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Title: Company Name


1
INTERNATIONAL STRATEGY CREATING VALUE IN GLOBAL
MARKETS
STRATEGIC MANAGEMENT BUAD 4980
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INTERNATIONAL STRATEGY
Overview of the Global Economy
  • Globalization
  • The increase in international exchange, including
    trade in goods and services as well as exchange
    of money, information, ideas, and information.
  • The growing similarity of laws, rules, norms,
    values, and ideas across countries.

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INTERNATIONAL STRATEGY
Overview of the Global Economy
  • Extremes in the effects of global capitalism
  • The economies of East Asia have attained rapid
    growth and improved standards of living
  • Income in Latin America grew by only 6 percent in
    the past two decades
  • Average incomes in sub-Saharan Africa and the old
    Eastern European bloc have actually declined

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INTERNATIONAL STRATEGY
Porters Diamond of National Advantage
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INTERNATIONAL STRATEGY
Global Factors Affecting
a
Nations Competitiveness
  • Factor Endowments
  • The nations position in factors of production,
    such as skilled labor or infrastructure,
    necessary to compete in a given industry.
  • Demand Conditions
  • The nature of home-market demand for the
    industrys product or service.

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INTERNATIONAL STRATEGY
Global Factors Affecting
a
Nations Competitiveness
  • Related and Supporting Industries
  • The presence or absence in the nation of supplier
    industries and other related industries that are
    internationally competitive.
  • Firm Strategy, Structure, and Rivalry
  • The conditions in the nation governing how
    companies are created, organized, and managed, as
    well as the nature of domestic rivalry.

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INTERNATIONAL STRATEGY
Factor Endowments
  • To achieve competitive advantage, factors of
    production must be created
  • Industry and Firm specific
  • The pool of resources at a firms or countrys
    disposal is less important than the speed and
    efficiency with which the resources are deployed
  • Firm-specific knowledge and skills created within
    a country that are rare, valuable, difficult to
    imitate and rapidly and efficiently deployed are
    the factors that create national competitive
    advantage

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INTERNATIONAL STRATEGY
Demand Conditions
  • The demands that consumers place on an industry
    for goods and services
  • Demanding consumers drive firms in a country to
  • Meet high standards
  • Upgrade existing products and services
  • Create innovative products and services

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INTERNATIONAL STRATEGY
Related and Supporting Industries
  • Enable firms to manage inputs more effectively
  • Allow joint efforts among firms
  • Share technical capabilities and infrastructure

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INTERNATIONAL STRATEGY
Firm Strategy, Structure and Rivalry
  • Rivalry is intense in nations with conditions of
  • Strong consumer demand
  • Strong supplier bases
  • High new entrant potential from related
    industries
  • Competitive rivalry stimulates innovation and new
    means of achieving competitive advantage

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INTERNATIONAL STRATEGY
Firm Strategy, Structure and Rivalry
  • Competitive rivalry increases the efficiency with
    which firms
  • Develop within the home country
  • Market within the home country
  • Distribute products and services within the home
    country
  • Firms faced with intense domestic competitive
    rivalry will often develop business strategies
    and structures allowing them to compete outside
    their domestic markets

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INTERNATIONAL STRATEGY
Porters Diamond of National Advantage Applied
to India
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INTERNATIONAL STRATEGY
Motivation for Companies to

Expand Internationally
  • Increase the size of potential markets
  • Attain economies of scale
  • Take advantage of arbitrage opportunities
  • Extend the life cycle of a product
  • Optimize the physical location for every activity
    in its value chain

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INTERNATIONAL STRATEGY
Motivation for Companies to

Expand Internationally
  • Optimizing the location for every activity in a
    firms value chain can result in
  • Performance Enhancement
  • Cost Reduction
  • Risk Reduction

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INTERNATIONAL STRATEGY
Potential Risks of International Expansion
  • Political and Economic Risk
  • Social unrest
  • Military turmoil
  • Demonstrations
  • Violent conflicts and terrorism
  • Laws and their enforcement
  • Unstable governments

