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