International Strategy

Opportunities and Outcomes of International Strategy

Identify International Opportunities International Strategies Modes of Entry

Increased market size Return on investment Economies of scale and learning Advantage in location

International business-level strategy Multidomestic strategy Global strategy Transnational strategy

Exporting

Licensing
Strategic alliances

Acquisitions
Establishment of a new subsidiary

Motivations for International Expansion

Increase Market Share
domestic market may lack the size to support efficient scale manufacturing facilities

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

 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
low cost markets may aid in developing competitive advantage may achieve better access to: Raw materials Key customers Lower cost labor

International Corporate-Level Strategy

Need for Global Integration
High Global strategy

Transnational strategy

Multidomestic strategy Low Low High

Need for Local Responsiveness

International Corporate-Level Strategy: Multidomestic Strategy

Strategy and operating decisions are decentralized to strategic business units (SBU) Multidomestic in each country strategy 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

International Corporate-Level Strategy: Global Strategy

Global strategy

Products are standardized across national markets Decisions regarding business-level strategies 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 (which also makes it difficult to manage)

International Corporate-Level Strategy: Transnational Strategy

Seeks to achieve both global efficiency and local responsiveness Transnational strategy Difficult 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 advantage

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Global Market Entry: Choice of Entry Mode

Type of Entry
Exporting Licensing
Strategic alliances Acquisition

Characteristics
High cost, low control Low cost, low risk, little control, low returns Shared costs, shared resources, shared risks, problems of integration Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations Complex, often costly, time consuming, high risk, maximum control, potential above-average returns

New wholly owned subsidiary

Strategic Competitiveness 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 may increase a firms 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

Strategic Competitiveness 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 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

Risks in an International Environment

Political Risks Political risks include
instability in national governments war, both civil and international potential nationalization of a firms resources

Economic Risks

Risks in an International Environment

Political Risks Economic Risks

Economic risks are interdependent with political risks and include

differences and fluctuations in the value of different currencies differences in prevailing wage rates difficulties in enforcing property rights unemployment

Limits to International Expansion: Management Problems

Cost of coordination across diverse geographical business units Institutional and cultural barriers Understanding strategic intent of competitors The overall complexity of competition