HI6006

Competitive Strategy

Lecture 8: International Strategy

The Strategic Management Process

T
KNOWLEDGE OBJECTIVES
Explain incentives that can influence firms to use an international
strategy.

Identify three basic benefits firms achieve by successfully

implementing an international strategy.

Explore the determinants of national advantage as the basis

for international business-level strategies.

Describe the three international corporate-level strategies.

Discuss environmental trends affecting the choice of international

strategies, particularly international corporate-level strategies.
KNOWLEDGE OBJECTIVES

Explain the five modes firms use to enter

international markets.

Discuss the two major risks of using international

strategies.
 DOMESTIC VERSUS GLOBAL MARKETS

• Relatively Stable
DOMESTIC • Relatively Predictable
• Less complex
• Globalisation is reducing the
MARKETS number of domestic-only markets.

• Unstable
GLOBAL • Unpredictable
• Complex and risky
• Globalisation is enabling global
MARKETS markets.
Internationalisation as a Strategy
Incentives to Internationalise
 Going International TO EXTEND PRODUCT LIFE CYCLE

2. Product demand 3. Foreign

develops and firm competition
exports products begins production

1. Product sells well in 4. Firm begins

domestic market production abroad

5. Production is standardised and

relocated to low-cost countries
 3 BENEFITS OF INTERNATIONAL STRATEGY

1. Increased market size

• The domestic market may lack the size to
support efficient scale manufacturing facilities.
• Generally, larger international markets offer
higher potential returns and pose less risk
for firms than smaller markets.
• The strength of international markets may
facilitate efforts to more effectively sell and/or
produce products that create value for
customers.
 3 BENEFITS OF INTERNATIONAL STRATEGY

2a. Economies of scale and learning

Expanding size or scope of markets helps achieve
economies of scale in manufacturing as well as
marketing, R&D or distribution.
• Costs are spread over a larger sales base.
• Profit per unit is increased.
 3 BENEFITS OF INTERNATIONAL STRATEGY

2b. Economies of scale and learning

• Firms may also be able to exploit core
competencies in international markets
through resource and knowledge sharing
between units and network partners across
country borders.
• By sharing resources and knowledge in this
manner, firms can learn how to create synergy,
which in turn can help each firm learn how to
produce higher-quality products at a lower
cost.
3 BENEFITS OF INTERNATIONAL STRATEGY

3. Location advantages
• Certain markets may offer superior access to
critical resources, such as raw materials, lower-
cost labour, energy, suppliers and key
customers.
• Cultural influences may be advantageous, as a
strong cultural match facilitates international
business transactions.
• Physical distances affect cost (e.g.
transportation costs) and influence firms’
location choices.
 Business-Level Internationalisation

• International business-level strategies include:

– cost leadership
– differentiation
– focused cost leadership
– focused differentiation
– integrated cost leadership/differentiation.

Activity
Consider some of the following firms’ internationalisation
strategies and say which benefits (e.g. market increase,
economies of scale, location advantage) they have derived
through their expansion into Australia:
Subway, BMW, Aldi, Coca-Cola, H&M, U.S. Military, plus other
examples you can think of.
 Corporate level Internationalisation

• International corporate-level strategies include:

– multi-domestic
– global
– transnational (the combination of the multi-
domestic and global strategies).
• Each international strategy a firm uses must be
based on one or more core competencies.
 Corporate Level Internationalisation

• Strategy focuses on the scope of operations,

including:
– product diversification
– geographic diversification.
• The strategy is required when the firm
operates in:
– multiple industries
– multiple countries or regions.
• Headquarters guides the strategy.
– However, business or country-level
managers can have substantial strategic
input.
Local, Regional, Global,
 Deciding how best to operate across borders

Multi-domestic approach

Strategy and
operating
The strategy
decisions are Products and The focus is
Business assumes
decentralized services are on
units in each markets
to strategic tailored to competition
country are differ by
business local in each
independent. country or
units (SBU) markets. market
regions
in each
country
Deciding how best to operate across borders

Global Approach

Firm offers
The home
standardised
Strategic and office attempts
products This involves
operating to achieve
across country interdependent The strategy
decisions are integration
markets, with SBUs produces
centralised at across SBUs,
the competitive operating in lower risk
the home adding
strategy being each country .
office. management
dictated by the
complexity
home office
 Global Strategy

Global strategy
• Is facilitated by improved global reporting
standards (i.e. accounting and financial)
• Emphasises economies of scale
• Is less responsive to local market opportunities
• Requires resource sharing and coordination across
borders (hard to manage)
• Offers less effective learning processes (pressure
to conform and standardise)
• Is more effective in areas where regional
integration is occurring
 Trans-National Strategy

Transnational strategy
• The strategy seeks to achieve both global efficiency
and local responsiveness, which are competing
goals.
• It requires both:
– centralisation – global coordination and control
– decentralisation – local flexibility.
• The global competitive landscape fosters intense
competition, and thus pressures to reduce costs,
while at the same time information sharing has
intensified the desire for specialised, customised,
differentiated products.
 International Approaches

• KEY ASSUMPTION: country/cultural

differences → need for local
MULTI-DOMESTIC responsiveness
• ADVANTAGE: local responsiveness

• KEY ASSUMPTION: universal demand

GLOBAL → need for global integration
• ADVANTAGE: global efficiencies

• ADVANTAGE: BOTH
TRANSNATIONAL • local responsiveness and global
efficiencies
 International Approaches

• EXAMPLE: Unilever historically has

had a decentralised approach that
MULTI-DOMESTIC allowed regional managers autonomy.