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INTERNATIONAL STRATEGY
International Risk Rankings
Source Transparency International, 2010
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INTERNATIONAL STRATEGY
Corruption Perceptions Index (CPI)
  • The Transparency International 2010 CPI ranks the
    most corrupt countries in the world
  • The scores range from ten (least corrupt) to zero
    (highly corrupt)
  • The five most corrupt countries are
  • Somalia (CPI Score 1.1)
  • Myanmar (CPI Score 1.4)
  • Afghanistan (CPI Score 1.4)
  • Iraq (CPI Score 1.5)
  • Uzbekistan (CPI Score 1.6)

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INTERNATIONAL STRATEGY
International Risk Rankings
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INTERNATIONAL STRATEGY
Potential Risks of International Expansion
  • Currency Risk
  • Currency exchange fluctuations
  • Appreciation (strengthening) of the US Dollar
  • Government management of monetary policy and
    intervention in financial markets

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INTERNATIONAL STRATEGY
Potential Risks of International Expansion
  • Management Risks
  • Different culture
  • Different customs
  • Different language
  • Different income levels / standard of living
  • Country-specific customer preferences
  • Less developed distribution system /
    infrastructure

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INTERNATIONAL STRATEGY
Global Dispersion of Value Chains
  • Outsourcing
  • Utilizing firms in other countries to perform
    value-creating activities that were previously
    performed in-house within the firms home country

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INTERNATIONAL STRATEGY
Global Dispersion of Value Chains
  • Offshoring
  • Shifting an activity that was previously
    performed in a domestic location to a foreign
    location.

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • Distinct global strategies emerge from the
    opposing pressures of Reducing Costs and Adapting
    to Local Markets
  • Lowering unit costs maintains competitiveness in
    pricing in global markets
  • May require locating facilities where a cost
    advantage can be achieved
  • Adapting to local markets requires modifying
    product attributes to satisfy varying consumer
    preferences in different countries
  • May add costs to differentiate products

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • International Strategy
  • Based on diffusion and adaptation of the parent
    companys knowledge and expertise to foreign
    markets
  • The primary goal of the strategy is worldwide
    exploitation of the parent firms knowledge and
    capabilities that foreign competitors lack
  • Low degree of global adaptation
  • Core competencies associated with centralized
    headquarters location
  • Low pressures for local adaptation and lowering
    costs

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • International Strategy Strengths / Limitations

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • Global Strategy
  • Competitive strategy is centralized and
    controlled largely by corporate administration
  • Emphasizes achievement of economies of scale to
    lower global costs
  • Pressure for adaptation is low and pressure for
    lowering costs is high

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • Global Strategy Strengths / Limitations

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • Multidomestic Strategy
  • Emphasis is differentiating products and services
    to adapt to local markets
  • Decision-making is more decentralized
  • Pressure for local adaptation is high and
    pressure for lowering costs is low

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • Multidomestic Strategy Strengths / Limitations

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • Transnational Strategy
  • Optimization of tradeoffs associated with
    efficiency, local adaptation, and learning
  • Firms assets and capabilities are dispersed
    according to the most beneficial location for a
    specific activity
  • Pressures for both local adaptation and lowering
    costs is high

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INTERNATIONAL STRATEGY
Achieving Competitive Advantage

in Global Markets
  • Transnational Strategy Strengths / Limitations

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INTERNATIONAL STRATEGY
Global vs. Regional Expansion
  • Advantages of regional vs. global expansion
  • Geographic proximity
  • Cultural, language, customer preference
    similarities
  • Linked infrastructure and distribution
  • Favorable trading relationships
  • Most companies are involved in regional or
    bi-regional expansion, not global expansion

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Exporting
  • Producing goods in one country to sell to
    residents of another country

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Exporting Benefits
  • Simplest way to enter a market with least
    investment risk
  • Foreign distribution partners facilitate entry
  • Exporting Risks / Limitations
  • Little control over local distribution practices
  • Potential competition with other distributor
    products

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Licensing / Franchising
  • Contractual agreement in which a company receives
    a royalty or fee in exchange for the right to use
    its intellectual property
  • Restrictions on use of intellectual property are
    part of any licensing or franchising agreement

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Licensing or Franchising Benefits
  • Low investment risk
  • Avoid trade barriers and currency risk exposure
  • Licensing or Franchising Risks / Limitations
  • Loss of control
  • Lower profits due to royalty / fees paid to
    licensee
  • Intellectual property rights potentially at risk

