INTERNATIONAL BUSINESS MANAGEMENT

WEEK 5: Strategic framework

Lecturer: Ellie Benjamin

Email: [email protected]
 Module Lesson Plan (one lesson every week)
Lesson 1: Introduction into the module/Overview of International Business
Lesson 2: The Scale and Scope of International business
Lesson 3: Exploring foreign expansion modes
Lesson 4: Evaluating foreign expansion: host country, location, advantages
Lesson 5: Strategic framework
Lesson 6: International trade theory
Lesson 7: International strategies
Lesson 8: International Marketing Communications
Lesson 9: Key dimensions of culture and their influence on businesses
Lesson 10: Assignment review discussion
Lesson Introduction
Welcome to lesson 5 on strategic management frameworks, where we will explore essential models that help
businesses achieve competitive advantage and growth. The dynamic business environment of the 21st century
demands that organizations continuously evaluate and adapt their strategies to stay ahead. To navigate this
complex landscape, companies often rely on proven strategic models that provide a structured approach to
decision-making.
Overview of Strategic Models
1. Porter's Generic Strategies: Developed by Michael Porter, this model outlines three fundamental strategies for
achieving competitive advantage: cost leadership, differentiation, and focus. These strategies guide businesses
in positioning themselves effectively within their industries.
2. Ansoff Matrix: Also known as the Product/Market Expansion Grid, the Ansoff Matrix, introduced by Igor Ansoff,
provides a framework for identifying growth opportunities. It examines existing and new products and markets
to suggest four strategic options: market penetration, product development, market development, and
diversification.
3. Porter's Diamond Model: Another contribution from Michael Porter, the Diamond Model, explains why certain
industries within a particular nation are competitive internationally. It highlights four key determinants: factor
conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry
Learning Outcome
By the end of this lesson, you should be able to:
1. Define the concept of Porter's Generic Strategies and Ansoff Matrix
2. Explain the three generic strategies: cost leadership, differentiation, and focus
3. Analyse the importance of Diamond model
4. Discuss examples of companies implementing each strategy.
Before you get started - Activity 1

I want you to review how to analyse potential markets for expansion, understand the legal and
political environments of those markets, identify key competitors and global trends, and
assess the resources needed for successful expansion.
Choose one specific country, it can be the same country from your previous examples. Let's
delve into the exploration of how companies can strategically expand into new markets.
Topic 1: Porter's Generic Strategies
Porter's Generic Strategies, devised by Michael Porter, are a trio of overarching tactics
organisations can employ to attain a competitive edge in their respective industries. These
strategies are formulated to assist companies in determining the most effective approach to
competing and succeeding in their marketplaces.
The three fundamental strategies are:
• cost leadership,
• distinctiveness and
• focus.
Every strategy entails a distinct method of establishing and maintaining a competitive
advantage by capitalising on the company's assets in terms of cost-effectiveness, distinctive
offers or market specialisation (Porter, 1985, p. 557).
The three generic strategies (1/3)
Cost leadership
The first strategy in Porter's Generic Strategies framework is Cost Leadership. This strategy
seeks to provide products or services at a reduced cost compared to rivals. The corporation can
enhance its market share by implementing competitive cost strategies while optimising
profitability
• idea of offering goods or services at the lowest cost
• allows company to increase market share and profits
• requires high levels of efficiency, cost tracking and cost minimisation.
The three generic strategies (2/3)
Differentiation
The second of Porter's Generic Strategies is Differentiation, which seeks to create a distinct and
exclusive product or service, enabling enterprises to command a higher price. This necessitates
elevated levels of creativity, design, quality or brand perception.
• strategy to make products or services unique
• unique value allows for higher pricing
• requires innovation, design, quality or brand perception.
The three generic strategies (3/3)
Focus
Porter's third and final Generic Strategy is Focus. Businesses must focus on certain, often
specialised, market niches and address the specific needs of these customers. Two possible
approaches to this are a cost emphasis or a differentiation focus.
• strategy to concentrate on specific market segments
• develop products/services that cater to these segments' needs
• can be either cost focus or differentiation focus
Examples of companies implementing each strategy (1/3)

Example of Cost Leadership: Walmart

Walmart is a prime example of a firm that effectively executes the cost leadership approach.
They purchase merchandise at a reduced price in bulk and subsequently provide it to their
clients at a cheaper price, enabling them to acquire a significant portion of the market.
Examples of companies implementing each strategy (2/3)

