bilingual series-strategic management chapter 8. international strategy

Bilingual Series-Strategic Management

Chapter 8

International StrategyInternational Strategy

CompetitivenessCompetitiveness

Chapter 3Chapter 3InternalInternal

EnvironmentEnvironment

Chapter 2Chapter 2ExternalExternal

EnvironmentEnvironmentThe StrategicThe StrategicManagementManagement

ProcessProcess

The StrategicThe StrategicManagementManagement

ProcessProcess

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average

ReturnsReturnsFeedback

Strategy FormulationStrategy Formulation

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics

Chapter 6Chapter 6Corporate-LevelCorporate-Level

StrategyStrategy

Chapter 8Chapter 8InternationalInternational

StrategyStrategy

Chapter 9Chapter 9CooperativeCooperativeStrategiesStrategies

Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring

Strategy ImplementationStrategy Implementation

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 11Chapter 11StructureStructure& Control& Control

Chapter 12Chapter 12StrategicStrategic

LeadershipLeadership

Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation

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International Strategy Opportunities and International Strategy Opportunities and OutcomesOutcomes

Identify Identify International International OpportunitieOpportunitie

ss

ExploreExploreResources Resources

and and CapabilitiesCapabilities

Use Core Use Core CompetencCompetenc

ee

StrategicStrategicCompetitivenesCompetitivenes

ssOutcomesOutcomesInternational International

StrategiesStrategiesModes of Modes of

EntryEntry

IncreasedIncreasedMarket SizeMarket Size

Return on Return on InvestmentInvestment

Economies Economies of Scale and of Scale and LearningLearning

Location Location AdvantageAdvantage

InternationalInternationalBusiness-Business-LevelLevelStrategyStrategyMultidomestiMultidomestic Strategyc Strategy

GlobalGlobalStrategyStrategy

TransnationTransnational Strategyal Strategy

ExportingExporting

Establishment Establishment of New of New SubsidiarySubsidiary

ExportingExporting

StrategicStrategicAlliancesAlliances

AcquisitionAcquisition

Management Management Problems Problems and Riskand Risk


Higher Higher Performance Performance

ReturnsReturns

InnovatioInnovationn





Selling Products or Services Outside a Firm’s Domestic MarketSelling Products or Services Outside a Firm’s Domestic MarketInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy Lifecycle

Firm Introduces Firm Introduces Innovation in Domestic Innovation in Domestic

MarketMarket

11

Product Demand Product Demand Develops and Firm Develops and Firm Exports ProductsExports Products

22

Foreign CompetitionForeign CompetitionBegins ProductionBegins Production33

Firm Begins Production Firm Begins Production AbroadAbroad

44Production Becomes Production Becomes Standardized and is Relocated to Standardized and is Relocated to

Low Cost CountriesLow Cost Countries

55

Example: Example: Aircraft manufacturers Boeing or AirbusAircraft manufacturers Boeing or Airbus

Example: Example: Japanese electronics or automobile Japanese electronics or automobile manufacturersmanufacturers

Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion

Increase Market ShareIncrease Market ShareDomestic market may lack the size to support efficient scale Domestic market may lack the size to support efficient scale manufacturing facilitiesmanufacturing facilities

Large investment projects may require global markets to justify the capital Large investment projects may require global markets to justify the capital outlaysoutlays

Weak patent protection in some countries implies that firms should expand Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitatorsoverseas rapidly in order to preempt imitators

Return on InvestmentReturn on InvestmentReturn on InvestmentReturn on Investment

Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion

Economies of Scale or LearningEconomies of Scale or LearningExpanding size or scope of markets helps to achieve economies of Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distributionscale in manufacturing as well as marketing, R & D or distribution

- Can spread costs over a larger sales base- Can spread costs over a larger sales base

- Increase profit per unit- Increase profit per unit

May achieve better access to:May achieve better access to:

- Raw materials- Raw materials

- Lower cost labor- Lower cost labor

- Key suppliers- Key suppliers

- Key customers- Key customers

- Energy- Energy

- Natural resources- Natural resources

Location AdvantagesLocation AdvantagesLow cost markets may aid in developing competitive Low cost markets may aid in developing competitive advantageadvantage

Factor ConditionsFactor Conditions

Basic FactorsBasic Factors- Land, labor- Land, labor

Advanced FactorsAdvanced Factors- Highly educated workers- Highly educated workers- Digital communications- Digital communications

Generalized FactorsGeneralized Factors- Capital, infrastructure- Capital, infrastructure

Specialized FactorsSpecialized Factors- Skilled personnel- Skilled personnel

Demand Demand ConditionsConditions

Home country may Home country may support scale support scale efficient operations efficient operations by itselfby itself

Related & Supporting Related & Supporting IndustriesIndustries

- Japanese cameras & copiers- Japanese cameras & copiers- Italian shoes & leather- Italian shoes & leather

