International Strategy
Study outcome
1.Explain traditional and emerging motives for firms to pursue international diversification.
2.Identify the four major benefits of an international strategy.
3.Explore the four factors that provide a basis for international business-level strategies.
4.Describe the three international corporate-level strategies: multi-domestic, global, and transnational.
International Strategy
Study outcome
5.Discuss the environmental trends affecting international strategy, especially liability of foreignness and regionalization.
6.Name and describe the five alternative modes for entering international markets.
7.Explain the effects of international diversification on firm returns and innovation.
8.Name and describe two major risks of international diversification.
Opportunities and Outcomes of International Strategy
Identifying International Opportunities Incentives to Use an International Strategy
•An international strategy is a strategy through which the firm sells its goods or services outside its domestic market.
•One of the primary reasons for implementing an international strategy is that international markets yield potential new opportunities.
•Another traditional motive for firms to become multinational is to secure needed resources.
Identifying International Opportunities
When these strategies are successful, firms can derive four basic benefits:
1.increased market size;
2.greater returns on major capital investments or on investments in new products and processes;
3.greater economies of scale, scope, or learning; and
4.a competitive advantage through location (e.g., access to low-cost labor, critical resources, or customers).
International Business-Level Strategy
•International business-level strategies have some unique features. In an international business-level strategy, the home country of operation is often the most important source of competitive advantage.
•The resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries.
•However, research indicates that as a firm continues its growth into multiple international locations, the country of origin is less important for competitive advantage.
Determinants of National Advantage, Michael Porter’s model
Determinants of National Advantage, Michael Porter’s model
•The first dimension in Porter’s model is the factors of production. This dimension refers to the inputs necessary to compete in any industry—labor, land, natural resources, capital, and infrastructure (such as transportation, postal, and communication systems).
•There are basic factors (for example, natural and labor resources) and advanced factors (such as digital communication systems and a highly educated workforce).
•Other production factors are generalized (highway systems and the supply of debt capital) and specialized (skilled personnel in a specific industry, such as the workers in a port that specialize in handling bulk chemicals).
Determinants of National Advantage, Michael Porter’s model
•The second dimension in Porter’s model, demand conditions, is characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services.
•A large market segment can produce the demand necessary to create scale-efficient facilities.
•Related and supporting industries are the third dimension in Porter’s model.
•Firm strategy, structure, and rivalry make up the final country dimension and also foster the growth of certain industries.
Determinants of National Advantage, Michael Porter’s model
•These factors are likely to produce competitive advantages only when the firm develops and implements an appropriate strategy that takes advantage of distinct country factors.
•Thus, these distinct country factors must be given thorough consideration when making a decision regarding the business-level strategy to use (i.e., cost leadership, differentiation, focused cost leadership, focused differentiation, and integrated cost leadership/differentiation, discussed in Chapter 4) in an international context.
International Corporate-Level Strategy
Multidomestic Strategy
•A multidomestic strategy is an international strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country so as to allow that unit to tailor products to the local market.
•The multidomestic strategy uses a highly decentralized approach, allowing each division to focus on a geographic area, region, or country.
Global strategy
•A global strategy is an international strategy through which the firm offers standardized products across country markets, with competitive strategy being dictated by the home office.
•Thus, a global strategy emphasizes economies of scale and offers greater opportunities to take innovations developed at the corporate level or in one country and utilize them in other markets.
Transnational Strategy
•A transnational strategy is an international strategy through which the firm seeks to achieve both global efficiency and local responsiveness.
•Realizing these goals is difficult: One requires close global coordination while the other requires local flexibility.
•The transnational strategy is difficult to use because of its conflicting goals.
•However, the effective implementation of a transnational strategy often produces higher performance than does the implementation of either the multidomestic or global international corporate-level strategies
Environmental Trends
Liability of Foreignness
•The dramatic success of Japanese firms such as Toyota and Sony in international markets in the 1980s was a powerful jolt to U.S. managers and awakened them to the importance of international competition in markets that were rapidly becoming global markets.
•Research shows that global strategies are not as prevalent as they once were and are still difficult to implement, even when using Internet-based strategies.
Environmental Trends
Regionalization
•A firm that competes in industries where the international markets differ greatly (in which it must employ a multidomestic strategy) may wish to narrow its focus to a particular region of the world.
•In so doing, it can better understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets.
Choice of International Entry Mode
Type of Entry
Characteristics
Exporting
High cost, low control
Licensing
Low cost, low risk, little control, low returns
Strategic alliances
Shared costs, shared resources, shared risks, problems of
integration (e.g., two corporate cultures)
Acquisition
Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations
New wholly owned subsidiary
Complex, often costly, time consuming, high risk, maximum control, potential above-average returns
Exporting
•The disadvantages of exporting include the often high costs of transportation and tariffs placed on some incoming goods.
