Dr. Shalini R Tiwari
IMT Ghaziabad

Opportunities and Outcomes of
International Strategy
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 International Strategy (IS): firm sells its goods or services outside the domestic market
 Reasons for an IS
 International markets yield potential new opportunities
 International diversification: innovation occurs in homecountry market, especially in an advanced economy, and demand for product develops in other countries, so exports provided by domestic organization
 Multinational strategy: Secure need resources
 Other motives exist (i.e., pressure for global integration, borderless demand for globally branded products)
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(Cont’d)
 Four primary reasons
 1. Increased market size
 Domestic market may lack the size to support efficient scale manufacturing facilities
 2. Return on Investment (ROI)
 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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(Cont’d)
 Four primary reasons
(Cont’d)
 3. Economies of Scale and Learning
 Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R&D, or distribution
 Costs are spread over a larger sales base
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 Profit per unit is increased
4. Location advantages: Low cost markets may…
 … aid in developing competitive advantage
 … achieve better access to critical resources:
 i.e., raw materials, lower cost labor, key customers, energy
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 Firms choose one or both of two basic type of IS: Business level and/or corporate level
 International business-level strategy
 Follows generic strategies of cost-leadership, differentiation, focused or broad
 International corporate-level strategy (N=3)
 Home country usually most important source of competitive advantage
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Resources and capabilities frequently allow firm to pursue markets in other countries
The determinants of national advantage includes 4 factors
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International Corporate-Level Strategies
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(Cont’d)
 International corporate-level strategies (N=3)
(Cont’d)
 1. Multidomestic
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Decentralized strategic & operating decisions by strategic business-unit (SBU) in each country allows units to tailor products to local markets
Focuses on variations of competition within each country
Customized products to meet local customers’ specific needs and preferences
Takes steps to isolate the firm from global competitive forces

