PART III
CREATING COMPETITIVE ADVANTAGE
Chapter 10
International Strategy
1
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Key Terms
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International diversification
Strategy through which a firm expands the
sales of its goods or services across the borders
of global regions and countries into different
geographic locations or markets
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Key Terms
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International strategy
Strategy through which the firm sells its
goods or services outside the domestic
market
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Increased market size
Greater returns on major capital
investments or on investments in new
products and processes
Greater economies of scale, scope, or
learning
Potential for competitive advantage(s)
based on location
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Limited domestic economies or
growth opportunities
Both opportunities and challenges in
emerging markets
Impact of local cultures and customs
Impact of international market size
Extended product life cycle
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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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Expand size or scope of
markets to achieve
economies of scale
Spread costs over a larger
sales base
Increase profit per unit
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Competitive advantages are
available in low cost markets
Access to critical resources:
 Raw materials
 Low-cost factors of production
 Low-cost labor
 Key customers
 Energy
 Other natural resources
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Type of expansion approach
How to use distinctive competencies
to create advantages
Mode of entry into new markets
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Key Terms
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International corporate-level strategy
Strategy which focuses on the scope of a
firm’s operations through both product and
geographic diversification
Worldwide Presence
or
Regionalization
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Trade agreements and institutions
Ability to understand the cultures,
legal and social norms, and other
factors that are important for
effective competition in specific
markets
Sequential market entry
Liabilities associated with being a foreign business in a
highly different business environment can make competing
on a worldwide scale risky and expensive.
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Employment contracts and labor forces differ.
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Host governments make different demands
and requirements to compete in their markets.
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Understanding customers may be difficult.
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Key Terms
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Multidomestic strategy
International strategy in which strategic and
operating decisions are decentralized to the strategic
business unit in each country to allow that unit to
tailor products to the local market
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Worldwide geographic area structure
Organizational structure which emphasizes national
interests and facilitates the firms' efforts to satisfy
local or cultural differences (used to implement the
multidomestic strategy)
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Focus on variations of competition within
each country
Customize products to meet specific needs
and preferences of local customers
Decentralize decisions to business units in
each country
Compete in industry segments most
affected by differences among local
countries
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Expands the firm’s local market share
Maximizes competitive responsiveness to
local conditions
Establishes protected market positions
Isolates the firm from global competitive
forces
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Lowers efficiency levels
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Increases uncertainty
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Key Terms
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Global strategy
International strategy through which the firm offers
standardized products across country markets, with the
competitive strategy being dictated by the home office
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Worldwide product divisional structure
Organizational structure in which decision-making
authority is centralized in the worldwide division
headquarters to coordinate and integrate decisions and
actions among divisional business units (used to
implement the global strategy)
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Integrate interdependent strategic business
units operating in each country
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Emphasize economies of scale
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Share resources across country boundaries
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Centralize decisions at the home office
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Utilize innovations developed at the
corporate level or in one country in other
markets
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Maximizes integration across business units
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Produces standardization
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Lowers risk
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Fosters a shared vision of the firm’s strategy
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Lowers responsiveness to local needs and preferences
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Permits missed opportunities in local markets
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Reduces effectiveness of learning processes
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Adds management complexity
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Key Terms
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Transnational strategy
International strategy through which the firm seeks to
achieve both global efficiency and local responsiveness
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Flexible coordination
Building a shared vision and individual commitment through
an integrated network
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Worldwide combination structure
Organizational structure in which characteristics and
mechanisms are drawn from both the worldwide geographic
area structure and the worldwide product divisional
structure (used to implement the transnational strategy)
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Assets and operations may be
centralized/decentralized
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Functions may be integrated/nonintegrated
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Relationships may be formal/informal
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Coordination mechanisms may leverage
efficiency/flexibility
Mandates to subsidiaries may be
global/specialized-contribution/localizedimplementation
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Global Mandate
