sm ch-6 international strategies

8/3/2019 SM Ch-6 International Strategies

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Strategic ManagementPart II: Strategic Actions: StrategyFormulation

Chapter 6: International

Strategy/ Competing in

Foreign Markets


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The Strategic ManagementProcess


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You have no choice but to operate in a

world shaped by globalization and the

information revolution.

There are two options: Adapt or die.

Andrew S. Grove


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Chapter Roadmap

Why Companies Expand into Foreign Markets Cross-Country Differences in Cultural, Demographic, and

Market Conditions

The Concepts of Multi-country Competition and Global

Competition

Strategy Options for Entering and Competing in ForeignMarkets

The Quest for Competitive Advantage in Foreign Markets

Profit Sanctuaries, Cross-Market Subsidization, and GlobalStrategic Offensives

Strategic Alliances and Joint Ventures with ForeignPartners

Strategies That Fit the Markets of Emerging Countries


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Chapter 8: InternationalStrategy (IS)

Overview: Eight content areas

Traditional vs. emerging motives

Four major benefits of International Strategies (IS)

Four factors as basis for international business strategy

Three international corporate-level strategies

Environmental trends affecting IS

Five alternative modes for entering international markets

Effects of international diversification on returns &innovation

2 major risks of international diversification


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Introduction


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Shanghai Automotive IndustryCorp (SAIC): Reaching for Global

Markets One of Chinas oldest automotive companies and

among top three auto companies in China

Goal: Become one of the worlds top 10 auto companies

Of note, as all major auto co.s compete in US market

Produces autos, tractors, motorcycles, trucks and isalso involved with car leasing and financing

Successful joint ventures (JV) with GM and VW Owns 51% of Korean automaker SsangYong, IP right

to Rover

SAIC learned much from partnerships and with

licensed technology launched own branded vehicles


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Introduction

Many firms choose direct investment in assetsover indirect investment

Provides better protection for assets


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Opportunities and Outcomes ofInternational Strategy


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Opportunities/ Reasons ForPursuing International

Strategies


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The Four Big Strategic Issuesin Competing Multinationally

Whether to customize a companys offerings in eachdifferent country market to match preferences of localbuyers or offer a mostly standardizedproduct worldwide

Whether to employ essentially the samebasic competitive strategyin all countriesor modify the strategy country by country

Where to locatea companys production facilities,

distribution centers, and customer service operationsto realize the greatest locational advantages

How to efficiently transfer a companysresource strengthsand capabilities from one country to another to securecompetitive advantage


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Identifying International Opportunities:Incentives to Use an International Strategy (IS)

International Strategy (IS): firm sells its goods orservices outside the domestic market

Reasons for an IS International markets yield potential new opportunities

International diversification: innovation occurs in home-

country market, especially in an advanced economy, anddemand for product develops in other countries, soexports provided by domestic organization

Multinational strategy: Secure need resources

Other motives exist (i.e., pressure for global integration,borderless demand for loball branded roducts


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Identifying International Opportunities:Incentives to Use an International Strategy (IS) (Contd)

Four primary reasons 1. Increased market size

Domestic market may lack the size to support efficient

scale manufacturing facilities

2. Return on Investment (ROI)

Large investment projects may require global marketsto justify the capital outlays

Weak patent protection in some countries implies thatfirms should expand overseas rapidly in order to

preempt imitators


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Identifying International Opportunities:Incentives to Use an International Strategy (IS)(Contd)

Four primary reasons(Contd) 3. Economies of Scale and Learning

Expanding size or scope of markets helps to achieveeconomies of scale in manufacturing as well asmarketing, R&D, or distribution

Costs are spread over a larger sales base

Profit per unit is increased

4. Location advantages: Low cost markets may

aid in developing competitive advantage

achieve better access to critical resources:

i.e., raw materials, lower cost labor, key customers,ener


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Why Do Companies Expandinto Foreign Markets?

