Chapter 8

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Chapter 8 International Strategy
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Agenda

1. Introduction to International Strategy
2. International Corporate-Level Strategy
3. International Mode of Entry
4. Returns and Risks of International Strategy

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Opportunities and Outcomes of International
Strategy

• International strategy
• A strategy through which the firm sells its
  goods or services outside its domestic
  market

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Classic Rationale Extend Products Life Cycle
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International Strategy Benefits

• Increase market size
• Increased revenues due to access to new customers
• Return on investment
• Large investment projects may require global
  markets to justify the capital outlays
• Weak patent protection in some countries implies
  that firms should expand overseas rapidly in
  order to preempt imitators

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International Strategy Benefits contd

• Economies of scale or learning
• Expanding size or scope of markets helps to
  achieve economies of scale in manufacturing as
  well as marketing, RD or distribution
• Can spread costs over a larger sales base
• Can increase profit per unit
• Competitive advantage through location
• Low cost markets aid in developing competitive
  advantage by providing access to
• Raw materials ? Lower cost labor
• Key customers ? Energy

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Agenda

1. Introduction to International Strategy
2. International Corporate-Level Strategy
3. International Mode of Entry
4. Returns and Risks of International Strategy

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Determinants of National Advantage
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International Corporate-Level Strategies
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Multidomestic Strategy

• Strategy and operating decisions are
  decentralized to strategic business units (SBU)
  in each country
• Products and services are tailored to local
  markets
• Business units in one country are independent of
  each other
• Assumes markets differ by country or regions
• Focus on competition in each market
• Prominent strategy among European firms due to
  broad variety of cultures and markets in Europe

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Global Strategy

• Products are standardized across national markets
• Decisions regarding business-level strategies are
  centralized in the home office
• Strategic business units (SBU) are assumed to be
  interdependent
• Emphasizes economies of scale
• Often lacks responsiveness to local markets
• Requires resource sharing and coordination across
  borders (hard to manage)

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Transnational Strategy

• Seeks to achieve both global efficiency and local
  responsiveness
• Difficult to achieve because of simultaneous
  requirements
• Strong central control and coordination to
  achieve efficiency
• Decentralization to achieve local market
  responsiveness
• Must pursue organizational learning to achieve
  competitive advantage

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Environmental Trends

• Liability of foreignness
• Legitimate concerns about the relative
  attractiveness of global strategies
• Global strategies not as prevalent as once
  thought
• Difficulty in implementing global strategies
• Regionalization
• Focusing on particular region(s) rather than on
  global markets
• Better understanding of the cultures, legal, and
  social norms

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Agenda

1. Introduction to International Strategy
2. International Corporate-Level Strategy
3. International Mode of Entry
4. Returns and Risks of International Strategy

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Choice of International Entry Mode
Complexity, risks, control
Type of Entry
Characteristics
Exporting
High cost, low control
Licensing
Low cost, low risk, little control, low returns
Strategic alliances
Shared costs, shared resources, shared risks,
problems of integration
Acquisition
Quick access to new market, high cost, complex
negotiations, problems of merging with domestic
operations
New wholly owned subsidiary
Complex, often costly, time consuming, high risk,
maximum control, potential above-average returns
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Dynamics of Mode of Entry
Whats the best solution?
The firm has no foreign manufacturing expertise
and requires investment only in distribution.
Export
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Dynamics of Mode of Entry
Whats the best solution?
Licensing
The firm needs to facilitate the product
improvements necessary to enter foreign markets.
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Dynamics of Mode of Entry
Whats the best solution?
The firm needs to connect with an experienced
partner already in the targeted market.
Strategic Alliance
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Dynamics of Mode of Entry
Whats the best solution?
Strategic Alliance
The firm needs to reduce its risk through the
sharing of costs.
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Dynamics of Mode of Entry
Whats the best solution?
Wholly-owned Subsidiary
The firms intellectual property rights in an
emerging economy are not well protected, the
number of firms in the industry is growing fast,
and the need for global integration is high.
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Agenda

1. Introduction to International Strategy
2. International Corporate-Level Strategy
3. International Mode of Entry
4. Returns and Risks of International Strategy

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International Diversification Returns

• Expanding sales of goods or services across
  global regions and countries and into different
  geographic locations or markets
• May increase a firms returns (such firms usually
  achieve the most positive stock returns)
• May achieve economies of scale and experience,
  location advantages, increased market size, and
  opportunity to stabilize returns
• Provides exposure to new products and processes
  in international markets generates additional
  knowledge leading to innovations

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Complexity of Managing Global Firms

• Expansion into global operations in different
  geographic locations or markets
• Makes implementing international strategy
  increasingly complex
• Can produce greater uncertainty and risk
• May result in the firm becoming unmanageable
• May cause the cost of managing the firm to exceed
  the benefits of expansion

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Risks in the International Environment
Political Risks
Economic Risks

• Political risks include
• Instability in national governments
• War, both civil and international
• Potential nationalization of a firms resources

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Risks in the International Environment contd
Political Risks
Economic Risks

• Economic risks are interdependent with political
  risks and include
• Differences and fluctuations in the value of
  different currencies
• Differences in prevailing wage rates
• Difficulties in enforcing property rights

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Limits to International Expansion

• Management Problems
• Cost of coordination across diverse geographical
  business units
• Institutional and cultural barriers
• Understanding strategic intent of competitors
• The overall complexity of competition