International Strategy
Chapter Nine
© 2006 by Nelson, a division of Thomson Canada Limited.
9-1
Strategic
Inputs
The Strategic
Strat. Intent
Management
Process
.
Chapter 4
Internal
Environment
Strat. Mission
Strategy Formulation
Chapter 5
Bus. - Level
Strategy
Chapter 6
Chapter 7
Competitive Corp. - Level
Dynamics
Strategy
Chapter 9
Chapter 8
Acquisitions & International
Strategy
Restructuring
Strategic
Outcomes
Strategic Actions
Chapter 3
External
Environment
Chapter 2
Above Average
Returns
Chapter 10
Cooperative
Strategies
Chapter 1
Strategic
Competitiveness
Strategy Implementation
Chapter 11
Chapter 12
Corporate
Structure
Governance
& Control
Chapter 13 Chapter 14
Strategic Entrepreneurship
Leadership & Innovation
Feedback
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9-2
International Strategy
Knowledge Objectives
1.
Explain the traditional and emerging motives for firms
to pursue international diversification.
2.
Explore the four factors that lead to a basis for
international business-level strategies.
3.
Define the three international corporate-level
strategies: multidomestic, global, and transnational.
4.
Discuss the environmental trends affecting
international strategy, especially liability of foreignness
and regionalization.
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9-3
International Strategy
Knowledge Objectives cont’d…
5.
6.
7.
8.
Name & describe the five alternative modes for
entering international markets.
Explain the effects of international diversification on
firm return and innovation.
Name and describe two major risks of international
diversification.
Explain why the positive outcomes from international
expansion are limited.
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9-4
International Strategy Opportunities & Outcomes
Identify
International
Opportunities
Explore
Resources &
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies
of Scale and
Learning
Location
Advantage
International
Bus.-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Outcomes
Exporting
Management
Problems, Risk,
and First Steps
Higher
Performance
Returns
Licensing
Strategic
Alliances
Acquisition
Innovation
Establishment
of New Sub.
Management
Problems, Risk,
and First Steps
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9-5
Benefits of International Strategies
• Increased market size.
• Greater returns on major capital investments or
new products or processes.
• Greater economies of scale, scope or learning.
• A competitive advantage through location.
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9-6
International Strategy Opportunities & Outcomes
Identify
International
Opportunities
Explore
Resources &
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies
of Scale and
Learning
Location
Advantage
International
Bus.-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Outcomes
Exporting
Management
Problems, Risk,
and First Steps
Higher
Performance
Returns
Licensing
Strategic
Alliances
Acquisition
Innovation
Establishment
of New Sub.
Management
Problems, Risk,
and First Steps
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9-7
International Strategies
• International Business Level Strategies
• International Corporate Level Strategies
– Multi-domestic Strategy
– Global Strategy
– Transnational Strategy
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9-8
Determinants of National Advantage
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Determinants of National Advantage
• Factors of Production
– Inputs – Labour, land, natural resources, capital & infrastructure
• Demand Conditions
– The nature and size of he buyers needs in the home market of
goods & services
• Related & Supporting Industries
– Industries in which the target country is considered the leader
eg. Italy - shoes with a supporting leather industry,
Japan - cameras & photocopiers,
Denmark - diary & an industry focused on food enzymes.
• Firm Strategy, Structure & Rivalry make up
– Germany focused on methodical product & process improvements,
– Italy’s national pride of designers helped spawn fashion apparel,
furniture & sports car industries.
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International Corporate-Level Strategy
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International Corporate-Level Strategy
• Multi-domestic Strategy
– Strategic & operating decisions are decentralized
to the strategic business unit in each country to
tailor products to the local market.
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9-12
International Corporate-Level Strategy
• Multi-domestic Strategy
– Strategic & operating decisions are decentralized to
the strategic business unit in each country to tailor
products to the local market.
• Global Strategy
– Assumes more standardization of products across
country markets
• Transnational Strategy
– The firm seeks to achieve both global efficiency and
local responsiveness
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9-13
International Strategy Opportunities & Outcomes
Identify
International
Opportunities
Explore
Resources &
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies
of Scale and
Learning
Location
Advantage
International
Bus.-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Outcomes
Exporting
Management
Problems, Risk,
and First Steps
Higher
Performance
Returns
Licensing
Strategic
Alliances
Acquisition
Innovation
Establishment
of New Sub.
Management
Problems, Risk,
and First Steps
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9-14
Choice of International Entry Mode
Exporting
Common way to enter new international markets.
No need to establish operations in other nations.
Establish distribution channels through contractual
relationships.
May have high transportation costs.
May encounter high import tariffs.
May have less control on marketing and distribution.
Difficult to customize product.
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9-15
Choice of International Entry Mode
Licensing
Firm authorizes another firm to
manufacture & sell its products Licensing firm is paid a royalty on each unit
produced and sold.
Licensee takes risks in manufacturing investments.
Least risky way to enter a foreign market.
Licensing firm loses control over product quality &
distribution.
Relatively low profit potential.
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Choice of International Entry Mode
Strategic Alliances
Enable firms to shares risks and
resources to expand into international ventures.
Most joint ventures (JVs) involve a foreign corp. with
a new product or technology & a host company with
access to distribution or knowledge of local customs,
norms or politics.
May experience difficulties in merging disparate
cultures.
May not understand the strategic intent of partners
or experience divergent goals.
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Choice of International Entry Mode
Acquisitions
Enable firms to make most rapid international
expansion.
Can be very costly.
Legal and regulatory requirements may
present barriers to foreign ownership.
Usually require complex and costly
negotiations.
Potentially disparate corporate culture.
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Choice of International Entry Mode
New Wholly-Owned Subsidiary –
Greenfield Venture
Most costly & complex of entry alternatives.
Achieves greatest degree of control.
Potentially most profitable, if successful.
Maintain control over technology, marketing and
distribution.
May need to acquire expertise & knowledge that
is relevant to host country.
Could require hiring host country nationals or
consultants at high cost.
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Strategic Competitiveness Outcomes
International diversification facilitates
innovation in the firm.
Provides larger market to gain more and faster
returns form investments in innovation.
May generate resources necessary to sustain a
large-scale R&D program.
Generally related to above-average returns,
assuming effective implementation and
management of international operations.
International diversification provides greater
economies of scope and learning.
© 2006 by Nelson, a division of Thomson Canada Limited.
9-20
International Strategy Opportunities & Outcomes
Identify
International
Opportunities
Explore
Resources &
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies
of Scale and
Learning
Location
Advantage
International
Bus.-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Outcomes
Exporting
Management
Problems, Risk,
and First Steps
Higher
Performance
Returns
Licensing
Strategic
Alliances
Acquisition
Innovation
Establishment
of New Sub.
Management
Problems, Risk,
and First Steps
© 2006 by Nelson, a division of Thomson Canada Limited.
9-21
Risks in the International Environment
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9-22
Major Risks of
International Diversification
Political Risk
National government instability may create
potential problems for internationally
diversified firms.
Potential changes in attitudes or
regulations regarding foreign ownership.
Legal authority obtained from previous
administration may become invalid.
Potential for nationalization of firms’ assets.
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Major Risks of International
Diversification
Economic Risk
Econ. risks are interdependent with political risks.
Differences and fluctuations in international
currencies may affect value of assets & liabilities.
This affects prices & thus ability to compete.
Differences in inflation rates may affect internationally diversified firms’ ability to compete.
Enforcing intellectual property rights on CDs,
software, etc.
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