0. Chapter 8 Looking at International Strategies

1. OBJECTIVES
Define international strategy and identify its implications for the strategy diamond 1
Understand why a firm would want to expand internationally and explain the relationship between international strategy and competitive advantage 2
Describe different vehicles for international expansion 3
Apply different international strategy configurations 4 5
Outline the international strategy implications of the static and dynamic perspectives

2. Dell became China’s largest computer system provider in just 5 years
DELL GOES TO CHINA “
Strategic decisions
Vehicles
Staging
Consumers first, then corporations
U.S.
Assemble and distribute itself
Corporations first
China
Partner
Dell became China’s largest computer system provider in just 5 years
If we’re not in what will soon be the second-biggest PC market in the world, then how can Dell possibly be a global player? “

3. INTERNATIONAL PRESENCE OF SELECTED MULTINATIONAL CORPORATIONS (MNCs)
What is international strategy? Planning for future cross-border activities.
Sales in domestic market Percent
Sales in foreign markets Percent
Domestic market
Total sales $ Millions
Company
Products
Nokia
Finland
Cell phones
37,031 1 32 52 59 65 96 99 68 48 41 35 4
Audi
Germany
Automobiles
29,378
Clarion
Japan
Audio equipment
1,540
Apple
U.S.
Computers, electronics
8,279
eBay
U.S.
Online auctions
2,165
Papa John’s
U.S.
Pizza
917
International presence varies widely

4. INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND
When will we go international?
How quickly will we expand into international markets?
In what sequence will we implement our entry tactics?
Staging
Arenas
Which geographic areas will we enter?
Which channels will we use in those areas?
Arenas
Vehicles
Which international market-entry strategies will we use? Alliances? Acquisitions? Greenfield investments?
Economic logic
Staging
Vehicles
Differentiators
Economic logic
Differentiators
How does our international strategy lower our costs, raise the prices we can charge, or create synergies between our business?
How does being international make our products more attractive to our customers?

5. WHY EXPAND INTERNATIONALLY?
Domestic markets in developed countries have slow growth, while capital markets expect high growth
The pressure for cost reductions and efficiency continues to grow
Necessitates examining cost savings by sourcing across borders
Chicken and egg problem
Knowledge is not uniformly distributed around the world
Creates opportunities for knowledge rich countries
Customers are becoming global (both consumers and corporations)
Competitors are globalizing

6. PROS VS. CONS OF INTERNATIONAL EXPANSION
Many international expansions fail
Why?
Pepsi’s ambitious expansion in the 1990s resulted in a decreased international market share
Wal-Mart’s international businesses perform poorly relative to its U.S. business
Newness can be a disadvantage (e.g., your firm must move up the learning curve)
Foreignness can be a liability (e.g., your managers may not understand local culture)
Governance and coordination costs increase as you manage from a distance

7. KEY FACTORS – GLOBAL ECONOMIES OF SCALE
Pharmaceutical firms such as Pfizer, can leverage large R&D budgets
CitiGroup, McDonald’s, and Coca-Cola can leverage brands
MITY can leverage its excess capacity to produce chairs and thereby reduce average costs
Global expansion may be attractive if it allows you to leverage fixed assets over new markets
Key factors
Global economies of scale 

8. KEY FACTORS – LOCATION
Input costs
Competitors
Demand conditions
Regulatory environment
Presence of complements
Choosing the right location can provide advantages in terms of
Key factors
Global economies of scale 
Location 