Gain access to

new customers

Capitalizeon core

competencies

Achieve lower

costs and enhance

competitiveness

Spreadbusiness risk across

wider

market base

Obtain access to

valuable natural

resources


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Types OfInternational Strategies


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International Strategies (IS)

Firms choose one or both of two basic type of IS:Business level and/or corporate level

1. International business-level strategy

Follows generic strategies of cost-leadership,differentiation, focused or broad

2. International corporate-level strategy (N=3)

Home country usually most important source ofcompetitive advantage

Resources and capabilities frequently allow firm topursue markets in other countries

The determinants of national advantage includes 4factors


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Determinants of NationalAdvantage


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Types of International

Corporate LevelStrategies


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International Corporate-LevelStrategies


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International Strategies (IS) (Contd)

International Corporate-level Strategies (N=3)(Contd)

1. MULTIDOMESTIC

Decentralized strategic & operating decisions by StrategicBusiness-unit (SBU) in each country allows units to tailorproducts to local markets

Focuses on variations of competition within each country

Customized products to meet local customers specific needs

and preferences Takes steps to isolate the firm from global competitive forces

Establish protected market positions

Compete in industry segments most affected by differences amonglocal countries

Deals with uncertainty due to differences across markets


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2. GLOBAL

Firm offers standardized products across countrymarkets, with the competitive strategy being dictated by

the home office Emphasizes economies of scale

Facilitated by improved global reporting standards (i.e.,accounting and financial)

Strategic & operating decisions centralized at homeoffice


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2. GLOBAL(Contd)

Involves interdependent SBUs operating in each country

Home office attempts to achieve integration across SBUs,

adding management complexity

Produces lower risk

Is less responsive to local market opportunities

Offers less effective learning processes (pressure toconform and standardize)


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3. TRANSNATIONAL Firm seeks to achieve both global efficiency and local

responsiveness these are competing goals!

Requires both global coordination and local flexibility with

this strategy/structure combination Flexible Coordination: Building a shared vision and

individual commitment through an integrated network

Challenging, but becoming increasingly necessary tocompete in international markets

Growing number of global competitors heightens need tokeep costs down while greater information flow anddesire for specialized products pressures firms todifferentiate and even customize products nonetheless,

Increasingly used as a strategy


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International

v/s. Global Competition

I i l / Gl b l


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International v/s. GlobalCompetition

International

Competitor

Global

Competitor

Company operates in aselect few foreign

countries, with modest

ambitions to expandfurther

Company markets products

in 50 to 100 countries andis expanding operationsinto additional country

markets annually

Cross Country Differences in


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Cultures and lifestyles differ among countries

Differences in market demographics

and income levels

Variations in manufacturingand distribution costs

Fluctuating exchange rates

Differences in host government

economic and political demands

Cross-Country Differences inCultural, Demographic, and MarketConditions

H M k t Diff f


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Consumer tastes and preferences

Consumer buying habits

Market size and growth potential Distribution channels

Driving forces

Competitive pressures

How Markets Differ fromCountry to Country


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How Markets Differ fromCountry to Country (cont.)

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One of the biggest concerns of companies

competing in foreign markets is whether

to customizetheir product offeringsineach different country market to match

the tastes and preferences of local

buyers or whether to offera mostly standardized

productworldwide.

Diff t C t i H


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Manufacturing costs vary from country to country based on

Wage rates

Worker productivity

Inflation rates

Energy costs

Tax rates

Government regulations

Quality of business environment varies from country tocountry

Suppliers, trade associations, and makers of complementaryproducts often find it advantageous to cluster their

operations in the same general location

Different Countries HaveDifferent Locational Appeal


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Fluctuating Exchange Rates Affect aCompanys Competitiveness

Currency exchange ratesare unpredictable

Competitiveness of a companys operationspartly depends on whether exchange rate

changes affect costs favorably or unfavorably

Lessonsof fluctuating exchange rates

Exporters always gain in competitiveness when the

currency of the country where goods aremanufactured grows weaker

Exporters are disadvantaged when the currency of

the country where goods are manufactured growsstron er


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Test Your Knowledge

Which one of the following statements concerning the effects offluctuating exchange rates on companies competing in foreignmarkets is true?

A. Japan-based manufacturers exporting goods to the U.S. would bedisadvantaged if the Japanese yen grows weaker in relation to the U.S.

dollar.B. Fluctuating foreign exchange rates greatly reduce the risks of competing

in foreign marketsthe big problem occurs when exchange rates arefixed at unreasonably low levels.

