requires product differentiation, which means tailoring the product to the unique characteristics, needs, and preferences of each market where it is offered. This is something MTV learned the hard way. When MTV began to expand, they used the same videos that were popular in the United States, and they hired VJs who only spoke English no matter where the channel was operating. Ratings were low, so MTV decided on a new approach, customizing MTV for separate markets. This way, the audience in each country could watch original programming about music that was popular where they live, often in their own language. Though differentiation was not cheap, the investment paid off, and MTV now has a loyal following all over the globe.
Presentation notes
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
MTV learned a lot about differentiation when it moved into India. At first, local producers began creating content similar to that in the United States, focusing on international music and movie stars, and using the black and white style that was popular in the United States. The initial reception was dismal. MTV reacted, exchanging international content with homegrown Bollywood stars and music, and changing to brightly colored visuals. The audience increased sevenfold.
Likewise, when MTV began broadcasting in Germany, they did it with English-language content that many local viewers could not understand. They also went up against established local competitors that were broadcasting in German. Ultimately, MTV proved successful in the German market. A large part of this success was due to MTV’s acquisition of its main German competitor, Viva.
Other companies that successfully differentiate, such as Toyota, create products that satisfy the needs of local economies (such as varying safety standards) and wants (such as power steering) of local customers.
Presentation notes
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Besides differentiating the product to suit the market where it is being sold, global firms must consider where production of a product will be the most efficient.
Different countries have particular national competitive advantages (or disadvantages) in this regard. For example, China has a large portion of the population seeking work, good manufacturing and technical skills, very low wages, and lax safety and environmental laws. Manufacturing there is much cheaper than manufacturing in the United States.
Our MTV example reflects a globalization strategy based mainly on accessing new markets and differentiating its products for those markets. This strategy is different from seeking out opportunities for low-cost production or other local production advantages. Still, MTV has made use of such opportunities where they arose. MTV Networks recently invested $76 million in a production facility in Argentina. The facility’s main purpose is to translate and dub English-language content into Spanish. It is more efficient to do the translation work in Argentina, a Spanish-speaking country with relatively low wage rates than in the United States. MTV was able to save money by moving translation operations to Argentina.
Presentation notes
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Economies of scale work the same way bulk discounts do in the grocery store: the more you buy, the lower the cost per unit of the product.
This is true of businesses, too: the more they manufacture, the less it costs to make the product per unit produced. The fixed cost of producing something gets spread out across a larger number of units, bringing the price per unit down.
The product does have to be adapted for local markets: MTV’s cartoons had to be translated into the local language. Still, the cost of translation was only a fraction of the cost of production, so MTV’s international rebroadcasts of ready-made content became very profitable; the additional revenues gained greatly outweighed the additional costs.
Presentation notes
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Profitability is one of the most important measures of success for investors. If an investment has a high profitability, investors feel well rewarded. One of the most critical goals of globalization is to increase a company’s profitability.
ROIC stands for “rate of return on invested capital.” It is one way to measure profitability. It can also be stated as net profits/invested capital.
High profits and a profit growth trend allows companies to invest more, perhaps in global expansion. MTV’s success had contributed to the stock price gains of its parent company Viacom. Additionally, the more successful MTV has been, the more it has been able to expand to new markets.
Presentation notes
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Avoiding backlash at home and abroad is a critical strategic point for many firms. By outsourcing production, firms can save money, but they must maintain close oversight on production. For instance, in 2008, it was discovered that many Mattel toys produced in China were tainted with toxic lead paint. Mattel had to recall tens of millions of tainted toys, and the company suffered in both profitability and reputation. In addition to Mattel’s products, milk products, pet food, and farm animal feed were contaminated with melamine, a toxic chemical that can damage the kidneys.
Globalization is a game of risk and reward for many firms. To avoid the dangers, companies need long-term strategies for oversight and brand management at home and abroad. The rewards demonstrate exactly why companies globalize: with careful planning, the potential for growth is vast.
Presentation notes
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Teacher Resource 9.2
Answer Key: Modes of Entry into Foreign Markets Defining Format Table
Term Category Characteristics
Attentiveness is a way of acting that shows customers you are listening.
is polite.
enhances a customer’s experience.
Answers may include, but are not limited to, the following:
Term Category Characteristics
Strategic partnership is a mode of entry that is between two firms.
helps the firms utilize their individual strengths.
allows firms to avoid some of the costs and risks of developing a Greenfield business in a market that is new to them.
Management contract
is a mode of entry that involves performing or supervising certain defined functions or activities for a fee.
can be a turnkey operation.
sells know-how such as a business process and possibly other aspects of capability such as technology.
Equity participation is a mode of entry that gives investing firms an ownership stake (often, but not always, minority ownership).
is chosen for strategically important firms.
Joint partnership is a mode of entry that allows contributors to share in revenue, expenses, profits, and control of the business.
is formed between two or more partners.
Consortium is a mode of entry that is an association of two or more firms.
pools resources for a specific purpose only, such as building and operating a particular industrial or infrastructure project.
seeks to achieve a common goal.
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Teacher Resource 9.3
Rubric: SWOT Analysis PosterStudent Names: Date:
Exemplary Solid Developing Needs Attention
Visual Design Assignment is highly attractive, well designed, and laid out according to the guide. The research supports the strategy recommendation.
Assignment is attractive and has a good design and an organized layout. The research supports the strategy recommendation.
Assignment lacks good design and organization. The research does not entirely support the strategy recommendation.
Assignment is messy. The research does not support the strategy recommendation.
Comprehension of Subject Matter
All content is accurate and complete and communicates a complete understanding of the topic.
Most of the content is accurate and shows mastery of the topic.