Apple Inc. demonstrates a highly

effective differentiating strategy.
Through continuous innovation
Example of Differentiation: and design enhancements,
Apple Inc. coupled with a robust reputation
for excellence, they can
command higher costs in
comparison to their rivals
Examples of companies implementing each strategy (3/3)

Example of Focus Strategy: Tesla Inc Tesla Inc. effectively executes the focus approach. Through
their strategic focus on the electric car industry and their
commitment to manufacturing top-tier, opulent
automobiles, they have successfully solidified their position in
the market
Advantages and disadvantages of each strategy

Let us examine the potential advantages and disadvantages of each strategy, such as the ability to capture a large portion of the
market but with low-profit margins for cost leadership, the potential for high-profit margins but the requirement for continuous
innovation in differentiation, and the possibility of achieving dominance in a specific niche market but being susceptible to
changes in focus strategy.

Cost leadership: High market share but low margins.

Differentiation: High margins but requires constant innovation.

Focus: Niche market success but vulnerable to market changes.

Topic 1 - Activity 1

I want to assess your knowledge of Porter's Generic Strategy. I'd like you to analyse
how Lidl, Waitrose, Asda, and Sainsbury's in the UK are implementing Porter's
Generic Strategies to enhance their businesses within the supermarket sector.

Please provide your answer and justify it with some secondary sources. Give your
200-word (50 words each) summary in the Discussion Forum.
Topic 2: The Ansoff Matrix
The Ansoff Matrix, created by Dr. Igor Ansoff, is a strategic planning tool that offers a
framework to assist executives, senior managers and marketers in formulating strategies for
future expansion.
The concept encompasses four overarching tactics for growth:
• market penetration,
• market development,
• product development, and
• diversity
(Kotler et al., 2021).
The Ansoff Matrix and its purpose in strategic planning

The Ansoff Matrix, alternatively referred to as the Product/Market Expansion Grid, is a strategic
planning instrument devised by Igor Ansoff and initially published in the Harvard Business
Review in 1957.
The matrix facilitates the identification and assessment of growth prospects for firms, with a
specific emphasis on goods and markets. The text presents four main growth strategies, each
differing in terms of risk and potential return: market penetration, market development, product
development, and diversification.
Organisation of Ansoff Matrix

The matrix is organised in a basic 2x2 grid:

The x-axis illustrates the different marketplaces, distinguishing between existing and new
ones.

The y-axis reflects the categorisation of products into two groups: existing products and new
products.

Through the analysis of the positioning of their existing and projected products and markets
on this grid, firms can identify the most suitable strategy to pursue to achieve growth
The Ansoff Matrix
Role in strategic planning
The Ansoff Matrix is a fundamental tool in strategic planning, offering organisations a
systematic and well-organised method to evaluate and determine growth strategies. It fulfils
multiple essential functions:
• Identifying potential areas for expansion
• Evaluating the likelihood and potential consequences of a potential threat or danger
• Strategic emphasis
• Promoting and fostering innovation
• Enhancing communication and facilitating decision-making
The four growth strategies : Market penetration (1/4)

Greggs is the leading ‘food on the go’ retailer

Market penetration in existing markets with
in the UK and its strategy to increase market
current products is achieved by winning
penetration has been to invest in digital
competitors’ customers. This may be
marketing. Investment in digital technology
accomplished by more effective use of
is part of a strategic plan to provide the best
promotion or distribution, or by cutting
customer experience and increase customer
prices. Increasing promotional expenditure is
loyalty. During the Covid pandemic, Greggs
a method of winning competitors’ customers
quickly established click-and-collect and
and market penetration. Ultimately, the aim
delivery services by partnering with Just Eat.
is to increase market share for existing
This extension of its existing product offer has
products and services (Jobber and Ellis-
enabled greater market penetration (Greggs,
Chadwick, 2023).
2024).
The four growth strategies : Market development (2/4)

Market development entails the promotion of new uses of existing products to new customers, or the
marketing of existing products (and their current uses) to new market segments.

The promotion of new uses accounted for the growth in sales of nylon, which was first marketed as a
replacement for silk in parachutes but expanded into being used in shirts, carpets, tyres and so on.