C. Domestic companies under pressure from lower-cost imports arebenefited when their governments currency grows weaker in relation to

the currencies of the countries where the imported goods are beingmade.

D. Chinese exports to Europe would likely be grow in volume if the Chinesecurrency because much stronger relative to the euro.

E. If the exchange rate of U.S. dollars for euros changes from $1.25 per

euro to $1.30 per euro, then it is correct to say that the U.S. dollar hasgrown stronger.

Diff i H t


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Differences in HostGovernment Trade Policies

Local content requirements Restrictions on exports

Regulations on prices of imports

Import tariffs or quotas

Other regulations

Technical standards

Product certification

Prior approval of capital spending projects

Withdrawal of funds from country

Ownership (minority or majority) by local citizens


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Multi-country

Competition

Global

Competition

Two Primary Patternsof International Competition

Characteristics of Multi Country


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Characteristics of Multi-CountryCompetition

Market contest among rivals in one country notclosely connected to market contests in othercountries

Buyers in different countries are attracted todifferent product attributes

Sellers vary from country to country

Industry conditions and competitive forces ineach national market differ in important respects

Rival firms battle for national championships

winning in one country does not necessarily signal the

ability to fare well in other countries!

Characteristics of Global


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Competitive conditions acrosscountry markets are strongly linked

Many of same rivals compete in many of thesame country markets

A true international market exists

A firms competitive position in one country isaffected by its position in other countries

Competitive advantage is based on a firms world-wide operations and overall global standing

Rival firms in globally competitive

industries vie forworldwide leadership!

Characteristics of GlobalCompetition


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Strategy Options for

Competing in

Foreign Markets


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Strategy Options forCompeting in Foreign Markets

1. Exporting

2. Licensing

3. Franchising Strategy

4. Multi-country Strategy

5. Global Strategy

6. Strategic Alliances Or Joint Ventures


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Involve using domestic plantsas a productionbasefor exportingto foreign markets

Excellent initial strategyto pursue internationalsales

Advantages Conservative way to test international waters Minimizes both risk and capital requirements Minimizes direct investments in foreign countries

1. Export Strategies


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1. Export Strategies (cont.)

An export strategyis vulnerablewhen

Manufacturing costs in home country are

higher than in foreign countries where rivalshave plants

High shipping costs are involved Adverse fluctuations in currency exchange

rates

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2. Licensing Strategies

Licensingmakes sense when a firm

Has valuable technical know-how or a patentedproduct but does not have international capabilities

to enter foreign markets

Desires to avoid risks of committing resources to

markets which are Unfamiliar

Politically volatile

Economically unstable


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2. Licensing Strategies (cont.)

Disadvantage

Risk of providing valuable technical know-how to

foreign firms and losing some control over itsuse

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3. Franchising Strategies

Often is better suitedto global expansioneffortsof service and retailing enterprises

Advantages

Franchisee bears most of costs and risks ofestablishing foreign locations

Franchisor has to expend only the resources torecruit, train, and support franchisees


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3. Franchising Strategies

Disadvantage

Maintaining cross-country quality control

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4. & 5. Localized MulticountryStrategies or a Global Strategy?

Whether to vary a companys competitiveapproach to fit specific market conditions and

buyer preferences in each host countyOR

Whether to employ essentially the same

strategyin all countries

Strategic Issue


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Companys Strategic Options for

Dealing withCross-Country Variations in BuyerPreferences and Market Conditions


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A Companys Strategic Options for

Dealing with Cross-CountryVariations in Buyer Preferences andMarket Conditions

1. Think Local, Act Local

2. Think Global, Act Global

3. Think Global, Act Local

Fig. 7.1: A Companys Strategic Options for Dealing withC C t V i ti i B P f d M k t


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Cross-Country Variations in Buyer Preferences and MarketConditions


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1. What Is a Think-Local, Act-LocalApproach to Strategy Making?

A company variesits product

offeringsand basic competitive

strategy from country to country

in an effort to be responsive to

differing buyer preferences and

market conditions.

