©2003 Southwestern Publishing Company 1

International StrategyInternational Strategy

Michael A. HittR. Duane Ireland

Robert E. Hoskisson

Chapter 8Chapter 8

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Strategy ImplementationStrategy ImplementationChapter 11Chapter 11

OrganizationalOrganizationalStructure and Structure and

ControlsControls

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 12Chapter 12StrategicStrategic

LeadershipLeadership

Strategy FormulationStrategy Formulation

StrategicStrategicCompetitivenessCompetitivenessAbove-AverageAbove-Average

ReturnsReturns

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 2Chapter 2The ExternalThe ExternalEnvironmentEnvironment

Chapter 3Chapter 3The InternalThe InternalEnvironmentEnvironment

The Strategic The Strategic Management Management ProcessProcess

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Chapter 13Chapter 13StrategicStrategic

EntrepreneurshipEntrepreneurship

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Chapter 6Chapter 6Corporate-Corporate-

Level StrategyLevel Strategy

Chapter 5Chapter 5Competitive RivalryCompetitive Rivalry

and Competitiveand CompetitiveDynamics Dynamics

Chapter 8Chapter 8InternationalInternational

StrategyStrategy

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 7Chapter 7Acquisition andAcquisition andRestructuringRestructuring

StrategiesStrategies

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ExportingExporting

LicensingLicensing

Strategic Strategic alliancesalliances

AcquisitionsAcquisitions

Establishment of Establishment of a new subsidiarya new subsidiary

International International business-level business-level strategystrategy

Multidomestic Multidomestic strategystrategy

Global strategyGlobal strategy

Transnational Transnational strategystrategy

Opportunities and Outcomes of Opportunities and Outcomes of International StrategyInternational Strategy

Increased market Increased market sizesize

Return on Return on investmentinvestment

Economies of Economies of scale and learningscale and learning

Advantage in Advantage in locationlocation

Identify International Identify International OpportunitiesOpportunities

Explore Resources Explore Resources and Capabilitiesand Capabilities

Use Core Use Core CompetenceCompetence

International International StrategiesStrategies Modes of EntryModes of Entry

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Better Better performanceperformance

InnovationInnovation

Opportunities and Outcomes of Opportunities and Outcomes of International Strategy: International Strategy: ContinuedContinued

ExportingExporting

LicensingLicensing

Strategic Strategic alliancesalliances

AcquisitionsAcquisitions

Establishment of Establishment of a new subsidiarya new subsidiary

Use Core Use Core CompetenceCompetence

Modes of EntryModes of Entry Managementproblems andrisk

Managementproblems andrisk

Strategic Strategic Competitiveness Competitiveness OutcomesOutcomes

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International Strategy Life CycleInternational Strategy Life Cycle

Production BecomesProduction BecomesStandardized and isStandardized and isRelocated to LowRelocated to LowCost CountriesCost Countries

Product DemandProduct DemandDevelops and FirmDevelops and FirmExports ProductsExports Products

Firm IntroducesFirm IntroducesInnovation inInnovation inDomestic MarketDomestic Market

ForeignForeignCompetitionCompetitionBegins ProductionBegins Production

Firm BeginsFirm BeginsProduction AbroadProduction Abroad

Selling Products Selling Products or Services or Services Outside a Firm’s Outside a Firm’s Domestic MarketDomestic Market

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Motivations for International Motivations for International ExpansionExpansion Increase Market ShareIncrease Market Share

– domestic market may lack the size to support domestic market may lack the size to support efficient scale manufacturing facilitiesefficient scale manufacturing facilities

Return on InvestmentReturn on Investment– large investment projects may require global large investment projects may require global

markets to justify the capital outlaysmarkets to justify the capital outlays– weak patent protection in some countries weak patent protection in some countries

implies that firms should expand overseas implies that firms should expand overseas rapidly in order to preempt imitatorsrapidly in order to preempt imitators

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Motivations for International Motivations for International ExpansionExpansion Economies of Scale or LearningEconomies of Scale or Learning

– expanding size or scope of markets helps to expanding size or scope of markets helps to achieve economies of scale in manufacturing achieve economies of scale in manufacturing as well as marketing, R & D or distributionas well as marketing, R & D or distribution