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Strategic Alliances and Joint Ventures
  • Partnership arrangements with foreign firms or
    other multinationals
  • Strategic alliances usually are limited to
    resource sharing arrangements, marketing and
    distribution
  • Joint Ventures involve the creation of a
    third-party enterprise with joint ownership
    and/or shared assets

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Strategic Alliances and Joint Ventures -Benefits
  • Shared risks with less investment than
    wholly-owned subsidiaries
  • Gain market or technical knowledge and operating
    expertise from partners
  • Shared revenues and profits

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Strategic Alliances and Joint Ventures -
    Risks / Limitations
  • Success usually requires the following
  • Defined strategy that is mutually acceptable
  • Defined responsibilities and contributions
  • Mutual trust
  • Unifying common culture
  • Detailed procedures and documentation defining
    all aspects of the partnership arrangement

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Wholly Owned Subsidiaries
  • A business in which a multinational company owns
    100 percent of the stock.

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Wholly Owned Subsidiaries - Benefits
  • Provides greatest degree of control of all
    company activities
  • Highest investment cost and risk but can lead
    to highest returns
  • No revenue or profit sharing

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INTERNATIONAL STRATEGY
Entry Modes of International Expansion
  • Wholly Owned Subsidiaries
    Risks / Limitations
  • Highest investment risk assumed entirely by
    parent company
  • Must go through learning curve relating to
    cultural, political and legal environment in the
    host country

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INTERNATIONAL STRATEGY
Case Analysis Marketing to the Bottom of the
Pyramid
  • For years, companies focused on the upper portion
    of the income pyramid to market products
  • Recently, more companies have found success
    marketing to the poorer populations of developing
    countries
  • Micro Loans have become an industry in itself,
    catering to low income families wishing to start
    businesses
  • Some companies, like Unilever, have modified
    packaging and item quantity marketed to low
    income customers to meet the restrictions of
    their standards of living

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INTERNATIONAL STRATEGY
Case Analysis India and the Diamond of National
Advantage
  • Over one-fifth of Fortune 1000 companies
    outsource their software requirements to Indian
    firms
  • Indian software exports have increased from 5.9
    billion in 2000 to a projected 80 billion in
    2010
  • The Indian software industry has grown at a 25
    annual rate over the past decade
  • More than 800 firms in India are involved in
    software services as their primary activity

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INTERNATIONAL STRATEGY
Case Analysis India and the Diamond of National
Advantage
  • Software and IT firms in India are projected to
    employ 2.3 million people by 2010
  • The IT sector is expected to contribute 7 of
    Indias GDP in 2010
  • India has focused on educating students in IT to
    provide the labor resources necessary to staff
    this industry
  • Global demand conditions for software continue to
    increase as more developed countries rely more
    heavily on complex software systems to increase
    efficiency
  • India now has both the supplier base and
    competitive advantage against rivals in the
    software development industry

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INTERNATIONAL STRATEGY
Case Analysis India and the Diamond of National
Advantage
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INTERNATIONAL STRATEGY
Case Analysis How Wal-Mart Profits from
Arbitrage
  • Wal-Marts above-average profitability has been
    attributed to factors such as superior logistics,
    strict overhead control, and effective use of
    information systems
  • Wal-Mart is aggressively pursuing international
    expansion across the globe
  • Another key factor in Wal-Marts success has been
    its ability to purchase large volumes of goods at
    very cheap prices, sourcing more and more from
    foreign countries such as China
  • It is estimated that China alone may be supplying
    between 50 - 70 billion annually, generating
    savings of 16 - 23 billion annually

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INTERNATIONAL STRATEGY
Case Analysis How Deere Co. Learned From its
Indian Operations
  • In an attempt to enter the Indian agricultural
    market for farm equipment, Deere engineered small
    no-frills tractors for he Indian market
  • Deere didnt consider these basic tractors would
    appeal to US customers when it first introduced
    them to India
  • Ironically, Indian manufacturer Mahindra was
    beginning to market small, basic tractors to US
    consumers needing basic features for their
    personal properties
  • Deere has introduced slightly modified versions
    of its Indian tractor design for use in the US,
    with great success

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