9. THE CAGE DISTANCE FRAMEWORK
Cultural distance
Administrative distance
Geography distance
Economic distance
Attributes creating distance
Different languages
Different ethnicities; lack of connective ethnic or social networks
Different religions
Different social norms
Absence of colonial ties
Absence of shared monetary or political association
Political hostility
Government policies
Institutional weakness
Government involvement is high in industries that are
Producers of staple goods (electricity)
Producers of other “entitlements” (drugs)
Large employers (framing)
Large suppliers to government (mass transportation)
National champions (aerospace)
Vital to national security (telecom)
Exploiters of natural resources (oil, mining)
Subject to high sunk costs (infrastructure)
Physical remoteness
Lack of a common border
Lack of sea or river access
Size of country
Weak transportation or communication links
Differences in climates
Products have a low value-of- weight or bulk ratio (cement)
Products are fragile or perishable (glass, fruit)
Communications and connectivity are important (financial services)
Local supervision and operational requirements are high (many services)
Differences in consumer incomes
Differences in costs and quality of
Natural resources
Financial resources
Human resources
Infrastructure
Intermediate inputs
Information or knowledge
Nature of demand varies with income level (cars)
Economies of standardization or scale are important (mobile phones)
Labor and other factor cost differences are salient (garments)
Distribution or business systems are different (insurance)
Companies need to be responsive and agile (home appliances )
Industries or products affected by distance
Products have high linguistic content (TV)
Products affect cultural or national identity of consumers (foods)
Product features vary in terms of size (cars), standards (electrical appliances), or packaging
Products carry country- specific quality associations (wines)
Source: Recreated from

10. KEY FACTORS – MULTIPOINT COMPETITION
Expanding into a new market may provide an opportunity for a “stronghold assault”
For example, French tire maker Michelin had negligible presence in the U.S. in the 1970s. It learned of Goodyear’s plans to expand into Europe, so it launched a counter attack. It started selling tires in the U.S. at or below cost, and thereby forced Goodyear to drop prices and cut profits in its core market
Key factors
Global economies of scale 
Location 
Multipoint competition 

11. KEY FACTORS – LEARNING AND KNOWLEDGE SHARING
Expanding into a new market can create opportunities to innovate, improve existing products in existing markets, or develop ideas for new markets
SC Johnson, for example, used technology developed in its European operation (a product for repelling mosquitoes in homes) to create the “ Glade Plug-ins” air freshener in the U.S.
Key factors
Global economies of scale 
Location 
Multipoint competition  
Learning and knowledge sharing

12. CHOICE OF ENTRY MODES Choice of entry mode Equity (FDI) modes
Nonequity modes
Exports
Contractual agreements
Alliances and joint ventures (JVs)
Wholly owned subsidiaries
Direct exports
Licensing/ franchising
Minority JVs
Greenfield investments
Indirect exports
Turnkey projects
50/50 JVs
Acquisition
Others
Contracted R&D
Majority JVs
Others
Comarketing
Strategic alliances (within dotted areas)
Source: Adapted from Pan, Y. and D. Tse, “The Hierarchical Model of Market Entry Modes,” Journal of International Business Studies, 31 (2000),

13. VEHICLES FOR ENTERING FOREIGN MARKETS
100%
FDI
Exports
Alliance
Champion International’s paper exports through independent brokers
Honda’s initial entry into the U.S. market
FDI through acquisition
Bridgestone’s acquisition of U.S.-based Firestone
Ford-Mazda Genentech-Hoffman LaRoche
Alliance and exports
KFC’s franchisees in India
Degree of ownership control over activities per- formed in the foreign market 0%
100% Exports
100% Local
Exports versus local production
Source: Examples drawn from in Gupta, A., and V. Govindarajan, “Managing Global Expansion: A Conceptual Framework,” business Horizons, March/April 2002, 45-54

14. EXPORTING OPTIONS
Most common option in relatively close markets and for products with lower shipping costs
Shipping
A firm may form an alliance or franchise giving a local partner the right and responsibility to operate the firm’s business in their home market (e.g., Burger King’s expansion in Europe)
Licensing and franchising
A firm may enter Turnkey project agreements, R&D contracts, or joint-marketing initiatives (e.g., a German firm Bayer AG contracts large R&D projects to a U.S. firm)
Special agreements

15. ALLIANCES
Until recently, China did not allow non-Chinese companies in China … û
U.S. firm
… so U.S. companies formed alliances to gain access
Chinese Firm

16. FOREIGN DIRECT INVESTMENT
Home country/ market
Foreign company
Local company
Acquires
South African Breweries purchase Miller Brewing in to gain access to U.S. customers and brewing capacity
DaimlerChrysler and BMW each invested $250 million to start local factories in Brazil

17. IMPORTING
Importing is often a “stealth” form of internationalization because a firm will claim to have no international operations and yet directly or indirectly base production or service delivery abroad
Country A
Production
Country B
“Domestic” company
Customer service
Home country
Country C
Logistics

18. HOW WOULD YOU DO THAT? – LAURA ASHLEY
In the early 1990s, U.S. executive Jim Maxmin was brought in as CEO to turn around Laura Ashley.
The company’s distribution system was in shambles and Maxmin needed to fix it
Maxmin realized he needed a partner that satisfies 3 key conditions
Complementary needs and competencies
Similar management styles and operating systems
Divergent strategic objectives
Why were each of these three conditions important?
Who did Maxmin choose as a partner?