Firm Strategy, Structure & RivalryFirm Strategy, Structure & RivalryFirm Strategy, Structure & RivalryFirm Strategy, Structure & Rivalry

Intense rivalry fosters Intense rivalry fosters industry competitionindustry competitionIntense rivalry fosters Intense rivalry fosters industry competitionindustry competition

Porter’s Determinants of National AdvantagePorter’s Determinants of National AdvantageHome Country Home Country of Origin Is Crucial to International Successof Origin Is Crucial to International Success

International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes


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ee




EntryEntry








ExportingExporting


ExportingExporting






ReturnsReturns


International DifferentiationInternational DifferentiationCountries with advanced or specialized factor conditions most Countries with advanced or specialized factor conditions most likely to use this strategylikely to use this strategy

Example:Example: Japan, Germany, U.S. Japan, Germany, U.S.

International Low CostInternational Low CostUsually located in home countryUsually located in home country

Export to international marketsExport to international markets

Low value added operations in foreign countriesLow value added operations in foreign countries

High value added operations in home countryHigh value added operations in home country

Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies

International Focus StrategiesInternational Focus Strategies

International Integrated Low International Integrated Low Cost/DifferentiationCost/Differentiation

Can be most effective in dealing with diverse marketsCan be most effective in dealing with diverse markets

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

Technologically advanced firms follow focused low cost strategyTechnologically advanced firms follow focused low cost strategy

Focused differentiation firms compete on the basis of image & designFocused differentiation firms compete on the basis of image & design

Third group competes on low price by imitatingThird group competes on low price by imitating

Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies

Three Three Corporate Corporate StrategiesStrategies

Global StrategyGlobal Strategy

Transnational StrategyTransnational Strategy

Multi-Domestic StrategyMulti-Domestic Strategy

Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies

Type of Corporate Strategy selected will have an impact Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level on the selection and implementation of the business-level strategiesstrategies

Some Corporate strategies provide individual country units Some Corporate strategies provide individual country units with flexibility to choose their own strategieswith flexibility to choose their own strategies

Others dictate business-level strategies from the home Others dictate business-level strategies from the home office and coordinate resource sharing across unitsoffice and coordinate resource sharing across units

Multi-Domestic StrategyMulti-Domestic Strategy

Business units in each country are independent Business units in each country are independent of each other of each other

Assumes markets differ by country or regionsAssumes markets differ by country or regions

Focus on competition in each marketFocus on competition in each market

Prominent strategy among European firms due to Prominent strategy among European firms due to broad variety of cultures and markets in Europebroad variety of cultures and markets in Europe

Strategy and operating decisions are Strategy and operating decisions are decentralized to strategic business units (SBU) decentralized to strategic business units (SBU) in each countryin each countryProducts and services are tailored to local marketsProducts and services are tailored to local markets


Products are standardized across national marketsProducts are standardized across national markets

Decisions regarding business-level strategies are Decisions regarding business-level strategies are centralized in the home officecentralized in the home office

Strategic business units (SBU) are assumed to be Strategic business units (SBU) are assumed to be interdependentinterdependent

Emphasizes economies of scaleEmphasizes economies of scale

Often lacks responsiveness to local marketsOften lacks responsiveness to local markets

Requires resource sharing and coordination across Requires resource sharing and coordination across borders (which also makes it difficult to manage)borders (which also makes it difficult to manage)

Global StrategyGlobal Strategy


Seeks to achieve both global efficiency and Seeks to achieve both global efficiency and local responsivenesslocal responsiveness

Difficult to achieve because of simultaneous Difficult to achieve because of simultaneous requirements for strong central control and requirements for strong central control and coordination to achieve efficiency and local coordination to achieve efficiency and local flexibility and decentralization to achieve local flexibility and decentralization to achieve local market responsivenessmarket responsiveness

Must pursue organizational learning to achieve Must pursue organizational learning to achieve competitive advantagecompetitive advantage

Transnational StrategyTransnational Strategy


International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?

Need for Global Need for Global IntegrationIntegration

Need for Local Market ResponsivenessNeed for Local Market Responsiveness

Low

High

Low High

Multi-Multi-DomesticDomestic




Low

High

Low High






Low

High

Low High



Trans-Trans-nationalnational



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ee




EntryEntry








ExportingExporting


ExportingExporting






ReturnsReturns


Common way to enter new international marketsCommon way to enter new international markets

No need to establish operations in other countriesNo need to establish operations in other countries

May have high transportation costsMay have high transportation costs

May have less control on marketing and distributionMay have less control on marketing and distribution

May encounter high import tariffsMay encounter high import tariffs

Difficult to customize productsDifficult to customize products

Establish distribution channels through contractual Establish distribution channels through contractual relationshipsrelationships

Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode

ExportingExportingExportingExporting

Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeLicensingLicensingLicensingLicensing

