Transcript Slide 1
International Strategy
Hansen et al Chapter 7
Copyright Guy Harley 2004
International Strategy Opportunities and Outcomes
Identify
International
Opportunities
Explore
Resources and
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Management
Outcomes
Problems
and Risk
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
International Strategy Lifecycle
Selling products or services outside a firm’s domestic market
2
1
Product Demand
Develops and
Firm Exports
Products
3
Foreign
Competition Begins
Production
Firm Introduces
Innovation into
Domestic Market
5
Production Becomes
Standardised and is
Relocated to Low-Cost
Countries
4
Firm Begins
Production Abroad
Regional Trade Agreements and Associations
The European Union (EU)
North American Free Trade Agreement (NAFTA)
Asia-Pacific Economic Co-operation (APEC)
Association of Southeast Asian Nations
(ASEAN)
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International Selling with the Internet
An indicator of the potential to sell products
internationally using computer technology is the
number of Internet hosts per 1000 people:
122.8 Finland
60.8 Australia
2.1 Mexico
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Corporate-Level International Strategies
Increased Market Share
Motivations
for
International
Expansion
Return on Investment
Economies of Scale
Location Advantages
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Increased Market Share
Domestic market may be too small to support
efficient-scale manufacturing facilities
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Return on Investment
Large investment projects may require global
markets to justify the capital outlays required
Weak patent protection in some countries
implies that firms should expand overseas
rapidly in order to pre-empt imitators
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Economies of Scale
Economies of Scale or Learning
Expanding the size or scope of markets helps
achieve economies of scale in manufacturing as
well as marketing, R&D and/or distribution, and:
Can spread costs over a larger sales base
Can increase profit per unit
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Location Advantages
Low-cost markets may aid in developing
competitive advantage through achieving better
access to:
Raw materials
Lower-cost labour
Key suppliers
Key customers
Energy
Natural Resources
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Porter’s Determinants of National Advantage
Home country of origin is crucial to international success
Factor Conditions
• Basic Factors:
• Land, labour
• Advanced Factors:
• Highly educated
workers
• Digital
communications
• Generalised Factors:
• Capital,
infrastructure
• Specialised Factors:
Skilled personnel
Related and Supporting
Industries
Demand
Conditions
Home country
may support
scale-efficient
operations by
itself
Firm Strategy, Rivalry &
Structure
Intense rivalry fosters
industry competition
International Strategy Opportunities and Outcomes
Identify
International
Opportunities
Explore
Resources and
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Management
Outcomes
Problems
and Risk
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
Corporate-Level International Strategies
International Low Cost
Business
Level
International
Strategies
International Differentiation
International Focus
Low Cost\Differentiation
Copyright Guy Harley 2004
International Low Cost
Usually located in home country
Export to international markets
Low value-added operations in foreign countries
High value-added operations in home country
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International Differentiation
Countries with advanced or specialised factor
conditions are most likely to use this strategy
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International Focus
International Focus Strategies
Technologically advanced firms follow focused
low-cost strategy
Focused differentiation firms compete on the
basis of image and design
Third group competes on low price by
imitating
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Low Cost\Differentiation
International Integrated Low-Cost/Differentiation
Can be most effective in dealing with diverse
markets
Often relies upon flexible manufacturing, total
quality management or rapid communication
networks
Copyright Guy Harley 2004
Corporate-Level International Strategies
Type of corporate strategy selected will have an
impact on the selection and implementation of
business-level strategies
Some corporate strategies provide individual
country units with the flexibility to choose their
own strategies
Others dictate business-level strategies from the
home office and coordinate resource sharing
across units
Copyright Guy Harley 2004
Corporate-Level International Strategies
Three
Corporate
Strategies
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Multi-Domestic Strategy
Global Strategy
Transnational Strategy
Multi-Domestic Strategy
Strategy and operating decisions are decentralised to
strategic business units (SBUs) in each country
