strategic management ch09
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Strategic ManagementTRANSCRIPT
9-1© 2006 by Nelson, a division of Thomson Canada Limited.
International Strategy
Chapter Nine
© 2006 by Nelson, a division of Thomson Canada Limited.
9-2© 2006 by Nelson, a division of Thomson Canada Limited.
The Strategic Management Process
Chapter 8:Acquisition & Restructuring
Chapter 9:International
Strategy
Chapter 10:Cooperative
Strategy
Strategy Formulation
Chapter 11:Corporate
Governance
Ch. 12: Org. Structure & Controls
Chapter 13:Strategic
Leadership
Chapter 14:Org. Renewal & Innovation
Strategy Implementation
StrategicActions
Chapter 3:The External Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 1: Strategic
ManagementStrategic
Competitiveness Ch. 2: Strat. Mgmt . &
Performance
Chapter 3:The External Environment
Chapter 3:The External Environment
Chapter 4:The Internal Environment
Chapter 5: Bus.-Level Strategy
Chapter 6:Competitive Dynamics
Chapter 7:Corp.-Level
Strategy
Chapter 9:International
Strategy
9-3© 2006 by Nelson, a division of Thomson Canada Limited.
International StrategyKnowledge Objectives1. 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 strat., especially liability of foreignness & regionalization
5. Name & describe the five alternative modes for entering international markets
6. Note impact of international divers. on return & innovation
7. Name & describe 2 major risks of international divers.
8. Explain why positive outcomes from international expansion are limited
9-4© 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
Identify International
Opportunities
9-5© 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.
9-6© 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 & OutcomesIdentify
International Opportunities
ExploreResources & Capabilities
InternationalBus.-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
9-7© 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
© 2006 by Nelson, a division of Thomson Canada Limited.
Home country of origin is crucial to International success
Factors of ProductionBasic Factors - Land, laborAdvanced Factors - Education / CommunicationGeneralized Factors - Capital, infrastructureSpecialized Factors - Skilled personnel
Demand Conditions
The nature & size of the buyers
needs in the home market of goods
& services
Determinants of National Advantage
Related & Supporting IndustriesIndustries in which the target country is considered the leader - Japan - cameras & copiers- Denmark - diary & food enzymes
Firm Strategy, Structure & Rivalry
Germany’s focus on methodical product
& process improvements
Italy’s designers spawned fashion apparel,
furniture industries.
Factors of ProductionBasic Factors - Land, laborAdvanced Factors - Education / CommunicationGeneralized Factors - Capital, infrastructureSpecialized Factors - Skilled personnel
Demand Conditions
The nature & size of the buyers
needs in the home market of goods
& services
Related & Supporting IndustriesIndustries in which the target country is considered the leader - Japan - cameras & copiers- Denmark - diary & food enzymes
Firm Strategy, Structure & Rivalry
Germany’s focus on methodical product
& process improvements
Italy’s designers spawned fashion apparel,
furniture industries.
© 2006 by Nelson, a division of Thomson Canada Limited.
Type of Corp. Strategy selected will have an impact on the selection & implementation of business-level strategies
Some Corp. strategies provide individual country units with flexibility to choose their own strategies
Others dictate bus.-level strategies from the home office & coordinate resource sharing across units
Three Corporate Strategies
Global Strategy
Transnational Strategy
Multi-Domestic Strategy
Corp.-Level International Strategies
© 2006 by Nelson, a division of Thomson Canada Limited.
Focus on competition in each market
Prominent strategy among European firms due to broad variety of cultures & markets in Europe
Assumes markets differ by country or regions
Business units in each country are independent of each other
Products & services are tailored to local markets
Corp.-Level International Strategies
Strategy & operating decisions are decentralized to strategic business units (SBU) in each country
Multi-Domestic Strategy
© 2006 by Nelson, a division of Thomson Canada Limited.
Firm often lacks responsiveness to local markets
Requires resource sharing & coordination across borders (which also makes it difficult to manage)
Corp.-Level International Strategies
Emphasizes economies of scale
Strategic business units (SBUs) are assumed to be interdependent
Decisions regarding business-level strategies are centralized in the home office
Products are standardized across national markets
Global Strategy
© 2006 by Nelson, a division of Thomson Canada Limited.
Seeks to achieve both global efficiency and local responsiveness
Difficult to achieve because of simultaneous need: • for strong central control and • coordination to achieve efficiency as well as • local flexibility & decentralization to achieve local market responsiveness
Must pursue organizational learning to achieve competitive advantage
Corp.-Level International Strategies
Transnational Strategy
© 2006 by Nelson, a division of Thomson Canada Limited.
When is each strategy appropriate?
