INTERNATIONAL STRATEGY SUBMITTED BY ARVIND GUPTA (8123)

KNOWLEDGE OBJECTIVES1. Identifying International Opportunities: Incentives to use an International strategy 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. Choices of International Entry Mode 5. Strategic Competitive outcomes 6. Risks in an International Environments

nternational Opportunities Explore Resources & Capabilitie s

International Strategy Opportunities & OutcomesUse Core Competence Outcomes Management Problems , Risk , and First Steps

Competitiven ess

Strategic

Internatio nalIncreased Market Size Return on Investment Economies of Scale and Learning Location Advantage

Strategies Internation al Bus .- Level Strategy Multidomest ic Strategy Global Strategy Transnation al Strategy

Modes of EntryExporting Licensing Strategic Alliances Acquisitio n Establishmen t of New Sub .

Higher Performance Returns

Innovation

Management Problems , Risk , and First Steps

IDENTIFY INTERNATIONAL OPPORTUNITIESMainly for three reasons firms go international

1.Lower Production cost E.g. :- Clothing, Electronics, watch making

2.To secure needed resources E.g.:- Gems & Jwellery (Europe:- Roseyblu, Eurostar),

Minerals and Energy

3.To extend a product`s life cycle E.g.:- Bajaj Auto (Sri Lanka, Bangladesh & China)

Benefits of International StrategiesIncreased 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.

1. INCREASED MARKET SIZEExpand the size of potential marketEx. General motors- Asia, Pharmaceutical

Firms (85% Firms)- FDI- China

Firms competing in Domestic markets have

limited growth opportunitiesEx. Pepsi and Coca-cola

Invest in R&D to build competitive

advantaagesEx. Ranbaxy in Africa

2. RETURN ON INVESTMENTLarge markets needs heavy investmentEx.: R&D, Plant and capital

Reverse Engineering Above average return on Investments

3. ECONOMIES OF SCALE AND LEARNINGEconomies of scale:- Refers to reduction in

unit cost by producing a large volume of a product country BordersPepsi & coke

Firm can standardize products acrossEx. Production and R&D across country---

Allow price their product competitively to

gain market share

Ex. Automobile Industry such as Toyota, GM

Exploit core competencies in international

4. LOCATION ADVANTAGESLower the basic costs of the goods and

services Lower labour cost, energy and natural resources Access to critical suppliers and to customers Help to earn positive returns.Ex.: GM- Asia Help in differentiation of products from

competitors

International Strategy Opportunities & OutcomesIdentify Internationa l Opportunitie s Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage Explore Resources & Capabilitie s Use Core Competence Outcomes Management Problems , Risk , and First Steps

Competitiven ess

Strategic

Internatio nal Strategies

Modes of EntryExporting Licensing Strategic Alliances Acquisitio n Establishmen t of New Sub .

Internation al Bus .- Level Strategy Multidomest ic Strategy Global Strategy Transnation al Strategy

Higher Performance Returns

Innovation

Management Problems , Risk , and First Steps

International StrategiesInternational Business Level Strategies International Corporate Level Strategies

Multi-domestic Strategy Global Strategy Transnational Strategy

International Business Level StrategiesInternational 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

International Differentiation Countries

with advanced or specialized factor conditions most likely to use this strategy

Example: Japan, Germany, U.S.

International Business Level StrategiesInternational Focus Strategies Technologically advanced firms follow focused

low cost strategy Focused differentiation firms compete on the basis of image & design Third group competes on low price by imitating

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

D e te rm in a n ts o f N a tio n a l A d v a n ta g eFACTOR OF PRODUCTION

TRATEGY , STRUCTURE AND RIVALRY

DEMAND CONDITIONS

Related & Supporting Industries

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 e.g. 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,

Corporate-Level International Strategieshave an impact on the selection and implementation of the business-level strategies Some Corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies from the home office andMulti - Domestic coordinate resource T h re e Strategy sharing across units

Type of Corporate Strategy selected will

C o rp o ra te S tra te g i

Global Strategy Transnational Strategy

Multi-domestic StrategyStrategy and operating decisions are

decentralized to strategic business units (SBU) in each country. Products and services are tailored to local markets Business units in each country are independent of each otherAssumes markets differ by country or

regions Focus on competition in each market

Global StrategyProducts are standardized across national

markets Decisions regarding business-level strategies are centralized in the home office Strategic business units (SBU) are assumed to be interdependent Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage)

Tra n sn a ti n a lS tra te g y oSeeks 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 decentralization to achieve local market responsiveness

Eg.FORD

International Corporate-Level StrategyHIGH

When is each strategy appropriate?

