Agenda for November 2 Review of Chapter 8 International Strategy Video & discussion

International Strategy: Opportunities and Outcomes REASONS for international expansion STRATEGIES for international expansion MODES of ENTRY OUTCOMES of international expansion Increased Market Size International Business-Level Strategy Exporting Higher Performance Returns Exporting Return on Investment International Corporate-Level Strategy * multidomestic * global * transnational Strategic Alliances Economies of Scale and Learning Acquisition Innovation Establishment of New Subsidiary Location Advantage Management Problems and Risk 3

REASONS for International Expansion Increase Market Size or Global Market Share Japanese electronics or automobile manufacturers Return on Investment Large investment projects may require global markets to justify the capital outlays Aircraft manufacturers Boeing or McDonnell Douglas 14

REASONS for International Expansion Economies 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 Location Advantages Low cost markets may aid in developing competitive advantage May achieve better access to: - Raw materials - Key customers - Lower cost labor - Energy - Key suppliers - Natural resources 16

International Strategy: Opportunities and Outcomes REASONS for international expansion STRATEGIES for international expansion MODES of ENTRY OUTCOMES of international expansion Increased Market Size International Business-Level Strategy Exporting Higher Performance Returns Exporting Return on Investment International Corporate-Level Strategy * multidomestic * global * transnational Strategic Alliances Economies of Scale and Learning Acquisition Innovation Establishment of New Subsidiary Location Advantage Management Problems and Risk 3

International Business-Level Strategies International Low Cost Usually involves locating in home country and exporting internationally International Differentiation Common among firms in countries with advanced factor conditions International Focus International Integrated Low Cost / Differentiation Can be most effective in dealing with diverse markets 26

Multi-Domestic Strategy Transnational Strategy International Corporate-Level Strategies International Corporate Strategy Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level strategies Multi-Domestic Strategy Three Corporate Strategies Global Strategy Transnational Strategy 34

Multi-Domestic Strategy International Corporate-Level Strategies International Corporate Strategy Multi-Domestic Strategy Strategy & operating decisions are decentralized to independent strategic business units in each country Products and services are tailored to local markets Prominent strategy among European firms due to variety of cultures & markets in Europe 41

International Corporate-Level Strategies International Corporate Strategy Global Strategy Decisions regarding business-level strategies are centralized in the home office; SBU’s are interdependent Products are standardized across national markets Requires resource sharing and coordination across borders 48

Transnational Strategy International Corporate-Level Strategies International Corporate Strategy Transnational Strategy Seeks to achieve both global efficiency and local responsiveness Organizational learning & knowledge transfer is critical 51

Need for Global Integration International Corporate-Level Strategies International Corporate Strategy When is each strategy appropriate? High GLOBAL TRANS- NATIONAL Need for Global Integration MULTI- DOMESTIC Low Low High Need for Local Market Responsiveness 61

International Strategy: Opportunities and Outcomes REASONS for international expansion STRATEGIES for international expansion MODES of ENTRY OUTCOMES of international expansion Increased Market Size International Business-Level Strategy Exporting Higher Performance Returns Exporting Return on Investment International Corporate-Level Strategy * multidomestic * global * transnational Strategic Alliances Economies of Scale and Learning Acquisition Innovation Establishment of New Subsidiary Location Advantage Management Problems and Risk 3

Choice of International Entry Mode International Corporate Strategy Exporting No need to establish operations in other countries Establish distribution channels through contractual relationships Common way to enter new international markets May have high transportation costs 63

Choice of International Entry Mode International Corporate Strategy Exporting RISKS May have high transportation costs May encounter high import tariffs May have less control on marketing and distribution Difficult to customize products 63

Choice of International Entry Mode International Corporate Strategy Licensing Firm authorizes another firm to manufacture and sell its products Licensor is paid a royalty on each unit produced and sold Least risky way to enter a foreign market: Licensee takes risks in mfg investments 70

Choice of International Entry Mode International Corporate Strategy Licensing RISKS Licensor loses control over product quality and distribution Relatively low profit potential Licensee may learn technology and compete on its own when license expires 70

Choice of International Entry Mode International Corporate Strategy Strategic Alliances Enable firms to shares risks and resources. Commonly called joint ventures. Most international joint ventures involve: * foreign company with a new product or technology * host company with access to distribution or knowledge of local customs, norms or politics 70

Choice of International Entry Mode International Corporate Strategy Strategic Alliances RISKS May experience difficulties in merging disparate cultures Partners may not understand each other’s strategic intent or may experience divergent goals 70

Choice of International Entry Mode International Corporate Strategy Acquisitions Largest & most rapid form of international expansion Can be cheap if exchange rates are favorable 70

Choice of International Entry Mode International Corporate Strategy Acquisitions RISKS May be costly due to size Legal and regulatory requirements may present barriers to foreign ownership Usually require complex and costly negotiations Potentially disparate corporate cultures 70

New Wholly-Owned Subsidiary Choice of International Entry Mode International Corporate Strategy New Wholly-Owned Subsidiary Achieves greatest degree of control e.g., over technology, marketing & distribution Potentially most profitable, if successful 70

New Wholly-Owned Subsidiary Choice of International Entry Mode International Corporate Strategy New Wholly-Owned Subsidiary RISKS Most costly and complex of entry alternatives May need to acquire expertise and knowledge that is relevant to host country Could require hiring host country nationals or consultants at high cost 70

International Strategy: Opportunities and Outcomes REASONS for international expansion STRATEGIES for international expansion MODES of ENTRY OUTCOMES of international expansion Increased Market Size International Business-Level Strategy Exporting Higher Performance Returns Exporting Return on Investment International Corporate-Level Strategy * multidomestic * global * transnational Strategic Alliances Economies of Scale and Learning Acquisition Innovation Establishment of New Subsidiary Location Advantage Management Problems and Risk 3

Strategic Competitiveness OUTCOMES International Corporate Strategy May fulfill the reasons for expansion * increased market size * provides sufficient ROI to support extensive R&D * facilitates economies of scale & organizational learning Leads to greater returns when implemented and managed effectively 101

International Strategy: Opportunities and Outcomes REASONS for international expansion STRATEGIES for international expansion MODES of ENTRY OUTCOMES of international expansion Increased Market Size International Business-Level Strategy Exporting Higher Performance Returns Exporting Return on Investment International Corporate-Level Strategy * multidomestic * global * transnational Strategic Alliances Economies of Scale and Learning Acquisition Innovation Establishment of New Subsidiary Location Advantage Management Problems and Risk 3

Major RISKS of International Diversification Political Risk 103

Major RISKS of International Diversification Political Risk Economic Risk 103