International Corporate
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Transcript International Corporate
PART III
CREATING COMPETITIVE ADVANTAGE
Chapter 10
International Strategy
1
Key Terms
International diversification
Strategy through which a firm expands the
sales of its goods or services across the borders
of global regions and countries into different
geographic locations or markets
Key Terms
International strategy
Strategy through which the firm sells its
goods or services outside the domestic
market
Increased market size
Greater returns on major capital
investments or on investments in new
products and processes
Greater economies of scale, scope, or
learning
Potential for competitive advantage(s)
based on location
Limited domestic economies or
growth opportunities
Both opportunities and challenges in
emerging markets
Impact of local cultures and customs
Impact of international market size
Extended product life cycle
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.
Expand size or scope of
markets to achieve
economies of scale
Spread costs over a larger
sales base
Increase profit per unit
Competitive advantages are
available in low cost markets
Access to critical resources:
Raw materials
Low-cost factors of production
Low-cost labor
Key customers
Energy
Other natural resources
Type of expansion approach
How to use distinctive competencies
to create advantages
Mode of entry into new markets
Key Terms
International corporate-level strategy
Strategy which focuses on the scope of a
firm’s operations through both product and
geographic diversification
Worldwide Presence
or
Regionalization
Trade agreements and institutions
Ability to understand the cultures,
legal and social norms, and other
factors that are important for
effective competition in specific
markets
Sequential market entry
Liabilities associated with being a foreign business in a
highly different business environment can make competing
on a worldwide scale risky and expensive.
Employment contracts and labor forces differ.
Host governments make different demands
and requirements to compete in their markets.
Understanding customers may be difficult.
Key Terms
Multidomestic strategy
International strategy in which strategic and
operating decisions are decentralized to the strategic
business unit in each country to allow that unit to
tailor products to the local market
Worldwide geographic area structure
Organizational structure which emphasizes national
interests and facilitates the firms' efforts to satisfy
local or cultural differences (used to implement the
multidomestic strategy)
Focus on variations of competition within
each country
Customize products to meet specific needs
and preferences of local customers
Decentralize decisions to business units in
each country
Compete in industry segments most
affected by differences among local
countries
Expands the firm’s local market share
Maximizes competitive responsiveness to
local conditions
Establishes protected market positions
Isolates the firm from global competitive
forces
Lowers efficiency levels
Increases uncertainty
Key Terms
Global strategy
International strategy through which the firm offers
standardized products across country markets, with the
competitive strategy being dictated by the home office
Worldwide product divisional structure
Organizational structure in which decision-making
authority is centralized in the worldwide division
headquarters to coordinate and integrate decisions and
actions among divisional business units (used to
implement the global strategy)
Integrate interdependent strategic business
units operating in each country
Emphasize economies of scale
Share resources across country boundaries
Centralize decisions at the home office
Utilize innovations developed at the
corporate level or in one country in other
markets
Maximizes integration across business units
Produces standardization
Lowers risk
Fosters a shared vision of the firm’s strategy
Lowers responsiveness to local needs and preferences
Permits missed opportunities in local markets
Reduces effectiveness of learning processes
Adds management complexity
Key Terms
Transnational strategy
International strategy through which the firm seeks to
achieve both global efficiency and local responsiveness
Flexible coordination
Building a shared vision and individual commitment through
an integrated network
Worldwide combination structure
Organizational structure in which characteristics and
mechanisms are drawn from both the worldwide geographic
area structure and the worldwide product divisional
structure (used to implement the transnational strategy)
Assets and operations may be
centralized/decentralized
Functions may be integrated/nonintegrated
Relationships may be formal/informal
Coordination mechanisms may leverage
efficiency/flexibility
Mandates to subsidiaries may be
global/specialized-contribution/localizedimplementation
Global Mandate
Specialized Contribution
Local Implementation
Strong educational component to support
the culture
Adaptation of core competencies in local
economies to gain competitive benefits
Effective corporate headquarters to foster
leadership, shared vision, and strong
corporate identity
Centers of excellence to foster multiple and
dispersed capabilities
Emphasis on global efficiency is increasing as
more industries begin to experience global
competition
Emphasis on local requirements is also increasing
Multinational firms desire coordination and
sharing of resources across country markets to
hold down costs
Some products and industries are more suited
than others for standardization across country
borders
Global
Corporate-Level
Strategy
Multidomestic
Corporate-Level
Strategy
Subsidiaries play the role of local
implementer
Subsidiaries have more control over
approaches used in their own domestic
markets
Usually associated with a cost
leadership strategy
Generic strategy depends on local
conditions and capabilities
Low cost way to establish operations
in host country
Often through contractual agreements
High transportation costs
Potential for tariffs
Low control over marketing and
distribution
Low cost way to expand internationally
Risks absorbed by licensee
Low control over manufacturing and
marketing
Lower potential returns (shared with
licensee)
Risk of imitation by licensee
Ownership arrangements often inflexible
Fewer entry resources and costs required
Shared risks and resources
Potential core competency development
Possible partner incompatibility, conflict,
or lack of trust
Management difficulties
Quick access to market
Costly
Possible integration difficulties
Complex negotiations and
transaction requirements
Costly mode of entry
High process complexity
Maximum control
Highest potential returns
High risk
Strategy Use
Early stages of international Export
expansion
Licensing
Facing uncertainty
Strategic Alliances
To secure a stronger
Acquisitions
presence
Greenfield Ventures
Later stages of international
expansion
Valuable, transferrable core
competencies are present
Emerging economies
Acquisitions
Greenfield Ventures
Acquisitions
Greenfield Ventures
Large Diversified Businesses
Korean Chaebols
International Diversification and Returns
International Diversification and Innovation
International Diversification and Risk
Economies of scale and experience
Location advantages
Greater market size
Stability of returns
Lower overall firm risk
Exploitation of core competencies
Knowledge resource sharing
Global scanning for opportunities
Structural flexibility
Access to larger and more markets
Lower R&D investment risk
Exposure to new products and processes
Opportunity to integrate new knowledge
into operations
Generation of resources to sustain
innovation efforts
Political risks
Economic risks
Other formal institutional risks
Government instability
Conflict/war
Government regulations
Conflicting and diverse legal authorities
Potential nationalization of private assets
Government corruption*
Changes in national leadership
Changes in government policies
Differences and fluctuations in
currency values
Investment losses due to political
risks
Potential infrastructure or
financial system damage from
major disasters
Geographic dispersion
Costs of coordination
Logistical costs
Trade barriers
Cultural diversity
Barriers to competitive advantage
transfer
Host governments
As firms internationalize, they may be
tempted to locate facilities where product
liability laws are lax in testing new products.
Is this an acceptable practice? Why or why
not?
Regulation and laws regarding the sale and
distribution of tobacco products are stringent
in the U.S. market. What are the ethical
implications of U.S. firms pursuing marketing
strategies for tobacco products in other
countries that would be illegal in the United
States?
Some companies outsource production to
firms in foreign countries to save money. To
what extent is a company morally responsible
for the way workers are treated by the firms
in those countries to which they outsource
production?
Global and multidomestic strategies call for
different competitive approaches. What ethical
concerns might surface when firms try to
market standardized products globally? When
should firms develop different products or
approaches for each local market?
Are companies morally responsible to support
the U.S. government as it imposes trade
sanctions on other countries, such as China,
because of human rights violations? What if a
significant amount of its international business
is in one of those countries?
Latin America has been experiencing
significant changes in both political orientation
and economic development. What strategies
should foreign international businesses
implement, if any, to influence government
policy in these countries? Can businesses
realistically expect to influence political
changes?