Strategic Choices 8: International Strategy

1
Strategic Choices 8 International Strategy
2
Learning Outcomes (1)

• Assess the internationalisation potential of
  different markets, sensitive to variations over
  time
• Identify sources of competitive advantage in
  international strategy, both through global
  sourcing and exploitation of local factors
  embodied in Porters Diamond
• Distinguish between four main types of
  international strategy

3
Learning Outcomes (2)

• Rank markets for entry or expansion, taking into
  account attractiveness, cultural, and other forms
  of distance and competitor retaliation threats
• Assess the relative merits of different market
  entry modes, including joint ventures, licensing,
  and foreign direct investment

4
Exhibit 8.1 International Strategy Framework
Internationalisation drivers
Sources of competitive advantage
International strategy
Market selection
Mode of entry
5
Exhibit 8.2 Drivers of Internationalisation
Market drivers
International strategies
Government drivers
Cost drivers

Competitive drivers
6
Deutsche Posts International Diversity

• What were the internationalisation drivers
  associated with DPWNs strategy?
• Evaluate the pros and cons of both a
  multidomestic strategy and a global strategy for
  DPWN.

7
What is Porters Diamond?

• Porters Diamond suggests that there are inherent
  reasons why some nations are more competitive
  than others, and why some industries within
  nations are more competitive than others.

8
Exhibit 8.3 Porters Diamond
Firm strategy, structure and rivalry
Demand conditions
Factor conditions
Related and supporting industries
9
What is Global Sourcing?

• Global sourcing refers to purchasing services and
  components from the most appropriate suppliers
  around the world regardless of their location.

10
Locational Advantages of Global Sourcing
Cost advantages
Unique capabilities
National characteristics
11
Illustration 8.3 Boeings Global RD Network
12
Market Characteristics and the PESTEL Framework
Economic
Political
Legal
Social
13
The CAGE Framework
Cultural distance
Administrative and political distance
Geographic distance
Economic/ wealth distance
14
SABMillers International Markets
15
Hindustan Lever Ltd

• What challenges are faced by multinationals in
  developing global brands while encouraging local
  responsiveness?
• What are your views on the ethical dimensions to
  Hindustan Levers activities?

16
Modes of Entry
Exporting
Joint ventures and alliances
Licensing
Foreign direct investment
17
Exporting

• Advantages
• No need for operational facilities in host
  country
• Economies of scale
• Internet facilitates exporting opportunities

• Disadvantages
• Lost location advantages
• Dependence on export intermediaries
• Exposure to trade barriers
• Transportation costs

18
Joint Ventures and Alliances

• Advantages
• Shared investment risk
• Complementary resources
• May be required for market entry

• Disadvantages
• Difficult to find good partner
• Relationship management
• Loss of competitive advantage
• Difficult to integrate and coordinate

19
Licensing

• Advantages
• Contractual source of income
• Limited economic and financial exposure

• Disadvantages
• Difficult to identify good partner
• Loss of competitive advantage
• Limited benefits from host nation

20
Foreign Direct Investment

• Advantages
• Full control
• Integration and coordination possible
• Rapid market entry through acquisitions
• Greenfield investments

• Disadvantages
• Substantial investment and commitment
• Acquisitions may create integration/ coordination
  issues
• Greenfield investments are time consuming and
  unpredictable

21
Internationalisation and Performance
Inverted U-curve
Service sector disadvantages
Internationalisation and product diversity
22
Case Example
Lenovo Computers

• In the light of the CAGE framework, comment on
  Lenovos entry into the American market.
• What type of generic international strategy
  should Lenovo pursue now?