Characteristics of a Think Local


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Characteristics of a Think-Local,Act-Local Approach to Strategy Making

Business approaches are deliberately crafted to Accommodate differing tastes and expectations of

buyers in each country

Stake out the most attractive market positions vis--vis local competitors

Local managers are given considerablestrategy-making latitude

Plants produce different productsfor different local markets

Marketing and distribution are adapted

to fit local customs and cultures


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When Is a Think-Local, Act-LocalApproach to Strategy Making Necessary?

Significant country-to-country differences incustomer preferences and buying habits exist

Host governments enact regulations requiringproducts sold locally meet strict manufacturingspecifications or performance standards

Trade restrictions of host governments areso diverse and complicated they preclude a

uniform, coordinated worldwide market approach


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Drawbacks of a Think-Local,Act-Local Approach to Strategy Making

Poses problems of transferring

competencies across borders

Works against building a

unified competitive advantage

2 What Is a Think Global Act


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2. What Is a Think-Global, Act-Global Approach to Strategy

Making?

A company employsthe same

basic competitive approachin all

countries where it operates.

Characteristics of a Think Global


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Characteristics of a Think-Global,Act-Global Approach to Strategy Making

Same products under the same brand names are soldeverywhere

Same distribution channels are used in all countries

Competition is based on the same capabilities

and marketing approaches worldwide Strategic moves are integrated and coordinated worldwide

Expansion occurs in most nations where significant buyerdemand exists

Strategic emphasis is placed on buildinga global brand name

Opportunities to transfer ideas, newproducts, and capabilities from onecountry to another are aggressively pursued

Fig. 7.2: How a Localized or Multicountry Strategy


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g y gyDiffers from a Global Strategy

3 What Is a Think Global Act Local


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3. What Is a Think-Global, Act-LocalApproach to Strategy Making?

A company uses the same basic competitive

theme in each country but allows local managers

latitude to . . .1. Incorporate whatever country-specific variations in

product attributes are needed to best satisfy local

buyers and2. Make whatever adjustments in production,

distribution, and marketing are needed to compete

under local market conditions


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Test Your Knowledge

The stand-out characteristic of multicountry competitionis

A. The varying driving forces from country to country.

B. varying competitive pressures from country to country.

C. varying buyer requirements and expectations from country tocountry.

D. that there is so much cross-country variation in marketconditions and in the companies contending for leadership that

the market contest among rivals in one country is not closelyconnected to the market contests in other countriesas aconsequence, there is no global or world market, just acollection of self-contained country markets.

E. varying degrees of product differentiation from country to

country.

F Di i Y O i i


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For Discussion: Your Opinion

Assume you are in charge of developing the strategy for a

multinational company selling products in several different countriesaround the world.

A. If your companys product is personal computers, do you think it would

make better strategic sense to employ a multicountry strategy or aglobal strategy? Why?

B. If your companys product is dry soup mixes and canned soups, woulda multicountry strategy seem to be more advisable than a globalstrategy? Why?

C. If your companys product is washing machines, would it seem tomake more sense to pursue a multicountry strategy or a globalstrategy? Why?

D. If your companys product is basic work tools (hammers, screwdrivers,pliers, wrenches, saws), would a multicountry strategy or a global

strategy seem to have more appeal? Why?


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Ways To Gain

Competitive AdvantageIn Foreign Markets

The Quest for Competitive


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The Quest for CompetitiveAdvantage in Foreign Markets

Three waysto gain competitive advantage

1. Locating activities among nations in ways thatlower costs or achieve greater product

differentiation

2. Efficient/effective transfer of competitivelyvaluable competencies and capabilities from

company operations in one country to companyoperations in another country

3. Coordinating dispersed activities in ways a

domestic-only competitor cannot

1 Locating Activities to Build a


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1. Locating Activities to Build aGlobal Competitive Advantage

Two issues

1. Whether to

Concentrate each activity in afew countries or

Disperse activities to manydifferent nations

2. Where to locate activities

Which country is best location for which activity?

2 C t ti A ti iti t B ild


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Activitiesshould be concentrated when

Costs of manufacturing or other value chain activitiesare meaningfully lower in certain locations than inothers

There are sizable scale economies in performing theactivity

2. Concentrating Activities to Builda Global Competitive Advantage

2 C t ti A ti iti t B ild


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2. Concentrating Activities to Builda Global Competitive Advantage (cont.)

