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
Four Basic Benefits of
International Diversification

Increase Market Size
– create additional sources of revenue
– focus on international growth opportunities
instead of domestic rivalry

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
– more prevalent when products are
standardized or related
– new learning opportunities in distant markets
3
Four Basic Benefits of
International Diversification

Return on Investment
– large investment projects may require global
markets to justify the capital outlays
– preempt imitation of products by foreign firms
(especially when patent laws in foreign
countries are less developed)

Location Advantages
– gain better access to raw materials, lower
labor cost, and other critical resources
– better access to global customers
4
International Business-Level Strategy:
Determinants of National Advantage
Factors of
production
Firm strategy,
structure, and
rivalry
Demand
conditions
Related and
supporting
industries
5
International Business-Level Strategy:
Determinants of National Advantage

Factors of production: the resources
necessary to compete in any industry
– basic versus advanced
– generalized versus specialized

Demand conditions: characterized by the
nature and size of buyers’ needs in the
home market for the industry’s goods or
services
6
International Business-Level Strategy:
Determinants of National Advantage

Related and supporting industries:
supporting services, facilities, suppliers
and so on
 Firm strategy, structure, and rivalry: the
pattern of strategy, structure, and rivalry
among firms
7
Need for Global Integration
International Corporate-Level
Strategy
High
Global
strategy
Transnational
strategy
Multidomestic
strategy
Low
Low
High
Need for Local Responsiveness
8
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
9
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
10
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
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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
12
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
13
Using the Combination Structure:
Transnational Strategy

The combination structure has
characteristics and mechanisms that
result in an emphasis on both geographic
and product structures
14
International Corporate-Level
Strategy

Type of corporate strategy has an impact
on the selection and implementation of the
business-level strategies
– Question: Which corporate strategy provides
individual country units more flexibility to
choose their own business-level strategies?
– Question: Which corporate strategy dictate
business-level strategies from the home office
and coordinate resource sharing across units?
15
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
– firm may achieve economies of scale and
experience, location advantages, increased
market size and opportunity to stabilize returns
Question: What is the relationship between
international diversification and returns?
17
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
18
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
19
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
20
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
21