Chapter 7

Strategy and the enterprise in

international contexts

1.Describe the components of a SWOT/PESTEL

analysis.

SWOT analysis stands for:

S - strengths of the company

W - weaknesses of the company
O- opportunities for the company
T- threats for the company
S&W refer to the company’s internal
capabilities while the O&T refer to the
PESTEL environment.
 For example let’s make a SWOT analysis on
Starbucks.
1. According to research Starbucks’s strengths. Strong
brand image – Starbucks Corporation is the most popular and strongest brand in the
food and beverage industry. Its size, volume, and the number of loyal customers have
kept growing over timeGrowth in stores:  It increased its number of stores from 1,886
to 31,256 between 1998 and 2019Extensive international supply chain – Starbucks is
known to have an extensive global network of suppliers. Starbucks sources its coffee
beans from three coffee producing regions, Latin-America, Africa, and Asia-
Pacific. Quality, Taste and Standardization – Due to its premium blends and delicious
coffees, Starbucks has extended globally. It offers excellent quality and consistently
standardized products in all the locations. Employee treatment –It treats its employees
very well which eventually translates into happier employees serving customers

Weaknesses are that Starbucks’s products are

well. 

not customized to local tastes, High prices – For many middle

tiers and working consumers, Starbucks’ offerings are more costly than McDonald’s and
other coffee outlets. Its high prices reduce affordability for the consumers.
2. Imitability of products – Starbucks doesn’t own the most unique products in the
market. This makes the imitability of products quite easy for other companies. Other
coffee shops and food chains like McDonalds McCafe and Dunkin Donuts offer almost
the same products. European Tax avoidance – Due to its tax avoidance in the UK, it
faced several controversies and criticisms. Reuters’ investigation found out that it didn’t
pay tax on its £1.3 billion of sales in three years prior to 2012.

1. Some of its opportunities areExpansion in developing

markets – Starbucks has coffeehouses mainly in the US. Global expansion in a few
areas like India, China and few regions of Africa can give a great opportunity to the

,
company Introducing new products – As the company is quite popular, introducing
new products and holiday flavors (Peppermint Mocha, Eggnog Latte, Gingerbread Loaf)
under its name would be profitable and welcomed in the markets.
2. Partnerships or alliances with other firms – Co-branding always benefits. Starbucks
has the opportunity to develop partnerships and alliances with major firms. This would
strengthen its presence and market share.

1. Threats are Competition with low-cost coffee sellers – Many coffeehouses offer
products at an affordable rate. This can threaten the future’s stability of Starbucks which
offers higher prices.
2. Competition with big outlets – Aggressive competition with multinational companies
like Dunkin DonutCoronavirus – Starbucks has temporarily closed estimated 2000
stores in China due to the outbreak of coronavirus. Considering Starbucks has 4123
stores in China, and almost half the stores are closed, it will have negative impact on
their financials in 2020.   s and McDonald’s can also pose a threat to its market position.
(https://bstrategyhub.com/) resource

Political- for ex. government policies, tax

changes, political risk, changes in trade blocs,
foreign trade regulations etc.
Economic factors- for ex. average personal
income, unemployment rates, exchange rates,
interest rates, business cycles etc.
Socio- cultural factors- population changes,
lifestyle changes, consumerism, cultural and
fashion changes.
Technological factors- technology
development, new discoveries, ICT
innovations, increased spending on R&D.
Environmental factors- environmental
standards/ protection regulations in the
country, global warming, energy
consumption, waste disposal.
Legal factors- employment law, competition
laws, IPR laws, licensing laws.

I have found a PESTEL framework on the

Panmore Institute about Burger King, which
 shows which factors are playing an important
role of Burger King’s successes and failures
across the globe as well as the company’s
opportunities and threats.
Political factors: governmental support for
globalization, political stability in major
markets where it operates ( these are
significant opportunities for BK).
Economic factors: high economic growth in
developing markets, expanding international
trade agreements

Socio- cultural factors: higher health

consciousness (threat), increasing support for
animal rights, increasing consumer diversity ( it
innovates its products in order to attract
customers from different backgrounds ).

Technological factors: higher availability of

automation technology, higher popularity of
mobile technology.
Environmental factors: climate change, emphasis
on business sustainability
Legal factors: environmental protection laws,
import & export regulations, GMO regulation ( it
limits the company’s performance because of the
tight regulations that are present in order to
minimize the GMO usage which is very present in
this industry).

2.Describe using an example how can a MiniMax

analysis be used .

