International Strategy and Competition

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International Strategy and Competition

• David Collis
• May 2002

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International Strategy

• Different, more difficult strategic questions
  than for domestic strategy

SIMPLIFIED BY CONSISTENTLY IMPLEMENTING THE
CHOSEN INTERNATIONAL STRATEGY
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Generic International Strategies
DIFFERENT
MULTIDOMESTIC
TRANSNATIONAL
BUSINESS SYSTEM SIMILARITY
EXPORT
GLOBAL
SAME
NO YES
ECONOMIES OF INTEGRATION
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Local Strategy

• Choice is to compete in only one country
• celebrate domestic idiosyncrasies
• single market supports efficient producer
• barriers to tradeExample Ethnic food
  products, Dry cleaning

INDIGENEOUS
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Export Strategy

• Exploit a unique country factor advantage
• minerals, raw material commodities
• unique factor
• Companies sell the factor to whoever desires it
  worldwide
• limited presence outside the home country
• ExampleWheat, China wages, NFL

FACTOR COST
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Global Strategy

• Pure global strategy
• one standard product
• sold the same way around the world
• exploiting scale economies in shared activities
• appealing to a universal global customer

A B
C Example Shipbuilding, Aircraft, Rolex
GLOBAL EFFICIENCY AND SIMPLICITY
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Multidomestic Strategy

• A presence around the world but each country
  pursuing its own strategy
• transferring skills from the home country
• product development, marketing
• replicating activities
• choosing among and adapting strategies to the
  local market
• Limited interdependencies leave each country to
  stand on its own
• autonomy
• portfolio of individual country positions
• Example Industrial Gases,Cookies/Biscuits

TRANSFER KNOW-HOW LOCAL RESPONSIVENESS
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Transnational Strategy

• A coordinated, but dispersed worldwide presence
• locally responsive and globally efficient
• transferring skills and sharing activities where
  economic
• exploiting its worldwide flexibility and insider
  status
• learning/sensing
• option value
• Coordination becomes the competitive advantage
• Management becomes the challenge

COORDINATED GLOBAL NETWORK TRANSCEND THE TRADEOFF
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International Strategies
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Which Strategy?

• How similar is the business system around the
  world?

Similarities
Differences

• Customer taste
• Culture
• Distribution channels
• Media
• Logistics infrastructure
• Rules and regulation
• Raw materials
• Related and supported industries

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Which Strategy?Am I better off in country A by
virtue of my presence in country B?
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Choice of International Strategy

• Never black and white
• Varies by industry and segment
• Varies over time
• Occurs first within regions
• Triad
• Ultimately is a firms strategic choice

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PROCESS FLOW
Industry Analysis -
structure -
international economics Strategic Analysis
- generic strategy
- international strategy
WHAT COMPETITIVE ADVANTAGE
HOW TO ORGANIZE
WHERE TO LOCATE
WHERE TO COMPETE
WHICH PRODUCT
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WHICH PRODUCT

• Characteristics of the entire marketing mix
• product
• positioning
• price
• promotion

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WHICH PRODUCT
LOCAL -idiosyncratic
MULTIDOMESTIC -product life cycle
TRANSNATIONAL -platform
Low
Business System Similarity
GLOBAL -standard
EXPORT -commodity
High
Low
High Integration Economies

• Always allow low cost, required local adaptation
• standards, language
• Easier to find similarities within regions
• Triad development strategy

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WHICH PRODUCT

• Transnational solution
• modular
• product range (80/20)
• market selection (90/10)
• highest common denominator, and
• front / back platform
• accommodates local variants

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WHERE TO COMPETE?

• CHOICE OF COUNTRY
• stand alone attractiveness
• CAGE
• strategic contribution
• cost/demand/competitors
• priorities among countries
• MODE OF ENTRY
• local requirements
• strategic control
• TIMING AND SIZE OF COMMITMENT
• first mover vs. uncertainty
• sequence

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MODE OF ENTRY

• Ultimately a set of tradeoffs

Risk
Cost
Time
Own Subsidiary
Acquisition
Joint Venture
License
Distributor
Export
Control
Learning
Management involvement
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WHERE TO LOCATE?

• For each discrete value activity
• WHERE?
• Static factor cost
• Dynamic country advantage
• HOW MANY ?
• Strategic posture
• concentrate
• hedge
• flexibility

CONFIGURATION
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STATIC FACTOR COST

• Three cost elements
• globally traded
• incurred independent of location
• location dependent
• ONLY THE LAST DRIVES LOCATION DECISION
• direct labour
• tax rate.

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DYNAMIC COUNTRY ADVANTAGES

• Porter diamond

Demand conditions

Firm strategy structure and rivalry
Related and supporting industries
Factor Conditions
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WHERE TO LOCATE
Dispersed
Multidomestic
Transnational
Configuration of Activities
Export
Global
Concentrated
Low High
Coordination
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CONFIGURATION

• Configuration of activities will vary by
  international strategy
• LOCAL
• all domestic activities
• hedged since only sell domestically
• EXPORT
• all domestic, except limited foreign sales
  activities
• concentrated leaves vulnerable
• financial hedge to offset risk
• MULTIDOMESTIC
• activities dispersed to match local country
  requirements
• physically hedged
• GLOBAL
• international activities located in best most
  efficient country
• concentrated
• TRANSNATIONAL
• dispersed but coordinated network for overall
  effectiveness
• exploiting option value of shifting between
  countries

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HOW TO ORGANIZE?

• No organization structure is optimal
• - choose the most relevant and move on

Different
GEOGRAPHY
?
Product Similarity
FUNCTION AND INTERNATIONAL
PRODUCT
Same
Low
High
Country Interdependencies
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HOW TO ORGANIZE

• PURPOSE AND PEOPLE
• Consistent and communicated
• PROCESSES
• Differentiated and flexible
• MIS
• Compensation and incentive
• Roles and responsibilities
• Coordination mechanisms

Ultimately the challenge is for each and every
international manager to internalize the tradeoff
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ARE WE ALL TRANSNATIONAL NOW?

• Is there a common best strategy?
• What does it look like?

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TRANSNATIONAL

• WHICH PRODUCT
• front/back platform
• Commonalities with local adaptation
• WHERE COMPETE
• attractive standalone markets, and
• Strategically important markets
• Competitive interaction
• Supply/demand innovation
• WHERE LOCATE
• Triad configuration
• Physical hedge
• Rationalise within regions, variation across
  regions
• HOW ORGANIZE
• Transnational purpose and people
• Differentiated and flexible processes

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IS TRANSNATIONAL THE SOLUTION?

• Nirvana has its penalties
• Organisationally complex and time consuming
• stuck in the middle strategy
• While intrinsically appealing the transnational
  is only one way to compete internationally

STRATEGIC CHOICE
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WHICH PRODUCT

• Choice of product is complicated by the inherent
  tradeoff between local responsiveness and global
  efficiency
• Local
• responsiveness
• Global Efficiency

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WHICH PRODUCT?
Idiosyncratic
Local responsiveness
Adaptive - modular - core plus localized
- global commonalities - front/back platform
Life cycle
Commodity
Standard
Global efficiency
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WHERE TO COMPETE
High
Stand alone profitability
Key Markets
Selectivity of Orders
Whoever orders
All markets
Low
Low
High
Stand alone market Profitability