1. 1 International Strategy Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 9

2. 2 Exporting Licensing 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. 3 International Corporate-Level Strategy Need for Local Responsiveness Need for Global Integration Low High LowHigh Globalstrategy Transnationalstrategy Multidomesticstrategy

4. 4 Pressures for Global Integration & Local Responsiveness High Low Global Integration Local Responsiveness Pressures Country Differences in - consumer tastes/preferences - infrastructure/practices - distribution channels - host government needs Ball bearings, wheat Cosmetics, food, household goods Cost Reduction Pressures

5. 5 Better performance Innovation Opportunities and Outcomes of International Strategy: Continued 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 Click Here Return to Discussion Questions

6. 6 Motivations for International Expansion Increase Market Share Increase Market Share  domestic market may lack the size to support efficient scale manufacturing facilities Return on Investment Return 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

7. 7 Motivations for International Expansion Economies of Scale or Learning 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  can spread costs over a larger sales’ base  increase profit per unit Location Advantages Location 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

8. 8 International Business-Level Strategy: Determinants of National Advantage Factors of production Related and supportingindustries Demandconditions Firm strategy, structure, and rivalry

9. 9 International Business-Level Strategy: Determinants of National Advantage Factors of production: the inputs necessary to compete in any industry Factors 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

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

12. 12 International Business-Level Strategy: Determinants of National Advantage Firm strategy, structure, and rivalry: the pattern of strategy, structure, and rivalry among firms Firm 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

13. 13 International Corporate-Level Strategy Type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies Type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies Some corporate strategies provide individual country units with flexibility to choose their own strategies Some corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies from the home office and coordinate resource sharing across units Others dictate business-level strategies from the home office and coordinate resource sharing across units

14. 14 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

15. 15 product characteristics tailored to local preferencesproduct characteristics tailored to local preferences isolation from global competitionisolation from global competition – establish protected market positions –compete in industry segments most affected by differences among local countries Worldwide Geographic Area Structure: MultinationalHeadquarters Europe UnitedStates MiddleEast/Africa Asia Australia LatinAmerica Multidomestic Strategy

16. 16 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) Historically prominent among Japanese firmsHistorically prominent among Japanese firms

17. 17 standardized products across countriesstandardized products across countries economies of scope and scaleeconomies of scope and scale outsource some primary or support activities to the world’s best providersoutsource some primary or support activities to the world’s best providers decision-making authority centralized in worldwide division headquartersdecision-making authority centralized in worldwide division headquarters Worldwide Product Divisional Structure: GlobalCorporateHeadquarters WorldwideProductsDivision WorldwideProductsDivision WorldwideProductsDivision WorldwideProductsDivision WorldwideProductsDivision WorldwideProductsDivision Global Strategy

18. 18 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

19. 19 Using the Combination Structure: The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures  local responsiveness (multidomestic strategy)  global efficiency (global strategy) Transnational Strategy

20. 20 Environmental Trends Liability of Foreignness  security risks  tighter immigration policies Regionalization  location can affect value creation  may wish to narrow focus to a particular region of the world  enter regional markets sequentially, beginning with the most familiar market

21. 21 Type of Entry Characteristics ExportingHigh cost, low control LicensingLow cost, low risk, little control, low returns Strategic alliancesShared costs, shared resources, shared risks, problems of integration AcquisitionQuick 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 Global Market Entry: Choice of Entry Mode

22. 22 Value Creation 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 markets 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 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. 23 Value Creation 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 markets 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 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

24. 24 Risks in an International Environment Political Risks Economic Risks Political risks include instability in national governmentsinstability in national governments war, both civil and internationalwar, both civil and international potential nationalization of a firm’s resourcespotential nationalization of a firm’s resources Political Risks

25. 25 Risks in an International Environment Economic risks are interdependent with political risks and include differences and fluctuations in the value of different currenciesdifferences and fluctuations in the value of different currencies differences in prevailing wage ratesdifferences in prevailing wage rates difficulties in enforcing property rightsdifficulties in enforcing property rights unemploymentunemployment Political Risks Economic Risks Political Risks

26. 26 Risk Rankings McGraw-Hill/Irwin Strategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. 1Luxembourg99.5125.0024.5120.0030.00 2Switzerland98.8423.8425.0020.0030.00 3United States98.3723.9624.4120.0030.00 40China71.2718.9316.8719.7315.74 55Poland57.1218.5613.979.3615.23 63Vietnam52.0414.8011.9118.516.82 86Russia42.6211.478.3317.994.83 114Albania34.238.485.0419.621.09 161Mozambique21.713.282.7513.851.83 178Afghanistan3.920.003.040.000.88 Total of Credit Total and Access Total RiskEconomicPoliticalDebtto Finance RankCountryAssessmentPerformanceRiskIndicatorsIndicators Exhibit 7.3A Sample of International Country Risk Rankings Source: Adapted from worldbank.org/html/prddr/trans/so96/art7.htm.

27. 27 National Differences in Political Economy Economic Systems  Market economy: what is produced in what quantity is determined by supply/demand and signaled to producers through a price system  Command economy: planned by government  Mixed economy: a balance of both of the above  State-Directed economy: the state directly influences the investment activities of private enterprise through “industrial policy.”

28. 28 National Differences in Political Economy A Legal System is:  rules - laws - that regulate behavior  process through which laws are enforced grievances are redressed Businesses must observe  Home country laws  Host country laws  International Laws and Treaties Different Legal Systems  Common Law  Civil Law  Theocratic Law  Bureaucratic Law Dispute resolution  Where to arbitrate?  Validity of contracts and decisions

29. 29 Legal Systems and International Business  property rights use of a resource use made of income from resource enforcement issues Public vs private action violations  protection of Intellectual Property patent: inventors’ exclusive rights to manufacture, use, sale an invention copyright: same for authors, composers, artists, publishers trademarks: unique designs and names, often officially registered Paris Convention for the Protection of Industrial Property (96 countries) WTO/GATT

30. 30 Legal Systems and International Business product safety and product liability criminal / civil liability contract law  document that specifies conditions under which an exchange will happen rights/obligations of parties  differences based on legal tradition common law system civil law system

31. 31 Language and Culture Language, spoken  “ private” does not exist as a word in many languages  Eskimos: 24 words for snow  Words which describe moral concepts unique to countries or areas: “face” in Asian cultures, “filotimo” in Greece  Spoken language precision important in low-context cultures Language, unspoken  Context... more important than spoken word in low context cultures

32. 32 Relative Ranking of Four Countries on Cultural Values Adapted from Figure 3.2 Rankingoutof50countriesRankingoutof50countries 50 40 30 20 10 Cultural Value Dimension Power Distance Uncertainty Avoidance IndividualismMasculinity Confucian Dynamics Rank Numbers: 1 = Highest; 50 = Lowest Source: Adapted from G. Hofstede and M. H. Bond. The Confucius connection: From cultural roots to economic growth. Organization Dynamics, Spring 1988, pp. 12-13 Canada USA Taiwan Japan 3.7

33. 33 Limits to International Expansion: Management Problems Cost of coordination across diverse geographical business units Cost of coordination across diverse geographical business units Institutional and cultural barriers Institutional and cultural barriers Understanding strategic intent of competitors Understanding strategic intent of competitors The overall complexity of competition The overall complexity of competition