copyright guy harley 2004 international strategy hansen et al chapter 7

Copyright Guy Harley 2004

International Strategy

Hansen et al Chapter 7

International Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes

Identify International Opportunities

ExploreResources and

Capabilities

Use Core Competence

StrategicCompetitiveness

Outcomes

International Strategies

Modes of Entry

IncreasedMarket Size

Return on Investment

Economies of Scale and Learning

Location Advantage

InternationalBusiness-LevelStrategy

Multidomestic Strategy

GlobalStrategy

Transnational Strategy

Exporting

Establishment of New Subsidiary

Exporting

StrategicAlliances

Acquisition

Management Problems and Risk


Higher Performance

Returns

Innovation

Selling products or services outside a firm’s domestic market

4Firm Begins Firm Begins

Production AbroadProduction AbroadFirm Begins Firm Begins

Production AbroadProduction Abroad

International Strategy LifecycleInternational Strategy Lifecycle

Foreign Foreign Competition Begins Competition Begins

ProductionProduction

Foreign Foreign Competition Begins Competition Begins

ProductionProduction

3

Product Demand Product Demand Develops and Develops and Firm Exports Firm Exports

ProductsProducts

Product Demand Product Demand Develops and Develops and Firm Exports Firm Exports

ProductsProducts

2

Firm Introduces Firm Introduces Innovation into Innovation into

Domestic MarketDomestic Market

Firm Introduces Firm Introduces Innovation into Innovation into

Domestic MarketDomestic Market

1

Production Becomes Standardised and is

Relocated to Low-Cost Countries

Production Becomes Standardised and is

Relocated to Low-Cost Countries

5


Regional Trade Agreements and AssociationsRegional Trade Agreements and Associations

The European Union (EU) North American Free Trade

Agreement (NAFTA) Asia-Pacific Economic Co-operation

(APEC) Association of Southeast Asian

Nations (ASEAN)


International Selling with the InternetInternational Selling with the Internet

An indicator of the potential to sell products internationally using computer technology is the number of Internet hosts per 1000 people: 122.8 Finland 60.8 Australia 2.1 Mexico


Motivations for

International Expansion


Economies of Scale

Increased Market Share

Corporate-Level International StrategiesCorporate-Level International Strategies

Location Advantages


Domestic market may be too small to support efficient-scale manufacturing facilities

Increased Market Share


Large investment projects may require global markets to justify the capital outlays required

Weak patent protection in some countries implies that firms should expand overseas rapidly in order to pre-empt imitators



Economies of Scale or LearningExpanding the size or scope of markets helps achieve economies of scale in manufacturing as well as marketing, R&D and/or distribution, and: Can spread costs over a larger sales base Can increase profit per unit

Economies of Scale


Low-cost markets may aid in developing competitive advantage through achieving better access to: Raw materials Lower-cost labour Key suppliers Key customers Energy Natural Resources

Location Advantages

Home country Home country of origin is crucial to international successof origin is crucial to international success

Demand Conditions

Home country may support scale-efficient operations by itself

Demand Conditions

Home country may support scale-efficient operations by itself

Related and Supporting Industries

Porter’s Determinants of National AdvantagePorter’s Determinants of National AdvantagePorter’s Determinants of National AdvantagePorter’s Determinants of National Advantage

Factor Conditions• Basic Factors:

• Land, labour• Advanced Factors:

• Highly educated workers

• Digital communications

• Generalised Factors:

• Capital, infrastructure

• Specialised Factors: Skilled personnel

Firm Strategy, Rivalry & Structure

Intense rivalry fosters industry competition




Capabilities

Use Core Competence


Outcomes


Modes of Entry




Location Advantage



GlobalStrategy


Exporting


Exporting

StrategicAlliances

Acquisition



Higher Performance

Returns

Innovation


Business Level


International Differentiation

International Focus

International Low Cost


Low Cost\Differentiation


Usually located in home country Export to international markets Low value-added operations in foreign countries High value-added operations in home country

International Low Cost


Countries with advanced or specialised factor conditions are most likely to use this strategy

