1 chapter 8 - international strategy mgnt428 business policy & strategy dr. gar wiggs,...

11

Chapter 8 - Chapter 8 - International StrategyInternational Strategy

MGNT428 BUSINESS POLICY & STRATEGYMGNT428 BUSINESS POLICY & STRATEGYDr. Gar Wiggs,Dr. Gar Wiggs,

InstructorInstructor

22

Knowledge ObjectivesKnowledge Objectives

• Studying this chapter should provide you with the strategic management knowledge needed to:– Explain traditional and emerging motives for firms to pursue

international diversification.

– Explore the four factors that lead to a basis for international business-level strategies.

– Define the three international corporate-level strategies: multidomestic, global, and transnational.

– Discuss the environmental trends affecting international strategy, especially liability of foreignness and regionalization.

33

Knowledge Objectives (cont’d)Knowledge Objectives (cont’d)

• Studying this chapter should provide you with the strategic management knowledge needed to:

Name and describe the five alternative modes for entering international markets.

Explain the effects of international diversification on firm returns and innovation.

Name and describe two major risks of international diversification.

Explain why the positive outcomes from international expansion are limited.

44

Figure 1.1Figure 1.1

Copyright © 2004 South-Western. All rights reserved.

The Strategic The Strategic Management Management

ProcessProcess

55

Opportunities and Outcomes of Opportunities and Outcomes of International StrategyInternational Strategy


66

Identifying International Identifying International OpportunitiesOpportunities

• 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

77

Classic Rationale for International Classic Rationale for International Diversification: Extend Product’s Life Diversification: Extend Product’s Life

CycleCycle

Production is standardized and Production is standardized and relocated to low cost countries.relocated to low cost countries.

Product DemandProduct DemandDevelops and FirmDevelops and FirmExports ProductsExports Products

Firm IntroducesFirm IntroducesInnovation inInnovation in

Domestic MarketDomestic Market

ForeignForeignCompetitionCompetition

Begins ProductionBegins Production

Firm BeginsFirm BeginsProduction AbroadProduction Abroad

88

International Strategy BenefitsInternational Strategy Benefits

• 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

99

International Strategy Benefits International Strategy Benefits (cont’d)(cont’d)

• 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– Can increase profit per unit

1010

International Strategy Benefits (cont’d)International Strategy Benefits (cont’d)

• Competitive advantage through location

– Low cost markets aid in developing competitive advantage by providing access to:

• Raw materials

• Lower cost labor

• Key customers

• Energy

1111

Determinants of National Determinants of National AdvantageAdvantage

SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright ©1990, 1998 by Michael E. Porter. Figure 8.2Figure 8.2

1212

Determinants of National Determinants of National AdvantageAdvantage

• 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 an educated workforce

1313

Determinants of National Determinants of National Advantage Advantage (cont’d)(cont’d)

• Demand conditions: characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services– Size of the 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

1414


• Related and supporting industries: supporting services, facilities, suppliers and so on

– Support in design

– Support in distribution

– Related industries as suppliers and buyers

1515


• 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

1616

Selecting an International Selecting an International Corporate-Level StrategyCorporate-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

– Others dictate business-level strategies from the home office and coordinate resource sharing across units

1717

International Corporate-Level International Corporate-Level StrategyStrategy

• Focuses on the scope of operations:– Product diversification– Geographic diversification

• Required when the firm operates in:– Multiple industries, and– Multiple countries or regions

• Headquarters unit guides the strategy– But business or country-level managers can

have substantial strategic input

1818

International International Corporate-Corporate-

Level Level StrategiesStrategies


1919

Multidomestic StrategyMultidomestic 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

2020

Global StrategyGlobal 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 (hard to manage)

2121

Transnational StrategyTransnational 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

• Must pursue organizational learning to achieve competitive advantage

2222

Environmental TrendsEnvironmental Trends

• Liability of foreignness– Legitimate concerns about the relative attractiveness

of global strategies– Global strategies not as prevalent as once thought– Difficulty in implementing global strategies

• Regionalization– Focusing on particular region(s) rather than on global

markets– Better understanding of the cultures, legal and social

norms

2323

Choice of International Entry Choice of International Entry ModeMode

Type of EntryType of Entry CharacteristicsCharacteristics

ExportingExporting High cost, low controlHigh cost, low control

LicensingLicensing Low cost, low risk, little control, low Low cost, low risk, little control, low returnsreturns

Strategic alliancesStrategic alliances Shared costs, shared resources, shared Shared costs, shared resources, shared risks, problems of integrationrisks, problems of integration

AcquisitionAcquisition Quick access to new market, high cost, Quick access to new market, high cost, complex negotiations, problems of complex negotiations, problems of merging with domestic operationsmerging with domestic operations

New wholly owned New wholly owned subsidiarysubsidiary

Complex, often costly, time consuming, Complex, often costly, time consuming, high risk, maximum control, potential high risk, maximum control, potential above-average returnsabove-average returns

Table 8.1Table 8.1

2424

Dynamics of Mode of EntryDynamics of Mode of Entry

The firm has no foreign manufacturing expertise and requires investment only in distribution.

The firm has no foreign manufacturing expertise and requires investment only in distribution.

ExportExport

What’s the best solution?What’s the best solution?

SituationSituation Optimal SolutionOptimal Solution

2525


The firm needs to facilitate the product improvements necessary to enter foreign markets.

The firm needs to facilitate the product improvements necessary to enter foreign markets.

LicensingLicensing



2626


The firm needs to connect with an experienced partner already in the targeted market.

The firm needs to connect with an experienced partner already in the targeted market.

Strategic AllianceStrategic Alliance



2727


The firm needs to reduce its risk through the sharing of costs.

The firm needs to reduce its risk through the sharing of costs.




2828


The firm is facing uncertain situations such as an emerging economy in its targeted market.

The firm is facing uncertain situations such as an emerging economy in its targeted market.




2929


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.

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

Wholly-owned Subsidiary



3030

International Diversification and International Diversification and ReturnsReturns

• 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

3131

International Diversification and International Diversification and InnovationInnovation

• Expansion sales of goods or services across global regions and countries and into different geographic locations or markets:– May yield potentially greater returns on innovations (a

larger market)– Can generate additional resources for investment in

innovation– Provides exposure to new products and processes in

international markets; generates additional knowledge leading to innovations

3232

Complexity of Managing Complexity of Managing Multinational FirmsMultinational Firms

• Expansion into global operations in different geographic locations or markets:

– Makes implementing international strategy increasingly complex

– Can produce greater uncertainty and risk

– May result in the firm becoming unmanageable

– May cause the cost of managing the firm to exceed the benefits of expansion

– Exposes the firm to possible instability of some national governments

3333

Risk in the International Risk in the International EnvironmentEnvironment

Political risks include: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 Political RisksRisks

Economic Economic RisksRisks

3434


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

Political Political RisksRisks

Economic Economic RisksRisks

3535


Figure 8.4aFigure 8.4a

3636

Risk in the International Environment Risk in the International Environment (cont’d)(cont’d)

Figure 8.4bFigure 8.4b

3737

Limits to International ExpansionLimits 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

1 chapter 8 - international strategy mgnt428 business policy & strategy dr. gar wiggs,...

Documents

international expansion

unit slide

instructor slide

pattern of strategy

type of corporate strategy

educated workforce slide

multidomestic strategy

production firm