Content shows some flaws and omissions and illustrates only partial knowledge of the topic.
Much of the content is inaccurate and confusing and communicates very little understanding of the topic.
Content Organization/ Flow
Content is clearly organized, with a logical flow of connected ideas.
Content is organized, and most ideas are well connected.
Ideas are sound, but the content is not well organized.
Content is extremely disorganized and/or unclear.
Required Format and Elements
Required format and all elements are included in the assignment. Some additional elements are included to enhance the assignment.
Required format and all elements are included in the assignment.
Format does not meet the assignment specifications, and one or two of the required elements are missing.
Format is completely different from the assignment specifications, and more than two elements are missing.
Labels and Titles
Labels and titles are concise and clearly fit the content.
Labels and titles are somewhat concise and fit the content.
Labels and titles are somewhat vague and do not fit the content.
Labels and titles are all confusing and do not fit the content.
Mechanics No grammatical, spelling, or punctuation errors. All sentences are well constructed and vary in structure.
Few grammatical, spelling, or punctuation errors. Most sentences are well constructed, with some variation in sentence structure.
Some grammatical, spelling, or punctuation errors. Most sentences are well constructed, with little variation in sentence structure.
Many grammatical, spelling, or punctuation errors. Most sentences are poorly constructed.
Additional comments:
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Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Teacher Resource 9.4
Key Vocabulary: International Business Strategy
Terms Definition
consortium A business association between two or more firms created to achieve a common goal for a specific purpose, such as building and operating an industrial or infrastructure project.
core competency Something one firm can do well that other firms cannot easily imitate or replicate.
customization Adapting the attributes of a product or service to fit the requirements of a specific customer, market, or market segment.
differentiation Adapting the attributes of a product or service to distinguish it from similar products or services offered by competitors (or other products of the company) to reach a specific target market.
economies of scale A cost advantage a firm can obtain by increasing the scale of production, which decreases unit cost.
equity participation A mode of entry that gives investing firms an ownership interest (usually minority ownership) in strategically important firms.
joint partnership A mode of entry between two or more partners that allows the partners to share in revenue, expenses, profits, and control of the business.
location economies Economies that have developed because certain value creation activities are derived from their location.
management contract A mode of entry into a market that involves performing or supervising defined functions or activities for a fee.
marketing mix The combination of product, price, placement, and promotion chosen by businesses to maximize profit. Also, see four Ps of marketing.
mode of entry A way domestic firms expand their business into new countries or markets across the global marketplace.
price equilibrium When the price of a product creates a balance between the supply and demand for that product.
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Terms Definition
strategic partnership A mode of entry between two firms that helps the firms utilize their individual strengths while avoiding internal development.
SWOT analysis An assessment of a potential enterprise based on the firm’s strengths and weaknesses and the market’s opportunities and threats.
value creation The difference between the costs of production and the value that customers perceive a product to have, as reflected in the price they are willing to pay.
Copyright © 20092016 NAF. All rights reserved.
AOF Business in a Global EconomyLesson 9 International Business Strategy
Teacher Resource 9.5
Bibliography: International Business StrategyThe following sources were used in the preparation of this lesson and may be useful for your reference or as classroom resources. We check and update the URLs annually to ensure that they continue to be useful.
PrintHill, Charles W. L. Global Business Today. New York: McGraw-Hill, 2006.
Online“Airbus.” Wikipedia, http://en.wikipedia.org/wiki/Airbus (accessed May 17, 2016).
“Cable TV Networks: Number of TV Viewers of MTV Within the Last 7 Days in the United States,” Statista, http://www.statista.com/statistics/228969/cable-tv-networks-mtv-watched-within-the-last-7-days-usa/ (accessed May 17, 2016).
Chapman, Alan. “SWOT Analysis.” Businessballs.com, http://www.businessballs.com/swotanalysisfreetemplate.htm (accessed May 17, 2016).
“China Mobile Forms Strategic Alliance with Phoenix.” PR Newswire, June 8, 2006, http://www.prnewswire.com/news-releases/china-mobile-forms-strategic-alliance-with-phoenix-70725617.html (accessed May 17, 2016).
“Creative Outsourcing Argentina: MTV Will Start Production in Argentina.” Connaxis, May 22, 2008http://connaxis.blogspot.com/2008/05/mtv-will-start-production-in-argentina.html (accessed May 17, 2016).
“Cultural Exchange on the Silk Road.” Advantour, http://www.advantour.com/silkroad/cultural-exchange.htm (accessed May 17, 2016).
“Equity Investments.” Siemens, http://finance.siemens.com/financialservices/global/en/products_solutions/Project_Equity_Participations/Pages/Project_Equity_Participations.aspx (accessed May 17, 2016).
Higie, David. “Baker Energy de Venezuela, C.A., Awarded Chevron Global Technology Services Labor Contract in Venezuela.” Baker Energy, March 5, 2009, http://www.reuters.com/article/pressRelease/idUS192182+05-Mar-2009+BW20090305 (accessed May 17, 2016).
“MTV Channels around the World.” PR News Wire, January 14, 2002, http://www.prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/01-14-2002/0001647718&EDATE= (accessed May 17, 2016).
“Smart (automobile).” Wikipedia, http://en.wikipedia.org/wiki/Smart_(automobile) (accessed May 17, 2016).
“Sony Mobile Communications.” Wikipedia, http://en.wikipedia.org/wiki/Sony_ericsson (accessed May 17, 2016).
“SWOT Analysis.” Wikipedia, http://en.wikipedia.org/wiki/SWOT_analysis (accessed May 17, 2016).
Copyright © 20092016 NAF. All rights reserved.
