©2004 by South-Western/Thomson Learning 1 International Strategy Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 9

2 Chapter 2 Chapter 2 Strategic Leadership Strategic Leadership Chapter 4 Chapter 4 The Internal The Internal Organization Chapter 6 Chapter 6 Competitive Rivalry and Competitive Rivalry and Competitive Dynamics Competitive Dynamics Chapter 9 Chapter 9 International Strategy International Strategy Chapter 1 Chapter 1 Introduction to Introduction to Strategic Management Strategic Management Chapter 3 Chapter 3 The External The External Environment Chapter 5 Chapter 5 Business-Level Strategy Chapter 8 Chapter 8 Acquisitions and Acquisitions and Restructuring Strategies Restructuring Strategies Chapter 11 Chapter 11 Corporate Governance Corporate Governance Strategic Intent Strategic Intent Strategic Mission Strategic Mission Chapter 7 Chapter 7 Corporate-Level Strategy Corporate-Level Strategy Chapter 10 Chapter 10 Cooperative Strategy Cooperative Strategy Chapter 12 Chapter 12 Strategic Entrepreneurship Strategic Entrepreneurship Strategic Analysis Strategic Thinking Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities The Strategic Management Process Chapter 8 Chapter 8 Acquisition and Acquisition and Restructuring Strategies Restructuring Strategies Chapter 9 Chapter 9 International Strategy International Strategy

3 Four Basic Benefits of International Diversification Increase Market Size Increase Market Size –create additional sources of revenue –focus on international growth opportunities instead of domestic rivalry 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 –more prevalent when products are standardized or related –new learning opportunities in distant markets

4 Four Basic Benefits of International Diversification Return on Investment Return on Investment –large investment projects may require global markets to justify the capital outlays –preempt imitation of products by foreign firms (especially when patent laws in foreign countries are less developed) Location Advantages Location Advantages –gain better access to raw materials, lower labor cost, and other critical resources –better access to global customers

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

6 International Business-Level Strategy: Determinants of National Advantage Factors of production: the resources necessary to compete in any industry Factors of production: the resources necessary to compete in any industry –basic versus advanced –generalized versus specialized 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

7 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 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

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

9 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

10 product characteristics tailored to local preferencesproduct characteristics tailored to local preferences isolation from global competitionisolation from global competition – establish protected market positions –compete in industry segments most affected by differences among local countries Worldwide Geographic Area Structure: MultinationalHeadquarters Europe UnitedStates MiddleEast/Africa Asia Australia LatinAmerica Multidomestic Strategy

11 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) Historically prominent among Japanese firmsHistorically prominent among Japanese firms

12 standardized products across countriesstandardized products across countries economies of scope and scaleeconomies of scope and scale outsource some primary or support activities to the world’s best providersoutsource some primary or support activities to the world’s best providers decision-making authority centralized in worldwide division headquartersdecision-making authority centralized in worldwide division headquarters Worldwide Product Divisional Structure: GlobalCorporateHeadquarters WorldwideProductsDivision WorldwideProductsDivision WorldwideProductsDivision WorldwideProductsDivision WorldwideProductsDivision WorldwideProductsDivision Global Strategy

13 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

14 Using the Combination Structure: The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures Transnational Strategy

15 International Corporate-Level Strategy Type of corporate strategy has an impact on the selection and implementation of the business-level strategies Type of corporate strategy has an impact on the selection and implementation of the business-level strategies –Question: Which corporate strategy provides individual country units more flexibility to choose their own business-level strategies? –Question: Which corporate strategy dictate business-level strategies from the home office and coordinate resource sharing across units?

16 Type of Entry Characteristics ExportingHigh cost, low control LicensingLow cost, low risk (?), little control, low returns Strategic alliancesShared costs, shared resources, shared risks, problems of integration AcquisitionQuick 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

17 Value Creation 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 –firm may achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns Question: What is the relationship between international diversification and returns?

18 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

19 Value Creation Outcomes: Innovation Value Creation 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

20 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

21 Risks in an International Environment 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 Political Risks Economic Risks Political Risks