Transcript Slide 1
Chapter 8: Opportunities and Outcomes
of International Strategy
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Chapter 8: Opportunities and Outcomes
of International Strategy
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Identifying International Opportunities:
Incentives to Use an International Strategy
International Strategy: A strategy through which the firm
sells its goods or services outside its domestic market
Also referred to as geographic diversification
Implications at both corporate and business level
Used as a growth strategy
Level and type of geographic diversification
Level - # of countries, markets, or regions
Type – Multidomestic, Global, Transnational
Mode or means of entry
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Identifying International Opportunities:
Incentives to Use an International Strategy
Reasons for an International Strategy
Potential new opportunities
Apply innovations in domestic market to foreign markets
Extend product life cycle
Secure needed resources
Pressure for global integration and globally branded products
Global economies of scale
High potential demand for products and services
Currency fluctuations and tariffs
Capitalize on core competencies
Growth
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Identifying International Opportunities:
Incentives to Use an International Strategy
Four primary benefits
Increased market size
Can expand size of potential market
Domestic market may have limited growth opportunities
Larger markets offer higher potential returns and pose less risk
for a firm’s investments
Greater return on investment (ROI)
Large investment projects may require global markets to justify
the capital outlays
Larger markets are more attractive
To generate above average returns on investments
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Identifying International Opportunities:
Incentives to Use an International Strategy
Four primary benefits (Cont’d)
Greater economies of Scale, Scope, or Learning
Expanding size or scope of markets can help firms achieve
economies of scale in manufacturing, marketing, R&D,
distribution, and service activities
Can exploit core competencies in international markets through
resource and knowledge sharing across borders
Competitive advantages through location
Can help the firm reduce costs
Access to lower-cost labor, energy, and other natural resources
Access to critical supplies and to customers
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International Strategies
Firms can choose to use one or both of two basic types
of International Strategy:
International Business-level Strategy
Firms select from among the generic strategies of low
cost, differentiation, focused low cost, focused
differentiation, or integrated low cost and differentiation
International Corporate-level strategy
Focuses on the scope of a firm’s operations through
geographic (and product) diversification
3 Types
Multidomestic
Global
Transnational
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International Corporate-Level Strategies
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International Strategies
Multidomestic
Tailor products to each local market
Strategic & operating decisions are decentralized to the
strategic business-unit (SBU) in each country
Focuses on competition within each country
Assumes that markets differ and are segmented by country
boundaries
Customized products to meet local customers’ specific
needs and preferences
Deals with uncertainty due to differences across markets
Different competitive/business strategy in each market
Think local and act local
Addresses need for local responsiveness
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International Strategies
Global
Firm offers standardized products across country markets
Competitive strategy dictated by the home office
Emphasizes economies of scale
Strategic & operating decisions centralized at home office
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
Same competitive/business strategy in all markets
Think global and act global
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Addresses need for global integration
International Strategies
Transnational
Firm seeks to achieve both global efficiency and local
responsiveness – these can be competing goals!
Requires both global coordination and local responsiveness
Flexible Coordination
Challenging, but becoming increasingly necessary to
compete in international markets
Growing number of global competitors increases need to
lower costs while greater information flow and desire for
specialized products pressures firms to differentiate and
even customize products
Tailor strategy where needed
Think global and act local
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Increasingly used as a strategy - Toyota
International Strategies
Choosing an International Strategy
Choice is dictated by the firms internal and external
environments
Influenced by cross-country differences in market
conditions, culture, demographics, etc.
Greater differences make things more complicated
for firms
These differences also drive the pattern of
international competition that exists in an industry
Greater differences then multidomestic
Fewer differences then global
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International Entry Modes
Exporting
Initial strategy used by many firms to test international
markets
Involves low expense to establish operations in host
country
Often involves contractual agreements with host country
firms
May have some tariffs imposed
Involves high transportation costs
Offers low control over marketing and distribution
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International Entry Modes
Licensing
Allows a foreign company to purchase the right to manufacture and
sell the firm’s products within a host country or set of countries
Licensor paid royalty on units sold
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
Works well for manufacturers (while franchising works well for
services and retailing)
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International Entry Modes
Strategic Alliances
A cooperative strategy in which firms combine some of
their resources and capabilities to create a competitive
advantage (Chapter 9)
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
Acquisitions
Allow for quick access to market
Quicker entry than other modes
Involve possible integration difficulties
Are costly
Have complex negotiations and transaction
requirements
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International Entry Modes
New Wholly-Owned Subsidiary
Is costly
Involves complex processes
Allows for maximum control
Has the highest potential for above average returns
Carries high risk
Greenfield venture: Establishment of a new wholly
owned subsidiary
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International Entry Modes
Dynamics of Mode of Entry: Use the mode 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
Firm wants to maximize control and potential returns
Firm has proprietary technology
Acquisitions, greenfield ventures, and joint ventures: used to
secure a stronger presence in international markets
Figure 8.5 – Covers costs and control characteristics
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International Entry Modes
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Strategic Competitive Outcomes
International diversification: A strategy through
which a firm expands the sale of its goods or services
across the borders of global regions and countries into
different geographic locations or markets
Strategic Competitive Outcomes
International diversification and returns
As international diversification increases, firms’ returns
initially decrease, but then increase quickly as firm learns to
manage international expansion
Firms that are broadly diversified into multiple international
markets usually achieve the most positive stock returns
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Strategic Competitive Outcomes
Strategic Competitive Outcomes (cont.)
International diversification and innovation
Potential to achieve greater returns on innovations while
reducing risks of R&D investments
Exposure to new products and processes and the
opportunity to integrate this new knowledge into
operations
Provides incentives to innovate
Competitive advantage potential
Locating activities
Transferring competencies
Coordinating activities
Profit sanctuaries and cross market subsidization
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Risks in International Environment
Political Risks
The possibility of the disruption of operations by political
forces or events in host countries, home country, or as a
result of changes in the international environment
Economic Risks
Fundamental weaknesses in a country or region's
economy with the potential to cause adverse effects on a
firm's international strategies
Management Problems
Larger more complex firms are more difficult to manage
There are limits to international expansion
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