19. INTERNATIONAL STRATEGY CONFIGURATIONS
Relatively few opportunities to gain global efficiencies
Many opportunities to gain global efficiencies
Relatively high local responsiveness
Multinational configuration Build flexibility to respond to national difference through strong, resourceful, entrepreneurial, and somewhat independent national or regional operations. Requires decentralized and relatively self-sufficient units
Example : MTV initially adopted an international configuration (using only American programming in foreign markets) but then changed its strategy to a multinational one. It now tailors its Western European programming to each market, offering eight channels, each in a different language
Transnational configuration Develop global efficiency, flexibility, and worldwide learning. Requires dispersed, interdependent, and specialized capabilities simultaneously
Example : Nestle has taken steps to move in this direction, starting first with what might be described as a multinational configuration
Today, Nestle aims to evolve from a decentralized, profit-center configuration to one that operates as a single, global company. Firms like Nestle have taken lessons from leading consulting firms such as McKinsey and Company, which are globally dispersed but have a hard-driving, one-firm culture at their core.
Relative low local responsiveness
International configuration Exploit parent-company knowledge and capabilities through worldwide diffusion, local marketing, and adaptation. The most valuable resources and capabilities are centralized; others, such as local marketing and distribution, are decentralized
Example : When Wal-Mart initially set up its operations in Brazil, it used its U.S. stores as a model for international expansion
Global configuration Build cost advantages through centralized, global- scale operations . Requires centralized and globally scaled resources and capabilities
Example : Companies such as Merck and Hewlett- Packard give particular subsidiaries a worldwide mandate to leverage and disseminate their unique capabilities and specialized knowledge worldwide
Source: Bartlett, C., S. Ghoshal, & J. Birkenshaw, Transnational Management (New York: Irwin, 2004)

20. 30% of global PC mouse busi- ness by 1989
BORN – GLOBAL FIRMS
More and more firms, even young, small ones, have operations that bridge national borders
Logitech
Founded by
R&D
Production
30% of global PC mouse busi- ness by 1989
2 Italians
California
Ireland
1 Swiss
Switzerland
Taiwan

21. HOW TO SUCCEED AS A GLOBAL START-UP
If yes, Put together tools you will need to move into global market
Consider if you should be a global start-up
Do you need human resources from other countries to succeed?
Strong management team with inter- national experience
Do you need financial capital from other countries to succeed?
Broad and deep international network among suppliers, customers, and complements
If you go global, will target customers prefer your services over competitor's?
Preemptive marketing or technology to provide first-mover advantage
Can you put an international system in place more quickly than domestic competitors?
Strong intangible assets
Do you need global scale and scope to justify the financial and human capital investment?
Ability to keep customers locked in by linking new products and services to core business, while you innovate
Will a purely domestic focus now make it harder for you to go global in the future?
Close worldwide coordination and com- munication among business units, suppliers, complements and customers

22. DEVELOPING A GLOBAL MIND-SET
Having an appreciation for the differences between countries and people and seeing these differences as opportunities
Having developed skills for managing diverse teams in a world- wide work force
Global perspective
Global skills

23. Fewer than 15% of executives have substantive international experience
HOW WOULD YOU DO THAT?
If you were CEO, how would you build a global perspective in your executives?
Tactic
Action steps
Teams ?
Training
Transfers
??? 1 2 3 4
Fewer than 15% of executives have substantive international experience

24. SUMMARY
Define international strategy and identify its implications for the strategy diamond 1
Understand why a firm would want to expand internationally and explain the relationship between international strategy and competitive advantage 2
Describe different vehicles for international expansion 3
Apply different international strategy configurations 4
Outline the international strategy implications of the static and dynamic perspectives 5