mgnt428 ch08 international stratgies lecture

7/31/2019 MGNT428 Ch08 International Stratgies Lecture

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Chapter 8 -

International Strategy

MGNT428 BUSINESS POLICY & STRATEGY

Dr. Gar Wiggs,Instructor


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Knowledge Objectives

Studying this chapter should provide you withthe strategic management knowledge neededto:

Explain traditional and emerging motives for firms to pursueinternational diversification.

Explore the four factors that lead to a basis for internationalbusiness-level strategies.

Define the three international corporate-level strategies:multidomestic, global, and transnational.

Discuss the environmental trends affecting international strategy,especially liability of foreignness and regionalization.


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Knowledge Objectives (contd)

Studying this chapter should provide you withthe strategic management knowledge neededto:

Name and describe the five alternative modes for enteringinternational markets.

Explain the effects of international diversification on firm

returns and innovation.

Name and describe two major risks of internationaldiversification.

Explain why the positive outcomes from international

expansion are limited.


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Figure 1.1

Copyright 2004 South-Western. All rights reserved.

The StrategicManagement

Process


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Opportunities and Outcomes ofInternational Strategy

Figure 8.1


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Identifying InternationalOpportunities

International strategy

A strategy through which the firm sells its goods or

services outside its domestic market Reasons to having an international strategy

International markets yield potential newopportunities

New market expansion extends product life cycle

Needed resources can be secured

Greater potential product demand


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Classic Rationale for InternationalDiversification: Extend Products Life

Cycle

Production is standardized andrelocated to low cost countries.

Product DemandDevelops and FirmExports Products

Firm IntroducesInnovation in

Domestic Market

ForeignCompetition

Begins Production

Firm BeginsProduction Abroad


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International Strategy Benefits

Increase market share

Domestic market may lack the size to support efficientscale manufacturing facilities

Return on investment

Large investment projects may require global marketsto justify the capital outlays

Weak patent protection in some countries implies thatfirms should expand overseas rapidly in order topreempt imitators


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International Strategy Benefits(contd)

Economies of scale or learning

Expanding size or scope of markets helps toachieve economies of scale in manufacturing

as well as marketing, R&D or distribution

Can spread costs over a larger sales base

Can increase profit per unit


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International Strategy Benefits (contd)

Competitive advantage through location

Low cost markets aid in developingcompetitive advantage by providing access to:

Raw materials

Lower cost labor

Key customers

Energy


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Determinants of National

Advantage

SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group,from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright 1990, 1998 by Michael E. Porter. Figure 8.2


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Determinants of NationalAdvantage

Factors of production: the inputsnecessary to compete in any industry

Labor Land Natural resources

Capital Infrastructure

Basic factors include natural and laborresources

Advanced factors include digitalcommunication systems and an educatedworkforce


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Determinants of NationalAdvantage (contd)

Demand conditions: characterized by thenature and size of buyers needs in the

home market for the industrys goods or

services

Size of the market segment can lead to scale-efficient facilities

Efficiency can lead to domination of theindustry in other countries

Specialized demand may create opportunitiesbeyond national boundaries


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Related and supporting industries:supporting services, facilities, suppliersand so on

Support in design

Support in distribution

Related industries as suppliers and buyers


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Firm strategy, structure and rivalry: thepattern of strategy, structure, and rivalryamong firms

Common technical training

Methodological product and processimprovement

Cooperative and competitive systems


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Selecting an International

Corporate-Level Strategy The type of corporate strategy selected will have an

impact on the selection and implementation of the

business-level strategies Some 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 acrossunits


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International Corporate-LevelStrategy

Focuses on the scope of operations:

Product diversification

Geographic diversification

Required when the firm operates in:

Multiple industries, and

Multiple countries or regions

Headquarters unit guides the strategy

But business or country-level managers canhave substantial strategic input


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InternationalCorporate-

LevelStrategies

Figure 8.3


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Multidomestic Strategy

Strategy and operating decisions aredecentralized to strategic businessunits (SBU) in each country

Products and services are tailored to

local markets Business units in one country are

independent of each other

Assumes markets differ by country or

regions Focus on competition in each market

Prominent strategy among Europeanfirms due to broad variety of cultures

and markets in Europe


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Global Strategy

Products are standardized across nationalmarkets

Decisions regarding business-levelstrategies are centralized in the home office

Strategic business units (SBU) areassumed to be interdependent

Emphasizes economies of scale

Often lacks responsiveness to local markets

Requires resource sharing and coordinationacross borders (hard to manage)


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Transnational Strategy

Seeks to achieve both global efficiency andlocal responsiveness

Difficult to achieve because of simultaneousrequirements:

Strong central control and coordination toachieve efficiency

Decentralization to achieve local marketresponsiveness

Must pursue organizational learning to

achieve competitive advantage


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Environmental Trends

Liability of foreignness

Legitimate concerns about the relative attractivenessof global strategies

Global strategies not as prevalent as once thought Difficulty in implementing global strategies

Regionalization

Focusing on particular region(s) rather than on global

markets Better understanding of the cultures, legal and social

norms


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Choice of International EntryMode

Type of Entry CharacteristicsExporting High cost, low control

Licensing Low cost, low risk, little control, lowreturns

Strategic alliances Shared costs, shared resources, shared

risks, problems of integration

Acquisition Quick access to new market, high cost,complex negotiations, problems of

merging with domestic operations

New wholly ownedsubsidiary

Complex, often costly, time consuming,high risk, maximum control, potentialabove-average returns

Table 8.1


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Dynamics of Mode of Entry

The firm has no foreignmanufacturingexpertise and requiresinvestment only indistribution.

Export

Whats the best solution?Situation Optimal Solution


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The firm needs tofacilitate the productimprovementsnecessary to enterforeign markets.

Licensing



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The firm needs toconnect with anexperienced partneralready in the targetedmarket.

Strategic Alliance



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The firm needs toreduce its risk throughthe sharing of costs.

Strategic Alliance



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The firm is facinguncertain situationssuch as an emergingeconomy in its targetedmarket.

Strategic Alliance



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The firms intellectual

property rights in anemerging economy arenot well protected, thenumber of firms in the

industry is growing fast,and the need for globalintegration is high.

Wholly-ownedSubsidiary



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International Diversification andReturns

Expanding sales of goods or services across globalregions and countries and into different geographiclocations or markets:

May increase a firms returns (such firms usuallyachieve the most positive stock returns)

May achieve economies of scale and experience,location advantages, increased market size and

opportunity to stabilize returns


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Complexity of ManagingMultinational Firms

Expansion into global operations in different geographiclocations or markets:

Makes implementing international strategyincreasingly complex

Can produce greater uncertainty and risk

May result in the firm becoming unmanageable

May cause the cost of managing the firm to exceed

the benefits of expansion

Exposes the firm to possible instability of somenational governments


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Risk in the InternationalEnvironment

Political risks include:

Instability in national governments

War, both civil and international

Potential nationalization of a firms resources

Political Risks Economic Risks

Ri k i h I i l


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Economic risks are interdependent with politicalrisks and include:

Differences and fluctuations in the value of

different currencies Differences in prevailing wage rates

Difficulties in enforcing property rights

Unemployment

Political Risks Economic Risks

Ri k i h I i l


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Figure 8.4a


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Risk in the International Environment(contd)

Figure 8.4b


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Limits to International Expansion

Management Problems

Cost of coordination across diversegeographical business units

Institutional and cultural barriers

Understanding strategic intent of competitors

The overall complexity of competition

mgnt428 ch08 international stratgies lecture

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