OR GLOBAL INTEGRATION

MULTIDOM-ESTIC STRATEGYLOW LOW NEED FOR LOCAL RESPONSIVENESS HIGH

International Corporate-Level StrategyHIGH

When is each strategy appropriate?GLOBAL STRATEGY

OR GLOBAL INTEGRATION

MULTIDOM-ESTIC STRATEGYLOW LOW NEED FOR LOCAL RESPONSIVENESS HIGH

International Corporate-Level StrategyHIGH

When is each strategy appropriate?GLOBAL STRATEGY TRANSNATI-ONAL STRATEGY

OR GLOBAL INTEGRATION

MULTIDOM-ESTIC STRATEGYLOW LOW NEED FOR LOCAL RESPONSIVENESS HIGH

International Strategy Opportunities & International Strategy Opportunities & Outcomes OutcomesIdentify Internationa l Opportunitie s Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage Explore Resources & Capabilitie s Use Core Competence Outcomes Management Problems , Risk , and First Steps

Competitive ness

Strategic

Internatio nal

Strategies Internation al Bus .- Level Strategy Multidomest ic Strategy Global Strategy Transnation al Strategy

Modes of EntryExporting Licensing Strategic Alliances Acquisitio n Establishmen t of New Sub .

Higher Performance Returns

Innovation

Management Problems , Risk , and First Steps

Choice of International Entry ModeExportingCommon way to enter new international

markets. 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.

Choice of International Entry ModeLicensingFirm authorizes another firm to manufacture

& 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 & distribution. Relatively low profit potential.

Choice of International Entry Mode Strategic Alliances Enable firms to shares risks and

resources to expand into international ventures. 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. Eg. Maruti udyog and suzuki. Dow Jones and Bennett and Coleman & co. Ltd.

Choice of International Entry ModeAcquisitionsEnable firms to make most 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 culture.

Choice of International Entry Mode

New 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.

C o u l re q u i h i n g h o st co u n try n a ti n a l d re ri o s o r co n su l n ts a t h i h co st. ta g

Strategic Competitiveness OutcomesInternational diversification facilitates

innovation in the firm. Provides larger market to gain more and faster returns form investments in innovation 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. International diversification provides

International Strategy Opportunities & OutcomesIdentify Internationa l Opportunitie s Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage Explore Resources & Capabilitie s Use Core Competence

Internatio nal

Strategies Internation al Bus .- Level Strategy Multidomest ic Strategy Global Strategy Transnation al Strategy

Modes of EntryExporting Licensing Strategic Alliances Acquisitio n Establishmen t of New Sub .

Outcomes Management Problems , Risk , and First Steps

Competitive ness

Strategic

Higher Performance Returns

Innovation

Management Problems , Risk , and First Steps

Risks in the International Environment

Political instability in indonesia brought about by continuing ethnic strif

POLITICAL future of peace in the middle east because of changes in national Uncertain RISK

Failure of the european unions quest for economic superpower status because

POLITICAL RISK

Chinas difficulty in enforcing intellectual property rights on Russias struggle with low productivity, currency problems and

Exchange rate exposure due to the U.S.-conadian dollar fluctuati

Major Risks of International Diversification

Political RiskNational government instability may

create potential problems for internationally diversified firms. Potential changes in attitudes or regulations regarding foreign ownership. Legal authority obtained from previous administration may become invalid. Potential for nationalization of firms assets.

Major Risks of International Diversification

E co n o m ic R iskEcon. risks are interdependent with political

risks. Differences and fluctuations in international currencies may affect value of assets & liabilities. This affects prices & thus ability to compete. Differences in inflation rates may affect inter-nationally diversified firms ability to compete. Enforcing intellectual property rights on CDs, software, etc.

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