1. CHAPTER 8 International Strategy
BA 495
R. M. Zahrowski
CHAPTER 8 International Strategy
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2. FIGURE 8.1 Opportunities and Outcomes of International Strategy
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3. Identifying International Opportunities
International Strategy
A strategy through which the firm sells its goods or services outside its domestic market.
Reasons to having an international strategy
International markets yield potential new opportunities.
New market expansion extends product life cycle.
Needed resources can be secured.
Greater potential product demand.
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4. Production is standardized and relocated to low cost countries.
Classic Rationale for International Diversification: Extend a Product’s Life Cycle
Product Demand
Develops and Firm
Exports Products
Foreign
Competition
Begins Production
Firm Introduces
Innovation in
Domestic Market
Firm Begins
Production Abroad
Production is standardized and relocated to low cost countries.
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5. International Strategy Benefits
Increased Market Size
Return on Investment
Location Advantages
Low cost markets aid in developing competitive advantage by providing access to:
Raw materials
Transportation
Lower costs for labor
Key customers
Energy
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6. Determinants of National Advantage
Factors of production
The inputs necessary to compete in any industry
Labor Land Natural resources
Capital Infrastructure
Basic factors
Natural and labor resources
Advanced factors
Digital communication systems and an educated workforce
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7. Selecting an International Corporate-Level Strategy
The type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies.
Some strategies provide individual country units with the flexibility to choose their own strategies.
Other strategies dictate business-level strategies from the home office and coordinate resource sharing across units.
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8. FIGURE 8.3 International Corporate-Level Strategies
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9. Multidomestic Strategy
Strategy and operating decisions are decentralized to strategic business units (SBU) in each country.
Products and services are tailored to local markets.
Business units in one country are independent of each other.
Assumes markets differ by country or regions.
Focus on competition in each market.
Prominent strategy among European firms due to broad variety of cultures and markets in Europe.
Multidomestic
strategy
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10. Global Strategy Products are standardized across national markets.
Business-level strategic decisions are centralized in the home office.
Strategic business units (SBU) are assumed to be interdependent.
Emphasizes economies of scale.
Often lacks responsiveness to local markets.
Requires resource sharing and coordination across borders (hard to manage).
Global
strategy
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11. Transnational Strategy
Seeks to achieve both global efficiency and local responsiveness.
Difficult to achieve because of simultaneous requirements:
Strong central control and coordination to achieve efficiency
Decentralization to achieve local market responsiveness
Firm must pursue organizational learning to achieve competitive advantage.
Transnational
strategy
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12. TABLE 8.1 Global Market Entry: Choice of Entry
Type of Entry Characteristics
Exporting High cost, low control
Licensing Low cost, low risk, little control, low returns
Strategic alliances Shared costs, shared resources, shared risks, problems of integration (e.g., two corporate cultures)
Acquisition Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations
New wholly owned subsidiary Complex, often costly, time consuming, high risk, maximum control, potential above-average returns
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13. Dynamics of Mode of Entry
What’s the best solution?
Situation
Optimal Solution
The firm has no foreign manufacturing expertise and requires investment only in distribution.
Export
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14. Dynamics of Mode of Entry (cont’d)
What’s the best solution?
Situation
Optimal Solution
The firm needs to facilitate the product improvements necessary to enter foreign markets.
Licensing
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15. Dynamics of Mode of Entry (cont’d)
What’s the best solution?
Situation
Optimal Solution
The firm needs to connect with an experienced partner already in the targeted market.
Strategic Alliance
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16. Dynamics of Mode of Entry (cont’d)
What’s the best solution?
Situation
Optimal Solution
The firm needs to reduce its risk through the sharing of costs.
Strategic Alliance
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17. Dynamics of Mode of Entry (cont’d)
What’s the best solution?
Situation
Optimal Solution
The firm is facing uncertain situations such as an emerging economy in its targeted market.
Strategic Alliance
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18. Dynamics of Mode of Entry (cont’d)
What’s the best solution?
Situation
Optimal Solution
The firm’s intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high.
Wholly-owned Subsidiary
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19. International Diversification and Returns
Expanding sales of goods or services across global regions and countries and into different geographic locations or markets:
May increase a firm’s returns (such firms usually achieve the most positive stock returns).
May achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns.
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20. Risks in an International Environment
Political Risks
Instability in national governments
War, both civil and international
Potential nationalization of a firm’s resources
Economic Risks
Differences and fluctuations in the value of different currencies
Differences in prevailing wage rates
Difficulties in enforcing property rights
Unemployment ? ? ? ?
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21. FIGURE 8.4 Risk in the International Environment
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