1. Chapter 8 International Strategy Diane M. Sullivan, Ph.D. 2011
Sections modified from Hitt, Ireland, and Hoskisson, Copyright © 2008 Cengage
Sections modified from Gentner (2009)

2. The Strategic Management Process
Diversification opportunities exist for firms in global markets.
When pursuing this type of diversification, they require an international strategy.
Int’l strategy can be a source of strategic competitiveness (above- average returns and innovativeness)
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3. International Strategy: Key Concepts
International (int’l) strategy
A strategy through which the firm sells its goods/services outside of its domestic market.
Liability of Foreignness
Difficulties firms face as they seek to manage complexities involved with international expansions/operations
Example: Disney suffered lawsuits in France because of HR policies when opened Disneyland Paris

4. International Strategy: Examples
Ex. 1: Shanghai Automotive Industry Corp (SAIC)
One of China’s oldest auto companies; top 3 auto firms in China
Sells autos, tractors, motorcycles, trucks, offers car leasing/financing
To grow in Chinese markets pursued joint ventures with GM & VW
Ultimate Goal: Become one of the world’s top 10 auto companies
Note: All major auto firms compete in U.S. market
SAIC learned from JV and licensed technology; launched own branded vehicles
Now competing with GM and VW in China and wants to move in US
Ex. 2: Disney
1992, Disney moved into Europe with Euro Disney in Paris
Plagued with problems, called a “Eurodismal”
Disney suffered from liabilities of foreignness 4

5. 4 Reasons Firm’s Pursue Int’l Strategies
Increased market size
Help firms maintain growth objectives
Example: Pharmaceutical firms entering China; soft drinks
Greater returns on major investments
Larger markets can help firms recoup investments more quickly
Greater economies of scale and learning
Standardized manufacturing operations can easily capture scale economies
New learning opportunities are presented to firms
A competitive advantage via location
Access to low-cost labor, energy, natural resources, supplies, customers
Example: GM’s expansion to Asia to access customers

6. Two Types of International Strategies
Business-level International Strategy
Generic strategies applied to business units competing internationally
Corporate-level International Strategy
Focuses on the scope of a firm’s operations through product and geographic diversification
Required when firm operates in multiple countries or regions
Required when firm operates in multiple industries and countries/regions

7. Business-Level International Strategy
Partially based on Porter’s “Determinants of National Advantage”

8. Corporate-Level International Strategy
3 International Corporate-level Strategies
Global
Firm offers standardized products across country markets with decision mostly dictated by the home office
Example: Nike; eBay (initially in China and Japan)
Multidomestic
Decisions are mostly decentralized to the business unit in each country, allowing the unit to tailor products to the local market
Example: Fast food; eBay (as a joint venture with Tom Online, Inc.)
Transnational
Firm seeks both global efficiency and local responsiveness
Difficult to use because of conflicting goals
Example: P&G uses global product business units and multidomestic market development organizations to appeal to different tastes

9. International Corporate-Level Strategy

10. 5 Main Modes of Int’l Entry & Competition
Exporting
Licensing
Strategic Alliances
Acquisitions
New Wholly-Owned Subsidiary (“Greenfield Venture”)
Easier
More
Difficult

11. Mode 1: Exporting
Many firms begin int’l expansion via exporting goods/services to other countries
Good for early-market entry and for small businesses
Pros
Common way to enter new int’l markets
No need to establish operations in other countries
Establish distribution channels through contractual relationships with host countries
Cons
May have high transportation costs
May encounter high import tariffs
May have less control on marketing & distribution
Difficult to customize products

12. Mode 2: Licensing Pros Cons
Allows a foreign company to purchase the right to manufacture and sell a firm’s products within host country or set of countries
Good for tactical moves and early market entry
Example: Disney (US) licensed characters to LEGO (Denmark) to launch product line in US in 2010
Pros
Firm authorizes another firm to manufacture and sell its products
Licensing firm is paid a royalty on each unit produced and sold
Licensee takes risks in manufacturing investments
Least risky and costly way to enter a foreign market
Cons
Licensing firm loses control over product quality and distribution
Relatively low profit potential
A significant risk is that licensor learns technology and competes when license expires

13. Mode 3: Strategic Alliances
Two or more firms develop a relationship to share their unique resources and capabilities to create an competitive advantage in an int’l location
Good in uncertain situations; for tactical moves; early market entry
Example: Sony (Japan) and Ericsson (Sweden) created Sony Ericsson
Pros
Firms to share risks and resources to expand into int’l ventures
Most involve a foreign company with a new product or technology and a host company with access to distribution or knowledge of local customs, norms or politics
Cons
May experience difficulties in merging disparate cultures
May not understand the strategic intent of partners or experience divergent goals

14. Mode 4: Acquisitions Cross-border acquisitions
Good for securing stronger presence in int’l markets
Example: 1999, Wal-Mart entered the UK by acquiring ASDA
Pros
Most rapid international expansion
Quick access to a new market
Cons
Can be very costly
Legal and regulatory requirements may present barriers to foreign ownership
Usually require complex and costly negotiations
Potentially disparate corporate cultures

15. Mode 6: New Wholly Owned Subsidiary
Creation of a new venture, called a greenfield venture
Good for securing stronger presence in int’l markets
Example: 2007, FedEx opened Hangzhou subsidiary in China
Pros
Achieves greatest degree of control (e.g., full control)
Potentially most profitable, if successful
Maintain control over technology, marketing and distribution
Cons
Most costly and complex of entry alternatives
May need expertise and knowledge that is relevant to host country
May require hiring host country nationals or consultants at high cost
Must build/acquire manufacturing facilities, distribution networks, marketing strategies

16. Major Risks in Int’l Environments
Political/Legal Forces
Government instability
Conflict or war
Government regulations
Conflicting and diverse legal authorities
Potential nationalization of private assets
Government corruption
Changes in government policies
Economic Forces
Differences and fluctuations in currency values
Investment losses due to political risks