1 Knowledge Objectives Understand the 4 strategies for foreign expansion Understand the benefits from foreign expansion

2 ExportingLicensing Strategic alliances Acquisitions Establishment of a new subsidiary International business-level strategy Multidomestic strategy Global strategy Transnational strategy Opportunities and Outcomes of International Strategy Increased market size Return on investment Economies of scale and learning Advantage in location Identify International Opportunities Explore Resources and Capabilities Use Core Competence International Strategies Modes of Entry

3 Better performance Innovation Opportunities and Outcomes of International Strategy ExportingLicensing Strategic alliances Acquisitions Establishment of a new subsidiary Use Core Competence Modes of Entry Management problems and risk Management problems and risk Strategic Competitiveness Outcomes

4 Motivations for International Expansion Increase Market ShareIncrease Market Share –domestic market may lack the size to support efficient scale manufacturing facilities Return on InvestmentReturn 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

5 Motivations for International Expansion Economies of Scale or LearningEconomies of Scale or Learning –expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distribution –can spread costs over a larger sales’ base –increase profit per unit Location AdvantagesLocation Advantages –low cost markets may aid in developing competitive advantage –may achieve better access to: Raw materialsRaw materials Lower cost laborLower cost labor Key customersKey customers EnergyEnergy

6 International Business-Level Strategy: Determinants of National Advantage Factors of production: the inputs necessary to compete in any industryFactors of production: the inputs necessary to compete in any industry –labor –land –natural resources –capital –infrastructure –basic factors include natural and labor resources –advanced factors include digital communication systems and educated workforce

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10 International Business-Level Strategy: Determinants of National Advantage Demand conditions: characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or servicesDemand conditions: characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services –size of market segment can lead to scale-efficient facilities –efficiency can lead to domination of the industry in other countries –specialized demand may create opportunities beyond national boundaries

11 International Business-Level Strategy: Determinants of National Advantage Related and supporting industries: supporting services, facilities, suppliers and so onRelated and supporting industries: supporting services, facilities, suppliers and so on –support in design –support in distribution –related industries as suppliers and buyers

12 International Business-Level Strategy: Determinants of National Advantage Firm strategy, structure, and rivalry: the pattern of strategy, structure, and rivalry among firmsFirm strategy, structure, and rivalry: the pattern of strategy, structure, and rivalry among firms –common technical training –methodological product and process improvement –cooperative and competitive systems

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14 Source: MIT Sloan

15 Source: MIT Sloan

16 Source: MIT Sloan

17 International Corporate-Level Strategy Need for Local Responsiveness Need for Global Integration Low High LowHigh Globalstrategy Transnationalstrategy Multidomesticstrategy

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19 Multidomesticstrategy International Corporate-Level Strategy: Multidomestic Strategy Strategy and operating decisions are decentralized to strategic business units (SBU) in each countryStrategy and operating decisions are decentralized to strategic business units (SBU) in each country Products and services are tailored to local marketsProducts and services are tailored to local markets Business units in one country are independent of each otherBusiness units in one country are independent of each other Assumes markets differ by country or regionsAssumes markets differ by country or regions Focus on competition in each marketFocus on competition in each market Prominent strategy among European firms due to broad variety of cultures and markets in EuropeProminent strategy among European firms due to broad variety of cultures and markets in Europe

20 International Corporate-Level Strategy: Global Strategy Globalstrategy Products are standardized across national marketsProducts are standardized across national markets Decisions regarding business-level strategies are centralized in the home officeDecisions regarding business-level strategies are centralized in the home office Strategic business units (SBU) are assumed to be interdependentStrategic business units (SBU) are assumed to be interdependent Emphasizes economies of scaleEmphasizes economies of scale Often lacks responsiveness to local marketsOften lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage)Requires resource sharing and coordination across borders (which also makes it difficult to manage)

21 Transnationalstrategy International Corporate-Level Strategy: Transnational Strategy Seeks to achieve both global efficiency and local responsivenessSeeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous requirementsDifficult to achieve because of simultaneous requirements  strong central control and coordination to achieve efficiency  decentralization to achieve local market responsiveness Must pursue organizational learning to achieve competitive advantageMust pursue organizational learning to achieve competitive advantage

22 Strategic Competitiveness Outcomes: Returns International diversification and returns : firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or marketsInternational diversification and returns : firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets –may increase a firm’s returns –such firms usually achieve the most positive stock returns –firm may achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns

23 Strategic Competitiveness Outcomes: Innovation International diversification and innovation : firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or marketsInternational diversification and innovation : firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets –potentially greater returns on innovations (larger markets) –generate additional resources for investment in innovation –exposed to new products and processes in international markets, generates additional knowledge leading to innovations

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