9-1© 2006 by Nelson, a division of Thomson Canada Limited. International Strategy Chapter Nine

9-2© 2006 by Nelson, a division of Thomson Canada Limited. Chapter 5 Bus. - Level Strategy Chapter 6 Competitive Dynamics Chapter 9 International Strategy Chapter 10 Cooperative Strategies Chapter 8 Acquisitions & Restructuring Chapter 11 Corporate Governance Chapter 12 Structure & Control Chapter 13 Strategic Leadership Chapter 14 Entrepreneurship & Innovation Strategic Inputs Strategic Actions Strategic Outcomes Chapter 4 Internal Environment Chapter 3 External Environment Strat. Intent Strat. Mission The Strategic Management. Process Strategy Formulation Strategy Implementation Strategic Competitiveness Chapter 1 Above Average Returns Chapter 2 Feedback Strategic Competitiveness Chapter 1 Chapter 7 Corp. - Level Strategy Chapter 5 Bus. - Level Strategy Chapter 9 International Strategy

9-3© 2006 by Nelson, a division of Thomson Canada Limited. International Strategy Knowledge Objectives 1.Understand why firms pursue international diversification. 2.Define the three international corporate-level strategies: multidomestic, global, and transnational. 3.Understand risk of international expansion 4.Name & describe the five alternative modes for entering international markets 5.Understand importance of factor, demand and related and supporting industries of target Country

9-4© 2006 by Nelson, a division of Thomson Canada Limited. Benefits of International Strategies Increased market size. Greater returns on major capital investments or new products or processes. Greater economies of scale, scope or learning. A competitive advantage through location. Trade across nations will exceed trade within nations Rise of market capitalism around the world

9-5© 2006 by Nelson, a division of Thomson Canada Limited. Population of Selected Nations McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. China1,305,034,000 India1,077,886,000 United States295,280,000 Japan127,418,000 Germany82,438,000 World Total 6,379,157,000 CountryMay 2005 (estimated) Exhibit 7.2 Populations of Selected Nations Source:

9-6© 2006 by Nelson, a division of Thomson Canada Limited. Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic Competitiveness Outcomes International Strategies Modes of Entry Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Higher Performance Returns Innovation International Strategy Opportunities & Outcomes Management Problems, Risk, and First Steps

9-7© 2006 by Nelson, a division of Thomson Canada Limited. Determinants of National Advantage

9-8© 2006 by Nelson, a division of Thomson Canada Limited. Porter’s Diamond of National Advantage: As Applied to India McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Adapted from Exhibit 7.1 India’s Virtual Diamond in Software

9-9© 2006 by Nelson, a division of Thomson Canada Limited. Determinants of National Advantage Factors of Production –Inputs – Labour, land, natural resources, capital & infrastructure Demand Conditions –The nature and size of he buyers needs in the home market of goods & services Related & Supporting Industries –Industries in which the target country is considered the leader eg. Italy - shoes with a supporting leather industry, Japan - cameras & photocopiers, Denmark - diary & an industry focused on food enzymes. Firm Strategy, Structure & Rivalry make up –Germany focused on methodical product & process improvements, –Italy’s national pride of designers helped spawn fashion apparel, furniture & sports car industries.

9-10© 2006 by Nelson, a division of Thomson Canada Limited. International Corporate-Level Strategy

9-11© 2006 by Nelson, a division of Thomson Canada Limited. International Corporate-Level Strategy Multi-domestic Strategy –Strategic & operating decisions are decentralized to the strategic business unit in each country to tailor products to the local market. Global Strategy –Strategic & operating decisions are centralized. Products are standardized. There are only a few manufacturing locations with long production runs. Transnational Strategy –A combination of the multi-domestic and global strategies. The most profitable of all of them.

9-12© 2006 by Nelson, a division of Thomson Canada Limited. Strengths and Limitations of Various Strategies McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. StrategyStrengthsLimitations Global  Strong integration across various businesses.  Standardization leads to higher economies of scale which lowers costs.  Helps to create uniform standards of quality throughout the world.  Limited ability to adapt to local markets.  Concentration of activities may increase dependence on a single facility.  Single locations may lead to higher tariffs and transportation costs. Exhibit 7.6 Strengths and Limitations of Various Strategies

9-13© 2006 by Nelson, a division of Thomson Canada Limited. Strengths and Limitations of Various Strategies McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Multidomestic StrategyStrengthsLimitations  Ability to adapt products and services to local market conditions.  Ability to detect potential opportunities for attractive niches in a given market, enhancing revenue.  Less ability to realize cost savings through scale economies.  Greater difficulty in transferring knowledge across countries.  May lead to “overadaptation” as conditions change. Transnational  Ability to attain economies of scale.  Ability to adapt to local markets.  Ability to locate activities in optimal locations.  Ability to increase knowledge flows and learning.  Unique challenges in determining optimal locations of activities to ensure cost and quality.  Unique managerial challenges in fostering knowledge transfer. Exhibit 7.6 Strengths and Limitations of Various Strategies

9-14© 2006 by Nelson, a division of Thomson Canada Limited. Entry Modes of International Expansion McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Extent of Investment Risk High Low LowHigh Degree of Ownership and Control Exporting Licensing Franchising Strategic Alliance Joint Venture Wholly Owned Subsidiary Adapted from Exhibit 7.7 Entry Modes for International Expansion

9-15© 2006 by Nelson, a division of Thomson Canada Limited. International diversification facilitates innovation in the firm. 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. Provides larger market to gain more and faster returns form investments in innovation. International diversification provides greater economies of scope and learning. Strategic Competitiveness Outcomes

9-16© 2006 by Nelson, a division of Thomson Canada Limited. Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic Competitiveness Outcomes International Strategies Modes of Entry Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Higher Performance Returns Innovation International Strategy Opportunities & Outcomes Management Problems, Risk, and First Steps

9-17© 2006 by Nelson, a division of Thomson Canada Limited. Risks in the International Environment

9-18© 2006 by Nelson, a division of Thomson Canada Limited. National government instability may create potential problems for internationally diversified firms. Legal authority obtained from previous administration may become invalid. Potential changes in attitudes or regulations regarding foreign ownership. Potential for nationalization of firms’ assets. Major Risks of International Diversification Political Risk

9-19© 2006 by Nelson, a division of Thomson Canada Limited. Econ. risks are interdependent with political risks. Differences in inflation rates may affect inter- nationally diversified firms’ ability to compete. Differences and fluctuations in international currencies may affect value of assets & liabilities. This affects prices & thus ability to compete. Enforcing intellectual property rights on CDs, software, etc. Major Risks of International Diversification Economic Risk