Establish protected market positions
 Compete in industry segments most affected by differences among local countries
 Deals with uncertainty due to differences across markets
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(Cont’d)
 2. Global
 Firm offers standardized products across country markets, with the competitive strategy being dictated by the home office
 Emphasizes economies of scale
 Facilitated by improved global reporting standards (i.e., accounting and financial)
 Strategic & operating decisions centralized at home office
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(Cont’d)
 2. Global
(Cont’d)
 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
 Offers less effective learning processes (pressure to conform and standardize)
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(Cont’d)
 3. Transnational
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Firm seeks to achieve both global efficiency and local responsiveness – these are competing goals!
Requires both global coordination and local flexibility with this strategy/structure combination
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Flexible Coordination: Building a shared vision and individual commitment through an integrated network
Challenging, but becoming increasingly necessary to compete in international markets
Growing number of global competitors heightens need to keep costs down while greater information flow and desire for specialized products pressures firms to differentiate and even customize products – nonetheless,
Increasingly used as a strategy
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Environmental Trends
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Transnational strategy hard to implement
Two new trends
1. Liability of foreignness
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Increased after terrorists’ attacks and Iraq War
Global strategies not as prevalent today, still difficult to implement even with Internet-based strategies
Regional focus allows firms to marshal resources to compete effectively in regional markets
2. Regionalization
 Focus to a particular region of the world
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Increases understanding of market
Trade agreements (I.e., EU, OAS, NAFTA) promote flow of trade across country boundaries with their respective regions
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International Entry Modes (N = 5)
 Follows the selection of an IS
 Five main entry modes
 1. Exporting
 2. Licensing
 3. Strategic Alliances
 4. Acquisitions
 5. New Wholly-Owned Subsidiary
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International Entry Modes (N = 5)
(Cont’d)
 1. Exporting
 Involves low expense to establish operations in host country
 Often involves contractual agreements
 Involves high transportation costs
 May have some tariffs imposed
 Offers low control over marketing and distribution
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International Entry Modes (N = 5)
(Cont’d)
 2. Licensing
 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
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International Entry Modes (N = 5)
(Cont’d)
 3. Strategic Alliances
 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 (N = 5)
(Cont’d)
 4. Acquisitions
 Allow for quick access to market
 Involve possible integration difficulties
 Are costly
 Have complex negotiations and transaction requirements
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International Entry Modes (N = 5)
(Cont’d)
 5. New Wholly-Owned Subsidiary
 Is costly
 Involves complex processes
 Allows for maximum control
 Has the highest potential returns
 Carries high risk
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International Entry Modes (N = 5)
(Cont’d)
 Dynamics of Mode of Entry: Use the best suited to the situation at hand; affected by several factors
 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
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IP rights in emerging economy not well protected
Number of firms in industry is growing fast
Need for global integration is high
 Acquisitions or greenfield ventures: secure a stronger presence in international markets
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Strategic Competitive Outcomes (N = 3)
 International diversification: firm expands sales of its goods or services across the borders of global regions and countries into different geographic locations or markets
 Implementation follows selection of international strategy and mode of entry (N=3)
1. International diversification and returns
2. International diversification and innovation
3. Complexity of managing multinational firms
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Strategic Competitive Outcomes (N = 3)
(Cont’d)
 1. International diversification and returns
 As international diversification increases, firms’ returns
initially decrease, but the increase quickly as firm learns to manage international expansion
 2. International diversification and innovation
 Exposure to new products and markets
 Opportunity to integrate new knowledge into operations
 Generation of resources to sustain innovation efforts
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Strategic Competitive Outcomes (N = 3)
(Cont’d)
 3. Complexity of managing multinational firms
 Geographic dispersion
 Costs of coordination
 Logistical costs
 Trade barriers
 Cultural diversity
 Host government
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Risks in International Environment
 2 major risks
 1. Political
 2. Economic
 Limits to international expansions: management problems
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Risks in International Environment
(Cont’d)
 1. Political risks
 Government instability
 Conflict or war
 Government regulations
 Conflicting and diverse legal authorities
 Potential nationalization of private assets
 Government corruption
 Changes in government policies
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Risks in International Environment
(Cont’d)
 2. Economic risks
 Differences and fluctuations in currency values
 Investment losses due to political risks
 Limits to international expansions: management problems
 Geographic dispersion
 Trade barriers
 Logistical costs
 Cultural diversity
 Other differences by country
 Relationship between organization and host country
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 Three ways to gain competitive advantage
1.
Locating activities among nations in ways that lower costs or achieve greater product differentiation
2.
Efficient/effective transfer of competitively valuable competencies and capabilities from company operations in one country to company operations in another country
3.
Coordinating dispersed activities in ways a domestic-only competitor cannot

 Two issues
 Whether to
 Concentrate each activity in a few countries or
 Disperse activities to many different nations
 Where to locate activities
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Which country is best location for which activity?

 Activities should be concentrated when
 Costs of manufacturing or other value chain activities are meaningfully lower in certain locations than in others
 There are sizable scale economies in performing the activity
 There is a steep learning curve associated with performing an activity in a single location
 Certain locations have
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Superior resources
Allow better coordination of related activities or
Offer other valuable advantages

 Activities should be dispersed when
 They need to be performed close to buyers
 Transportation costs, scale diseconomies, or trade barriers make centralization expensive
 Buffers for fluctuating exchange rates, supply interruptions, and adverse politics are needed

 Transferring competencies, capabilities, and resource strengths across borders contributes to
 Development of broader competencies and capabilities
 Achievement of dominating depth in some competitively valuable area
 Dominating depth in a competitively valuable capability is a strong basis for sustainable competitive advantage over
 Other multinational or global competitors and
 Small domestic competitors in host countries

 Aligning activities located in different countries contributes to competitive advantage in several ways
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Choose where and how to challenge rivals
Shift production from one location to another to take advantage of most favorable cost or trade conditions or exchange rates
Use online systems to collect ideas for new or improved products and to determine which products should be standardized or customized
Enhance brand reputation by incorporating same differentiating attributes in its products in all markets where it competes

 Profit sanctuaries are country markets where a firm
 Has a strong, protected market position and
 Derives substantial profits
 Generally, a firm’s most strategically crucial profit sanctuary is its home market

