International Strategy

1
Chapter 8

• International Strategy

2
Chapter 2
The Strategic Management Process
External
Environment
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Strategy Formulation
Strategy Implementation
Chapter 4
Chapter 5
Chapter 6
Chapter 10
Chapter 11
Business-Level
Competitive
Corporate-Level
Corporate
Structure
Strategy
Dynamics
Strategy
Governance
Control
Actions
Strategic
Chapter 8
Chapter 7
Chapter 9
Chapter 12
Chapter 13
International
Entrepreneurship Innovation
Cooperative
Acquisitions
Strategic
Strategy
Strategies
Restructuring
Leadership
Strategic
Competitiveness
Above Average
Feedback
Returns
3
International Strategy Lifecycle
2
Product Demand Develops and Firm Exports Products
1
3
Foreign Competition Begins Production
Firm Introduces Innovation in Domestic Market
5
Production Becomes Standardized and is Relocated
to Low Cost Countries
4
Firm Begins Production Abroad
4
International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore Resources and Capabilities
Use Core Competence
Strategic Competitiveness Outcomes
Management Problems and Risk
International Strategies
Modes of Entry
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic Alliances
Economies of Scale and Learning
Global Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems and Risk
5
Incentives to PursueInternational Diversification

• Increase Market Size
• Return on Investment
• Economies of Scale Learning Curve Effects
• Location Advantages
• Leverage Core Competencies in New Ways
• Manage Corporate Risk

6
International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore Resources and Capabilities
Use Core Competence
Strategic Competitiveness Outcomes
Management Problems and Risk
International Strategies
Modes of Entry
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic Alliances
Economies of Scale and Learning
Global Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems and Risk
7
International Business-Level Strategy

• Determinants of National Advantage
• Porters Diamond Model
• Notion of Comparative Advantage
• Governments Role
• Types of Strategies
• International Low-Cost Strategy
• International Differentiation Strategy
• International Focus Strategy
• International Integrated Low-Cost /
  Differentiation Strategy

8
Porters Determinants of National Advantage
Home country of origin is crucial to
International success
9
Business-Level International Strategies
International Low Cost
Centralize operations in home country
Export Goods
Outsource low-value added activities abroad
High value-added operations in home country
International Differentiation
Countries with advanced or specialized factor
conditions
Japan, Germany, U.S.
10
Business-Level International Strategies

• International Focus Strategies
• Focus by products world-wide
• Rolls Royce, Substandard products for LDC
  countries
• Focus on particular customers world-wide
• Products for Physically Challenged

International Integrated Low Cost/Differentiation

• Can be effective in dealing with diverse markets

• Often relies upon flexible manufacturing, total
  quality management or rapid communication networks

11
International Corporate Strategy
Corporate-Level International Strategies

• It should support international business-level
  strategy
• Issues to consider
• Centralization/Decentralizion of Decision Making
• Resource allocation sharing
• Market differences

Multi-Domestic Strategy
Three Corporate Strategies
Global Strategy
Transnational Strategy
12
International Corporate Strategy
Corporate-Level International Strategies
Multi-Domestic Strategy
Strategy and operating decisions -- decentralized
Products and services -- tailored to local markets
Business units are independent
Disadvantages Lost Economies of Scale,
duplication
Prominent strategy among European firms due to
broad variety of cultures and markets in Europe
13
International Corporate Strategy
Corporate-Level International Strategies
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 (which also makes it difficult to manage)
14
International Corporate Strategy
Corporate-Level International Strategies
Transnational Strategy
Seeks to achieve both global efficiency and local
responsiveness
Difficult to achieve (Conflicting Objectives)
May be possible through regionalization
15
International Corporate Strategy
When is each strategy appropriate?
High
Need for Global Integration and Low Cost
Low
Low
High
Need for Local Market Responsiveness
16
International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore Resources and Capabilities
Use Core Competence
Strategic Competitiveness Outcomes
Management Problems and Risk
International Strategies
Modes of Entry
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic Alliances
Economies of Scale and Learning
Global Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems and Risk
17
International Corporate Strategy
Choice of International Entry Mode
Exporting
Common way to enter new international markets
No need to establish operations in other countries
Establish distribution channels through
contractual relationships
May have high transportation costs
May encounter high import tariffs
May have less control on marketing and
distribution
Difficult to customize products
18
International Corporate Strategy
Choice of International Entry Mode
Licensing
Firm authorizes another firm to manufacture and
sell its products
Licensing firm is paid a royalty on each unit
produced and sold
Licensee takes risks in manufacturing investments
Least risky way to enter a foreign market
Licensing firm loses control over product quality
and distribution
Relatively low profit potential
A significant risk is that licensor learns
technology and competes when license expires
19
International Corporate Strategy
Choice of International Entry Mode
Strategic Alliances
Share costs risks Gain access to resources
markets Leverage partners knowledge of market
and culture Ease government hostility
Understand the strategic intent and goals of your
partner.
20
International Corporate Strategy
Choice of International Entry Mode
Acquisitions
Quick access to foreign market
Can be very costly
Legal and regulatory requirements may present
barriers to foreign ownership
Usually require complex and costly negotiations
Potentially disparate corporate cultures
21
International Corporate Strategy
Choice of International Entry Mode
New Wholly-Owned Subsidiary
Most costly and complex of entry alternatives
Greatest degree of control
Greatest profit potential, highest risk
Greater control over technology, marketing and
distribution

• Reasoning
• No suitable JV partners or target firms
• High price

22
International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore Resources and Capabilities
Use Core Competence
Strategic Competitiveness Outcomes
Management Problems and Risk
International Strategies
Modes of Entry
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic Alliances
Economies of Scale and Learning
Global Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems and Risk
23
International Corporate Strategy
International Diversification Strategic
Competitiveness Outcomes
Facilitates innovation
Larger markets to gain more and faster returns
form investments in innovation
May generate resources necessary to sustain a
large-scale RD program
Generally related to above-average returns,
assuming effective implementation and management
of international operations
International diversification provides greater
economies of scope and learning
24
International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore Resources and Capabilities
Use Core Competence
Strategic Competitiveness Outcomes
Management Problems and Risk
International Strategies
Modes of Entry
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic Alliances
Economies of Scale and Learning
Global Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems and Risk
25
Major Risks of International Diversification
Political Risk
Nationalization of firms assets Potential
changes in attitudes or regulations regarding
foreign ownership War Reinvestment policy
26
Major Risks of International Diversification
Managing Political Risk

• Avoid High-Risk Countries
• Or limit investment
• Negotiate with Foreign Government
• Policy of Neutrality

27
Major Risks of International Diversification
Economic Risk

• Risks
• Foreign exchange
• Inflation
• Per capita income of home country
• Managing Risks
• Hedging
• Location of other SBUs

28
International Diversification
Management Problems

• Coordination Problems
• Trade Barriers
• Organization Structures
• Cultural Differences (Next Slide)

29
International Diversification
Cultural Differences
Technology Material Culture Language Aesthetics
Education Religion Attitudes Values Social
Organization Political Life