•Furthermore, the exporter has less control over the marketing and distribution of its products in the host country and must either pay the distributor or allow the distributor to add to the price to recoup its costs and earn a profit.
•As a result, it may be difficult to market a competitive product through exporting or to provide a product that is customized to each international market.
•However, evidence suggests that cost leadership strategies enhance the performance of exports in developed countries, whereas differentiation strategies are more successful in emerging economies.
Licensing
•Licensing is an increasingly common form of organizational network, particularly among smaller firms.
•A licensing arrangement allows a foreign company to purchase the right to manufacture and sell the firm’s products within a host country or set of countries.
•The licensor is normally paid a royalty on each unit produced and sold.
•The licensee takes the risks and makes the monetary investments in facilities for manufacturing, marketing, and distributing the goods or services.
•As a result, licensing is possibly the least costly form of international expansion.
Licensing (cont.)
•Licensing also has disadvantages.
•For example, it gives the firm little control over the manufacture and marketing of its products in other countries.
•Thus, license deals must be structured properly.
•In addition, licensing provides the least potential returns, because returns must be shared between the licensor and the licensee.
•Additionally, the international firm may learn the technology and produce and sell a similar competitive product after the license expires.
Strategic Alliances
•Strategic alliances allow firms to share the risks and the resources required to enter international markets.
•Moreover, strategic alliances can facilitate the development of new core competencies that contribute to the firm’s future strategic competitiveness.
•Most international strategic alliances are formed with a host-country firm that knows and understands the competitive conditions, legal and social norms, and cultural idiosyncrasies of the country, which helps the expanding firm manufacture and market a competitive product.
Strategic Alliances (cont.)
•Often, firms in emerging economies want to form international alliances and ventures to gain access to sophisticated technologies that are new to them.
•This type of arrangement can benefit the non-emerging economy firm as well, in that it gains access to a new market and doesn’t have to pay tariffs to do so (because it is partnering with a local company).
•In return, the host-country firm may find its new access to the expanding firm’s technology and innovative products attractive.
Acquisitions
•If conflict in a strategic alliance or joint venture is not manageable, an acquisition may be a better option.
•Acquisitions are better in situa
International Strategy
Study outcome
1.Explain traditional and emerging motives for firms to pursue international diversification.
2.Identify the four major benefits of an international strategy.
3.Explore the four factors that provide a basis for international business-level strategies.
4.Describe the three international corporate-level strategies: multi-domestic, global, and transnational.
International Strategy
Study outcome
5.Discuss the environmental trends affecting international strategy, especially liability of foreignness and regionalization.
6.Name and describe the five alternative modes for entering international markets.
7.Explain the effects of international diversification on firm returns and innovation.
8.Name and describe two major risks of international diversification.
Opportunities and Outcomes of International Strategy
Identifying International Opportunities Incentives to Use an International Strategy
•An international strategy is a strategy through which the firm sells its goods or services outside its domestic market.
•One of the primary reasons for implementing an international strategy is that international markets yield potential new opportunities.
•Another traditional motive for firms to become multinational is to secure needed resources.
Identifying International Opportunities
When these strategies are successful, firms can derive four basic benefits:
1.increased market size;
2.greater returns on major capital investments or on investments in new products and processes;
3.greater economies of scale, scope, or learning; and
4.a competitive advantage through location (e.g., access to low-cost labor, critical resources, or customers).
International Business-Level Strategy
•International business-level strategies have some unique features. In an international business-level strategy, the home country of operation is often the most important source of competitive advantage.
•The resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries.
•However, research indicates that as a firm continues its growth into multiple international locations, the country of origin is less important for competitive advantage.
Determinants of National Advantage, Michael Porter’s model
Determinants of National Advantage, Michael Porter’s model
•The first dimension in Porter’s model is the factors of production. This dimension refers to the inputs necessary to compete in any industry—labor, land, natural resources, capital, and infrastructure (such as transportation, postal, and communication systems).
•There are basic factors (for example, natural and labor resources) and advanced factors (such as digital communication systems and a highly educated workforce).
•Other production factors are generalized (highway systems and the supply of debt capital) and specialized (skilled personnel in a specific industry, such as the workers in a port that specialize in handling bulk chemicals).
Determinants of National Advantage, Michael Porter’s model
•The second dimension in Porter’s model, demand conditions, is characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services.
•A large market segment can produce the demand necessary to create scale-efficient facilities.
•Related and supporting industries are the third dimension in Porter’s model.
