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Competing for ADVANTAGE
1
Chapter 10International Strategy
PART IIICREATING COMPETITIVE ADVANTAGE
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The Strategic Management Process
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International Strategy
Key Terms
International diversification
Strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets
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International Strategy
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International Strategy
Key Terms
International strategy
Strategy through which the firm sells its goods or services outside the domestic market
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Incentives for Using an International Strategy
Increased market size Greater returns on major capital
investments or on investments in new products and processes
Greater economies of scale, scope, or learning
Potential for competitive advantage(s) based on location
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Market Size
Limited domestic economies or growth opportunities
Both opportunities and challenges in emerging markets
Impact of local cultures and customs
Impact of international market size
Extended product life cycle
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Return on Investment
Large investment projects may require global markets to justify the capital outlays.
Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators.
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Economies of Scale, Scope, and Learning
Expand size or scope of markets to achieve economies of scale
Spread costs over a larger sales base
Increase profit per unit
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Location Advantages
Competitive advantages are available in low cost markets
Access to critical resources: Raw materials Low-cost factors of production Low-cost labor Key customers Energy Other natural resources
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Expanding Internationally
Type of expansion approach How to use distinctive
competencies to create advantages
Mode of entry into new markets
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International Corporate-Level Strategies
Key Terms International corporate-level
strategyStrategy which focuses on the scope of a firm’s operations through both product and geographic diversification
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International Scope
Worldwide Presence
or
Regionalization
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Regionalization
Trade agreements and institutions Ability to understand the cultures,
legal and social norms, and other factors that are important for effective competition in specific markets
Sequential market entry
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Liability of Foreignness
Liabilities associated with being a foreign business in a highly different business environment can make competing on a worldwide scale risky and expensive.
Employment contracts and labor forces differ.
Host governments make different demands and requirements to compete in their markets.
Understanding customers may be difficult.
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International Corporate-Level Strategies
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Multidomestic Strategy
Key Terms
Multidomestic strategy
International strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country to allow that unit to tailor products to the local market
Worldwide geographic area structure
Organizational structure which emphasizes national interests and facilitates the firms' efforts to satisfy local or cultural differences (used to implement the multidomestic strategy)
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Maximizing Local Responsiveness
Focus on variations of competition within each country
Customize products to meet specific needs and preferences of local customers
Decentralize decisions to business units in each country
Compete in industry segments most affected by differences among local countries
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Effects of a Multidomestic Strategy
Expands the firm’s local market share Maximizes competitive responsiveness
to local conditions Establishes protected market positions Isolates the firm from global
competitive forces Lowers efficiency levels Increases uncertainty
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Worldwide Geographic Area Structure
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Global Strategy Key Terms
Global strategy
International strategy through which the firm offers standardized products across country markets, with the competitive strategy being dictated by the home office
Worldwide product divisional structure
Organizational structure in which decision-making authority is centralized in the worldwide division headquarters to coordinate and integrate decisions and actions among divisional business units (used to implement the global strategy)
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Maximizing Global Integration
Integrate interdependent strategic business units operating in each country
Emphasize economies of scale
Share resources across country boundaries
Centralize decisions at the home office
Utilize innovations developed at the corporate level or in one country in other markets
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Effects of a Global Strategy
Maximizes integration across business units
Produces standardization
Lowers risk
Fosters a shared vision of the firm’s strategy
Lowers responsiveness to local needs and preferences
Permits missed opportunities in local markets
Reduces effectiveness of learning processes
Adds management complexity
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Worldwide Product Divisional Structure
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Transnational Strategy Key Terms
Transnational strategy
International strategy through which the firm seeks to achieve both global efficiency and local responsiveness
Flexible coordination
Building a shared vision and individual commitment through an integrated network
Worldwide combination structure
Organizational structure in which characteristics and mechanisms are drawn from both the worldwide geographic area structure and the worldwide product divisional structure (used to implement the transnational strategy)
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Worldwide Combination Structure
Assets and operations may be centralized/decentralized
Functions may be integrated/nonintegrated
Relationships may be formal/informal Coordination mechanisms may
leverage efficiency/flexibility Mandates to subsidiaries may be
global/specialized-contribution/localized-implementation
