Chapter 9
International Strategy
Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland
©2004 by South-Western/Thomson Learning
1
The Strategic Management Process
Strategic
Thinking
Chapter 1
Introduction to
Strategic Management
Chapter 2
Strategic Leadership
Strategic
Analysis
Chapter 3
The External
Environment
Chapter 4
The Internal
Organization
Strategic Intent
Strategic Mission
Chapter 5
Business-Level
Strategy
Chapter 6
Competitive Rivalry and
Competitive Dynamics
Chapter 7
Corporate-Level Strategy
Chapter 8
Acquisitions
Acquisition and
and
Restructuring Strategies
Chapter 9
International Strategy
Chapter 10
Cooperative Strategy
Creating
Competitive
Advantage
Monitoring
And Creating
Entrepreneurial
Opportunities
Chapter 11
Corporate Governance
Chapter 12
Strategic Entrepreneurship
2
Opportunities and Outcomes of
International Strategy
Identify International
Opportunities
Increased market
size
Return on
investment
Economies of
scale and learning
Advantage in
location
Explore Resources
and Capabilities
International
Strategies
Use Core
Competence
Modes of Entry
International
business-level
strategy
Exporting
Multidomestic
strategy
Strategic
alliances
Global strategy
Acquisitions
Transnational
strategy
Establishment of
a new subsidiary
Licensing
3
Opportunities and Outcomes of
International Strategy: Continued
Use Core
Competence
Modes of Entry
Exporting
Management
problems and
risk
Strategic
Competitiveness
Outcomes
Better
performance
Licensing
Strategic
alliances
Innovation
Acquisitions
Establishment of
a new subsidiary
Management
problems and
risk
Click
Here
Return to
Discussion
4
Questions
Motivations for International
Expansion

Increase Market Share
– domestic market may lack the size to support
efficient scale manufacturing facilities

Return on Investment
– 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
5
Motivations 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
– can spread costs over a larger sales’ base
– increase profit per unit

Location Advantages
– low cost markets may aid in developing
competitive advantage
– may achieve better access to:
• Raw materials
• Key customers
• Lower cost labor
• Energy
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International Business-Level Strategy:
Determinants of National Advantage
Factors of
production
Firm strategy,
structure, and
rivalry
Demand
conditions
Related and
supporting
industries
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International Business-Level Strategy:
Determinants of National Advantage

Factors of production: the inputs necessary
to compete in any industry
–
–
–
–
–
–
labor
land
natural resources
capital
infrastructure
basic factors include natural and labor
resources
– advanced factors include digital communication
systems and educated workforce
8
International Business-Level Strategy:
Determinants of National Advantage

Demand conditions: characterized by the
nature and size of buyers’ needs in the
home market for the industry’s goods or
services
– size of market segment can lead to scaleefficient facilities
– efficiency can lead to domination of the
industry in other countries
– specialized demand may create opportunities
beyond national boundaries
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International Business-Level Strategy:
Determinants of National Advantage

Related and supporting industries:
supporting services, facilities, suppliers
and so on
– support in design
– support in distribution
– related industries as suppliers and buyers
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International Business-Level Strategy:
Determinants of National Advantage

Firm strategy, structure, and rivalry: the
pattern of strategy, structure, and rivalry
among firms
– common technical training
– methodological product and process
improvement
– cooperative and competitive systems
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Need for Global Integration
International Corporate-Level
Strategy
High
Global
strategy
Transnational
strategy
Multidomestic
strategy
Low
Low
High
Need for Local Responsiveness
12
International Corporate-Level
Strategy