Firm authorizes another firm to manufacture and sell its Firm authorizes another firm to manufacture and sell its productsproductsLicensing firm is paid a royalty on each unit produced and Licensing firm is paid a royalty on each unit produced and soldsoldLicensee takes risks in manufacturing investmentsLicensee takes risks in manufacturing investments

Least risky way to enter a foreign marketLeast risky way to enter a foreign market

Licensing firm loses control over product quality and Licensing firm loses control over product quality and distributiondistribution

Relatively low profit potentialRelatively low profit potential

A significant risk is that licensor learns technology and A significant risk is that licensor learns technology and competes when license expirescompetes when license expires

Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeStrategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances

Enable firms to shares risks and resources to Enable firms to shares risks and resources to expand into international venturesexpand into international ventures

Most joint ventures (JVs) involve a foreign Most joint ventures (JVs) involve a foreign company with a new product or technology and a company with a new product or technology and a host company with access to distribution or host company with access to distribution or knowledge of local customs, norms or politics knowledge of local customs, norms or politics

May experience difficulties in merging disparate May experience difficulties in merging disparate culturescultures

May not understand the strategic intent of partners May not understand the strategic intent of partners or experience divergent goalsor experience divergent goals

Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeAcquisitionsAcquisitionsAcquisitionsAcquisitions

Enable firms to make most rapid Enable firms to make most rapid international expansioninternational expansion

Can be very costlyCan be very costly

Legal and regulatory requirements may Legal and regulatory requirements may present barriers to foreign ownershippresent barriers to foreign ownership

Usually require complex and costly negotiationsUsually require complex and costly negotiations

Potentially disparate corporate culturesPotentially disparate corporate cultures

New Wholly-Owned SubsidiaryNew Wholly-Owned SubsidiaryChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode

Most costly and complex of entry alternativesMost costly and complex of entry alternatives

Achieves greatest degree of controlAchieves greatest degree of control

Potentially most profitable, if successfulPotentially most profitable, if successful

Maintain control over technology, marketing Maintain control over technology, marketing and distributionand distributionMay need to acquire expertise and May need to acquire expertise and knowledge that is relevant to host countryknowledge that is relevant to host country

Could require hiring host country nationals or Could require hiring host country nationals or consultants at high costconsultants at high cost



ss




ee




EntryEntry








ExportingExporting


ExportingExporting






ReturnsReturns


Strategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness Outcomes

International diversification facilitates innovation International diversification facilitates innovation in the firmin the firmProvides larger market to gain more and faster Provides larger market to gain more and faster returns form investments in innovationreturns form investments in innovationMay generate resources necessary to sustain a May generate resources necessary to sustain a large-scale R&D programlarge-scale R&D programGenerally related to above-average returns, Generally related to above-average returns, assuming effective implementation and assuming effective implementation and management of international operationsmanagement of international operations

International diversification provides greater International diversification provides greater economies of scope and learningeconomies of scope and learning



ss




ee




EntryEntry








ExportingExporting


ExportingExporting






ReturnsReturns


Political RiskPolitical RiskMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification

Rebel fighting in Chechnya (Russia) and Rebel fighting in Chechnya (Russia) and Liberia (Africa)Liberia (Africa)

Continual warfare among Middle Eastern nationsContinual warfare among Middle Eastern nations

Potential renationalization of privatized Potential renationalization of privatized enterprises in Russiaenterprises in Russia

Failure of European Community in quest for Failure of European Community in quest for economic superpower status because of economic superpower status because of intercountry disagreementsintercountry disagreements

Economic RiskEconomic RiskMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification

Mexico’s effect on world trade with low wages and Mexico’s effect on world trade with low wages and high quality but strong currency riskshigh quality but strong currency risks

China’s difficulty in enforcing intellectual property China’s difficulty in enforcing intellectual property rights on CDs, software, etc. rights on CDs, software, etc.

Germany’s struggle with high unemployment, high Germany’s struggle with high unemployment, high interest rates, sagging competitiveness, and cuts in interest rates, sagging competitiveness, and cuts in social programssocial programs

China’s trade policies. $44 billion trade surplus China’s trade policies. $44 billion trade surplus with United States in 1977. China’s overall trade with United States in 1977. China’s overall trade surplus increased twentyfold in first half of 1997.surplus increased twentyfold in first half of 1997.

Management ProblemsManagement Problems

Limits To International ExpansionLimits To International ExpansionLimits To International ExpansionLimits To International Expansion

Cost of Coordination across diverse geographical business units

Institutional and cultural barriers

Understanding strategic intent of competitors

The overall complexity of competition

bilingual series-strategic management chapter 8. international strategy

Documents

international strategy

international strategy

strategic leadership

competitiveness chapter

investment slide

cooperative strategies

corporate governance

internal environment