CONFIDENTIAL

Chapter 8
Looking at International
Strategies

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OBJECTIVES
Unit of measure

1 Define international strategy and identify its

implications for the strategy diamond

2 Understand why a firm would want to expand

internationally and explain the relationship between
international strategy and competitive advantage

3 Describe different vehicles for international

expansion

4 Apply different international strategy configurations

5 Outline the international strategy implications of

the static and dynamic perspectives

* Footnote
2
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DELL GOES TO CHINA
Unit of measure

Strategic decisions
If we’ve not in what U.S. China
will soon be the
Vehicles Assemble Partner Dell became
second-biggest PC China’s largest
market in the world, and distribute
computer system
itself
then how can Dell provider in just
possibly be a global 5 years
Staging Consumers Corporations
player? first, then first
corporations

* Footnote
3
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INTERNATIONAL PRESENCE OF SELECTED MULTINATIONAL CORPORATIONS
(MNCs)
Unit of measure

Sales in Sales in
domestic
Domestic Total sales foreign
Company market Products $ Millions market markets
Percent
Nokia Finland Cell phones 37,031 1 99
Percent

Audi Germany Automobiles 29,378 32 68

Clarion Japan Audio 1,540 52 48

equipment

Apple U.S. Computers, 8,279 59 41

electronics

eBay U.S. Online 2,165 65 35

auctions

Papa John’s U.S. Pizza 917 96 4

* Footnote
4
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INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND
Unit of measure
Staging Arenas
• When will we go international? • Which geographic areas will we enter?
• How quickly will we expand into • Which channels will we use in those areas?
international markets?
• In what sequence will we Arenas
implement our entry tactics? Vehicles
• Which international
Economic market-entry strategies will
Staging Vehicles we use? Alliances?
logic
Acquisitions? Greenfield
investments?

Differentiators

Economic logic Differentiators

• How does our international • How does being international make our
strategy lower our costs, raise the products more attractive to our customers?
prices we can charge, or create
synergies between our business?
* Footnote
5
Source: Source
PROS VS. CONS OF INTERNATIONAL EXPANSION
Unit of measure
Many international expansions fail
• Pepsi’s ambitious expansion in the
1990s resulted in a decreased
international market share
• Wal-Marts international businesses
perform poorly relative to its U.S.
business
* Footnote
Source: Source
Why?
 Newness can be a disadvantage
(e.g., your firm must move
up the learning curve)
 Foreignness can be a liability
(e.g., your managers may not
understand local culture)
 Governance and coordination
costs increase as you manage
from a distance
6
KEY FACTORS – GLOBAL ECONOMIES OF SCALE
Unit of measure

Key factors Global expansion may be attractive if it allows

you to leverage fixed assets over new markets

 Global economies of scale
• Pharmaceutical firms such as Pfizer, can
leverage large R&D budgets
• CitiGroup, McDonald’s, and Coca-Cola can
leverage brands
• MITY can leverage its excess capacity to
produce chairs and thereby reduce average
costs

* Footnote
7
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KEY FACTORS – LOCATION
Unit of measure

Key factors Choosing the right location can

provide advantages in terms of

 Global economies of scale
• Input costs

 Location • Competitors
• Demand conditions
• Regulatory environment
• Presence of complements
A five-forces analysis can help reveal
the attractiveness of a location

* Footnote
8
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KEY FACTORS – MULTIPOINT COMPETITION
Unit of measure

Key factors Expanding into a new market may provide

an opportunity for a “stronghold assault”

 Global economies of scale
For example, French tire maker Michelin had

 Location negligible presence in the U.S. in the 1970s.
It learned of Goodyear’s plans to expand into
 Multipoint competition
 Europe, so it launched a counter attack. It
started selling tires in the U.S. at or below
cost, and thereby forced Goodyear to drop
prices and cut profits in its core market

* Footnote
9
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KEY FACTORS – LEARNING AND KNOWLEDGE SHARING
Unit of measure

Key factors Expanding into a new market can create

opportunities to innovate, improve existing

 Global economies of scale products in existing markets, or develop
ideas for new markets

 Location
SC Johnson, for example, used technology
 Multipoint competition
 developed in its European operation (a
 Learning and knowledge product for repelling mosquitoes in homes)

to create the “ Glade Plug-ins” air freshener
sharing
in the U.S.