International Differentiation


International Focus Strategies Technologically advanced firms follow

focused low-cost strategy Focused differentiation firms compete on the

basis of image and design Third group competes on low price by

imitating

International Focus


International Integrated Low-Cost/Differentiation Can be most effective in dealing with diverse

markets Often relies upon flexible manufacturing, total

quality management or rapid communication networks

Low Cost\Differentiation


Type of corporate strategy selected will have an impact on the selection and implementation of business-level strategies

Some corporate strategies provide individual country units with the flexibility to choose their own strategies

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



Three Corporate Strategies

Global Strategy


Multi-Domestic Strategy



Multi-Domestic Strategy

Strategy and operating decisions are decentralised to strategic business units (SBUs) in each country

Products and services are tailored to local markets Business units in each country are independent of each

other Assumes markets differ by country or region Focus is on competition in each market A prominent strategy among European firms, due to the

broad variety of cultures and markets in Europe


Global Strategy

Products are standardised across national markets Decisions regarding business-level strategies are

centralised in the home office Strategic business units (SBU) are assumed to be

interdependent Emphasises economies of scale Often lacks responsiveness to local markets Requires resource sharing and coordination across

borders (which also makes it difficult to manage)



Seeks to achieve both global efficiency and local responsiveness

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

Must pursue organisational learning to achieve competitive advantage


Need for Global

Integration

Need for Local Market Responsiveness

Low

High

Low High

International Corporate Strategy




Capabilities

Use Core Competence


Outcomes


Modes of Entry




Location Advantage



GlobalStrategy


Exporting


Exporting

StrategicAlliances

Acquisition



Higher Performance

Returns

Innovation


Exporting

Licensing

Strategic Alliances

Acquisitions

New Wholly-Owned Subsidiary

Choice of International Entry Mode


Exporting

Common way to enter new international markets No need to establish operations in other countries Establish distribution channels through contractual

relationships May have high transportation costs May encounter high import tariffs May have less control on marketing and distribution Difficult to customise products


Licensing

Firm authorises another firm to manufacture and sell its products

Licensing firm is paid a royalty on each unit produced and sold

Licensee takes risks in manufacturing investments Least risky way to enter a foreign market Licensing firm loses control over product quality and

distribution Relatively low profit potential May not understand the strategic intent of partners, or may

experience divergence of goals


Strategic Alliances

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

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

May experience difficulties in merging disparate cultures May not understand the strategic intent of partners, or

may experience divergence of goals


Acquisitions

Enable firms to achieve rapid international expansion

Can be very costly Legal and regulatory requirements may present

barriers to foreign ownership Usually require complex and costly negotiations Potentially disparate corporate cultures


New Wholly-Owned Subsidiary

Most costly and complex of entry alternatives Achieves greatest degree of control Potentially most profitable, if successful Maintains control over technology, marketing

and distribution May need to acquire expertise and knowledge

that is relevant to host country, that is, may require hiring host-country nationals or consultants at high cost




Capabilities

Use Core Competence


Outcomes


Modes of Entry




Location Advantage



GlobalStrategy


Exporting


Exporting

StrategicAlliances

Acquisition



Higher Performance

Returns

Innovation


Political RiskMajor Risks of International

Diversification Economic Risk


Political Risk

National government instability may create problems for internationally diversified firms

Potential for changes in attitudes or regulations regarding foreign ownership

Legal authority obtained from previous administrations may become invalid

Potential for nationalisation of private firms’ assets


Economic Risk Economic risks are interdependent with political

risks Differences and fluctuations in international

currencies may affect prices, the value of assets & liabilities, and ultimately the ability to compete

Differences in inflation rates may affect an internationally diversified firm’s ability to compete

Potential for nationalisation of private firms’ assets




Capabilities

Use Core Competence


Outcomes


Modes of Entry




Location Advantage



GlobalStrategy


Exporting


Exporting

StrategicAlliances

Acquisition



Higher Performance

Returns

Innovation


Strategic Competitiveness Outcomes International diversification facilitates innovation in the

firm Provides larger market to gain more and faster returns

from investments in innovation May generate resources necessary to sustain a large-

scale R&D program Generally related to above-average returns, assuming

effective implementation and management of international operations

International diversification provides greater economies of scope and learning

copyright guy harley 2004 international strategy hansen et al chapter 7

Documents

copyright guy harley

investment slide

unit economies of scale

international selling

international opportunities

mexico slide

international expansion

scaleefficient operations