Type of corporate strategy selected will
have an impact on the selection and
implementation of the business-level
strategies
 Some corporate strategies provide
individual country units with flexibility to
choose their own strategies
 Others dictate business-level strategies
from the home office and coordinate
resource sharing across units
13
International Corporate-Level
Strategy: Multidomestic Strategy
• Strategy and operating decisions are
decentralized to strategic business units (SBU)
Multidomestic
in each country
strategy
• Products and services are tailored to local
markets
• Business units in one country are independent
of each other
• Assumes markets differ by country or regions
• Focus on competition in each market
• Prominent strategy among European firms
due to broad variety of cultures and markets
in Europe
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Worldwide Geographic Area
Structure: Multidomestic Strategy
Asia
Latin
America
United
States
Multinational
Headquarters
Australia
Middle
East/
Africa
Europe
• product characteristics
tailored to local
preferences
• isolation from global
competition
– establish protected
market positions
–compete in industry
segments most
affected by
differences among
local countries
15
International Corporate-Level
Strategy: Global Strategy
Global
strategy
• Products are standardized across national
markets
• Decisions regarding business-level strategies
are centralized in the home office
• Strategic business units (SBU) are assumed to
be interdependent
• Emphasizes economies of scale
• Often lacks responsiveness to local markets
• Requires resource sharing and coordination
across borders (which also makes it difficult
to manage)
• Historically prominent among Japanese firms
16
Worldwide Product Divisional
Structure: Global Strategy
• standardized products
across countries
• economies of scope
and scale
• outsource some
Global
Worldwide
Worldwide primary or support
Products
Products
Corporate
activities to the
Division
Division
Headquarters
world’s best providers
• decision-making
authority centralized
Worldwide
Worldwide
Products
Products
in worldwide division
Division
Division
headquarters
Worldwide
Products
Division
Worldwide
Products
Division
17
International Corporate-Level
Strategy: Transnational Strategy
• Seeks to achieve both global efficiency and
local responsiveness
Transnational
• Difficult to achieve because of simultaneous
strategy
requirements
 strong central control and coordination to
achieve efficiency
 decentralization to achieve local market
responsiveness
• Must pursue organizational learning to
achieve competitive advantage
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Using the Combination Structure:
Transnational Strategy

The combination structure has
characteristics and mechanisms that
result in an emphasis on both geographic
and product structures
– local responsiveness (multidomestic strategy)
– global efficiency (global strategy)
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Environmental Trends

Liability of Foreignness
– security risks
– tighter immigration policies

Regionalization
– location can affect value creation
– may wish to narrow focus to a particular
region of the world
– enter regional markets sequentially,
beginning with the most familiar market
20
Global Market Entry: Choice of
Entry Mode
Type of Entry
Exporting
Licensing
Strategic alliances
Acquisition
New wholly owned
subsidiary
Characteristics
High cost, low control
Low cost, low risk, little control, low
returns
Shared costs, shared resources, shared
risks, problems of integration
Quick access to new market, high cost,
complex negotiations, problems of
merging with domestic operations
Complex, often costly, time consuming,
high risk, maximum control, potential
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above-average returns
Value Creation Outcomes: Returns

International diversification and returns:
firm expands the sales of its goods or services
across the borders of global regions and countries
into different geographic locations or markets
– may increase a firm’s returns
– such firms usually achieve the most positive
stock returns
– firm may achieve economies of scale and
experience, location advantages, increased
market size and opportunity to stabilize returns
22
Value Creation Outcomes: Innovation

International diversification and innovation:
firm expands the sales of its goods or services
across the borders of global regions and countries
into different geographic locations or markets
– potentially greater returns on innovations
(larger markets)
– generate additional resources for investment in
innovation
– exposed to new products and processes in
international markets, generates additional
knowledge leading to innovations
23
Risks in an International
Environment
Political Risks
Economic Risks
Political risks include
• instability in national governments
• war, both civil and international
• potential nationalization of a firm’s resources
24
Risks in an International
Environment
Political Risks
Economic Risks
Economic risks are interdependent with political
risks and include
• differences and fluctuations in the value of different
currencies
• differences in prevailing wage rates
• difficulties in enforcing property rights
• unemployment
25
Limits to International Expansion:
Management Problems

Cost of coordination across diverse
geographical business units
 Institutional and cultural barriers
 Understanding strategic intent of
competitors
 The overall complexity of competition
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