Tesco, the UK supermarket chain, practised market development by marketing existing grocery
products, which were sold in large out-of-town supermarkets and superstores, to a new market
segment – convenience shoppers – by opening smaller grocery shops in town centres and next to
petrol stations. The growth of overseas markets in China, India and Eastern Europe is providing major
market development opportunities for companies such as BP, Vodafone, Walmart and Carrefour
There are many options to expand into new markets (Jobber and Ellis-Chadwick, 2023).
The four growth strategies : Product development (3/4)

Product development refers to the process of designing and producing new, changed or
updated products that are specifically targeted towards existing clients. This method is
frequently employed by corporations when they wish to capitalise on their robust brand loyalty
but see that they have exhausted all possibilities in existing markets. One variant is to extend
existing product lines to give current customers greater choice. It is important to avoid
cannibalisation of sales of the core product (Jobber and Ellis-Chadwick, 2023).

Product replacement activities involve the replacement of old brands/models with new ones.
This is common in the car market and often involves the upgrading of an old model with a new
(more expensive) replacement. For Škoda, the third oldest car manufacturer in the world,
product replacement has been essential to its survival, and in recent years the introduction of
new models – New Fabia, Scala, Kamiq – has enabled the brand to retain and develop its market
share (Škoda, 2024).
The four growth strategies : Diversification (4/4)

Diversification carries the highest level of risk among the four growth options. It entails the
introduction of untested products into completely unfamiliar markets. This approach is
commonly employed when the existing market is fully saturated and more avenues for
expansion are required. The entry into new markets option concerns the development of new
products for new markets. This is the most risky option, especially when the entry strategy is not
based on the core competences of the business (Jobber and Ellis-Chadwick, 2023).

However, it can also be the most rewarding, as exemplified by Honda’s move from motorcycles
to cars (based on its core competences in engines), and Apple, which has created one of the
world’s most successful brands following a diversification strategy from computers to the
launch of the iPod mobile music player, followed by its highly successful smartphone and then
the Apple Watch. It is the lure of such rewards that tempts brands to take calculated risks
associated with entering new markets with new products.
Examples of companies employing each strategy (1/2)
Examples of market penetration
• An exemplary illustration is McDonald's Happy Meal promotions, which entice a larger
clientele by providing a uniform product at a reduced price. This enables McDonald's to
enhance its market dominance within the fast-food industry.

• Examples of market penetration

• An excellent illustration is Starbucks' foray into the Chinese market. Starbucks successfully
expanded into a previously untapped market, resulting in the acquisition of a fresh client
demographic and a significant boost in revenue
Examples of companies employing each strategy (2/2)
Examples of market penetration
• Apple exemplifies this category. They are known for introducing cutting-edge items or
enhanced iterations of current ones to cater to the changing demands and desires of their
established clientele.

Examples of diversification
• n instance of diversification may be observed in Virgin Group, which has remarkably
expanded its brand across various industries, including travel, telecommunications, and
health and wellbeing.
Topic 2 - Activity 1

Watch the video below on the Ansoff Matrix by questus marketing

knowledge (2021).

Once you have watched the video, conduct a case study exercise where
you analyse and recommend growth strategies for a given business.
Topic 3: The components of Porter's Five Forces Analysis

The utilisation of Porter's Five Forces Analysis is a pivotal instrument in evaluating an industry's
competitiveness.
This methodology prompts strategic thinkers to examine the five essential competitive
dynamics that ascertain the appeal and profitability of an industry:
• competitive rivalry,
• suppliers' negotiating power,
• buyers' bargaining power,
• threat of substitutes, and
• threat of new entrants.
Porter's Five Forces Analysis as a tool for assessing
industry competitiveness

Competitive rivalry
Bargaining power of buyers
Bargaining power of suppliers
Threat of new entrants
Threat of substitute products
Competitive rivalry
This force assesses the level of rivalry among current market participants. Intense competition
among companies can restrict profitability by leading to price wars, higher marketing expenses,
or the need for product developments to capture a larger market share.

Factors that affect competition:

