1. Copyright © 2004 South-Western. All rights reserved.8–1 Figure 1.1 Copyright © 2004 South-Western. All rights reserved. The Strategic Management Process

2. Copyright © 2004 South-Western. All rights reserved.8–2 Chapter 8: International Strategy 1.Motives and facilitators for international business 2.Five modes of international entry 3.Basic approaches to international strategy - Multi-domestic strategy - Global strategy - Transnational strategy 1.Notable obstacles, challenges, and risks of international expansion

3. Copyright © 2004 South-Western. All rights reserved.8–3 International Expansion MotivesFacilitators

4. Copyright © 2004 South-Western. All rights reserved.8–4 Opportunities and Outcomes of International Strategy Figure 8.1

5. Copyright © 2004 South-Western. All rights reserved.8–5 International Expansion - Major Motives Increased market size Increased return on investment Economies of scale/learning curve Location advantages - factors of production - country infrastructure - trade restrictions/legal advantages - access to customers

6. Copyright © 2004 South-Western. All rights reserved.8–6 ROI pressures drive international expansion- Increasingly costly R&D More rapid pace of imitation and product obsolescence (hypercompetition) Global difficulties with intellectual property laws

7. Copyright © 2004 South-Western. All rights reserved.8–7 Determinants of National Advantage SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright ©1990, 1998 by Michael E. Porter. Figure 8.2

8. Copyright © 2004 South-Western. All rights reserved.8–8 Outsourcing/”Off-shoring” The good, the bad, and the ugly....

9. Copyright © 2004 South-Western. All rights reserved.8–9 International Expansion - Major Facilitators Technology Mobility Increased demand homogeneity worldwide Comfort with (embrace of) diversity Global industrialization Capitalism Falling trade barriers

10. Copyright © 2004 South-Western. All rights reserved.8–10 Opportunities and Outcomes of International Strategy Figure 8.1

11. Copyright © 2004 South-Western. All rights reserved.8–11 Choice of International Entry Mode (pg.248) Type of Entry Characteristics (+; -) Exporting Incremental start; High cost, low control Licensing Low cost, low risk; Little control, lower returns (royalty payments) Strategic alliances Shared costs, resources, and risks; Cultural differences, integration problems, Acquisition Quick access to new market, new product, existing distribution and employees; High cost, complex negotiations, regulatory restrictions, integration problems New wholly owned subsidiary Maximum control, potentially the most profitable; Complex, costly in time and money, high risk Table 8.1

12. Copyright © 2004 South-Western. All rights reserved.8–12 Opportunities and Outcomes of International Strategy Figure 8.1

13. Copyright © 2004 South-Western. All rights reserved.8–13 Selecting a Basic (“Corporate-Level”) International Strategy Impacts the selection and implementation of strategies in specific countries  Some strategies provide individual country units with the flexibility to choose their own strategies  Others dictate country-level strategies from headquarters, and coordinate resource sharing across units in different countries

14. Copyright © 2004 South-Western. All rights reserved.8–14 Basic International Strategies Figure 8.3

15. Copyright © 2004 South-Western. All rights reserved.8–15 Multidomestic Strategy Strategy, marketing, and operating decisions are decentralized to business units in each country (or region) Products and services are tailored to local markets Business units in one country are independent of units elsewhere Assumes that markets differ by country or region Focus on competition in each market Prominent strategy among European firms due to broad variety of cultures and markets in Europe Also important for products where national culture strongly influences purchasing/usage habits

16. Copyright © 2004 South-Western. All rights reserved.8–16 Global Strategy Products are standardized across national markets Decisions regarding strategies, marketing, and operations are centralized in the home office Business units are assumed to be interdependent Emphasizes economies of scale Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (can be complex and difficult to manage)

17. Copyright © 2004 South-Western. All rights reserved.8–17 Transnational Strategy Seeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous requirements:  Strong central control and coordination to achieve efficiency  Decentralization to achieve local market responsiveness Organizational learning, organizational information processing, and flexible manufacturing skills important

18. Copyright © 2004 South-Western. All rights reserved.8–18 EvolutionaryTrends in International Strategy 1. Domestic strategy 2. Multi-Domestic strategy - to build market acceptance and international skills 3. Global strategy - to build efficiency and dominance 4. Transnational strategy - to be it all! 5. Regionalization - recognition that global strategies are difficult to implement and may not be as effective as previously thought - returning attention to individual market and cultural variations

19. Copyright © 2004 South-Western. All rights reserved.8–19 Obstacles/Challenges to Internationalization

20. Copyright © 2004 South-Western. All rights reserved.8–20 International Expansion (“Diversification”): Performance Outcomes High potential for increased returns (from both revenue and cost sides) Expanded incentives for innovation Benefits can be eroded by increased risk and management complexities

21. Copyright © 2004 South-Western. All rights reserved.8–21 Risk in the International Environment Political risks include: Instability in national governmentsInstability in national governments War, both civil and internationalWar, both civil and international Potential nationalization of a firm’s resourcesPotential nationalization of a firm’s resources Political Risks Economic Risks

22. Copyright © 2004 South-Western. All rights reserved.8–22 Risk in the International Environment Figure 8.4a

23. Copyright © 2004 South-Western. All rights reserved.8–23 Risk in the International Environment Economic risks are interdependent with political risks and include: Differences and fluctuations in the value of different currencies Differences in prevailing wage rates Difficulties in enforcing property rights Unemployment Political Risks Economic Risks

24. Copyright © 2004 South-Western. All rights reserved.8–24 Risk in the International Environment (cont’d) Figure 8.4b

25. Copyright © 2004 South-Western. All rights reserved.8–25 Limits to International Expansion Management Problems  Cost of coordination across diverse geographical business units  Institutional and cultural barriers  Understanding strategic intent of competitors  The overall complexity of competition and the business environment  Shortage of internationally equipped leadership