international strategy final

8/3/2019 International Strategy Final

http://slidepdf.com/reader/full/international-strategy-final 1/31

By: Akbar-The Great



The term “International Strategy” can bedefined as,

“Trying to create value by transferring corecompetencies to foreign markets whereindigenous competitors lack thosecompetencies.”



Mainly for three reasons firms go international

› Lower Production cost

E.g. :- Clothing, Electronics, watch making.

› To secure needed resources

E.g.:- Gems & Jewellery (Europe:- Roseyblu, Eurostar),Minerals and Energy

› To extend a product`s life cycle

E.g.:- Coca-Cola (Japan)



Following are the benefits of internationalstrategies:

Increased market size

Return on Investment

Economies of Scale

Location advantage



Expand the size of potential market

Ex. General motors- Asia, Pharmaceutical- China

International strategy is particularly an attractive option tofirms competing in domestic markets that have limitedgrowth opportunities.

Ex. Pepsi & coca-cola entering Japanese market.

Larger markets usually offer higher potential returns thusinvestments can be made in R&D.

Ex. Ranbaxy in Africa



Large markets can help a firm to earn proper return oninvestments such as plant & machinery or R&D.

Ex. Electronics

Due to Reverse Engineering, products are imitated easily sointernational expansion provide large market to get proper return on investments.

Ex. Pharmaceuticals

Above average return on Investments



Economies of scale:- Refers to reduction in unit cost byproducing a large volume of a product

Firm can standardize products across country Borders

Ex. Auto industry-China

Allow price their product competitively to gain market share

Exploit core competencies in international markets



Easier access to Lower cost- labor, energy and naturalresources

Access to critical suppliers and to customers

Ex.: GM- Asia ,China

Once positioned favorably with an attractive location, firms

must manage their facilities effectively to gain the full benefitof a location advantage.



International Business Level Strategies

› International low cost

›

International differentiation› International focused

› International integration low cost/Differentiation

International Corporate Level Strategies

› Multi-domestic Strategy

› Global Strategy

› Transnational Strategy



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

› E.g.: Mc Donald's.

International Differentiation › Countries with advanced or specialized

factor conditions most likely to use thisstrategy

› E.g.: Mercedes.



International 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 byimitating

› E.g..: Johnsons & Johnsons.

International Integrated LowCost/Differentiation

› Can be most effective in dealing withdiverse markets

› Often relies upon flexible manufacturing,total quality management or rapidcommunication networks


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Type of Corporate Strategy selected will have an impact onthe selection and implementation of the business-levelstrategies

Some Corporate strategies provide individual country unitswith flexibility to choose their own strategies

Others dictate business-level strategies from the home office

and coordinate resource sharing across units

› Multi-Domestic Strategy

› Global Strategy

› Transnational Strategy



Strategy and operating decisions

are decentralized to strategicbusiness units (SBU) in eachcountry.

Products and services are tailored

to local markets

Business units in each country areindependent of each other

Assumes markets differ by countryor regions

Focus on competition in eachmarket

E.g. Coca-Cola



Products are standardized across

national markets

Decisions regarding business-levelstrategies are centralized in thehome office

Strategic business units (SBU) areassumed to be interdependent

Often lacks responsiveness to local

markets

Requires resource sharing andcoordination across borders (whichalso makes it difficult to manage)

E.g. Apple Inc.



Seeks to achieve both global

efficiency and localresponsiveness

Difficult to achieve becauseof simultaneous requirementsfor strong central control and

coordination to achieveefficiency and local flexibilityand decentralization toachieve local marketresponsiveness

E.g. Nokia



Exporting

Licensing Strategic Alliance

Acquisition

New wholly owned subsidiary



Common way to enter newinternational markets.

No need to establish operationsin other nations

Establish distribution channels

through contractualrelationships.

May have high transportationcosts

May encounter high import

tariffs. May have less control on

marketing and distribution.

Difficult to customize product.

E.g. ZealotPharmaceuticals



Firm authorizes another firm tomanufacture & sell its products

Licensing firm is paid a royaltyon each unit produced and

sold. Licensee takes risks in

manufacturing investments.

Least risky way to enter aforeign market

Licensing firm loses control over product quality & distribution.

Relatively low profit potential.

E.g. Domino’s pizza



Mode Enable firms to shares risks

and resources to expand intointernational ventures

Most joint ventures (JVs) involve a

foreign corp. with a new productor technology & a host companywith access to distribution or knowledge of local customs,norms or politics

May experience difficulties inmerging disparate cultures.

May not understand the strategicintent o. f partners or experiencedivergent goals.

E.g. Bharti AXA



Enable firms to makemost rapid internationalexpansion

Can be very costly.

Legal and regulatoryrequirements may presentbarriers to foreignownership. Usually require

complex and costlynegotiations.

Potentially disparatecorporate culture.

E.g. Vodafone-Hutch Essar



Most costly & complex of entryalternatives

Achieves greatest degree of

control.

Potentially most profitable, ifsuccessful.

Maintain control over

technology, marketing anddistribution.

May need to acquire expertise& knowledge that is relevant tohost country.

E.g. Dabur international have ansubsidiary in Sri Lankanamed Dabur Lanka.



International diversification and returns

International diversification and

innovation Complexity of managing multinational

firms



Expanding sales of goods or services across globalregions and countries and into differentgeographic locations or markets:

› May increase a firm’s returns (such firms usuallyachieve the most positive stock returns)

› May achieve economies of scale andexperience, location advantages, increasedmarket size and opportunity to stabilize returns



Expansion sales of goods or services across globalregions and countries and into differentgeographic locations or markets:

› May yield potentially greater returns oninnovations (a larger market)

› Can generate additional resources for investment in innovation

› Provides exposure to new products andprocesses in international markets; generatesadditional knowledge leading to innovations



Expansion into global operations in differentgeographic locations or markets:

› Makes implementing international strategy

increasingly complex

› Can produce greater uncertainty and risk

› May result in the firm becoming unmanageable

› May cause the cost of managing the firm toexceed the benefits of expansion

› Exposes the firm to possible instability of somenational governments



1. POLITICAL RISK

›

National government instability may create potentialproblems for internationally diversified firms.

› Potential changes in attitudes or regulations regardingforeign ownership.

› Legal authority obtained from previous administration maybecome invalid.

› Potential for nationalization of firms’ assets.



› Economical risks are interdependent with political risks.

› Differences and fluctuations in international currenciesmay affect value of assets & liabilities.

› This affects prices & thus ability to compete.

› Differences in inflation rates may affect inter-nationallydiversified firms’ ability to compete.

› Enforcing intellectual property rights on CDs, software,etc.

international strategy final

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