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)
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
Corporate-Level International Strategies
Increased Market Share
Motivations
for
International
Expansion
Return on Investment
Economies of Scale
Location Advantages
Copyright Guy Harley 2004
Increased Market Share
 Domestic market may be too small to support
efficient-scale manufacturing facilities
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
International Differentiation
 Countries with advanced or specialised factor
conditions are most likely to use this strategy
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
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
Copyright Guy Harley 2004
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