International Strategy Chapter 7 Jeff Stambaugh jeff.stambaugh@mwsu.edu http://faculty.mwsu.edu/business/jeff.stambaugh Built by Stambaugh/2009

In what country is Nokia headquartered? U.S. France Finland Italy

What percentage of Coca Cola’s 2006 sales came outside the U.S. 25% 35% 50% 66%

A few years ago Lenovo bought IBM’s laptop business A few years ago Lenovo bought IBM’s laptop business. Where is Lenovo headquartered? U.S. Italy Japan China

Boeing has orders for ~900 787s. How many have U.S. airlines ordered? ~ 100 ~ 250 ~ 400 ~ 600

Today’s Objectives Know why firms expand across borders Understand the basic international strategies Know the basic entry modes and the pros / cons of each Built by Stambaugh/2009

Why Go Global Area Population USA 300M S. America 375M Europe 710M Russia 110M Asia 3.9B China 1.4B India 1.1B Africa 930M Spread of Capitalism Decreasing transportation costs Decreasing communication costs Internet Regionalization vs Globalization Built by Stambaugh/2009

Porter’s National Competitiveness Diamond Built by Stambaugh/2009

Motives Grow markets (economy of scale) Tap world-wide talent Extend product life cycle Optimize location for each element of value chain Enhance performance through locations Cost reductions Risk reductions Built by Stambaugh/2009

Risks Political / economic Currency flux Cultural buffoonery / misunderstandings Distance is more than physical Built by Stambaugh/2009

Business Considerations Beyond the Market Size What is their time horizon? How is power distributed in organizations? The “great English-speaking, western-talking” executive may be powerless! How does the culture negotiate? What types of representations are binding? Are foreigners disadvantaged? Key governmental / legal considerations? Other players: unions, professional associations, institutional norms? Built by Stambaugh/2009

Strategies for International Ops X Built by Stambaugh/2009

Pro/Cons of Strategies Strategy Strengths Limitations Global Strong integration across businesses. Standardization leads to higher economies of scale. Uniform quality standards world-wide. Limited ability to adapt to local markets (less demand for products). Concentration of activities may increase dependence on a single facility. Single locations may lead to higher tariffs and transportation costs. Built by Stambaugh/2009

Pro/Cons of Strategies Strategy Strengths Limitations Multidomestic Adapt to local market conditions (increased demand). Detect potential niche markets Less cost savings through scale economies. Greater difficulty in transferring knowledge May lead to “overadaptation” Transnational Economies of scale. Adapt to local markets. Locate activities in optimal locations. Increased knowledge flows Unique challenges in determining optimal locations. Unique managerial challenges in fostering knowledge transfer. Built by Stambaugh/2009

Extent of Investment Risk Entry Strategies Extent of Investment Risk High Low Wholly Owned Subsidiary Joint Venture (Toyota in San Antonio) Toyota in MS Strategic Alliance Franchising Licensing Exporting Low High Degree of Ownership and Control Built by Stambaugh/2009

Summary Several reasons to cross borders: markets, tap talent, optimize value chain Three major strategies: global, transnational, multi-domestic Several ways to enter foreign markets: exporting, licensing, franchising, alliances, JVs, wholly-owned subsidiaries (greenfield, acquisitions) Built by Stambaugh/2009

Next Class Risk and Restructuring Built by Stambaugh/2009