•Firm strategy, structure, and rivalry make up the final country dimension and also foster the growth of certain industries.
Determinants of National Advantage, Michael Porter’s model
•These factors are likely to produce competitive advantages only when the firm develops and implements an appropriate strategy that takes advantage of distinct country factors.
•Thus, these distinct country factors must be given thorough consideration when making a decision regarding the business-level strategy to use (i.e., cost leadership, differentiation, focused cost leadership, focused differentiation, and integrated cost leadership/differentiation, discussed in Chapter 4) in an international context.
International Corporate-Level Strategy
Multidomestic Strategy
•A multidomestic strategy is an international strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country so as to allow that unit to tailor products to the local market.
•The multidomestic strategy uses a highly decentralized approach, allowing each division to focus on a geographic area, region, or country.
Global strategy
•A global strategy is an international strategy through which the firm offers standardized products across country markets, with competitive strategy being dictated by the home office.
•Thus, a global strategy emphasizes economies of scale and offers greater opportunities to take innovations developed at the corporate level or in one country and utilize them in other markets.
Transnational Strategy
•A transnational strategy is an international strategy through which the firm seeks to achieve both global efficiency and local responsiveness.
•Realizing these goals is difficult: One requires close global coordination while the other requires local flexibility.
•The transnational strategy is difficult to use because of its conflicting goals.
•However, the effective implementation of a transnational strategy often produces higher performance than does the implementation of either the multidomestic or global international corporate-level strategies
Environmental Trends
Liability of Foreignness
•The dramatic success of Japanese firms such as Toyota and Sony in international markets in the 1980s was a powerful jolt to U.S. managers and awakened them to the importance of international competition in markets that were rapidly becoming global markets.
•Research shows that global strategies are not as prevalent as they once were and are still difficult to implement, even when using Internet-based strategies.
Environmental Trends
Regionalization
•A firm that competes in industries where the international markets differ greatly (in which it must employ a multidomestic strategy) may wish to narrow its focus to a particular region of the world.
•In so doing, it can better understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets.
Choice of International Entry Mode
Type of Entry
Characteristics
Exporting
High cost, low control
Licensing
Low cost, low risk, little control, low returns
Strategic alliances
Shared costs, shared resources, shared risks, problems of
integration (e.g., two corporate cultures)
Acquisition
Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations
New wholly owned subsidiary
Complex, often costly, time consuming, high risk, maximum control, potential above-average returns
Exporting
•The disadvantages of exporting include the often high costs of transportation and tariffs placed on some incoming goods.
•Furthermore, the exporter has less control over the marketing and distribution of its products in the host country and must either pay the distributor or allow the distributor to add to the price to recoup its costs and earn a profit.
•As a result, it may be difficult to market a competitive product through exporting or to provide a product that is customized to each international market.
•However, evidence suggests that cost leadership strategies enhance the performance of exports in developed countries, whereas differentiation strategies are more successful in emerging economies.
Licensing
•Licensing is an increasingly common form of organizational network, particularly among smaller firms.
•A licensing arrangement allows a foreign company to purchase the right to manufacture and sell the firm’s products within a host country or set of countries.
•The licensor is normally paid a royalty on each unit produced and sold.
•The licensee takes the risks and makes the monetary investments in facilities for manufacturing, marketing, and distributing the goods or services.
•As a result, licensing is possibly the least costly form of international expansion.
Licensing (cont.)
•Licensing also has disadvantages.
•For example, it gives the firm little control over the manufacture and marketing of its products in other countries.
•Thus, license deals must be structured properly.
•In addition, licensing provides the least potential returns, because returns must be shared between the licensor and the licensee.
•Additionally, the international firm may learn the technology and produce and sell a similar competitive product after the license expires.
Strategic Alliances
•Strategic alliances allow firms to share the risks and the resources required to enter international markets.
•Moreover, strategic alliances can facilitate the development of new core competencies that contribute to the firm’s future strategic competitiveness.
•Most international strategic alliances are formed with a host-country firm that knows and understands the competitive conditions, legal and social norms, and cultural idiosyncrasies of the country, which helps the expanding firm manufacture and market a competitive product.
Strategic Alliances (cont.)
•Often, firms in emerging economies want to form international alliances and ventures to gain access to sophisticated technologies that are new to them.
•This type of arrangement can benefit the non-emerging economy firm as well, in that it gains access to a new market and doesn’t have to pay tariffs to do so (because it is partnering with a local company).
•In return, the host-country firm may find its new access to the expanding firm’s technology and innovative products attractive.
Acquisitions
•If conflict in a strategic alliance or joint venture is not manageable, an acquisition may be a better option.
•Acquisitions are better in situa
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