1. 9-1© 2006 by Nelson, a division of Thomson Canada Limited. International Strategy Chapter Nine

2. 9-2© 2006 by Nelson, a division of Thomson Canada Limited. Chapter 5 Bus. - Level Strategy Chapter 6 Competitive Dynamics Chapter 9 International Strategy Chapter 10 Cooperative Strategies Chapter 8 Acquisitions & Restructuring Chapter 11 Corporate Governance Chapter 12 Structure & Control Chapter 13 Strategic Leadership Chapter 14 Entrepreneurship & Innovation Strategic Inputs Strategic Actions Strategic Outcomes Chapter 4 Internal Environment Chapter 3 External Environment Strat. Intent Strat. Mission The Strategic Management. Process Strategy Formulation Strategy Implementation Strategic Competitiveness Chapter 1 Above Average Returns Chapter 2 Feedback Strategic Competitiveness Chapter 1 Chapter 7 Corp. - Level Strategy Chapter 5 Bus. - Level Strategy Chapter 9 International Strategy

3. 9-3© 2006 by Nelson, a division of Thomson Canada Limited. International Strategy Knowledge Objectives 1.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 strategy, especially liability of foreignness and regionalization.

4. 9-4© 2006 by Nelson, a division of Thomson Canada Limited. International Strategy Knowledge Objectives cont’d… 5. Name & describe the five alternative modes for entering international markets. 6.Explain the effects of international diversification on firm return and innovation. 7. Name and describe two major risks of international diversification. 8. Explain why the positive outcomes from international expansion are limited.

5. 9-5© 2006 by Nelson, a division of Thomson Canada Limited. Strategic Competitiveness Outcomes Higher Performance Returns Innovation Use Core Competence Modes of Entry Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Explore Resources & Capabilities International Strategies International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Identify International Opportunities Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage Management Problems, Risk, and First Steps International Strategy Opportunities & Outcomes Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage

6. 9-6© 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.

7. 9-7© 2006 by Nelson, a division of Thomson Canada Limited. Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic Competitiveness Outcomes International Strategies Modes of Entry Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Higher Performance Returns Innovation International Strategy Opportunities & Outcomes Management Problems, Risk, and First Steps

8. 9-8© 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

9. 9-9© 2006 by Nelson, a division of Thomson Canada Limited. Determinants of National Advantage

10. 9-10© 2006 by Nelson, a division of Thomson Canada Limited. Determinants of National Advantage Factors of Production –Inputs – Labour, land, natural resources, capital & infrastructure Demand Conditions –The nature and size of he buyers needs in the home market of goods & services Related & Supporting Industries –Industries in which the target country is considered the leader eg. Italy - shoes with a supporting leather industry, Japan - cameras & photocopiers, Denmark - diary & an industry focused on food enzymes. Firm Strategy, Structure & Rivalry make up –Germany focused on methodical product & process improvements, –Italy’s national pride of designers helped spawn fashion apparel, furniture & sports car industries.

11. 9-11© 2006 by Nelson, a division of Thomson Canada Limited. International Corporate-Level Strategy

12. 9-12© 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.

13. 9-13© 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

14. 9-14© 2006 by Nelson, a division of Thomson Canada Limited. Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic Competitiveness Outcomes International Strategies Modes of Entry Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Higher Performance Returns Innovation International Strategy Opportunities & Outcomes Management Problems, Risk, and First Steps

15. 9-15© 2006 by Nelson, a division of Thomson Canada Limited. Exporting 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.

16. 9-16© 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 -

17. 9-17© 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.

18. 9-18© 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

19. 9-19© 2006 by Nelson, a division of Thomson Canada Limited. Greenfield Venture Choice of International Entry Mode New 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.

20. 9-20© 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

21. 9-21© 2006 by Nelson, a division of Thomson Canada Limited. Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic Competitiveness Outcomes International Strategies Modes of Entry Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Higher Performance Returns Innovation International Strategy Opportunities & Outcomes Management Problems, Risk, and First Steps

22. 9-22© 2006 by Nelson, a division of Thomson Canada Limited. Risks in the International Environment

23. 9-23© 2006 by Nelson, a division of Thomson Canada Limited. National government instability may create potential 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. Major Risks of International Diversification Political Risk

24. 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 CDs, software, etc. Major Risks of International Diversification Economic Risk