– can spread costs over a larger sales’ basecan spread costs over a larger sales’ base– increase profit per unitincrease profit per unit

Location AdvantagesLocation Advantages– low cost markets may aid in developing low cost markets may aid in developing

competitive advantagecompetitive advantage– may achieve better access to:may achieve better access to:

• Raw materialsRaw materials• Lower cost laborLower cost labor

• Key customersKey customers• EnergyEnergy

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage

Factors ofFactors ofproductionproduction

Related andRelated andsupportingsupportingindustriesindustries

DemandDemandconditionsconditions

Firm strategy,Firm strategy,structure, andstructure, and

rivalryrivalry

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Factors of production:Factors of production: the inputs necessary the inputs necessary

to compete in any industryto compete in any industry– laborlabor– landland– natural resourcesnatural resources– capitalcapital– infrastructureinfrastructure– basic factors include natural and labor basic factors include natural and labor

resourcesresources– advanced factors include digital communication advanced factors include digital communication

systems and educated workforcesystems and educated workforce

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Demand conditions:Demand conditions: characterized by the characterized by the

nature and size of buyers’ needs in the nature and size of buyers’ needs in the home market for the industry’s goods or home market for the industry’s goods or servicesservices– size of market segment can lead to scale-size of market segment can lead to scale-

efficient facilitiesefficient facilities– efficiency can lead to domination of the efficiency can lead to domination of the

industry in other countriesindustry in other countries– specialized demand may create opportunities specialized demand may create opportunities

beyond national boundariesbeyond national boundaries

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Related and supporting industries:Related and supporting industries:

supporting services, facilities, suppliers supporting services, facilities, suppliers and so onand so on– support in designsupport in design– support in distributionsupport in distribution– related industries as suppliers and buyersrelated industries as suppliers and buyers

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Firm strategy, structure, and rivalry:Firm strategy, structure, and rivalry: the the

pattern of strategy, structure, and rivalry pattern of strategy, structure, and rivalry among firmsamong firms– common technical trainingcommon technical training– methodological product and process methodological product and process

improvementimprovement– cooperative and competitive systemscooperative and competitive systems

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International Corporate-Level International Corporate-Level StrategyStrategy

Need for Local ResponsivenessNeed for Local Responsiveness

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LowLow HighHigh

GlobalGlobalstrategystrategy

TransnationalTransnationalstrategystrategy

MultidomesticMultidomesticstrategystrategy

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International Corporate-Level International Corporate-Level StrategyStrategy Type of corporate strategy selected will Type of corporate strategy selected will

have an impact on the selection and have an impact on the selection and implementation of the business-level implementation of the business-level strategiesstrategies

Some corporate strategies provide Some corporate strategies provide individual country units with flexibility to individual country units with flexibility to choose their own strategieschoose their own strategies

Others dictate business-level strategies Others dictate business-level strategies from the home office and coordinate from the home office and coordinate resource sharing across unitsresource sharing across units

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MultidomesticMultidomesticstrategystrategy

International Corporate-Level International Corporate-Level Strategy: Strategy: Multidomestic StrategyMultidomestic Strategy

• Strategy and operating decisions are Strategy and operating decisions are decentralized to strategic business units (SBU) decentralized to strategic business units (SBU) in each countryin each country

• Products and services are tailored to local Products and services are tailored to local marketsmarkets

• Business units in one country are independent Business units in one country are independent of each other of each other

• Assumes markets differ by country or regionsAssumes markets differ by country or regions• Focus on competition in each marketFocus on competition in each market• Prominent strategy among European firms Prominent strategy among European firms

due to broad variety of cultures and markets due to broad variety of cultures and markets in Europein Europe

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International Corporate-Level International Corporate-Level Strategy: Strategy: Global StrategyGlobal Strategy

GlobalGlobalstrategystrategy

• Products are standardized across national Products are standardized across national marketsmarkets

• Decisions regarding business-level strategies Decisions regarding business-level strategies are centralized in the home officeare centralized in the home office

• Strategic business units (SBU) are assumed to Strategic business units (SBU) are assumed to be interdependentbe interdependent