A neat way of performing a SWOT analysis

according to Global mngt foundations
(Willcocks, 2013) is the MiniMax analysis
which gives four questions?

1.How can the company use its strengths to

maximize its opportunities?
2.How can the company use its strengths to
minimize its threats?
 3. How can the firm minimize both
weaknesses and threats?
4.How can the firm minimize its weaknesses
by capturing/maximizing its opportunities?

How can Starbucks for ex. use its strengths

to increase its opportunities?
Starbucks biggest growth is in its International segment. The emerging markets of Brazil, India,
China, South Africa and Mexico with a growing middle-class population continue to offer significant
opportunities to add new stores and serve more customers. Starbucks has already made significant
inroads into the Chinese market but there still is a lot of untapped potential growth in these
markets. Starbucks should grow in these emerging markets by winning locally Starbucks must remain
relevant to the customer in order to grow in these markets, and its management teams should have
the freedom to operate within their overall framework to tailor store format, introduce local product
mix and price points to the needs, lifestyles and tastes of each individual market/community,

3.Describe the components of Ghemawat’s CAGE

framework. Ghemawat suggests that
geographic distance is not the only distance
that affects trade among countries.

Ghemawat’s C.A.G.E framework stands for:

C- cultural distance ( a country’s attributes for

ex. religious beliefs, social norms, race,
 tradition determine the distance among two
countries). These factors determine how
people interact with each other and also
determine trade among countries for ex.
countries that share common language have
greater chances of trade, than countries that
do not share a common language.
Social norms are deeply embedded in the
system and they’re very difficult to remove.
For ex. it’s considered that China is keen on
copyrighting because of its communist past
and also because of its Confucian beliefs, the
main rule of Confucianism is: I transmit,
rather than create’.
Ignoring cultural distance was one of the
biggest mistakes that Star TV did when it believed
that Asian consumers would prefer watching
English programmes over Asian programmes. Star
TV was just considering the large unexplored
Asian market and did not consider the risk of
cultural and geographic distance, it did not
researched enough about people in Asia, which
usually prefer watching local TV programmes.
 A-Administrative/political distance:
Historical and political associations among
countries determine trade among them, for
example ex. colony-colonizer countries are trading
a lot more among them than with other countries
for ex. Britain- India, Spain- Latin America, France-
West African countries etc. Sharing a common
currency and political union also increase the
chances of trade among countries. China for ex. is
a tough market for foreign countries to enter ( for
ex. because of its high taxes, market-access
restrictions, huge level of corruption, huge state
involvement). Host countries may sometimes take
special measures in order to protect domestic
businesses under these circumstances:

*the domes. Business it’s considered as a

national champion, for ex. the strong rivalry
between Boeing and Airbus, both of these
companies are strongly supported by their
governments, strong government
intervention is present because both of them
want to dominate and capture the large-jet
market.

*it’s important for nat. security ( if the

industry is crucial to nat. security like
aerospace and telecommunicatons for ex. the
host country would surely intervene)

*if it exploits nat. resources ( countries like

Saudi Arabia for ex. is known for having oil as
a natural locally available resource and lots of
foreign firms are making FDI into the country
in order to take advantage of those nat.
resources, but on the other hand
nationalization can be negative to the
international oil industry).

G- geographic distance

Geographic distance among countries plays a

huge role when it comes to trade. For ex. if
bulky and heavy materials like cement or steel
have to be transported, the larger the
distance to the country where they have to be
transported is, the higher the transp. costs
would be. It includes the physical size of the
country, its infrastructure, access to water
( ocean,river), average within-country
distance to borders.

Those countries that face trade barriers

because of the geog.distance usually take FDI
into the country, that way they avoid trade
barriers, huge transp. costs.

E- Economic distance:
The wealth and income of consumers has an
impact on businesses and levels of trade.
Rich countries often trade with other rich
countries because that has a positive impact
on the per capita GDP, but poor countries also
trade with rich countries. Companies that
want to take advantage of ec.of scale, and
experience should focus more on trading with
countries with similar profile like them. That’s
an opport. For them for competitive
advantage, because if they trade with poor
countries that have poor ec. Profile and
 development, the wealth and income of
people there is low then it’s very difficult for
them to pull off competitive advent. For ex.
Wal-Mart in India is very dif. From Wal-Mart
in USA but Wal-Mart in Canada is identical to
the one in the USA.
Competitive advantage also comes from
arbitrage ( exploiting cost and price differences
among markets).