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Specialized Contribution
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Local Implementation
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Strong educational component to support
the culture
Adaptation of core competencies in local
economies to gain competitive benefits
Effective corporate headquarters to foster
leadership, shared vision, and strong
corporate identity
Centers of excellence to foster multiple and
dispersed capabilities
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Emphasis on global efficiency is increasing as
more industries begin to experience global
competition
Emphasis on local requirements is also increasing
Multinational firms desire coordination and
sharing of resources across country markets to
hold down costs
Some products and industries are more suited
than others for standardization across country
borders
Global
Corporate-Level
Strategy
Multidomestic
Corporate-Level
Strategy
Subsidiaries play the role of local
implementer
Subsidiaries have more control over
approaches used in their own domestic
markets
Usually associated with a cost
leadership strategy
Generic strategy depends on local
conditions and capabilities
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Low cost way to establish operations
in host country
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Often through contractual agreements
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High transportation costs
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Potential for tariffs
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Low control over marketing and
distribution
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Low cost way to expand internationally
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Risks absorbed by licensee
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Low control over manufacturing and
marketing
Lower potential returns (shared with
licensee)
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Risk of imitation by licensee
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Ownership arrangements often inflexible
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Fewer entry resources and costs required
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Shared risks and resources
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Potential core competency development
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Possible partner incompatibility, conflict,
or lack of trust
Management difficulties
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Quick access to market
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Costly
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Possible integration difficulties
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Complex negotiations and
transaction requirements
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Costly mode of entry
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High process complexity
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Maximum control
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Highest potential returns
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High risk
Strategy Use
Early stages of international Export
expansion
Licensing
Facing uncertainty
Strategic Alliances
To secure a stronger
Acquisitions
presence
Greenfield Ventures
Later stages of international
expansion
Valuable, transferrable core
competencies are present
Emerging economies
Acquisitions
Greenfield Ventures
Acquisitions
Greenfield Ventures
Large Diversified Businesses
Korean Chaebols
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International Diversification and Returns
International Diversification and Innovation
International Diversification and Risk
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Economies of scale and experience
Location advantages
Greater market size
Stability of returns
Lower overall firm risk
Exploitation of core competencies
Knowledge resource sharing
Global scanning for opportunities
Structural flexibility
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Access to larger and more markets
Lower R&D investment risk
Exposure to new products and processes
Opportunity to integrate new knowledge
into operations
Generation of resources to sustain
innovation efforts
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Political risks
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Economic risks
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Other formal institutional risks
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Government instability
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Conflict/war
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Government regulations
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Conflicting and diverse legal authorities
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Potential nationalization of private assets
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Government corruption*
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Changes in national leadership
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Changes in government policies
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Differences and fluctuations in
currency values
Investment losses due to political
risks
Potential infrastructure or
financial system damage from
major disasters
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Geographic dispersion
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Costs of coordination
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Logistical costs
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Trade barriers
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Cultural diversity
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Barriers to competitive advantage
transfer
Host governments
As firms internationalize, they may be
tempted to locate facilities where product
liability laws are lax in testing new products.
Is this an acceptable practice? Why or why
not?
Regulation and laws regarding the sale and
distribution of tobacco products are stringent
in the U.S. market. What are the ethical
implications of U.S. firms pursuing marketing
strategies for tobacco products in other
countries that would be illegal in the United
States?
Some companies outsource production to
firms in foreign countries to save money. To
what extent is a company morally responsible
for the way workers are treated by the firms
in those countries to which they outsource
production?
Global and multidomestic strategies call for
different competitive approaches. What ethical
concerns might surface when firms try to
market standardized products globally? When
should firms develop different products or
approaches for each local market?
Are companies morally responsible to support
the U.S. government as it imposes trade
sanctions on other countries, such as China,
because of human rights violations? What if a
significant amount of its international business
is in one of those countries?
Latin America has been experiencing
significant changes in both political orientation
and economic development. What strategies
should foreign international businesses
implement, if any, to influence government
policy in these countries? Can businesses
realistically expect to influence political
changes?