1. International Strategy
Hansen et al Chapter 7
Copyright Guy Harley 2004

2. International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore
Resources and Capabilities
Use Core Competence
Strategic
Competitiveness
Outcomes
Management Problems
and Risk
International Strategies
Modes of Entry
Increased
Market Size
International
Business-Level
Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic
Alliances
Economies of Scale and Learning
Global
Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems
and Risk 3

3. International Strategy Lifecycle
Selling products or services outside a firm’s domestic market
Product Demand Develops and Firm Exports Products 2
Foreign Competition Begins Production 3
Firm Introduces Innovation into Domestic Market 1 4
Firm Begins Production Abroad
Production Becomes Standardised and is Relocated to Low-Cost Countries 5 10

4. Regional Trade Agreements and Associations
The European Union (EU)
North American Free Trade Agreement (NAFTA)
Asia-Pacific Economic Co-operation (APEC)
Association of Southeast Asian Nations (ASEAN)
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5. International Selling with the Internet
An indicator of the potential to sell products internationally using computer technology is the number of Internet hosts per 1000 people:
122.8 Finland
60.8 Australia
2.1 Mexico
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6. Corporate-Level International Strategies
Increased Market Share
Motivations for International Expansion
Return on Investment
Economies of Scale
Location Advantages
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7. Increased Market Share
Domestic market may be too small to support efficient-scale manufacturing facilities
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8. Return on Investment
Large investment projects may require global markets to justify the capital outlays required
Weak patent protection in some countries implies that firms should expand overseas rapidly in order to pre-empt imitators
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9. Economies of Scale
Economies of Scale or Learning Expanding the size or scope of markets helps achieve economies of scale in manufacturing as well as marketing, R&D and/or distribution, and:
Can spread costs over a larger sales base
Can increase profit per unit
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10. Location Advantages
Low-cost markets may aid in developing competitive advantage through achieving better access to:
Raw materials
Lower-cost labour
Key suppliers
Key customers
Energy
Natural Resources
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11. Porter’s Determinants of National Advantage
Home country of origin is crucial to international success
Related and Supporting Industries
Factor Conditions
Basic Factors:
Land, labour
Advanced Factors:
Highly educated workers
Digital communications
Generalised Factors:
Capital, infrastructure
Specialised Factors: Skilled personnel
Demand Conditions
Home country may support scale-efficient operations by itself
Firm Strategy, Rivalry & Structure
Intense rivalry fosters industry competition 21

12. International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore
Resources and Capabilities
Use Core Competence
Strategic
Competitiveness
Outcomes
Management Problems
and Risk
International Strategies
Modes of Entry
Increased
Market Size
International
Business-Level
Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic
Alliances
Economies of Scale and Learning
Global
Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems
and Risk 3

13. Corporate-Level International Strategies
International Low Cost
Business Level International Strategies
International Differentiation
International Focus
Low Cost\Differentiation
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14. International Low Cost
Usually located in home country
Export to international markets
Low value-added operations in foreign countries
High value-added operations in home country
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15. International Differentiation
Countries with advanced or specialised factor conditions are most likely to use this strategy
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16. International Focus International Focus Strategies
Technologically advanced firms follow focused low-cost strategy
Focused differentiation firms compete on the basis of image and design
Third group competes on low price by imitating
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17. Low Cost\Differentiation
International Integrated Low-Cost/Differentiation
Can be most effective in dealing with diverse markets
Often relies upon flexible manufacturing, total quality management or rapid communication networks
Copyright Guy Harley 2004

