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9-1© 2006 by Nelson, a division of Thomson Canada Limited.
International StrategyChapter Nine
9-2© 2006 by Nelson, a division of Thomson Canada Limited.
Chapter 5Bus. - Level
Strategy
Chapter 6Competitive
Dynamics
Chapter 9International
Strategy
Chapter 10CooperativeStrategies
Chapter 8Acquisitions &Restructuring
Chapter 11Corporate
Governance
Chapter 12Structure& Control
Chapter 13Strategic
Leadership
Chapter 14Entrepreneurship & Innovation
Str
ateg
icIn
pu
ts
Str
ateg
icA
ctio
ns
Str
ateg
ic O
utc
om
esChapter 4Internal
Environment
Chapter 3External
Environment Strat. Intent
Strat. Mission
The Strategic Management .
Process
Strategy Formulation Strategy Implementation
Strategic Competitiveness
Chapter 1
Above Average Returns
Chapter 2 Feedback
Strategic Competitiveness
Chapter 1
Chapter 7Corp. - Level
Strategy
Chapter 5Bus. - Level
Strategy
Chapter 9International
Strategy
9-3© 2006 by Nelson, a division of Thomson Canada Limited.
International Strategy
Knowledge Objectives
1. Explain the traditional and emerging motives for firms to pursue international diversification.
2. Explore the four factors that lead to a basis for international business-level strategies.
3. Define the three international corporate-level strategies: multidomestic, global, and transnational.
4. Discuss the environmental trends affecting international strategy, especially liability of foreignness and regionalization.
9-4© 2006 by Nelson, a division of Thomson Canada Limited.
International Strategy
Knowledge Objectives cont’d…
5. Name & describe the five alternative modes for entering international markets.
6. Explain the effects of international diversification on firm return and innovation.
7. Name and describe two major risks of international diversification.
8. Explain why the positive outcomes from international expansion are limited.
9-5© 2006 by Nelson, a division of Thomson Canada Limited.
StrategicCompetitiveness
Outcomes
Higher Performance
Returns
Innovation
Use Core Competence
Modes of Entry
Exporting
Establishment of New Sub.
Licensing
StrategicAlliances
Acquisition
ExploreResources & Capabilities
International Strategies
InternationalBus.-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Identify International
Opportunities
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
Management Problems, Risk,
and First Steps
Management Problems, Risk,
and First Steps
International Strategy Opportunities & Outcomes
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
9-6© 2006 by Nelson, a division of Thomson Canada Limited.
Benefits of International Strategies
• Increased market size.
• Greater returns on major capital investments or new products or processes.
• Greater economies of scale, scope or learning.
• A competitive advantage through location.
9-7© 2006 by Nelson, a division of Thomson Canada Limited.
Identify International
Opportunities
ExploreResources & Capabilities
Use Core Competence
StrategicCompetitiveness
Outcomes
International Strategies
Modes of Entry
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
InternationalBus.-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Exporting
Establishment of New Sub.
Licensing
StrategicAlliances
Acquisition
Higher Performance
Returns
Innovation
International Strategy Opportunities & Outcomes
Management Problems, Risk,
and First Steps
Management Problems, Risk,
and First Steps
9-8© 2006 by Nelson, a division of Thomson Canada Limited.
International Strategies
• International Business Level Strategies
• International Corporate Level Strategies– Multi-domestic Strategy– Global Strategy– Transnational Strategy
9-9© 2006 by Nelson, a division of Thomson Canada Limited.
Determinants of National Advantage
9-10© 2006 by Nelson, a division of Thomson Canada Limited.
Determinants of National Advantage• Factors of Production
– Inputs – Labour, land, natural resources, capital & infrastructure• Demand Conditions
– The nature and size of he buyers needs in the home market of goods & services
• Related & Supporting Industries– Industries in which the target country is considered the leader
eg. Italy - shoes with a supporting leather industry,
Japan - cameras & photocopiers,
Denmark - diary & an industry focused on food enzymes. • Firm Strategy, Structure & Rivalry make up
– Germany focused on methodical product & process improvements, – Italy’s national pride of designers helped spawn fashion apparel,
furniture & sports car industries.
9-11© 2006 by Nelson, a division of Thomson Canada Limited.
International Corporate-Level Strategy
9-12© 2006 by Nelson, a division of Thomson Canada Limited.
