©2003 Southwestern Publishing Company 1 International Strategy Michael A. Hitt R. Duane Ireland Robert E. Hoskisson Chapter 8

2 Strategy Implementation Chapter 11 Chapter 11 Organizational Structure and Structure and Controls Chapter 10 Chapter 10 Corporate Governance Chapter 12 Chapter 12 Strategic Leadership Strategy Formulation Strategic Competitiveness Above-Average Returns Strategic Intent Strategic Intent Strategic Mission Strategic Mission Chapter 2 Chapter 2 The External The External Environment Chapter 3 Chapter 3 The Internal The Internal Environment The Strategic Management Process Feedback Strategic Inputs Strategic Actions Chapter 13 Chapter 13 Strategic Entrepreneurship Strategic Outcomes Chapter 6 Chapter 6 Corporate- Level Strategy Level Strategy Chapter 5 Chapter 5 Competitive Rivalry Competitive Rivalry and Competitive and Competitive Dynamics Chapter 8 Chapter 8 International Strategy Chapter 4 Chapter 4 Business-Level Strategy Chapter 7 Chapter 7 Acquisition and Acquisition and Restructuring Strategies

3 ExportingLicensing Strategic alliances Acquisitions Establishment of a new subsidiary International business-level strategy Multidomestic strategy Global strategy Transnational strategy Opportunities and Outcomes of International Strategy Increased market size Return on investment Economies of scale and learning Advantage in location Identify International Opportunities Explore Resources and Capabilities Use Core Competence International Strategies Modes of Entry

4 Better performance Innovation Opportunities and Outcomes of International Strategy: Continued ExportingLicensing Strategic alliances Acquisitions Establishment of a new subsidiary Use Core Competence Modes of Entry Management problems and risk Management problems and risk Strategic Competitiveness Outcomes

5 International Strategy Life Cycle Production Becomes Standardized and is Relocated to Low Cost Countries Product Demand Develops and Firm Exports Products Firm Introduces Innovation in Domestic Market ForeignCompetition Begins Production Firm Begins Production Abroad Selling Products or Services Outside a Firm’s Domestic Market

6 Motivations for International Expansion Increase Market Share Increase Market Share –domestic market may lack the size to support efficient scale manufacturing facilities Return on Investment Return on Investment –large investment projects may require global markets to justify the capital outlays –weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators

7 Motivations for International Expansion Economies of Scale or Learning Economies of Scale or Learning –expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distribution –can spread costs over a larger sales’ base –increase profit per unit Location Advantages Location Advantages –low cost markets may aid in developing competitive advantage –may achieve better access to: Raw materialsRaw materials Lower cost laborLower cost labor Key customersKey customers EnergyEnergy

8 International Business-Level Strategy: Determinants of National Advantage Factors of production Related and supportingindustries Demandconditions Firm strategy, structure, and rivalry

9 International Business-Level Strategy: Determinants of National Advantage Factors of production: the inputs necessary to compete in any industry Factors of production: the inputs necessary to compete in any industry –labor –land –natural resources –capital –infrastructure –basic factors include natural and labor resources –advanced factors include digital communication systems and educated workforce

10 International Business-Level Strategy: Determinants of National Advantage Demand conditions: characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services Demand conditions: characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services –size of market segment can lead to scale- efficient facilities –efficiency can lead to domination of the industry in other countries –specialized demand may create opportunities beyond national boundaries

11 International Business-Level Strategy: Determinants of National Advantage Related and supporting industries: supporting services, facilities, suppliers and so on Related and supporting industries: supporting services, facilities, suppliers and so on –support in design –support in distribution –related industries as suppliers and buyers

12 International Business-Level Strategy: Determinants of National Advantage Firm strategy, structure, and rivalry: the pattern of strategy, structure, and rivalry among firms Firm strategy, structure, and rivalry: the pattern of strategy, structure, and rivalry among firms –common technical training –methodological product and process improvement –cooperative and competitive systems

13 International Corporate-Level Strategy Need for Local Responsiveness Need for Global Integration Low High LowHigh Globalstrategy Transnationalstrategy Multidomesticstrategy

14 International Corporate-Level Strategy Type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies Type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies Some corporate strategies provide individual country units with flexibility to choose their own strategies Some corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies from the home office and coordinate resource sharing across units Others dictate business-level strategies from the home office and coordinate resource sharing across units

15 Multidomesticstrategy International Corporate-Level Strategy: Multidomestic Strategy Strategy and operating decisions are decentralized to strategic business units (SBU) in each countryStrategy and operating decisions are decentralized to strategic business units (SBU) in each country Products and services are tailored to local marketsProducts and services are tailored to local markets Business units in one country are independent of each otherBusiness units in one country are independent of each other Assumes markets differ by country or regionsAssumes markets differ by country or regions Focus on competition in each marketFocus on competition in each market Prominent strategy among European firms due to broad variety of cultures and markets in EuropeProminent strategy among European firms due to broad variety of cultures and markets in Europe

16 International Corporate-Level Strategy: Global Strategy Globalstrategy Products are standardized across national marketsProducts are standardized across national markets Decisions regarding business-level strategies are centralized in the home officeDecisions regarding business-level strategies are centralized in the home office Strategic business units (SBU) are assumed to be interdependentStrategic business units (SBU) are assumed to be interdependent Emphasizes economies of scaleEmphasizes economies of scale Often lacks responsiveness to local marketsOften lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage)Requires resource sharing and coordination across borders (which also makes it difficult to manage)

17 Transnationalstrategy International Corporate-Level Strategy: Transnational Strategy Seeks to achieve both global efficiency and local responsivenessSeeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous requirementsDifficult to achieve because of simultaneous requirements  strong central control and coordination to achieve efficiency  decentralization to achieve local market responsiveness Must pursue organizational learning to achieve competitive advantageMust pursue organizational learning to achieve competitive advantage

18 Type of Entry Characteristics Exporting High cost, low control Licensing Low cost, low risk, little control, low returns Strategic alliances Shared costs, shared resources, shared risks, problems of integration Acquisition Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations New wholly owned subsidiary Complex, often costly, time consuming, high risk, maximum control, potential above-average returns Global Market Entry: Choice of Entry Mode

19 Strategic Competitiveness Outcomes: Returns International diversification and returns : firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets International diversification and returns : firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets –may increase a firm’s returns –such firms usually achieve the most positive stock returns –firm may achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns

20 Strategic Competitiveness Outcomes: Innovation International diversification and innovation : firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets International diversification and innovation : firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets –potentially greater returns on innovations (larger markets) –generate additional resources for investment in innovation –exposed to new products and processes in international markets, generates additional knowledge leading to innovations

21 Risks in an International Environment Political Risks Economic Risks 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

22 Risks in an International Environment Economic Risks Economic risks are interdependent with political risks and include differences and fluctuations in the value of different currenciesdifferences and fluctuations in the value of different currencies differences in prevailing wage ratesdifferences in prevailing wage rates difficulties in enforcing property rightsdifficulties in enforcing property rights unemploymentunemployment Political Risks

23 Limits to International Expansion: Management Problems Cost of coordination across diverse geographical business units Cost of coordination across diverse geographical business units Institutional and cultural barriers Institutional and cultural barriers Understanding strategic intent of competitors Understanding strategic intent of competitors The overall complexity of competition The overall complexity of competition