Need for Global
Integration
Low
High
Need for Local Market ResponsivenessLow High
International Corporate Strategy
9-14© 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
9-15© 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
InternationalBus.-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Management Problems, Risk,
and First Steps
Management Problems, Risk,
and First Steps
International Strategy Opportunities & Outcomes
Identify International
Opportunities
ExploreResources & Capabilities
InternationalBus.-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
ExploreResources & Capabilities
InternationalBus.-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
Use Core Competence
Exporting
Establishment of New Sub.
Licensing
StrategicAlliances
Acquisition
International Strategies
9-16© 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.
9-17© 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 -
9-18© 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.
9-19© 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
9-20© 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.
9-21© 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
9-22© 2006 by Nelson, a division of Thomson Canada Limited.
Higher Performance
Returns
Innovation
Management Problems, Risk,
and First Steps
Management Problems, Risk,
and First Steps
Use Core Competence
Exporting
Establishment of New Sub.
Licensing
StrategicAlliances
Acquisition
Identify International
Opportunities
ExploreResources & Capabilities
Use Core Competence
CompetitivenessOutcomes
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
CompetitivenessOutcomes
9-23© 2006 by Nelson, a division of Thomson Canada Limited.
National government instability may create 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.
Risks in the 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 copyrights; CDs, software, etc.
Risks in the International Diversification
Economic Risk
9-25© 2006 by Nelson, a division of Thomson Canada Limited.
Risks in the International Environment
Economic Risks
Political Risks
Political instability in Indonesia brought about by continuing ethnic strife
Uncertain future of peace in the Middle East because of changes of national leaders
Failure of the European Community’s quest for economic superpower status because of inter-country disagreements
China’s difficulty in enforcing intellectual property rights on CDs, software, etc.
Russia’s struggle with low productivity, currency problems & high unemployment.
Exchange rate exposure due to the U.S. - Canadian dollar fluctuations.
9-26© 2006 by Nelson, a division of Thomson Canada Limited.
Taking the 1st International Step: Pitfalls of going to the U.S.
Failure to:
E.D. Smith’s product goals required a corp. culture of company dedication that was lacking in its U.S. facilities
U.S. retailers customers put more importance great front-line sales staff (Canadian Tire’s U.S. experience)
Expectations for better service:
The Paper-thin margins in the U.S. Electronics Retailing Industry that hurt Future Shop
Recognize Different Customer Expectations
Take into account differing worker attitudes
Take into account firmly established competitors
9-27© 2006 by Nelson, a division of Thomson Canada Limited.
Taking the 1st International Step: Basic Advice about going to the U.S.
Jean Coutu U.S. stores are called “MaxiDrug”Know you may need to change basic business attributes
“If you think it necessary to have a sales rep in Montreal, you should find it just as necessary to have one in Chicago.” Winpak’s
President, Bob Lavery
Keg Restaurants give larger portions in the U.S. because customers want to be sure they get value
Open Text acquired U.S. operations and is listed on the NASDAQ to give the firm a U.S. appearance
Subtle cultural differences need attention
Set up as a North American company
Acquire U.S. attributes
9-28© 2006 by Nelson, a division of Thomson Canada Limited.
what local competitors are doing.
and what does not work.What customers expect, and
Jean Coutu
hands-on what works,
Open Text CEO Tom
Jenkins
“If Canadians make any mistake in the U.S., it would be the same mistake they might make in Vancouver or Calgary,
[And,] you have to provide a good product at a fair price and keep your customers happy.”
& discoverGet very involved quickly in day-to-day details
Be close to your customers:
what local competitors are doing.
and what does not work.What customers expect, and
Jean Coutu
hands-on what works,& discoverGet very involved quickly in day-to-day details
which is not locating salespeople close to your customers…
Taking the 1st International Step: Final Advice about going to the U.S.
9-29© 2006 by Nelson, a division of Thomson Canada Limited.
The Strategic Management
Process
Chapter 8:Acquisition & Restructuring
Chapter 9:International
Strategy
Chapter 10:Cooperative
Strategy
Strategy Formulation
Chapter 11:Corporate
Governance
Ch. 12: Org. Structure & Controls
Chapter 13:Strategic
Leadership
Chapter 14:Org. Renewal & Innovation
Strategy Implementation
StrategicActions
Chapter 3:The External Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 1: Strategic
ManagementStrategic
Competitiveness Ch. 2: Strat. Mgmt . &
Performance
Chapter 3:The External Environment
Chapter 3:The External Environment
Chapter 4:The Internal Environment
Chapter 5: Bus.-Level Strategy
Chapter 6:Competitive Dynamics
Chapter 7:Corp.-Level
Strategy
Chapter 9:International
Strategy