International Strategy

1
International Strategy

• Over the last two decades business has become
  globalized.
• 98 of the Fortune 500 have global operations.
• Need to consider rationales, strategies, modes
  of entry and the
• outcomes of international strategy.
• Classic Life-Cycle Model.

• Develop a value creating product

• Demand develops overseas, firm exports.

• Increased foreign demand justifies direct
  foreign investment (DFI).

• As foreign competition increases, relocate
  overseas or move
• production to a region with lower
  manufacturing costs.

2
International Strategy
Identify International Opportunities and
Rationales
Explore Resources and Capabilities
Use Core Competence
International Strategies
Modes of Entry
Increased market size Return on
investment Economies of scale and
learning Location advantage Reduce
transportation costs
Exporting Licensing Strategic
alliances Acquisitions Greenfield Venture
International business-level strategy Multidomest
ic strategy Global strategy Transnational
strategy
3
International Strategy
Use Core Competence
Strategic Competitiveness Outcomes
Modes of Entry
Exporting Licensing Strategic
alliances Acquisitions Greenfield Venture
Better performance
Innovation
4
International Strategy

• Motives for International Expansion

• Increased market size

• Important if domestic market is too small to
  support scale-efficient
• facilities (Japanese consumer electronics
  and auto manufacturing).
• Domestic market provides limited growth
  potential (Coca-Cola
• Pepsico).

• Return on investment

• Large investments in plant and equipment and/or
  RD may require
• international expansion to earn an adequate
  return (Boeing,
• Lockheed, Airbus Industrie).
• Rapid pace of technological development
  increases rate of
• obsolescence (must recoup RD investments
  quickly)
• (Sun Microsystems, Microsoft).

5
International Strategy

• Motives for International Expansion

• Economies of scale and learning

• Spread fixed costs over a larger sales base.
• Standardize products across national borders
  (Whirlpool in Europe)
• allows use of same facilities and eliminates
  (minimizes)
• product customization.

• Location Advantages

• Locate in low-cost markets to reduce costs and
  develop a
• competitive advantage.

• Save on labor costs of manufacturing (U.S.
  manufacturers and
• retailers in Mexico).
• Prospects for rapid growth (Motorola pagers in
  China).

• Secure critical resources.

6
International Strategy

• Motives for International Expansion

• Reduce transportation costs

• Manufacture products in host country.

7
International Strategy

• Business Level International Strategy

• International low cost
• International differentiation
• International focus
• Essentially the same as a generic strategy

8
International Strategy

• Corporate Level International Strategy

• Type of corporate strategy selected will have
  an impact on the
• selection and implementation of the
  business-level strategies.
• Some corporate strategies provide individual
  country units with
• flexibility to choose their own strategies.
• Others dictate business-level strategies from
  the home office and
• coordinate resource sharing across units.
• Three types of strategies Multidomestic,
  global and transnational.

9
International Strategy
High
Need for Global Integration
Low
Low
High
Need for Local Responsiveness
10
International 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.

11
International Strategy
Multidomestic Strategy

• Product characteristics tailored to local
  preferences
• Isolation from global competition
• Establish protected
• market positions
• Compete in industry
• segments most
• affected by differences
• among local countries

12
International 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).
• Historically prominent among Japanese firms

13
International Strategy
Global Strategy

• Standardized products across countries
• Economies of scope and scale
• Outsource some primary or support activities to
  the worlds best providers
• Decision-making authority centralized in
  worldwide division headquarters

14
International 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

15
International Strategy
Multidomestic
Global
16
International Strategy

• Mode of Entry

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
Complex, often costly, time consuming, high risk,
maximum control, potential above-average returns
Greenfield venture
17
International Strategy

• International strategy and returns

• Firm expands the sales of its goods or services
  across the borders of global regions and
  countries into different geographic locations or
  markets.

• May increase a firms returns.
• Such firms usually achieve the most positive
  stock returns.
• Firm may achieve economies of scale and
  experience, location
• advantages, increased market size and
  opportunity to stabilize
• returns.

18
International Strategy

• International Strategy and Innovation

• Firm expands the sales of its goods or services
  across the borders of global regions and
  countries into different geographic locations or
  markets.

• Potentially greater returns on innovations
  (larger markets).
• Generate additional resources for investment in
  
• innovation.
• Exposed to new products and processes in
  international
• markets, generates additional knowledge
  leading to
• innovations.

19
International Strategy

• Complexity of Managing Multinational Firms

• Risks of an international environment

• Political risks
• - Instability in national governments, wars,
  change in administration,
• etc.
• - Nationalization of firms assets.
• Economic risks
• - Currency fluctuations (dollar relative to
  foreign currency).
• - Value of home currency may make exports
  non-price competitive.
• - Differences in inflation rates across borders
  (higher inflation leads to
• lower currency value relative to nations
  with lower inflation).

20
International Strategy

• Complexity of Managing Multinational Firms

• Limits to international expansion

• Cost of coordination between units and
  distribution of products.
• Multiple new competitors that must be dealt
  with.
• problem between centralization and
  decentralization.
• Understanding strategic intent of competitors.
• Institutional and cultural barriers.