Chapter Seven International Strategy: Creating Value in Global Markets

CHAPTER 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin After studying this chapter, you will have a good understanding of: The importance of international expansion as a viable diversification strategy The sources of national advantage, that is, why an industry in a given country is more (or less) successful than the same industry in another country The motivations (or benefits) and the risks associated with international expansion The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering international markets The advantages and disadvantages associated with each of the three basic international strategies—global, multidomestic, and transnational The four basic types of entry strategies and their relative benefits and risks that are associated with each of them Learning Objectives TRANSPARENCY-60

CHAPTER 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Engardio, P. & Belton, C Global Capitalism: Can it be made to work better? Business Week, November 6: Exhibit 7.1 The Extremes of Global Capitalism: One Size Does Not Fit All TRANSPARENCY-61

CHAPTER 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin India’s Virtual Diamond in Software Domestic rivalry No regulatory barriers to entry or startup; 800 firms, mostly small, in fierce rivalry; growing number of MNC software- development centers in India Related and supporting industries Factor conditions Domestic demand conditions U.S. demand conditions Large, growing market; sophisticated customers; cutting- edge applications Large pool of skilled labor; low salaries; English- language capability Large network of public and private educational institutions; weak but rapidly improving communications infrastructure; duty-free access to imported computers and software, following economic liberalization Note: Dashed lines represent weaker interactions. Source: Kapar, D. & Ramamurti, R India’s emerging competitive advantage in services. Academy of Management Executive, 15(2): Exhibit 7.2 TRANSPARENCY-62

CHAPTER 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin 2001 Census Statistics Country2001 Census China1,273,111,290 India1,029,991,145 Germany83,030,000 United States278,058,881 Japan126,635,626 Sources: U.S. Bureau of the Census. World Population Profile; Washington: U.S. Government Printing Office, Exhibit 7.3 TRANSPARENCY-63

CHAPTER 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin A Sample of International Country Risk Rankings RankCOUNTRY Total Risk Assessment Economic Performance Political Risk Total of Debt Indicators Total of Credit and Access to Finance Indicators 1Luxembourg Switzerland United States China Poland Vietnam Russia Albania Mozambique Afghanistan Source: Adapted from Exhibit 7.4 TRANSPARENCY-64

CHAPTER 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Opposing Pressures and Three International Strategies Global strategy Transnational strategy Multidomestic strategy High Low High Pressures for Local Adaptation Pressures to Lower Costs Exhibit 7.5 TRANSPARENCY-65

CHAPTER 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Strengths and Limitations of Various International Strategies Exhibit 7.6 Less ability to realize cost savings through scale economies Greater difficulty in transferring knowledge across countries May lead to “overadaptation” as conditions change Ability to adapt products and services to local market conditions Ability to detect potential opportunities for attractive niches in a given market, enhancing revenue Multidomestic 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 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 Global LimitationsStrengthsStrategy Transnational Unique challenges in determining optimal locations of activities to ensure cost and quality Unique managerial challenges in fostering knowledge transfer 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 TRANSPARENCY-66

CHAPTER 7 McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved. STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin Entry Modes for International Expansion Low Degree of Ownership and Control High LowHigh Extent of Investment and Risk Exporting Licensing Franchising Strategic Alliance Joint Venture Wholly Owned Subsidiary Exhibit 7.7 TRANSPARENCY-67