International Corporate-Level Strategy
• Multi-domestic Strategy– Strategic & operating decisions are decentralized
to the strategic business unit in each country to tailor products to the local market.
9-13© 2006 by Nelson, a division of Thomson Canada Limited.
International Corporate-Level Strategy
• Multi-domestic Strategy– Strategic & operating decisions are decentralized to
the strategic business unit in each country to tailor products to the local market.
• Global Strategy– Assumes more standardization of products across
country markets
• Transnational Strategy– The firm seeks to achieve both global efficiency and
local responsiveness
9-14© 2006 by Nelson, a division of Thomson Canada Limited.
Identify International
Opportunities
ExploreResources & Capabilities
Use Core Competence
StrategicCompetitiveness
Outcomes
International Strategies
Modes of Entry
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
InternationalBus.-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Exporting
Establishment of New Sub.
Licensing
StrategicAlliances
Acquisition
Higher Performance
Returns
Innovation
International Strategy Opportunities & Outcomes
Management Problems, Risk,
and First Steps
Management Problems, Risk,
and First Steps
9-15© 2006 by Nelson, a division of Thomson Canada Limited.
ExportingExporting
Choice of International Entry Mode
No need to establish operations in other nations.
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 customize product.
Common way to enter new international markets.
9-16© 2006 by Nelson, a division of Thomson Canada Limited.
Licensing
Choice of International Entry Mode
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 & distribution.
Relatively low profit potential.
Firm authorizes another firm to manufacture & sell its products -
9-17© 2006 by Nelson, a division of Thomson Canada Limited.
Choice of International Entry Mode
Strategic Alliances
Most joint ventures (JVs) involve a foreign corp. with a new product or technology & a host company with access to distribution or knowledge of local customs, norms or politics.
May experience difficulties in merging disparate cultures.
May not understand the strategic intent of partners or experience divergent goals.
Enable firms to shares risks and resources to expand into international ventures.
9-18© 2006 by Nelson, a division of Thomson Canada Limited.
Choice of International Entry Mode
Can be very costly.
Legal and regulatory requirements may present barriers to foreign ownership.
Usually require complex and costly negotiations.
Potentially disparate corporate culture.
Enable firms to make most rapid international expansion.
Acquisitions
9-19© 2006 by Nelson, a division of Thomson Canada Limited.
Greenfield VentureGreenfield Venture
Choice of International Entry ModeNew Wholly-Owned Subsidiary –
Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing and
distribution.May need to acquire expertise & knowledge that is relevant to host country.
Could require hiring host country nationals or consultants at high cost.
9-20© 2006 by Nelson, a division of Thomson Canada Limited.
International diversification facilitates innovation in the firm.
May generate resources necessary to sustain a large-scale R&D program.
Generally related to above-average returns, assuming effective implementation and management of international operations.
Provides larger market to gain more and faster returns form investments in innovation.
International diversification provides greater economies of scope and learning.
Strategic Competitiveness Outcomes
9-21© 2006 by Nelson, a division of Thomson Canada Limited.
Identify International
Opportunities
ExploreResources & Capabilities
Use Core Competence
StrategicCompetitiveness
Outcomes
International Strategies
Modes of Entry
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
InternationalBus.-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Exporting
Establishment of New Sub.
Licensing
StrategicAlliances
Acquisition
Higher Performance
Returns
Innovation
International Strategy Opportunities & Outcomes
Management Problems, Risk,
and First Steps
Management Problems, Risk,
and First Steps
9-22© 2006 by Nelson, a division of Thomson Canada Limited.
Risks in the International Environment
9-23© 2006 by Nelson, a division of Thomson Canada Limited.
National government instability may create potential problems for internationally diversified firms.
Legal authority obtained from previous administration may become invalid.
Potential changes in attitudes or regulations regarding foreign ownership.
Potential for nationalization of firms’ assets.
Major Risks of International Diversification
Political Risk
9-24© 2006 by Nelson, a division of Thomson Canada Limited.
Econ. risks are interdependent with political risks.
Differences in inflation rates may affect inter-nationally diversified firms’ ability to compete.
Differences and fluctuations in international currencies may affect value of assets & liabilities.This affects prices & thus ability to compete.
Enforcing intellectual property rights on CDs, software, etc.
Major Risks of International Diversification
Economic Risk
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