• EXAMPLE: CEMEX is a global building

materials company that centralises
GLOBAL operations in order to gain scale
economies, among other benefits.

• EXAMPLE: Starbucks in China

standardises operations and
TRANSNATIONAL simultaneously
decentralises some decision making for
local responsiveness.
 Dealing with “FOREIGNESS”

• The liability of foreignness refers to the costs

associated with entering foreign markets.
• It also involves overcoming and coordinating four
types of distances:
– cultural
– administrative (unfamiliar operating
environments)
– geographic (challenges of distance
coordination)
– economic.
 REGIONALISATION

• Global strategies are not as prevalent today, as

they are difficult to implement even with
Internet-based strategies.
• Regional focus allows firms to marshal
resources to compete effectively in regional
markets.
• Regionalisation helps increase understanding
of a market, including cultures, legal and social
norms.
 Planned Regional Expansion

• Firms achieve some economies through

coordination and sharing of resources.
• Trade agreements (e.g. EU, ASEAN) promote
trade flows across national boundaries within their
respective regions.
• Most firms enter regional markets sequentially,
beginning in more familiar markets and
introducing their largest and strongest lines of
business first.
 Group Activity

It has been said that international

firms should ‘Think Global and Act
Local’

Consider the term ‘Reglocal’, a

composite of Regional, Local and
Global

Give examples of firms that have

succeeded internationally with this
mindset
Modes of Entry
 CHOICE OF INTERNATIONAL ENTRY MODE

EXPORT

LICENSING

STRATEGIC ALLIANCE

ACQUISITION

NEW WHOLLY
RISK CONTROL
OWNED SUBSIDIARY
INCREASES INCREASES
 Export

• Exporting
– occurs when a firm sends products it
produces in its domestic market to
international markets
– requires minimal expense to establish
operations in the host country
– often involves contractual agreements
– involves high transportation costs.
• Tariffs may be imposed
• There is little control over marketing and
distribution.
 Licensing

An agreement is formed that allows a foreign

company to purchase the right to manufacture
and sell a firm’s products within a host country’s
market or a set of markets.

Licensee:
• Pays a royalty to the licensor on each unit
sold
• Takes higher risk
• Invests in manufacturing
 Strategic Alliance

A strategic alliance:
• is collaboration with a partner firm for
international market entry
• involves shared risks and resources
• facilitates development of core competencies
• involves fewer resources and costs required for
entry
• may involve possible incompatibility, conflict or
lack of trust with partner
• is difficult to manage.
 ACQUISITIONS

In a cross-border acquisition, a firm from one

country acquires a stake in or purchases a firm
located in another country. The acquisition:
• allows for quick access to market
• involves possible integration difficulties
• is costly (debt financing)
• has complex negotiations and transaction
requirements.
 Wholly-owned Subsidiary

In a greenfield venture, a firm invests directly in

another country or market by establishing a new
wholly owned subsidiary. The venture:
• is costly
• involves complex processes
• allows for maximum control
• has the highest potential returns
• carries high risk.
• Protection of IP
Group Activity: Modes of Entry

With reference to
Subway, BMW, Aldi,
Coca-Cola, H&M, U.S.
Military, and many
other examples, what
are the main modes of
entry that have been
used by them when
entering foreign
markets?
International Risks
 EXAMPLES OF POLITICAL AND
ECONOMIC RISKS

? ?
?
?
?
 LIMITATION TO INTERNATIONAL EXPANSION

There are several reasons that explain the limits to

the positive effects of the diversification associated
with international strategies:
• geographic dispersion
• trade barriers
• logistical costs
• cultural diversity and barriers
• complexity of competition
• relationship between firm and host country
• other country differences.
 Expatriation

When a citizen of the firm’s home country is sent to

work in one of the firm’s overseas companies.

Important issues:
 Cross-cultural awareness
 Aculturalisation (getting used to another culture)
 Legal matters
 Financial conventions
 Power-distance (how much authority does a leader hold)
 Reporting relationships (chain of command issues)
 Compensation (hardship allowance?)
 Repatriation

When a citizen of the firm’s home country was sent

to work in one of the firm’s overseas companies and
then returns.

Important issues:
 Reverse culture-shock
 Re-aculturalisation (getting used to one’s own culture over again)
 Banking, Tax and Legal adjustments
 Autonomy – re-fitting within the organization (where do I fit in
now? Maybe they feel like their manager has less experience))
 Career Plan - reporting relationships and the management of
expectations (very important to keep the returning expat
motivated)
Case Analysis – Carlsberg (p504)

Consider the Carlsberg Case and

answer the following questions:

1. List the strategic steps taken

by Carlsberg to allow them to
enter the Russian market

2. What business strategies di

Carlsberg use to gain market
share in China?