Agenda for November 2
• Review of Chapter 8
– International Strategy
• Video & discussion
International Strategy: Opportunities and Outcomes
REASONS
for
international
expansion
STRATEGIES
for
international
expansion
Increased
Market Size
International
Business-Level
Strategy
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Corporate-Level
Strategy
* multidomestic
* global
* transnational
MODES
of
ENTRY
OUTCOMES
of
international
expansion
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
REASONS for International Expansion
Increase Market Size or Global Market Share
Japanese electronics or automobile manufacturers
Return on Investment
Large investment projects may require global markets to
justify the capital outlays
Aircraft manufacturers Boeing or McDonnell Douglas
REASONS for International Expansion
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
Location Advantages
Low cost markets may aid in developing competitive advantage
May achieve better access to:
- Raw materials
- Key customers
- Lower cost labor
- Energy
- Key suppliers
- Natural resources
International Strategy: Opportunities and Outcomes
REASONS
for
international
expansion
STRATEGIES
for
international
expansion
Increased
Market Size
International
Business-Level
Strategy
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Corporate-Level
Strategy
* multidomestic
* global
* transnational
MODES
of
ENTRY
OUTCOMES
of
international
expansion
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
International Business-Level Strategies
International Low Cost
Usually involves locating in home country and exporting
internationally
International Differentiation
Common among firms in countries with advanced factor
conditions
International Focus
International Integrated Low Cost / Differentiation
Can be most effective in dealing with diverse markets
International
Corporate Strategy
International
Corporate-Level
Strategies
Type of Corporate Strategy selected will have an
impact on the selection and implementation of the
business-level strategies
Three
Corporate
Strategies
Multi-Domestic Strategy
Global Strategy
Transnational Strategy
International
Corporate Strategy
International
Corporate-Level
Strategies
Multi-Domestic Strategy
Strategy & operating decisions are decentralized
to independent strategic business units in
each country
Products and services are tailored to local markets
Prominent strategy among European firms due to
variety of cultures & markets in Europe
International
Corporate Strategy
International
Corporate-Level
Strategies
Global Strategy
Decisions regarding business-level strategies are
centralized in the home office; SBU’s are
interdependent
Products are standardized across national markets
Requires resource sharing and coordination across
borders
International
Corporate Strategy
International
Corporate-Level
Strategies
Transnational Strategy
Seeks to achieve both global efficiency and local
responsiveness
Organizational learning & knowledge transfer is
critical
International
Corporate Strategy
International
Corporate-Level
Strategies
When is each strategy appropriate?
High
GLOBAL
TRANSNATIONAL
Need for
Global
Integration
MULTIDOMESTIC
Low
Low
High
Need for Local Market Responsiveness
International Strategy: Opportunities and Outcomes
REASONS
for
international
expansion
STRATEGIES
for
international
expansion
Increased
Market Size
International
Business-Level
Strategy
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Corporate-Level
Strategy
* multidomestic
* global
* transnational
MODES
of
ENTRY
OUTCOMES
of
international
expansion
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
International
CorporateEntry
StrategyMode
Choice
of International
Exporting
No need to establish operations in other countries
Establish distribution channels through contractual
relationships
Common way to enter new international markets
May have high transportation costs
International
CorporateEntry
StrategyMode
Choice
of International
Exporting
RISKS
May have high transportation costs
May encounter high import tariffs
May have less control on marketing and distribution
Difficult to customize products
International
CorporateEntry
StrategyMode
Choice
of International
Licensing
Firm authorizes another firm to manufacture
and sell its products
Licensor is paid a royalty on each unit produced
and sold
Least risky way to enter a foreign market:
Licensee takes risks in mfg investments
International
CorporateEntry
StrategyMode
Choice
of International
Licensing
RISKS
Licensor loses control over product quality and
distribution
Relatively low profit potential
Licensee may learn technology and compete on its
own when license expires
International
CorporateEntry
StrategyMode
Choice
of International
Strategic Alliances
Enable firms to shares risks and resources.
Commonly called joint ventures.
Most international joint ventures involve:
* foreign company with a new product or
technology
* host company with access to distribution or
knowledge of local customs, norms or
politics
International
CorporateEntry
StrategyMode
Choice
of International
Strategic Alliances
RISKS
May experience difficulties in merging disparate
cultures
Partners may not understand each other’s strategic
intent or may experience divergent goals
International
CorporateEntry
StrategyMode
Choice
of International
Acquisitions
Largest & most rapid form of international
expansion
Can be cheap if exchange rates are favorable
International
CorporateEntry
StrategyMode
Choice
of International
Acquisitions
RISKS
May be costly due to size
Legal and regulatory requirements may present
barriers to foreign ownership
Usually require complex and costly negotiations
Potentially disparate corporate cultures
International
CorporateEntry
StrategyMode
Choice
of International
New Wholly-Owned Subsidiary
Achieves greatest degree of control
e.g., over technology, marketing & distribution
Potentially most profitable, if successful
International
CorporateEntry
StrategyMode
Choice
of International
New Wholly-Owned Subsidiary
RISKS
Most costly and complex of entry alternatives
May need to acquire expertise and knowledge that
is relevant to host country
Could require hiring host country nationals or
consultants at high cost
International Strategy: Opportunities and Outcomes
REASONS
for
international
expansion
STRATEGIES
for
international
expansion
Increased
Market Size
International
Business-Level
Strategy
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Corporate-Level
Strategy
* multidomestic
* global
* transnational
MODES
of
ENTRY
OUTCOMES
of
international
expansion
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
International
Corporate Strategy
Strategic
Competitiveness
OUTCOMES
May fulfill the reasons for expansion
* increased market size
* provides sufficient ROI to support
extensive R&D
* facilitates economies of scale &
organizational learning
Leads to greater returns when implemented
and managed effectively
International Strategy: Opportunities and Outcomes
REASONS
for
international
expansion
STRATEGIES
for
international
expansion
Increased
Market Size
International
Business-Level
Strategy
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Corporate-Level
Strategy
* multidomestic
* global
* transnational
MODES
of
ENTRY
OUTCOMES
of
international
expansion
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
Major RISKS of International Diversification
Political Risk
Major RISKS of International Diversification
Political Risk
Economic Risk