4.Describe the AAA framework using examples

Ghemawat’s AAA Triangle/ Framework

suggests three types of global strategy:

Adaptation- increases revenue (income) and

market share by maximizing the firm’s local
relevance. Basicallytailoring products or business models to the
preference of the local market. The idea by using this strategy

is to adjust to the differences. They aim to

deliver locally adapted products in each
market, despite the differences among the
purchasing power, tastes and preferences
among consumers. Ghemawat suggests four
adaptation strategies: *A standard product
from Western Europe may be positioned as a
premium brand in an emerging economy and
thus be sold using different marketing and
sales processes. For ex. Carlsberg is considered
standardized mainstream brand in its home
country, but in developing countries it’s
considered as premium brand.
*MNEs may externalize costs of adaptation by
working with local partners that contribute
knowledge and investment, for ex. they may
focus on providing high value components that
can be added in a variety of products by using
partners like for ex. Hella which is making
headlights for cars from many different brands.

*local innovation allows the creation

Of new products by locally knowledgeable
people that can combine products or services
of the MNE with bs ideas of local
entrepreneurs, for ex. Saxo Bank from
Denmark develops online technology
platforms that it licenses to financial service
companies around the world who draw on
Saxo technology to develop customized
banking interfaces for their customers. De
Beers uses adaptation by owning mines in
countries with weak governance and
presenting dif. marketing campaigns to dif.
countries. Kitkat introducing matcha flavored chocolate bar in Japan

Aggregation strategies focus on focuses on

‘standardization’ – creating or utilizing existing economies of scales across multiple

.
locations Toyota’s production is concentrated in Japan. FY2015, Toyota
reported 8.9million units of cars produced worldwide. Of these, almost 4.1million
units are produced in Japan. The huge scale of production in Japan allows Toyota to
enjoy lower cost, higher efficiency, and quality control. At the same time, the
concentration of facilities makes implementation easier as Toyota continue pushing

Main target is to take

out series of cost-saving initiatives.

advantage of economies of scale, increase

innovations and knowledge management.
This strategy focuses on overcoming
differences. Product standardization by
grouping together development and
production is one example of this strategy.
Also at the same time activities that are best
done differently may be located close to local
customers for ex. sourcing, product
development and finance are handled in
regional/global bs units while sales, marketing
and human resources are often managed
locally. Firms also aggregate among other
dimensions for ex. Tata Consultancy Services
from India aggregates partly by language, it
has set up in Morocco to service French-
speaking markets or CEMEX the global
Mexican cement distributer used aggregation
strategy by focusing on emerging markets. De
Beers the African diamond mining retail
company uses aggregation strategy by
building bargaining power over distribution
channels.

Arbitrage involves exploiting differences in

prices among different markets. Arbitrage
also involves exploiting mineral resources
( gold, silver, aluminum), energy
resources( oil, gas), agricultural products etc.
It also involves exploiting of low cost labor for
ex. De Beers uses India for its low cost labor,
and it uses locations were material costs were
lower for sourcing for ex. ( Africa, Russia).
Recently, medical services for patients
worldwide have been provided by hospitals in
Singapore, Thailand and Eastern Europe at
much lower prices than hospitals in Western
Europe, an example which can also be
considered as an arbitrage strategy.
Companies do not need to use/ combine all of
the AAA strategies at the same time they can
use for example one A strategy or AA
strategy. However, companies like De Beers
has been successful in combining and using all
three AAA strategies. To produce tap water, water
companies had to invest in a huge network of water pipes stretching
throughout the country. The fixed cost of this investment is very high.
However, since they distribute water to over 25 million households, it
brings the average cost down. However, would it be worth another
water company building another network of water pipes to compete with
the existing company? No, because if they only got a small share of the
market, the average cost would be very high and they would go out of
business. This is an example of a natural monopoly – where the most
efficient number of.Supermarkets can benefit from economies of scale
because they can buy food in bulk and get lower average costs. If you
had a delivery of just 100 cartons of milk the average cost is quite high.
The marginal cost of delivering 10,000 cartons is quite low. You still
need to pay only one driver; the fuel costs will be similar. True, you may
need a bigger van, but the average cost of transporting 10,000 is going
to be a lot less than transporting 100firms ( economies of scale
example, economicshelp.org

International strategymultidomestic company is Nestlé. Nestlé uses

a unique marketing and sales approach for each of the markets in which it operates.
Furthermore, it adapts its products to local tastes by offering different products in
different markets.
Localization
Global standardiz.: Pfizer
Transnational: Unilever