* Footnote
10
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THE CAGE DISTANCE FRAMEWORK
UnitCultural
of measure
distance
Attributes creating distance
Different languages
Different ethnicities; lack
of connective ethnic or
social networks
Different religions
Different social norms
Industries or products affected by distance
Products have high
linguistic content (TV)
Products affect cultural or
national identity of
consumers (foods)
Product features vary in
terms of size (cars),
standards (electrical
appliances), or packaging
Products carry country-
specific quality
associations (wines)
* Footnote
Source: Recreated from www.business-standard.com/general/pdf/113004_01.pdf.
Source: Source
Administrative distance
Absence of colonial ties
Absence of shared monetary
or political association
Political hostility
Government policies
Institutional weakness
Government involvement is high
in industries that are
• Producers of staple goods
(electricity)
• Producers of other
“entitlements” (drugs)
• Large employers (framing)
• Large suppliers to government
(mass transportation)
• National champions
(aerospace)
• Vital to national security
(telecom)
• Exploiters of natural resources
(oil, mining)
• Subject to high sunk costs
(infrastructure)
Geography distance
Physical remoteness
Lack of a common border
Lack of sea or river access
Size of country
Weak transportation
or communication links
Differences in climates
Products have a low value-of-
weight or bulk ratio (cement)
Products are fragile or
perishable (glass, fruit)
Communications and
connectivity are important
(financial services)
Local supervision and
operational requirements are
high (many services)
Economic distance
Differences in consumer incomes
Differences in costs and
quality of
• Natural resources
• Financial resources
• Human resources
• Infrastructure
• Intermediate inputs
• Information or knowledge
Nature of demand varies with
income level (cars)
Economies of standardization or
scale are important (mobile
phones)
Labor and other factor cost
differences are salient
(garments)
Distribution or business systems
are different (insurance)
Companies need to be
responsive and agile (home
appliances )
11
CHOICE OF ENTRY MODES
Unit of measure
Choice of entry
mode

Equity (FDI)
Nonequity
modes
modes

Contractual Alliances and Wholly owned

Exports
agreements joint ventures (JVs) subsidiaries

Licensing/ Greenfield
Direct exports Minority JVs
franchising investments

Indirect exports Turnkey projects 50/50 JVs Acquisition

Others Contracted R&D Majority JVs Others

Strategic alliances
Comarketing
(within dotted areas)

* Footnote
Source: Adapted from Pan, Y. and D. Tse, “The Hierarchical Model of Market Entry Modes,” Journal of International Business Studies, 31 (2000), 535-545 12
Source: Source
VEHICLES FOR ENTERING FOREIGN MARKETS
Unit of measure 100%
Honda’s initial Bridgestone’s
entry into the acquisition of FDI through
U.S. market U.S.-based acquisition
Firestone
FDI
Degree of
ownership
control over Ford-Mazda
activities per- Genentech-Hoffman Alliance
formed in the
foreign market Exports LaRoche

Champion
KFC’s
International’s paper Alliance and
franchisees
exports through exports
in India
independent brokers
0%
100% Exports 100% Local
Exports versus local production
Source: Examples drawn from in Gupta, A., and V. Govindarajan, “Managing Global Expansion: A Conceptual Framework,” business
* Footnote
Horizons, March/April 2002, 45-54 13
Source: Source
EXPORTING OPTIONS
Unit of measure

Most common option in relatively close markets and for products

Shipping
with lower shipping costs

A firm may form an alliance or franchise giving a local partner the

Licensing and
right and responsibility to operate the firm’s business in their home
franchising
market (e.g., Burger King’s expansion in Europe)

A firm may enter Turnkey project agreements, R&D contracts, or

Special
joint-marketing initiatives (e.g., a German firm Bayer AG
agreements
contracts large R&D projects to a U.S. firm)

* Footnote
14
Source: Source
ALLIANCES
Unit of measure

Until recently, China did not allow

non-Chinese companies in China …

U.S. firm Chinese Firm

… so U.S. companies formed

alliances to gain access

* Footnote
15
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FOREIGN DIRECT INVESTMENT
Unit of measure

Foreign Acquires Local Home country/

company company market

• South African Breweries purchase Miller Brewing in

2002 to gain access to U.S. customers and brewing
capacity
• DaimlerChrysler and BMW each invested $250
million to start local factories in Brazil

* Footnote
16
Source: Source
IMPORTING
Unit of measure

Importing is often a
“stealth” form of Country A
internationalization
because a firm will claim Production
to have no international
operations and yet
Country B
directly or indirectly “Domestic”
base production or Customer Home country
company
service delivery abroad service

Country C

Logistics

* Footnote
17
Source: Source
HOW WOULD YOU DO THAT? – LAURA ASHLEY
Unit of measure

In the early 1990s, U.S. Maxmin realized he needed a

executive Jim Maxmin partner that satisfies 3 key
was brought in as CEO conditions
to turn around Laura 1. Complementary needs and • Why were each
Ashley. competencies of these three
The company’s conditions
distribution system was 2. Similar management styles important?
in shambles and and operating systems
• Who did Maxmin
Maxmin needed to fix it 3. Divergent strategic choose as a
objectives partner?

