Chapter 8: Opportunities and Outcomes
of International Strategy
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Chapter 8: Opportunities and Outcomes
of International Strategy
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Identifying International Opportunities:
Incentives to Use an International Strategy
 International Strategy: A strategy through which the firm
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sells its goods or services outside its domestic market
Also referred to as geographic diversification
Implications at both corporate and business level
Used as a growth strategy
Level and type of geographic diversification
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Level - # of countries, markets, or regions
Type – Multidomestic, Global, Transnational
Mode or means of entry
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Identifying International Opportunities:
Incentives to Use an International Strategy
 Reasons for an International Strategy
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Potential new opportunities
Apply innovations in domestic market to foreign markets
Extend product life cycle
Secure needed resources
Pressure for global integration and globally branded products
Global economies of scale
High potential demand for products and services
Currency fluctuations and tariffs
Capitalize on core competencies
Growth
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Identifying International Opportunities:
Incentives to Use an International Strategy
 Four primary benefits
 Increased market size
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Can expand size of potential market
Domestic market may have limited growth opportunities
Larger markets offer higher potential returns and pose less risk
for a firm’s investments
Greater return on investment (ROI)
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Large investment projects may require global markets to justify
the capital outlays
Larger markets are more attractive
To generate above average returns on investments
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Identifying International Opportunities:
Incentives to Use an International Strategy
 Four primary benefits (Cont’d)
 Greater economies of Scale, Scope, or Learning
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Expanding size or scope of markets can help firms achieve
economies of scale in manufacturing, marketing, R&D,
distribution, and service activities
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Can exploit core competencies in international markets through
resource and knowledge sharing across borders
Competitive advantages through location
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Can help the firm reduce costs
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Access to lower-cost labor, energy, and other natural resources
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Access to critical supplies and to customers
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International Strategies
 Firms can choose to use one or both of two basic types
of International Strategy:
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International Business-level Strategy
 Firms select from among the generic strategies of low
cost, differentiation, focused low cost, focused
differentiation, or integrated low cost and differentiation
International Corporate-level strategy
 Focuses on the scope of a firm’s operations through
geographic (and product) diversification
 3 Types
 Multidomestic
 Global
 Transnational
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International Corporate-Level Strategies
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International Strategies
 Multidomestic
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Tailor products to each local market
Strategic & operating decisions are decentralized to the
strategic business-unit (SBU) in each country
Focuses on competition within each country
Assumes that markets differ and are segmented by country
boundaries
Customized products to meet local customers’ specific
needs and preferences
Deals with uncertainty due to differences across markets
Different competitive/business strategy in each market
Think local and act local
Addresses need for local responsiveness
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International Strategies
 Global
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Firm offers standardized products across country markets
Competitive strategy dictated by the home office
Emphasizes economies of scale
Strategic & operating decisions centralized at home office
Involves interdependent SBUs operating in each country
Home office attempts to achieve integration across SBUs,
adding management complexity
Produces lower risk
Is less responsive to local market opportunities
Same competitive/business strategy in all markets
Think global and act global
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Addresses need for global integration
International Strategies
 Transnational
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Firm seeks to achieve both global efficiency and local
responsiveness – these can be competing goals!
Requires both global coordination and local responsiveness
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Flexible Coordination
Challenging, but becoming increasingly necessary to
compete in international markets
Growing number of global competitors increases need to
lower costs while greater information flow and desire for
specialized products pressures firms to differentiate and
even customize products
Tailor strategy where needed
Think global and act local
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Increasingly used as a strategy - Toyota
International Strategies
 Choosing an International Strategy
 Choice is dictated by the firms internal and external
environments
 Influenced by cross-country differences in market
conditions, culture, demographics, etc.
 Greater differences make things more complicated
for firms
 These differences also drive the pattern of
international competition that exists in an industry
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Greater differences then multidomestic
Fewer differences then global
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International Entry Modes
 Exporting
 Initial strategy used by many firms to test international
markets
 Involves low expense to establish operations in host
country
 Often involves contractual agreements with host country
firms
 May have some tariffs imposed
 Involves high transportation costs
 Offers low control over marketing and distribution
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International Entry Modes
 Licensing
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Allows a foreign company to purchase the right to manufacture and
sell the firm’s products within a host country or set of countries
Licensor paid royalty on units sold
Involves low cost to expand internationally
Allows licensee to absorb risks
Has low control over manufacturing and marketing
Offers lower potential returns (shared with licensee)
Involves risk of licensee imitating technology and product for own
use
May have inflexible ownership arrangement
Works well for manufacturers (while franchising works well for
services and retailing)
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International Entry Modes
 Strategic Alliances
 A cooperative strategy in which firms combine some of
their resources and capabilities to create a competitive
advantage (Chapter 9)
 Involve shared risks and resources
 Facilitate development of core competencies
 Involve fewer resources and costs required for entry
 May involve possible incompatibility, conflict, or lack of
trust with partner
 Are difficult to manage
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International Entry Modes
 Acquisitions
 Allow for quick access to market
 Quicker entry than other modes
 Involve possible integration difficulties
 Are costly
 Have complex negotiations and transaction
requirements
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International Entry Modes
 New Wholly-Owned Subsidiary
 Is costly
 Involves complex processes
 Allows for maximum control
 Has the highest potential for above average returns
 Carries high risk
 Greenfield venture: Establishment of a new wholly
owned subsidiary
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International Entry Modes
 Dynamics of Mode of Entry: Use the mode best suited to
the situation at hand; affected by several factors
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Export, licensing and strategic alliance: good tactics for early
market development
Strategic alliance: used in more uncertain situations
Wholly-owned subsidiary may be preferred if
 Firm wants to maximize control and potential returns
 Firm has proprietary technology
Acquisitions, greenfield ventures, and joint ventures: used to
secure a stronger presence in international markets
Figure 8.5 – Covers costs and control characteristics
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International Entry Modes
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Strategic Competitive Outcomes
 International diversification: A strategy through
which a firm expands the sale of its goods or services
across the borders of global regions and countries into
different geographic locations or markets
 Strategic Competitive Outcomes
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International diversification and returns
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As international diversification increases, firms’ returns
initially decrease, but then increase quickly as firm learns to
manage international expansion
Firms that are broadly diversified into multiple international
markets usually achieve the most positive stock returns
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Strategic Competitive Outcomes
 Strategic Competitive Outcomes (cont.)
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International diversification and innovation
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Potential to achieve greater returns on innovations while
reducing risks of R&D investments
Exposure to new products and processes and the
opportunity to integrate this new knowledge into
operations
Provides incentives to innovate
Competitive advantage potential
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Locating activities
Transferring competencies
Coordinating activities
Profit sanctuaries and cross market subsidization
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Risks in International Environment
 Political Risks
The possibility of the disruption of operations by political
forces or events in host countries, home country, or as a
result of changes in the international environment
 Economic Risks
 Fundamental weaknesses in a country or region's
economy with the potential to cause adverse effects on a
firm's international strategies
 Management Problems
 Larger more complex firms are more difficult to manage
 There are limits to international expansion
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