Strategic Choices 8: International Strategy

Learning Outcomes (1) Assess the internationalisation potential of different markets, sensitive to variations over time Identify sources of competitive advantage in international strategy, both through global sourcing and exploitation of local factors embodied in Porter’s Diamond Distinguish between four main types of international strategy 8-2

Learning Outcomes (2) Rank markets for entry or expansion, taking into account attractiveness, cultural, and other forms of distance and competitor retaliation threats Assess the relative merits of different market entry modes, including joint ventures, licensing, and foreign direct investment 8-3

Exhibit 8.1 International Strategy Framework Internationalisation drivers Sources of competitive advantage International strategy Market selection Mode of entry 8-4

Exhibit 8.2 Drivers of Internationalisation Market drivers Government drivers International strategies Cost drivers Competitive drivers 8-5

Deutsche Post’s International Diversity What were the internationalisation drivers associated with DPWN’s strategy? Evaluate the pros and cons of both a multidomestic strategy and a global strategy for DPWN. 8-6

What is Porter’s Diamond? Porter’s Diamond suggests that there are inherent reasons why some nations are more competitive than others, and why some industries within nations are more competitive than others. 8-7

Exhibit 8.3 Porter’s Diamond Firm strategy, structure and rivalry Factor conditions Demand conditions Related and supporting industries 8-8

What is Global Sourcing? Global sourcing refers to purchasing services and components from the most appropriate suppliers around the world regardless of their location. 8-9

Locational Advantages of Global Sourcing Cost advantages Unique capabilities National characteristics 8-10

Illustration 8.3 Boeing’s Global R&D Network 8-11

Market Characteristics and the PESTEL Framework Economic Political Legal Social 8-12

The CAGE Framework Cultural distance Administrative and political distance Geographic distance Economic/ wealth distance 8-13

SABMiller’s International Markets four clips here: 1. Africa: start at :13 through 1:11 2. China: start at 1:15 through 1:57 3. Poland: start at 2:30 through 3:42 4. Russia: start at 4:38 through 5:35 8-14

Hindustan Lever Ltd What challenges are faced by multinationals in developing global brands while encouraging local responsiveness? What are your views on the ethical dimensions to Hindustan Lever’s activities? 8-15

Modes of Entry Exporting Joint ventures and alliances Licensing Foreign direct investment 8-16

Exporting Advantages No need for operational facilities in host country Economies of scale Internet facilitates exporting opportunities Disadvantages Lost location advantages Dependence on export intermediaries Exposure to trade barriers Transportation costs 8-17

Joint Ventures and Alliances Advantages Shared investment risk Complementary resources May be required for market entry Disadvantages Difficult to find good partner Relationship management Loss of competitive advantage Difficult to integrate and coordinate 8-18

Licensing Advantages Contractual source of income Limited economic and financial exposure Disadvantages Difficult to identify good partner Loss of competitive advantage Limited benefits from host nation 8-19

Foreign Direct Investment Advantages Full control Integration and coordination possible Rapid market entry through acquisitions Greenfield investments Disadvantages Substantial investment and commitment Acquisitions may create integration/ coordination issues Greenfield investments are time consuming and unpredictable 8-20

Internationalisation and Performance Inverted U-curve Service sector disadvantages Internationalisation and product diversity 8-21

Case Example: Lenovo Computers In the light of the CAGE framework, comment on Lenovo’s entry into the American market. What type of generic international strategy should Lenovo pursue now? 8-22