* Footnote
18
Source: Source
INTERNATIONAL STRATEGY CONFIGURATIONS
Unit of measure
Relatively few
opportunities to gain
global efficiencies
Relatively high Multinational configuration
local Build flexibility to respond to national difference
responsiveness through strong, resourceful, entrepreneurial, and
somewhat independent national or regional
operations. Requires decentralized and relatively
self-sufficient units
Example : MTV initially adopted an international
configuration (using only American programming in
foreign markets) but then changed its strategy to a
multinational one. It now tailors its Western
European programming to each market, offering
eight channels, each in a different language
Relative low International configuration
local Exploit parent-company knowledge and
responsiveness capabilities through worldwide diffusion, local
marketing, and adaptation. The most valuable
resources and capabilities are centralized; others,
such as local marketing and distribution, are
decentralized
Example : When Wal-Mart initially set up its
operations in Brazil, it used its U.S. stores as a
model for international expansion
* Footnote
Source: Bartlett, C., S. Ghoshal, & J. Birkenshaw, Transnational Management (New York: Irwin, 2004)
Source: Source
Many opportunities to
gain global efficiencies
Transnational configuration
Develop global efficiency, flexibility, and worldwide
learning. Requires dispersed, interdependent, and
specialized capabilities simultaneously
Example : Nestle has taken steps to move in this
direction, starting first with what might be described
as a multinational configuration
Today, Nestle aims to evolve from a decentralized,
profit-center configuration to one that operates as a
single, global company. Firms like Nestle have taken
lessons from leading consulting firms such as
McKinsey and Company, which are globally dispersed
but have a hard-driving, one-firm culture at their core.
Global configuration
Build cost advantages through centralized, global-
scale operations . Requires centralized and globally
scaled resources and capabilities
Example : Companies such as Merck and Hewlett-
Packard give particular subsidiaries a worldwide
mandate to leverage and disseminate their unique
capabilities and specialized knowledge worldwide
19
BORN – GLOBAL FIRMS
Unit of measure
More and more firms, even young, small ones, have operations
that bridge national borders

Logitech

Founded by R&D Production

30% of
• 2 Italians • California • Ireland global PC
mouse busi-
• 1 Swiss • Switzerland • Taiwan ness by
1989

* Footnote
20
Source: Source
HOW TO SUCCEED AS A GLOBAL START-UP
Unit of measure
Consider if you should be a
global start-up
• Do you need human resources from
other countries to succeed?
• Do you need financial capital from
other countries to succeed?
• If you go global, will target customers
prefer your services over competitor's?
• Can you put an international system in
place more quickly than domestic
competitors?
• Do you need global scale and
scope to justify the financial and human
capital investment?
• Will a purely domestic focus now make it
harder for you to go global
in the future?
* Footnote
Source: Source
If yes,
Put together tools you will
need to move into global market
 Strong management team with inter-
national experience
 Broad and deep international network
among suppliers, customers,
and complements
 Preemptive marketing or technology to
provide first-mover advantage
 Strong intangible assets
 Ability to keep customers locked in by
linking new products and services to core
business, while you innovate
 Close worldwide coordination and com-
munication among business units,
suppliers, complements and customers
21
DEVELOPING A GLOBAL MIND-SET
Unit of measure

Global mindset

Having an Global perspective

appreciation for the Having developed

Global skills
differences between skills for
countries and managing diverse
people and seeing teams in a world-
these differences as wide work force
opportunities

* Footnote
22
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HOW WOULD YOU DO THAT?
Unit of measure

If you were CEO, how would you build a

global perspective in your executives?

Tactic Action steps

1 Teams ?

Fewer than 15%

of executives 2 Training ?
have substantive
international 3 Transfers ?
experience

4 ??? ?

* Footnote
23
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SUMMARY
Unit of measure

1 Define international strategy and identify its

implications for the strategy diamond

2 Understand why a firm would want to expand

internationally and explain the relationship between
international strategy and competitive advantage

3 Describe different vehicles for international

expansion

4 Apply different international strategy configurations

5 Outline the international strategy implications of

the static and dynamic perspectives

* Footnote
24
Source: Source