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Role of Subsidiaries
Global Mandate
Specialized Contribution
Local Implementation
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Requirements of a Combination Structure Strong educational component to
support the culture Adaptation of core competencies in
local economies to gain competitive benefits
Effective corporate headquarters to foster leadership, shared vision, and strong corporate identity
Centers of excellence to foster multiple and dispersed capabilities
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Developments for Multinational Firms
Emphasis on global efficiency is increasing as more industries begin to experience global competition
Emphasis on local requirements is also increasing
Multinational firms desire coordination and sharing of resources across country markets to hold down costs
Some products and industries are more suited than others for standardization across country borders
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International Business-Level Strategy
Global Corporate-Level
Strategy
Multidomestic Corporate-Level
StrategySubsidiaries play the role of local implementer
Subsidiaries have more control over approaches used in their own domestic markets
Usually associated with a cost leadership strategy
Generic strategy depends on local conditions and capabilities
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Determinants of National Advantage
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Modes of Entry and Their Characteristics
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Exporting
Low cost way to establish operations in host country
Often through contractual agreements
High transportation costs Potential for tariffs Low control over marketing and
distribution
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Licensing
Low cost way to expand internationally
Risks absorbed by licensee Low control over manufacturing and
marketing Lower potential returns (shared with
licensee) Risk of imitation by licensee Ownership arrangements often
inflexible
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Strategic Alliances
Fewer entry resources and costs required
Shared risks and resources Potential core competency
development Possible partner incompatibility,
conflict, or lack of trust Management difficulties
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Acquisitions
Quick access to market Costly Possible integration difficulties Complex negotiations and
transaction requirements
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New Wholly Owned Subsidiary
Costly mode of entry High process complexity Maximum control Highest potential returns High risk
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Mode of Entry Dynamics
Strategy Use
Early stages of international expansion
ExportLicensing
Facing uncertainty Strategic Alliances
To secure a stronger presence
AcquisitionsGreenfield Ventures
Later stages of international expansion
AcquisitionsGreenfield Ventures
Valuable, transferrable core competencies are present
AcquisitionsGreenfield Ventures
Emerging economies Large Diversified BusinessesKorean Chaebols
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Strategic Outcomes
International Diversification and Returns
International Diversification and Innovation
International Diversification and Risk
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International Diversification and Returns
Economies of scale and experience Location advantages Greater market size Stability of returns Lower overall firm risk Exploitation of core competencies Knowledge resource sharing Global scanning for opportunities Structural flexibility
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International Diversification and Innovation
Access to larger and more markets Lower R&D investment risk Exposure to new products and
processes Opportunity to integrate new
knowledge into operations Generation of resources to sustain
innovation efforts
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Risks in an International Environment
Political risks
Economic risks
Other formal institutional risks
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Political Risks
Government instability
Conflict/war
Government regulations
Conflicting and diverse legal authorities
Potential nationalization of private assets
Government corruption*
Changes in national leadership
Changes in government policies
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Economic Risks
Differences and fluctuations in currency values
Investment losses due to political risks
Potential infrastructure or financial system damage from major disasters
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Complexity of Managing Multinational Firms
Geographic dispersion
Costs of coordination
Logistical costs
Trade barriers
Cultural diversity
Barriers to competitive advantage transfer
Host governments
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ETHICAL QUESTION
As firms internationalize, they may be tempted to locate facilities where
product liability laws are lax in testing new products. Is this an acceptable
practice? Why or why not?
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ETHICAL QUESTION
Regulation and laws regarding the sale and distribution of tobacco products are stringent in the U.S. market. What are
the ethical implications of U.S. firms pursuing marketing strategies for
tobacco products in other countries that would be illegal in the United States?
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ETHICAL QUESTION
Some companies outsource production to firms in foreign countries to save
money. To what extent is a company morally responsible for the way workers
are treated by the firms in those countries to which they outsource
production?
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ETHICAL QUESTION
Global and multidomestic strategies call for different competitive approaches. What ethical concerns might surface
when firms try to market standardized products globally? When should firms
develop different products or approaches for each local market?
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ETHICAL QUESTION
Are companies morally responsible to support the U.S. government as it imposes trade sanctions on other
countries, such as China, because of human rights violations? What if a
significant amount of its international business is in one of those countries?
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ETHICAL QUESTION
Latin America has been experiencing significant changes in both political
orientation and economic development. What strategies should foreign
international businesses implement, if any, to influence government policy in
these countries? Can businesses realistically expect to influence political
changes?