Chapter 8
International Strategy
Diane M. Sullivan, Ph.D. 2014
Sections modified from Hitt, Ireland, and Hoskisson, Copyright © 2008 Cengage
Sections modified from Gentner (2009)
The Strategic Management Process

Diversification
opportunities exist for
firms in global markets.

When pursuing this type
of diversification, they
require an international
strategy.

Int’l strategy can be a
source of strategic
competitiveness (aboveaverage returns and
innovativeness)
Insert figure 1.1 graphic
International Strategy: Key Concepts

International (int’l) strategy


A strategy through which the firm sells its goods/services
outside of its domestic market.
Liability of Foreignness

Difficulties firms face as they seek to manage complexities
involved with international expansions/operations

Example: Disney suffered lawsuits in France because of HR policies when
opened Disneyland Paris
International Strategy: Examples

Ex. 1: Shanghai Automotive Industry Corp (SAIC)

One of China’s oldest auto companies; top 3 auto firms in China

Sells autos, tractors, motorcycles, trucks, offers car leasing/financing

To grow in Chinese markets pursued joint ventures with GM & VW

Ultimate Goal: Become one of the world’s top 10 auto companies
 Note: All major auto firms compete in U.S. market



SAIC learned from JV and licensed technology; launched own
branded vehicles
Now competing with GM and VW in China and wants to move in US
Ex. 2: Disney

1992, Disney moved into Europe with Euro Disney in Paris

Plagued with problems, called a “Eurodismal”

Disney suffered from liabilities of foreignness
4 Reasons Firm’s Pursue Int’l Strategies
1. Increased market size

Help firms maintain growth objectives

Example: Pharmaceutical firms entering China; soft drinks
2. Greater returns on major investments

Larger markets can help firms recoup investments more quickly
3. Greater economies of scale and learning

Standardized manufacturing operations can easily capture scale
economies

New learning opportunities are presented to firms
4. A competitive advantage via location

Access to low-cost labor, energy, natural resources, supplies, customers

Example: GM’s expansion to Asia to access customers
Two Types of International Strategies
1. Business-level International Strategy

Generic strategies applied to business units competing
internationally
2. Corporate-level International Strategy



Focuses on the scope of a firm’s operations through product
and geographic diversification
Required when firm operates in multiple countries or regions
Required when firm operates in multiple industries and
countries/regions
Business-Level International Strategy

Partially based on Porter’s “Determinants of National
Advantage”
Corporate-Level International Strategy
3 International Corporate-level Strategies
1. Global



Firm offers standardized products across country markets with decision
mostly dictated by the home office
Example: Nike; eBay (initially in China and Japan)
2. Multidomestic


Decisions are mostly decentralized to the business unit in each country,
allowing the unit to tailor products to the local market
Example: Fast food; eBay (as a joint venture with Tom Online, Inc.)
3. Transnational



Firm seeks both global efficiency and local responsiveness
Difficult to use because of conflicting goals
Example: P&G uses global product business units and multidomestic
market development organizations to appeal to different tastes
International Corporate-Level Strategy
5 Main Modes of Int’l Entry & Competition
1. Exporting
Easier
2. Licensing
3. Strategic Alliances
4. Acquisitions
5. New Wholly-Owned Subsidiary
(“Greenfield Venture”)
More
Difficult
Mode 1: Exporting


Many firms begin int’l expansion via exporting goods/services to
other countries
Good for early-market entry and for small businesses
Pros
1.
2.
3.
Common way to enter new int’l
markets
No need to establish operations
in other countries
Establish distribution channels
through contractual
relationships with host countries
Cons
1.
High transportation costs
2.
High import tariffs
3.
Less control on marketing &
distribution
4.
Difficult to customize products
Mode 2: Licensing



Allows a foreign company to purchase the right to manufacture and sell a
firm’s products within host country or set of countries
Good for tactical moves and early market entry
Example: Disney (US) licensed characters to LEGO (Denmark) to launch
product line in US in 2010
Pros
Cons
1. Firm authorizes another firm to
1. Licensing firm loses
manufacture and sell its products
control over product
quality and distribution
2. Licensing firm is paid a royalty
on each unit produced and sold
2. Relatively low profit
potential
3. Licensee takes risks in
manufacturing investments
3. Risk that licensor learns
technology and competes
4. Least risky and costly way to
when license expires
enter a foreign market
Mode 3: Strategic Alliances



Two or more firms develop a relationship to share their unique
resources and capabilities to create an competitive advantage in an int’l
location
Good in uncertain situations; for tactical moves; early market entry
Example: Sony (Japan) and Ericsson (Sweden) created Sony Ericsson
Pros
Cons
1.
Firms to share risks and resources
to expand into int’l ventures
1.
Difficulties in merging disparate
cultures
2.
Most involve a foreign company
with product/ technology and host
company with access to
distribution or knowledge of local
customs, norms or politics
2.
May not understand the strategic
intent of partners or experience
divergent goals
Mode 4: Acquisitions



Cross-border acquisitions
Good for securing stronger presence in int’l markets
Example: 1999, Wal-Mart entered the UK by acquiring ASDA
Pros
Cons
1. Most rapid international expansion
 Can be very costly
2. Quick access to a new market
 Legal and regulatory requirements
may present barriers to foreign
ownership
 Usually require complex and costly
negotiations
 Potentially disparate corporate
cultures
Mode 6: New Wholly Owned Subsidiary



Creation of a new venture, called a greenfield venture
Good for securing stronger presence in int’l markets
Example: 2007, FedEx opened Hangzhou subsidiary in China
Pros
Cons
1. Achieves greatest degree of control
(e.g., full control)
 Most costly and complex of entry
alternatives
2. Potentially most profitable, if
successful
 May need expertise and knowledge
that is relevant to host country
3. Maintain control over technology,
marketing and distribution
 May require hiring host country
nationals or consultants at high cost
 Must build/acquire manufacturing
facilities, distribution networks,
marketing strategies
Major Risks in Int’l Environments
1. Political/Legal Forces

Government instability

Conflict or war

Government regulations

Conflicting and diverse legal authorities

Potential nationalization of private assets

Government corruption

Changes in government policies
2. Economic Forces

Differences and fluctuations in currency values

Investment losses due to political risks