There is a steep learning curve associatedwith performing an activity in a single location

Certain locations have

Superior resources

Allow better coordination of related activitiesor

Offer other valuable advantages

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3. Dispersing Activities to Build a


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3. Dispersing Activities to Build aGlobal Competitive Advantage

Activitiesshould be dispersed when

They need to be performed close to buyers

Transportation costs, scale diseconomies, ortrade barriers make centralization expensive

Buffers for fluctuating exchange rates, supplyinterruptions, and adverse politics are needed

4. Transferring Valuable


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4. Transferring ValuableCompetencies to Build a GlobalCompetitive Advantage

Transferringcompetencies, capabilities, andresource strengths across borders contributes

to

Development of broader competencies and

capabilities

Achievement of dominating depth in somecompetitively valuable area

4. Transferring Valuable


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4. Transferring ValuableCompetencies to Build a GlobalCompetitive Advantage (cont.)

Dominating depth in a competitively valuablecapability is a strong basis for sustainable

competitive advantageover

Other multinational or global competitors and

Small domestic competitors in host countries

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5. Coordinating Cross-Border


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Activities to Build a GlobalCompetitive Advantage

Aligning activities located in different countriescontributes to competitive advantage in several

ways

Choose where and how to challenge rivals

Shift production from one location to another totake advantage of most favorable cost or tradeconditions or exchange rates

5. Coordinating Cross-Border


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5 Coo d at g C oss o deActivities to Build a GlobalCompetitive Advantage (cont.)

Use online systems to collect ideas for new orimproved products and to determine which products

should be standardized or customized

Enhance brand reputation by incorporating samedifferentiating attributes in its products in all markets

where it competes

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Profit Sanctuaries


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What Are Profit Sanctuaries?

Profit sanctuaries are countrymarkets where a firm

Has a strong, protected market

position and Derives substantial profits

Generally, a firms most strategically

crucial profit sanctuary is its home market

Profit sanctuaries are avaluablecompetitive assetin global industries!

Fig. 7.3: Profit Sanctuary Potential of Domestic-Only,International and Global Competitors


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International, and Global Competitors

Test Your Knowledge


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Test Your Knowledge

Profit sanctuaries are valuable competitive assets because

A. they enable a company pursuing a think global, act local typeof strategy to be more successful.

B. a domestic competitor with multiple profit sanctuaries can wage

and generally win a competitive offensive against a globalcompetitor whose profits are scattered across many differentcountries.

C. they provide the financial strength to support strategicoffensives in selected country markets and can help fuel a

companys race for global market leadership.D. without having at least two profit sanctuaries a company is

virtually precluded from competing globally.

E. they enable a company pursuing a global strategy to compete onan equal footing with companies employing a multicountry

strategy.


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Cross-MarketSubsidization

What Is Cross-Market


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Involves supporting competitive offensives in onemarket with resources/profits diverted from operationsin other markets

Competitive power of cross-market subsidization resultsfrom a global firms ability to

Draw upon its resources and profits in other countrymarkets to mount an attack on single-market or one-country rivals and

What Is Cross MarketSubsidization?

What Is Cross-Market


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What Is Cross MarketSubsidization? (cont.)

Try to lure away their customers with

Lower prices

Discount promotions

Heavy advertising

Other offensive tactics

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Assume that you are a multinational soft-drink company with alarge, well-protected profit sanctuary in your home country (and

perhaps some smaller profit sanctuaries in other countries as

well).

Further assume that you are interested in entering an importantnew foreign market in which the leading soft drink competitors

are all domestic companies.

Do you think that a cross-market subsidization strategy based

on under-pricing local competitors might be an appealing way to

gain a market foothold? Why or why not? If you were one of

the local competitors being attacked, what strategic moves

mi ht ou make to defend our market osition?