• total number of participants
• industrial growth rate
• differentiation of a product or service
• customer switching costs
• fixed costs and exit barriers – refer to the expenses that a company must incur regardless of its level
of production or sales, as well as the obstacles that make it difficult for a company to leave a certain
market or industry.
Bargaining power of buyers
This force evaluates the impact that customers exert on the pricing and quality of goods and
services. Buyers with significant bargaining power might exert pressure on sellers to drop
prices, improve quality or offer more services, resulting in decreased profitability for the sector.
Factors that affect the level of influence buyers have are:
• buyer-supplier ratio
• product differentiation – refers to the process of distinguishing a product or service from others in the
market by highlighting unique features, benefits or characteristics
• costs associated with changing from one product or service to another
• existence of alternative products
• price sensitivity – refers to the degree to which consumers are responsive to changes in the price of a
product or service.
Bargaining power of suppliers
This force analyses the impact that suppliers of raw materials, components, labour and services
have on the industry that produces goods or services. Suppliers with significant power have the
capacity to impose higher pricing or demand more favourable conditions, which can have a
negative impact on the industry's profitability.
Factors that affect the level of power held by suppliers:
• supplier-to-buyer ratio
• availability of alternative inputs
• significance of volume for the supplier
• supplier transition expenses
• input differentiation
Threat of new entrants
• This force evaluates the likelihood of new entrants joining the industry and intensifying
competition.
• Significant obstacles to market entry might serve as a safeguard for established firms
against emerging rivals, while minimal obstacles can result in heightened rivalry and
diminished profitability.
Threat of substitute products
 Existence of similar products
For example, digital encyclopedias (Wikipedia, Encarta, Magenta) have posed a threat
to traditional paper publishers
 Switching costs
Switching costs of industrial customers may involve production redesign and
retraining their workforce.
 Consumers’ preference to substitutes
Preferences of consumers are dependent upon prices and performance of substitutes
(e.g. e-readers & tablets vs. paper books).
 The Five Forces Model of Competition
Supplier Power Degree of Rivalry
Few concentrated suppliers Declining industry
Low importance of buyer to supplier Undifferentiated products
Differentiated products Numerous competitors
Product is important to the buyer Switching costs
High switching costs Exit barriers
Scarcity of substitute products High strategic stakes

Threat of Substitutes
Threat of Entry Price differences
Competition Performance of substitutes
Cost advantages
Government policy Intensity Switching costs
Economies of scale Appeal of substitutes
Capital requirements
Brand identity Determinants of Buyer Power
Switching costs Bargaining leverage Price sensitivity
Access to distribution Buyer concentration Price/Total Purchases
Expected retaliation Buyer volume Impact on quality
Buyer information Product differences
Buyer switching cost Brand identity
Degree of differentiation
of products
 Intensity of Rivalry
Rivalry is generally stronger when:
•Rivals are active in making fresh moves to
The “Weapons” of
increase sales and market share
Competitive Rivalry Buyer demand is declining
•Lower prices Rivalry The number of rivals is large
More appealing among Rivals are of roughly equal size and capability
features Competing Buyer costs to switch brands are low
Better product
Sellers One or more rivals is dissatisfied with their
performance
current position and market share and make
Higher quality
Efforts of aggressive moves to improve their market
Strong brand image
rivals to gain prospects
and appeal
better market When one or two rivals have powerful
Better customer
position, strategies and other rivals are scrambling to
service
higher sales stay in the game
Wider product
and market
selection
share,
Bigger/better sales
and
network
competitive
Stronger product
advantage
innovation Rivalry is generally weaker when:
capabilities Firms draw sales and market share away from
Longer warranties rivals
Higher levels of Buyer demand is growing rapidly
advertising Buyer costs to switch brands are high

3-36
gl
Interpreting Industry Analyses

Low entry barriers

Suppliers and buyers

have strong positions
Unattractive
Strong threats from Industry
substitute products

Intense rivalry
Low profit potential
among competitors

37
Interpreting Industry Analyses

High entry barriers

Suppliers and buyers have

undefined positions
Attractive
Few threats from Industry
substitute products

Moderate rivalry
High profit potential
among competitors

38
 Competitor Analysis

Future objectives Response

Response:
Current strategy
 What will our competitors do
in the future?
 Where do we hold an
Assumptions advantage over our
competitors?
 How is our relationship with
Capabilities competitors formed?
 Competitor
Analysis
Components

40
Topic 3 - Activity 1

Conduct a Five Forces Analysis and discuss the impact of these five forces on the
supermarket sector in the UK. You have previously analysed the supermarket
industry in another activity.

The Five Forces Analysis is used to understand and analyse the industry.

