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Chapter 8: Opportunities and Outcomes of International Strategy

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Presentation on theme: "Chapter 8: Opportunities and Outcomes of International Strategy"— Presentation transcript:

1 Chapter 8: Opportunities and Outcomes of International Strategy

2 Chapter 8: Opportunities and Outcomes of International Strategy

3 Identifying International Opportunities: Incentives to Use an International Strategy
International Strategy: A strategy through which the firm sells its goods or services outside its domestic market Also referred to as geographic diversification Implications at both corporate and business level Used as a growth strategy Level and type of geographic diversification Level - # of countries, markets, or regions Type – Multidomestic, Global, Transnational Mode or means of entry

4 Identifying International Opportunities: Incentives to Use an International Strategy
Reasons for an International Strategy Potential new opportunities Apply innovations in domestic market to foreign markets Extend product life cycle Secure needed resources Pressure for global integration and globally branded products Global economies of scale High potential demand for products and services Currency fluctuations and tariffs Capitalize on core competencies Growth

5 Identifying International Opportunities: Incentives to Use an International Strategy
Four primary benefits Increased market size Can expand size of potential market Domestic market may have limited growth opportunities Larger markets offer higher potential returns and pose less risk for a firm’s investments Greater return on investment (ROI) Large investment projects may require global markets to justify the capital outlays Larger markets are more attractive To generate above average returns on investments

6 Identifying International Opportunities: Incentives to Use an International Strategy
Four primary benefits (Cont’d) Greater economies of Scale, Scope, or Learning Expanding size or scope of markets can help firms achieve economies of scale in manufacturing, marketing, R&D, distribution, and service activities Can exploit core competencies in international markets through resource and knowledge sharing across borders Competitive advantages through location Can help the firm reduce costs Access to lower-cost labor, energy, and other natural resources Access to critical supplies and to customers

7 International Strategies
Firms can choose to use one or both of two basic types of International Strategy: International Business-level Strategy Firms select from among the generic strategies of low cost, differentiation, focused low cost, focused differentiation, or integrated low cost and differentiation International Corporate-level strategy Focuses on the scope of a firm’s operations through geographic (and product) diversification 3 Types Multidomestic Global Transnational

8 International Corporate-Level Strategies

9 International Strategies
Multidomestic Tailor products to each local market Strategic & operating decisions are decentralized to the strategic business-unit (SBU) in each country Focuses on competition within each country Assumes that markets differ and are segmented by country boundaries Customized products to meet local customers’ specific needs and preferences Deals with uncertainty due to differences across markets Different competitive/business strategy in each market Think local and act local Addresses need for local responsiveness

10 International Strategies
Global Firm offers standardized products across country markets Competitive strategy dictated by the home office Emphasizes economies of scale Strategic & operating decisions centralized at home office Involves interdependent SBUs operating in each country Home office attempts to achieve integration across SBUs, adding management complexity Produces lower risk Is less responsive to local market opportunities Same competitive/business strategy in all markets Think global and act global Addresses need for global integration

11 International Strategies
Transnational Firm seeks to achieve both global efficiency and local responsiveness – these can be competing goals! Requires both global coordination and local responsiveness Flexible Coordination Challenging, but becoming increasingly necessary to compete in international markets Growing number of global competitors increases need to lower costs while greater information flow and desire for specialized products pressures firms to differentiate and even customize products Tailor strategy where needed Think global and act local Increasingly used as a strategy - Toyota

12 International Strategies
Choosing an International Strategy Choice is dictated by the firms internal and external environments Influenced by cross-country differences in market conditions, culture, demographics, etc. Greater differences make things more complicated for firms These differences also drive the pattern of international competition that exists in an industry Greater differences then multidomestic Fewer differences then global

13 International Entry Modes
Exporting Initial strategy used by many firms to test international markets Involves low expense to establish operations in host country Often involves contractual agreements with host country firms May have some tariffs imposed Involves high transportation costs Offers low control over marketing and distribution

14 International Entry Modes
Licensing Allows a foreign company to purchase the right to manufacture and sell the firm’s products within a host country or set of countries Licensor paid royalty on units sold Involves low cost to expand internationally Allows licensee to absorb risks Has low control over manufacturing and marketing Offers lower potential returns (shared with licensee) Involves risk of licensee imitating technology and product for own use May have inflexible ownership arrangement Works well for manufacturers (while franchising works well for services and retailing)

15 International Entry Modes
Strategic Alliances A cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage (Chapter 9) Involve shared risks and resources Facilitate development of core competencies Involve fewer resources and costs required for entry May involve possible incompatibility, conflict, or lack of trust with partner Are difficult to manage

16 International Entry Modes
Acquisitions Allow for quick access to market Quicker entry than other modes Involve possible integration difficulties Are costly Have complex negotiations and transaction requirements

17 International Entry Modes
New Wholly-Owned Subsidiary Is costly Involves complex processes Allows for maximum control Has the highest potential for above average returns Carries high risk Greenfield venture: Establishment of a new wholly owned subsidiary

18 International Entry Modes
Dynamics of Mode of Entry: Use the mode best suited to the situation at hand; affected by several factors Export, licensing and strategic alliance: good tactics for early market development Strategic alliance: used in more uncertain situations Wholly-owned subsidiary may be preferred if Firm wants to maximize control and potential returns Firm has proprietary technology Acquisitions, greenfield ventures, and joint ventures: used to secure a stronger presence in international markets Figure 8.5 – Covers costs and control characteristics

19 International Entry Modes

20 Strategic Competitive Outcomes
International diversification: A strategy through which a firm expands the sale of its goods or services across the borders of global regions and countries into different geographic locations or markets Strategic Competitive Outcomes International diversification and returns As international diversification increases, firms’ returns initially decrease, but then increase quickly as firm learns to manage international expansion Firms that are broadly diversified into multiple international markets usually achieve the most positive stock returns

21 Strategic Competitive Outcomes
Strategic Competitive Outcomes (cont.) International diversification and innovation Potential to achieve greater returns on innovations while reducing risks of R&D investments Exposure to new products and processes and the opportunity to integrate this new knowledge into operations Provides incentives to innovate Competitive advantage potential Locating activities Transferring competencies Coordinating activities Profit sanctuaries and cross market subsidization

22 Risks in International Environment
Political Risks The possibility of the disruption of operations by political forces or events in host countries, home country, or as a result of changes in the international environment Economic Risks Fundamental weaknesses in a country or region's economy with the potential to cause adverse effects on a firm's international strategies Management Problems Larger more complex firms are more difficult to manage There are limits to international expansion

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