Chapter 8
Looking at International
Strategies
OBJECTIVES
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
Use the CAGE framework to identify desirable
international arenas
4
Describe different vehicles for global expansion
5
Apply different international strategy configurations
6
Outline the international strategy implications of the
static and dynamic perspectives
1
DELL GOES TO CHINA
Strategic decisions
If we’ve not in what
will soon be the
second-biggest PC
market in the world,
then how can Dell
possibly be a global
player?
U.S.
China
Vehicles
Assemble
and distribute
itself
Partner
Staging
Consumers
first, then
corporations
Corporations
first
Dell became
China’s largest
computer system
provider in just
5 years
2
INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND
Staging
Arenas
• When will we go international?
• How quickly will we expand into
• Which geographic areas will we enter?
• Which channels will we use in those areas?
international markets?
Arenas
• In what sequence will we
implement our entry tactics?
Vehicles
• Which international
Staging
Economic
logic
Vehicles
market-entry strategies will
we use? Alliances?
Acquisitions? Greenfield
investments?
Differentiators
Economic logic
Differentiators
• How does our international
• How does being international make our
strategy lower our costs, raise the
prices we can charge, or create
synergies between our business?
products more attractive to our customers?
3
PROS VS. CONS OF INTERNATIONAL EXPANSION
Many international expansions fail
Why?
• Pepsi’s ambitious expansion in the
 Newness can be a disadvantage
1990s resulted in a decreased
international market share
• Wal-Marts international businesses
perform poorly relative to its U.S.
business
(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
4
KEY FACTORS – GLOBAL ECONOMIES OF SCALE
Key factors
 Global economies of scale

Global expansion may be attractive if it allows
you to leverage fixed assets over new markets
• 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
5
KEY FACTORS – LOCATION
Key factors
 Global economies of scale

 Location

Choosing the right location can
provide advantages in terms of
•
•
•
•
•
Input costs
Competitors
Demand conditions
Regulatory environment
Presence of complements
A five-forces analysis can help reveal
the attractiveness of a location
6
KEY FACTORS – MULTIPOINT COMPETITION
Key factors
 Global economies of scale

 Location

 Multipoint competition

Expanding into a new market may provide
an opportunity for a “stronghold assault”
For example, French tire maker Michelin had
negligible presence in the U.S. in the 1970s.
It learned of Goodyear’s plans to expand into
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
7
KEY FACTORS – LEARNING AND KNOWLEDGE SHARING
Key factors
 Global economies of scale