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Options for GlobalStrategic Offensives

Global Strategic Offensives


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Global Strategic Offensives

1. Attack a foreign rivals profit sanctuaries

Approach places a rival on the defensive, forcing it to

Spend more on marketing/advertising

Trim its prices

Boost product innovation efforts

Take actions raising its costs and eroding its profits

2. Employ cross-market subsidization

Attractive offensive strategy for companies competing in multiplecountry markets with multiple products

3. Dump goods at cut-rate prices

Approach involves a company selling goods in foreign markets at prices

Well below prices at which it sells in its home market or

Well below its full costs er unit

Three Options


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Strategic Alliances

Achieving Global Competitiveness


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g pvia Cooperation

Cooperative agreements with foreign companiesare a means to

Enter a foreign market or

Strengthen a firms competitiveness in world markets

Purpose of alliances

Joint research efforts

Technology-sharing

Joint use of production or distribution facilities

Marketin / romotin one anothers roducts

Strategic Appeal of Strategic


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g pp gAlliances

Gain better access to attractive country markets from hostcountrys government to import and market products locally

Capture economies of scale in production and/or marketing

Fill gaps in technical expertise or knowledge of local markets

Share distribution facilities and dealer networks

Direct combined competitive energiestoward defeating mutual rivals

Take advantage of partners local market

knowledge and working relationships withkey government officials in host country

Useful way to gain agreement on importanttechnical standards

Pitfalls of Strategic Alliances


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Pitfalls of Strategic Alliances

Overcoming language and cultural barriers

Dealing with diverse or conflicting operating practices

Time consuming for managers in terms of communication,

trust-building, and coordination costs Mistrust when collaborating in

competitively sensitive areas

Clash of egos and company cultures

Dealing with conflicting objectives, strategies, corporatevalues, and ethical standards

Becoming too dependent on another firm for essential

expertise over the long-term


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Competing in ForeignMarkets

Characteristics of Competingi E i F i M k


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Tailoring products for big, emerging marketsoften involves

Making more than minor product changes and

Becoming more familiar with local cultures

Companies have to attract buyers withbargain prices as well as better products

Specially designed and/or specially packagedproducts may be needed to accommodate localmarket circumstances

Management team must usually consist of a mix

of expatriate and local managers

in Emerging Foreign Markets

Strategic Options: How to Compete in


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Emerging Country Markets

Prepare to compete on the basis of low price

Be prepared to modify aspects of the companysbusiness model to accommodate local

circumstances

Try to change the local market to better matchthe way the company does business elsewhere

Stay away from those emerging markets where itis impractical or uneconomic to modify thecompanys business model to accommodate local

circumstances

Fig. 7.4: Strategy Options for Local Companiesin Competing Against Global Challengers


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p g g g

1. Strategic Options for Local Companies:Use Home-Field Advantages


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Use Home Field Advantages

Concentrate on advantages enjoyed in the home

market

Cater to customers who prefer a local touch

Accept loss of customers attracted to global

brands

Astutely exploit its local orientation based on

Familiarity with local preferences

Expertise in traditional products

Long-standing customer relationships

Cater to the local market in ways that

pose difficulties for global rivals

2. Strategic Options for Local


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Companies: Transfer Expertise toCross-Border Markets

When a local company trying to defend against aglobal challenger has resource strengths andcapabilities suitable for competing in other countrymarkets, then it should consider

Launching initiatives to transfer its expertise tocross-border markets

Becoming more of an international competitor

2.Strategic Options for Local


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Companies: Transfer Expertise toCross-Border Markets (Cont.)

Such a move to enter foreign markets can help

Build a bigger customer base (to offset any lossesin its home market)

Grow sales and profits

Put in a stronger position to contend with globalchallengers in its home market

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3. Strategic Options for Local Companies:


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Dodging Rivals by Shifting to a NewBusiness Model or Market Niche

When industry pressures to globalize are high, viablestrategic options for a local company trying to defendagainst global challengers in its home market include

Shifting the business to a piece of the industry value chainwhere the firms expertise/resources provide a defendableposition or maybe even a competitive advantage

Entering a joint venture with a globally competitive partner

Selling out to a global entrant into its home market90

4. Strategic Options for LocalCompanies: Contend on a Global


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Companies: Contend on a GlobalLevel

If a local company has resources andcapabilities that it can transfer to operations inother countries, it can launch a strategy aimed

at Entering markets of other countries as rapidly as

possible

Shifting to a more globalized strategy

Building brand recognition and a brand image thatextends to more and more countries