Fig. 7.3: Profit Sanctuary Potential of Domestic-Only,
International, and Global Competitors

 Involves supporting competitive offensives in one market with resources/profits diverted from operations in other markets
 Competitive power of cross-market subsidization results from a global firm’s ability to
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Draw upon its resources and profits in other country markets to mount an attack on single-market or one-country rivals and
Try to lure away their customers with
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Lower prices
Discount promotions
Heavy advertising
 Other offensive tactics

Three Options
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Attack a foreign rival’s profit sanctuaries
 Approach places a rival on the defensive, forcing it to
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Spend more on marketing/advertising
Trim its prices
Boost product innovation efforts
Take actions raising its costs and eroding its profits
Employ cross-market subsidization
 Attractive offensive strategy for companies competing in multiple country markets with multiple products
Dump goods at cut-rate prices
 Approach involves a company selling goods in foreign markets at prices
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Well below prices at which it sells in its home market or
Well below its full costs per unit

 Cooperative agreements with foreign companies are a means to
 Enter a foreign market or
 Strengthen a firm’s competitiveness in world markets
 Purpose of alliances
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Joint research efforts
Technology-sharing
Joint use of production or distribution facilities
Marketing / promoting one another’s products

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Gain better access to attractive country markets from host country’s government to import and market products locally
Capture economies of scale in production and/or marketing
Fill gaps in technical expertise or knowledge of local markets
Share distribution facilities and dealer networks
Direct combined competitive energies toward defeating mutual rivals
Take advantage of partner’s local market knowledge and working relationships with key government officials in host country
Useful way to gain agreement on important technical standards

 Overcoming language and cultural barriers
 Dealing with diverse or conflicting operating practices
 Time consuming for managers in terms of communication, trust-building, and coordination costs
 Mistrust when collaborating in competitively sensitive areas
 Clash of egos and company cultures
 Dealing with conflicting objectives, strategies, corporate values, and ethical standards
 Becoming too dependent on another firm for essential expertise over the long-term

 Tailoring products for big, emerging markets often involves
 Making more than minor product changes and
 Becoming more familiar with local cultures
 Companies have to attract buyers with bargain prices as well as better products
 Specially designed and/or specially packaged products may be needed to accommodate local market circumstances
 Management team must usually consist of a mix of expatriate and local managers

 Prepare to compete on the basis of low price
 Be prepared to modify aspects of the company’s business model to accommodate local circumstances
 Try to change the local market to better match the way the company does business elsewhere
 Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances

Fig. 7.4: Strategy Options for Local Companies in Competing Against Global Challengers

 Concentrate on advantages enjoyed in the home market
 Cater to customers who prefer a local touch
 Accept loss of customers attracted to global brands
 Astutely exploit its local orientation based on
 Familiarity with local preferences
 Expertise in traditional products
 Long-standing customer relationships
 Cater to the local market in ways that pose difficulties for global rivals

 When a local company trying to defend against a global challenger has resource strengths and capabilities suitable for competing in other country markets, then it should consider
 Launching initiatives to transfer its expertise to cross-border markets
 Becoming more of an international competitor
 Such a move to enter foreign markets can help
 Build a bigger customer base (to offset any losses in its home market)
 Grow sales and profits
 Put in a stronger position to contend with global challengers in its home market

Strategic Options for Local Companies: Dodging Rivals by Shifting to a New Business Model or Market Niche
 When industry pressures to globalize are high, viable strategic options for a local company trying to defend against global challengers in its home market include
 Shifting the business to a piece of the industry value chain where the firm’s expertise/resources provide a defendable position or maybe even a competitive advantage
 Entering a joint venture with a globally competitive partner
 Selling out to a global entrant into its home market

 If a local company has resources and capabilities that it can transfer to operations in other countries, it can launch a strategy aimed at
 Entering markets of other countries as rapidly as possible
 Shifting to a more globalized strategy
 Building brand recognition and a brand image that extends to more and more countries
 Gradually establishing the resources and capabilities to go head-to-head against large global rivals