18. Corporate-Level International Strategies
Type of corporate strategy selected will have an impact on the selection and implementation of business-level strategies
Some corporate 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 across units
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19. Corporate-Level International Strategies
Multi-Domestic Strategy
Three Corporate Strategies
Global Strategy
Transnational Strategy
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20. Multi-Domestic Strategy
Strategy and operating decisions are decentralised to strategic business units (SBUs) in each country
Products and services are tailored to local markets
Business units in each country are independent of each other
Assumes markets differ by country or region
Focus is on competition in each market
A prominent strategy among European firms, due to the broad variety of cultures and markets in Europe
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21. Global Strategy Products are standardised across national markets
Decisions regarding business-level strategies are centralised in the home office
Strategic business units (SBU) are assumed to be interdependent
Emphasises economies of scale
Often lacks responsiveness to local markets
Requires resource sharing and coordination across borders (which also makes it difficult to manage)
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22. Transnational Strategy
Seeks to achieve both global efficiency and local responsiveness
Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility, and decentralisation to achieve local market responsiveness
Must pursue organisational learning to achieve competitive advantage
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23. International Corporate Strategy
High
Need for Global Integration
Low
Low
High
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Need for Local Market Responsiveness 61

24. International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore
Resources and Capabilities
Use Core Competence
Strategic
Competitiveness
Outcomes
Management Problems
and Risk
International Strategies
Modes of Entry
Increased
Market Size
International
Business-Level
Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic
Alliances
Economies of Scale and Learning
Global
Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems
and Risk 3

25. Choice of International Entry Mode New Wholly-Owned Subsidiary
Exporting
Licensing
Strategic Alliances
Acquisitions
New Wholly-Owned Subsidiary
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26. Exporting Common way to enter new international markets
No need to establish operations in other countries
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 customise products
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27. Licensing
Firm authorises another firm to manufacture and sell its products
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 and distribution
Relatively low profit potential
May not understand the strategic intent of partners, or may experience divergence of goals
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28. Strategic Alliances
Enable firms to shares risks and resources to expand into international ventures
Most joint ventures (JVs) involve a foreign company with a new product or technology and a host company with access to distribution or knowledge of local customs, norms and/or politics
May experience difficulties in merging disparate cultures
May not understand the strategic intent of partners, or may experience divergence of goals
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29. Acquisitions Enable firms to achieve rapid international expansion
Can be very costly
Legal and regulatory requirements may present barriers to foreign ownership
Usually require complex and costly negotiations
Potentially disparate corporate cultures
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30. New Wholly-Owned Subsidiary
Most costly and complex of entry alternatives
Achieves greatest degree of control
Potentially most profitable, if successful
Maintains control over technology, marketing and distribution
May need to acquire expertise and knowledge that is relevant to host country, that is, may require hiring host-country nationals or consultants at high cost
Copyright Guy Harley 2004 95

31. International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore
Resources and Capabilities
Use Core Competence
Strategic
Competitiveness
Outcomes
Management Problems
and Risk
International Strategies
Modes of Entry
Increased
Market Size
International
Business-Level
Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic
Alliances
Economies of Scale and Learning
Global
Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems
and Risk 3

32. Major Risks of International Diversification
Political Risk
Economic Risk
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107

33. Political Risk
National government instability may create problems for internationally diversified firms
Potential for changes in attitudes or regulations regarding foreign ownership
Legal authority obtained from previous administrations may become invalid
Potential for nationalisation of private firms’ assets
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107

34. Economic Risk Economic risks are interdependent with political risks
Differences and fluctuations in international currencies may affect prices, the value of assets & liabilities, and ultimately the ability to compete
Differences in inflation rates may affect an internationally diversified firm’s ability to compete
Potential for nationalisation of private firms’ assets
Copyright Guy Harley 2004
112

35. International Strategy Opportunities and Outcomes
Identify International Opportunities
Explore
Resources and Capabilities
Use Core Competence
Strategic
Competitiveness
Outcomes
Management Problems
and Risk
International Strategies
Modes of Entry
Increased
Market Size
International
Business-Level
Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
Multidomestic Strategy
Strategic
Alliances
Economies of Scale and Learning
Global
Strategy
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Transnational Strategy
Management Problems
and Risk 3

36. Strategic Competitiveness Outcomes
International diversification facilitates innovation in the firm
Provides larger market to gain more and faster returns from investments in innovation
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
International diversification provides greater economies of scope and learning
Copyright Guy Harley 2004