Gradually establishing the resources and capabilities

to go head-to-head against large global rivals

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Environmental Trends

affecting

International Strategies

E i t l T d


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Transnational strategy hard to implement

Two new trends

1. Liability of foreignness

Increased after terrorists attacks and Iraq War

Global strategies not as prevalent today, still

difficult to implement even with Internet-basedstrategies

Regional focus allows firms to marshal resourcesto compete effectively in regional markets


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2. Regionalization Focus to a particular region of the world

Increases understanding of market

Achieve some economies Trade agreements (I.e., EU, OAS, NAFTA)

promote flow of trade across countryboundaries with their respective regions

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International EntryModes

I i l E M d (N 5)


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International Entry Modes (N = 5)

Follows the selection of an IS

Five main entry modes

1. Exporting

2. Licensing

3. Strategic Alliances

4. Acquisitions

5. New Wholly-Owned Subsidiary

I t ti l E t M d (N 5)


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International Entry Modes (N = 5) (Contd)

1. Exporting

Involves low expense to establish operations inhost country

Often involves contractual agreements

Involves high transportation costs

May have some tariffs imposed Offers low control over marketing and distribution

International Entry Modes (N = 5)


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2. Licensing

Involves low cost to expand internationally

Allows licensee to absorb risks

Has low control over manufacturing andmarketing

Offers lower potential returns (shared with

licensee) Involves risk of licensee imitating technology and

product for own use

May have inflexible ownership arrangement



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3. Strategic Alliances

Involve shared risks and resources

Facilitate development of core competencies

Involve fewer resources and costs required forentry

May involve possible incompatibility, conflict, orlack of trust with partner

Are difficult to manage


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5. New Wholly-Owned Subsidiary

Is costly

Involves complex processes

Allows for maximum control

Has the highest potential returns

Carries high risk

Greenfield venture: Establish entirely newsubsidiary



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y ( ) ( )

Dynamics of Mode of Entry: Use the best suited tothe situation at hand; affected by several factors

Export, licensing and strategic alliance: good tactics for

early market development

Strategic alliance: used in more uncertain situations

Wholly-owned subsidiary may be preferred if

IP rights in emerging economy not well protected Number of firms in industry is growing fast

Need for global integration is high

Acquisitions or greenfield ventures: secure a stronger

presence in international markets


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Effects Of International

Diversification OnReturns & Innovation

Strategic Competitive Outcomes(N 3)


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Strategic Competitive Outcomes(N = 3)

International diversification: firm expands sales of

its goods or services across the borders of globalregions and countries into different geographiclocations or markets

Implementation follows selection of internationalstrategy and mode of entry (N=3)

1. International diversification and returns

2. International diversification and innovation

3 Complexity of managing multinational firms

Strategic Competitive Outcomes


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g p(N = 3) (Contd)

1. International diversification and returns As international diversification increases, firms returns

initiallydecrease, but the increase quickly as firm learns tomanage international expansion

2. International diversification and innovation

Exposure to new products and markets

Opportunity to integrate new knowledge into operations

Generation of resources to sustain innovation efforts

Strategic Competitive Outcomes (N = 3)


106/112

106

Strategic Competitive Outcomes (N = 3)(Contd)

3. Complexity of managing multinational firms

Geographic dispersion

Costs of coordination

Logistical costs

Trade barriers

Cultural diversity

Host government


107/112

Risks in InternationalEnvironment



108/112

108

Environment

2 major risks1. Political

2. Economic

Limits to international expansions: managementproblems

Risk in the InternationalEnvironment


109/112

109

Environment



110/112

110

Environment(Contd)

1. Political risks Government instability

Conflict or war

Government regulations

Conflicting and diverse legal authorities

Potential nationalization of private assets

Government corruption

Changes in government policies



111/112

111

Environment(Contd)

2. Economic risks Differences and fluctuations in currency values

Investment losses due to political risks

Limits to international expansions: management problems

Geographic dispersion

Trade barriers

Logistical costs Cultural diversity

Other differences by country

Relationship between organization and host country


112/112

THANK YOU

sm ch-6 international strategies

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