Products and services are tailored to local markets
Business units in each country are independent of each
other
Assumes markets differ by country or region
Focus is on competition in each market
A prominent strategy among European firms, due to the
broad variety of cultures and markets in Europe
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Global Strategy
Products are standardised across national markets
Decisions regarding business-level strategies are
centralised in the home office
Strategic business units (SBU) are assumed to be
interdependent
Emphasises economies of scale
Often lacks responsiveness to local markets
Requires resource sharing and coordination across
borders (which also makes it difficult to manage)
Copyright Guy Harley 2004
Transnational Strategy
Seeks to achieve both global efficiency and local
responsiveness
Difficult to achieve because of simultaneous
requirements for strong central control and
coordination to achieve efficiency and local
flexibility, and decentralisation to achieve local
market responsiveness
Must pursue organisational learning to achieve
competitive advantage
Copyright Guy Harley 2004
International Corporate Strategy
High
Need for
Global
Integration
Low
Low
High
Copyright Guy Harley 2004
Need for Local Market Responsiveness
International Strategy Opportunities and Outcomes
Identify
International
Opportunities
Explore
Resources and
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Management
Outcomes
Problems
and Risk
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
Exporting
Choice of
International
Entry Mode
Licensing
Strategic Alliances
Acquisitions
New Wholly-Owned Subsidiary
Copyright Guy Harley 2004
Exporting
Common way to enter new international markets
No need to establish operations in other countries
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 customise products
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Licensing
Firm authorises another firm to manufacture and 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 and
distribution
Relatively low profit potential
May not understand the strategic intent of partners, or
may experience divergence of goals
Copyright Guy Harley 2004
Strategic Alliances
Enable firms to shares risks and resources to expand
into international ventures
Most joint ventures (JVs) involve a foreign company with
a new product or technology and a host company with
access to distribution or knowledge of local customs,
norms and/or politics
May experience difficulties in merging disparate cultures
May not understand the strategic intent of partners, or
may experience divergence of goals
Copyright Guy Harley 2004
Acquisitions
Enable firms to achieve 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 cultures
Copyright Guy Harley 2004
New Wholly-Owned Subsidiary
Most costly and complex of entry alternatives
Achieves greatest degree of control
Potentially most profitable, if successful
Maintains control over technology, marketing
and distribution
May need to acquire expertise and knowledge
that is relevant to host country, that is, may
require hiring host-country nationals or
consultants at high cost
Copyright Guy Harley 2004
International Strategy Opportunities and Outcomes
Identify
International
Opportunities
Explore
Resources and
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Management
Outcomes
Problems
and Risk
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
Major Risks of
International
Diversification
Copyright Guy Harley 2004
Political Risk
Economic Risk
Political Risk
National government instability may create
problems for internationally diversified firms
Potential for changes in attitudes or regulations
regarding foreign ownership
Legal authority obtained from previous
administrations may become invalid
Potential for nationalisation of private firms’
assets
Copyright Guy Harley 2004
Economic Risk
Economic risks are interdependent with political
risks
Differences and fluctuations in international
currencies may affect prices, the value of assets
& liabilities, and ultimately the ability to compete
Differences in inflation rates may affect an
internationally diversified firm’s ability to
compete
Potential for nationalisation of private firms’
assets
Copyright Guy Harley 2004
International Strategy Opportunities and Outcomes
Identify
International
Opportunities
Explore
Resources and
Capabilities
Use Core
Competence
International
Modes of
Entry
Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage
International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy
Strategic
Competitiveness
Management
Outcomes
Problems
and Risk
Exporting
Higher
Performance
Returns
Exporting
Strategic
Alliances
Acquisition
Innovation
Establishment of
New Subsidiary
Management
Problems
and Risk
Strategic Competitiveness Outcomes
International diversification facilitates innovation in the
firm
Provides larger market to gain more and faster returns
from investments in innovation
May generate resources necessary to sustain a largescale 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
Copyright Guy Harley 2004