1 international strategy. 2 exporting licensing strategic alliances acquisitions establishment of a...
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International Strategy
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
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International Corporate-Level Strategy
Need for Local Responsiveness
Ne
ed
fo
r G
lob
al In
teg
rati
on
LowLow
HighHigh
LowLow HighHigh
GlobalGlobalstrategystrategy
TransnationalTransnationalstrategystrategy
MultidomesticMultidomesticstrategystrategy
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Pressures for Global Integration & Local Responsiveness
High
HighLowLow
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 ReductionPressures
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Better Better performanceperformance
InnovationInnovation
Opportunities and Outcomes of International Strategy: Continued
ExportingExporting
LicensingLicensing
Strategic Strategic alliancesalliances
AcquisitionsAcquisitions
Establishment of Establishment of a new subsidiarya new subsidiary
Use Core Use Core CompetenceCompetence
Modes of EntryModes of Entry Managementproblems andrisk
Managementproblems andrisk
Strategic Strategic Competitiveness Competitiveness OutcomesOutcomes
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Return to Discussion Questions
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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
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Motivations for International Expansion
Economies of Scale or LearningEconomies of Scale or Learning expanding size or scope of markets helps to expanding size or scope of markets helps to
achieve economies of scale in achieve economies of scale in manufacturing as well as marketing, R & D manufacturing as well as marketing, R & D or distributionor distribution
can spread costs over a larger sales’ basecan spread costs over a larger sales’ base increase profit per unitincrease profit per unit
Location AdvantagesLocation Advantages low cost markets may aid in developing low cost markets may aid in developing
competitive advantagecompetitive advantage may achieve better access to:may achieve better access to:
• Raw materialsRaw materials• Lower cost laborLower cost labor
• Key customersKey customers• EnergyEnergy
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International Business-Level Strategy: Determinants of National Advantage
Factors ofFactors ofproductionproduction
Related andRelated andsupportingsupportingindustriesindustries
DemandDemandconditionsconditions
Firm strategy,Firm strategy,structure, andstructure, and
rivalryrivalry
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International Business-Level Strategy: Determinants of National Advantage
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
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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 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
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International Business-Level Strategy: Determinants of National Advantage
Related and supporting industries: supporting services, facilities, suppliers and so on support in design support in distribution related industries as suppliers and buyers
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International Business-Level Strategy: Determinants of National Advantage
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
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International Corporate-Level Strategy
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
Others dictate business-level strategies from the home office and coordinate resource sharing across units
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MultidomesticMultidomesticstrategystrategy
International Corporate-Level Strategy: Multidomestic 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
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• product characteristics tailored to local preferences
• isolation from global competition
– establish protected market positions–compete in industry segments most affected by differences among local countries
Worldwide Geographic Area Structure:
MultinationalMultinationalHeadquartersHeadquarters
EuropeEurope
UnitedUnitedStatesStates
MiddleMiddleEast/East/
AfricaAfrica
AsiaAsia
AustraliaAustralia
LatinLatinAmericaAmerica
Multidomestic Strategy
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International Corporate-Level Strategy: Global Strategy
GlobalGlobalstrategystrategy
• 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)
• Historically prominent among Japanese firms
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• standardized products across countries
• economies of scope and scale
• outsource some primary or support activities to the world’s best providers
• decision-making authority centralized in worldwide division headquarters
Worldwide Product Divisional Structure:
GlobalGlobalCorporateCorporate
HeadquartersHeadquarters
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
Global Strategy
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TransnationalTransnationalstrategystrategy
International Corporate-Level Strategy: Transnational 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
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Using the Combination Structure:
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
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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
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Type of EntryType of Entry CharacteristicsCharacteristics
Exporting High cost, low control
Licensing Low cost, low risk, little control, low returns
Strategic alliances Shared costs, shared resources, shared risks, problems of integration
Acquisition Quick 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
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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 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
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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 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
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Risks in an International Environment
Political RisksPolitical Risks Economic RisksEconomic Risks
Political risks include• instability in national governments• war, both civil and international• potential nationalization of a firm’s resources
Political RisksPolitical Risks
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Risks in an International Environment
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 RisksPolitical Risks Economic RisksEconomic RisksPolitical RisksPolitical Risks
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Risk Rankings
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
1 Luxembourg 99.51 25.00 24.51 20.00 30.002 Switzerland 98.84 23.84 25.00 20.00 30.003 United States 98.37 23.96 24.41 20.00 30.00
40 China 71.27 18.93 16.87 19.73 15.7455 Poland 57.12 18.56 13.97 9.36 15.2363 Vietnam 52.04 14.80 11.91 18.51 6.8286 Russia 42.62 11.47 8.33 17.99 4.83
114 Albania 34.23 8.48 5.04 19.62 1.09161 Mozambique 21.71 3.28 2.75 13.85 1.83178 Afghanistan 3.92 0.00 3.04 0.00 0.88
Total of Credit
Total and AccessTotal Risk Economic Political Debt to Finance
Rank Country Assessment Performance Risk Indicators Indicators
Exhibit 7.3 A Sample of International Country Risk RankingsSource: Adapted from worldbank.org/html/prddr/trans/so96/art7.htm.
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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.”
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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
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Legal Systems and International Business
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
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Legal Systems and International Business
product safety and product liability
criminal / civil liability
contract lawdocument that specifies
conditions under which an exchange will happen rights/obligations of parties
differences based on legal tradition
common law system civil law system
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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
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Relative Ranking of Four Countries on Cultural Values
Ranking
out
of
50
countries
50
40
30
20
10
Cultural Value Dimension
PowerDistance
UncertaintyAvoidance
Individualism Masculinity ConfucianDynamics
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
Canada
USA
USATaiwan
Taiwan
Japan
Japan
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Limits to International Expansion: Management Problems
Cost of coordination across diverse Cost of coordination across diverse geographical business unitsgeographical business units
Institutional and cultural barriersInstitutional and cultural barriers Understanding strategic intent of competitorsUnderstanding strategic intent of competitors The overall complexity of competitionThe overall complexity of competition