 Location

 Multipoint competition

 Learning and knowledge

sharing
Expanding into a new market can create
opportunities to innovate, improve existing
products in existing markets, or develop
ideas for new markets
SC Johnson, for example, used technology
developed in its European operation (a
product for repelling mosquitoes in homes)
to create the “ Glade Plug-ins” air freshener
in the U.S.
8
THE CAGE DISTANCE FRAMEWORK
Cultural distance
Administrative distance
Geography distance
Economic distance
Different languages
Absence of colonial ties
Physical remoteness
Differences in consumer incomes
Different ethnicities; lack
of connective ethnic or
social networks
Absence of shared monetary
or political association
Lack of a common border
Differences in costs and
quality of
Political hostility
Different religions
Size of country
Government policies
Different social norms
Institutional weakness
Weak transportation
or communication links
Attributes creating distance
Lack of sea or river access
Differences in climates
•
•
•
•
•
•
Natural resources
Financial resources
Human resources
Infrastructure
Intermediate inputs
Information or knowledge
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 countryspecific quality
associations (wines)
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)
Source: Recreated from www.business-standard.com/general/pdf/113004_01.pdf.
Products have a low value-ofweight or bulk ratio (cement)
Nature of demand varies with
income level (cars)
Products are fragile or
perishable (glass, fruit)
Economies of standardization or
scale are important (mobile
phones)
Communications and
connectivity are important
(financial services)
Local supervision and
operational requirements are
high (many services)
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 )
9
ADMINISTRATIVE DISTANCE
Free Trade
Agreements
• FTA’s
• Open foreign markets to US exports
• Antidumping
Import Laws
Legal
concerns for
US firms
Foreign Corrupt
Practices Act
Intellectual
Property
Protection
• Anti-bribery provisions
• Patent Cooperation Treaty
• USPTO
10
ADMINISTRATIVE DISTANCE
Decreased distance
between US, Mexico, and
Canada
NAFTA
Historical
Political
Hostilities
Increased distance between Cuba and US
11
ECONOMIC DISTANCE
Deliberate Targeting
“Bottom of the pyramid”
4 billion people
Ex: shampoo for
cold water
12
CHOICE OF ENTRY MODES
Choice of entry
mode
Equity (FDI)
modes
Nonequity
modes
Exports
Contractual
agreements
Alliances and
joint ventures (JVs)
Wholly owned
subsidiaries
Direct exports
Licensing/
franchising
Minority JVs
Greenfield
investments
Indirect exports
Turnkey projects
50/50 JVs
Acquisition
Others
Contracted R&D
Majority JVs
Others
Comarketing
Strategic alliances
(within dotted areas)
Source: Adapted from Pan, Y. and D. Tse, “The Hierarchical Model of Market Entry Modes,” Journal of International Business Studies, 31 (2000), 535-545
13
VEHICLES FOR ENTERING FOREIGN MARKETS
100%
Honda’s initial
entry into the
U.S. market
Bridgestone’s
acquisition of
U.S.-based
Firestone
FDI through
acquisition
FDI
Degree of
ownership
control over
activities performed in the
foreign market
Ford-Mazda
Genentech-Hoffman
LaRoche
Alliance
Exports
Champion
International’s paper
exports through
independent brokers
KFC’s
franchisees
in India
Alliance and
exports
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
Horizons, March/April 2002, 45-54
14
EXPORTING OPTIONS
Shipping
Most common option in relatively close markets and for products
with lower shipping costs
Licensing and
franchising
A firm may form an alliance or franchise giving a local partner the
right and responsibility to operate the firm’s business in their home
market (e.g., Burger King’s expansion in Europe)
Special
agreements
A firm may enter Turnkey project agreements, R&D contracts, or
joint-marketing initiatives (e.g., a German firm Bayer AG contracts
large R&D projects to a U.S. firm)
15
ALLIANCES
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
16
FOREIGN DIRECT INVESTMENT
Foreign
company
Acquires
Local
company
Home country/
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
17
IMPORTING
Importing is often a
“stealth” form of
internationalization
because a firm will claim
to have no international
operations and yet
directly or indirectly
base production or
service delivery abroad
Country A
Production
Country B
Customer
service
“Domestic”
company
Home country
Country C
Logistics
18
INTERNATIONAL STRATEGY CONFIGURATIONS
Relatively few
opportunities to gain
global efficiencies
Relatively high
local
responsiveness
Multinational configuration
Build flexibility to respond to national difference
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
local
responsiveness
International configuration
Exploit parent-company knowledge and 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
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, globalscale operations . Requires centralized and globally
scaled resources and capabilities
Example : Companies such as Merck and HewlettPackard give particular subsidiaries a worldwide
mandate to leverage and disseminate their unique
capabilities and specialized knowledge worldwide
Source: Bartlett, C., S. Ghoshal, & J. Birkenshaw, Transnational Management (New York: Irwin, 2004)
19
BORN – GLOBAL FIRMS
More and more firms, even young, small ones, have operations
that bridge national borders
Logitech
Founded by
R&D
Production
• 2 Italians
• California
• Ireland
• 1 Swiss
• Switzerland
• Taiwan
30% of
global PC
mouse business by
1989
20
HOW TO SUCCEED AS A GLOBAL START-UP
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
If yes,
Put together tools you will
need to move into global market
 Strong management team with international experience
 Broad and deep international network
among suppliers, customers,
and complements
 Preemptive marketing or technology to
provide first-mover advantage
 Strong intangible assets
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?
 Ability to keep customers locked in by
linking new products and services to core
business, while you innovate
 Close worldwide coordination and communication among business units,
suppliers, complements and customers
21
DEVELOPING A GLOBAL MIND-SET
Global skills
Having an
appreciation for the
differences between
countries and
people and seeing
these differences as
opportunities
Global perspective
Global mindset
Having developed
skills for
managing diverse
teams in a worldwide work force
22
EXPATRIATES AND INPATRIATES
Expatriates
From the home
country
Inpatriates
From the local
or host country
23
HOW WOULD YOU DO THAT?
If you were CEO, how would you build a
global perspective in your executives?
Tactic
Fewer than 15%
of executives
have substantive
international
experience
Action steps
1
Teams
?
2
Training
?
3
Transfers
?
4
???
?
24