• Emphasizes economies of scaleEmphasizes economies of scale• Often lacks responsiveness to local marketsOften lacks responsiveness to local markets• Requires resource sharing and coordination Requires resource sharing and coordination

across borders (which also makes it difficult across borders (which also makes it difficult to manage)to manage)

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TransnationalTransnationalstrategystrategy

International Corporate-Level International Corporate-Level Strategy: Strategy: Transnational StrategyTransnational Strategy

• Seeks to achieve both global efficiency and Seeks to achieve both global efficiency and local responsivenesslocal responsiveness

• Difficult to achieve because of simultaneous Difficult to achieve because of simultaneous requirementsrequirements strong central control and coordination to strong central control and coordination to

achieve efficiency achieve efficiency decentralization to achieve local market decentralization to achieve local market

responsivenessresponsiveness• Must pursue organizational learning to Must pursue organizational learning to

achieve competitive advantageachieve competitive advantage

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Type of EntryType of Entry CharacteristicsCharacteristicsExportingExporting High cost, low controlHigh cost, low controlLicensingLicensing Low cost, low risk, little control, low Low cost, low risk, little control, low

returnsreturnsStrategic alliancesStrategic alliances Shared costs, shared resources, shared Shared costs, shared resources, shared

risks, problems of integrationrisks, problems of integrationAcquisitionAcquisition Quick access to new market, high cost, Quick access to new market, high cost,

complex negotiations, problems of complex negotiations, problems of merging with domestic operationsmerging with domestic operations

New wholly owned New wholly owned subsidiarysubsidiary

Complex, often costly, time consuming, Complex, often costly, time consuming, high risk, maximum control, potential high risk, maximum control, potential above-average returnsabove-average returns

Global Market Entry: Choice of Global Market Entry: Choice of Entry ModeEntry Mode

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Strategic Competitiveness Strategic Competitiveness Outcomes: Outcomes: ReturnsReturns International diversification and returnsInternational diversification and returns::

firm expands the sales of its goods or services firm expands the sales of its goods or services across the borders of global regions and countries across the borders of global regions and countries into different geographic locations or marketsinto different geographic locations or markets– may increase a firm’s returnsmay increase a firm’s returns– such firms usually achieve the most positive such firms usually achieve the most positive

stock returnsstock returns– firm may achieve economies of scale and firm may achieve economies of scale and

experience, location advantages, increased experience, location advantages, increased market size and opportunity to stabilize returnsmarket size and opportunity to stabilize returns

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Strategic Competitiveness Strategic Competitiveness Outcomes: Outcomes: InnovationInnovation International diversification and innovationInternational diversification and innovation::

firm expands the sales of its goods or services firm expands the sales of its goods or services across the borders of global regions and countries across the borders of global regions and countries into different geographic locations or marketsinto different geographic locations or markets– potentially greater returns on innovations (larger potentially greater returns on innovations (larger

markets)markets)– generate additional resources for investment in generate additional resources for investment in

innovationinnovation– exposed to new products and processes in exposed to new products and processes in

international markets, generates additional international markets, generates additional knowledge leading to innovationsknowledge leading to innovations

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Risks in an International Risks in an International EnvironmentEnvironment

Political RisksPolitical Risks Economic RisksEconomic Risks

Political risks includePolitical risks include• instability in national governmentsinstability in national governments• war, both civil and internationalwar, both civil and international• potential nationalization of a firm’s resourcespotential nationalization of a firm’s resources

Political RisksPolitical Risks

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Risks in an International Risks in an International EnvironmentEnvironment

Economic RisksEconomic Risks

Economic risks are interdependent with political Economic risks are interdependent with political risks and includerisks and include

• differences and fluctuations in the value of different differences and fluctuations in the value of different currenciescurrencies

• differences in prevailing wage ratesdifferences in prevailing wage rates• difficulties in enforcing property rightsdifficulties in enforcing property rights• unemploymentunemployment

Political RisksPolitical Risks

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Limits to International Expansion: Limits to International Expansion: Management ProblemsManagement Problems Cost of coordination across diverse Cost of coordination across diverse

geographical business unitsgeographical business units Institutional and cultural barriersInstitutional and cultural barriers Understanding strategic intent of Understanding strategic intent of

competitorscompetitors The overall complexity of competitionThe overall complexity of competition