Therefore, consider how these different forces are impacting the supermarket
industry in the UK and provide your judgement on whether the industry is
sustainable and competitive. Make notes outlining your findings.
Topic 4: Porter's Diamond Model

The Diamond Model, which builds upon

Porter's theory, aims to comprehend the
competitiveness of nations. This
approach enables us to evaluate how the
domestic circumstances establish a
foundation for industries to engage in
global competition and contributes to
the Five Forces Analysis and its focus on
national competitiveness.
Factor conditions (1/4)
• Factor conditions are values of the firm’s skill to supply those factors of research production
that allow a unit to compete. They are the factors of production and infrastructure necessary
to compete in a particular industry.
• As believed by the standard trade theory, the states are endowed with separate stocks of
factors. The theory mentions that the state will export those products, which produce
incentive use of the factors with which it is comparatively well endowed. A simple definition
for what the factor of production is concerns to the terms like capital, land and labour. Porter
regards this definition as too general, and not suitable to give open insights to the
competitive advantage, hence he argues that the factors should be divided into categories
that are more particular.
• Factors, as defined by Porter, may be divided into five broad groups. These factors can be
grouped into human resources (the amount, abilities and cost of staff etc.), material
resources, knowledge resources and services. (Hollensen, 2020)
Demand conditions (2/4)

• Demand conditions refer to the nature and size of the customer base for an industry’s
products. Strong, sophisticated local demand can drive companies to innovate and improve
their products.
• When local customers demand high-quality and advanced products, firms are pushed to
meet these expectations, fostering a competitive edge. Additionally, a large and affluent
domestic market provides companies with the scale needed to achieve cost efficiencies and
invest in research and development.
• Therefore, robust demand conditions contribute to the development of globally competitive
firms by ensuring they are attuned to market needs and capable of rapid adaptation.
Related and supporting industries (3/4)
• Related and supporting industries are those that are interconnected with the primary industry
and provide essential inputs or complementary products. A robust network of these
industries can enhance innovation and efficiency through collaboration and the exchange of
ideas. For example, a strong automotive industry often benefits from a well-developed steel
industry, as well as advanced technology and parts suppliers.
• When related and supporting industries are geographically proximate, the benefits are
amplified through clusters that facilitate more seamless communication, collaboration, and
innovation. This interconnectedness helps firms achieve higher productivity and
competitiveness on a global scale. (Hollensen, 2020)
Firm strategy, structure and rivalry (4/4)
• Firm strategy, structure, and rivalry pertain to how companies are created, organized, and
managed, along with the nature of domestic competition. The strategies and structures that
firms adopt can significantly influence their ability to compete internationally.
• For instance, a company's management practices, corporate governance, and the intensity of
local competition can drive innovation and efficiency. Intense domestic rivalry forces firms to
continuously improve their products and processes, thereby enhancing their
competitiveness.
• Moreover, national circumstances and contexts shape the managerial ethos and strategic
choices, which in turn affect how firms perform on the global stage. Competitive domestic
environments push firms to excel and often lead to higher performance internationally
(Hollensen, 2020).
Topic 4 - Activity 1
• How to Use the Porter Diamond Model. Internationalization Strategy Course by Consultport,
(2021).
Lesson summary
We delved into the fundamental strategic management frameworks that guide businesses in
achieving competitive advantage and growth. Understanding these models is crucial for any
business leader or manager aiming to navigate the complexities of the modern business
environment.
Key Frameworks Explored
1. Porter's Generic Strategies:
• Cost Leadership: Competing on the basis of being the lowest-cost producer in
the industry.
• Differentiation: Offering unique products or services that command a premium
price.
• Focus: Targeting a specific market niche, either through cost focus or
differentiation focus.
Lesson summary
2. Ansoff Matrix:

• Market Penetration: Increasing market share with existing products in

existing markets.

• Product Development: Introducing new products to existing markets.

• Market Development: Entering new markets with existing products.

• Diversification: Launching new products in new markets, which can be

related or unrelated to the current business.
Lesson summary
3. Porter's Diamond Model:
• Factor Conditions: The nation’s position in factors of production, such as
skilled labour and infrastructure.

• Demand Conditions: The nature and size of home-market demand for the
industry’s products or services.

• Related and Supporting Industries: The presence of supplier industries and

related industries that are internationally competitive.

• Firm Strategy, Structure, and Rivalry: The conditions in the nation governing
how companies are created, organised, and managed, and the nature of
domestic rivalry.
Lesson summary
Key Takeaways
• Strategic Clarity: Porter’s Generic Strategies provide clear paths for
businesses to achieve competitive advantage through cost
leadership, differentiation, or focus.
• Growth Opportunities: The Ansoff Matrix helps identify and
evaluate various growth strategies, guiding decisions on whether
to penetrate existing markets, develop new products, enter new
markets, or diversify.
• National Competitiveness: Porter’s Diamond Model offers insights
into why certain industries in particular nations are more
competitive globally and how firms can leverage these conditions
for international success.