1. Lecture 8 International Strategy
Update

2. Learning outcomes Assess the internationalisation drivers.
Identify sources of advantage in international strategy.
Distinguish between four main types of international strategy.
Select markets for entry or expansion.
Assess the relative merits of different market entry modes.

3. International strategy framework
Internationalisation drivers: market demand, the potential for cost advantages, government pressures and inducements and the need to respond to competitor moves.

4. Internationalisation drivers
International strategy potential as determined by:
Market drivers? (e.g., BRICs?)
Cost drivers? (e.g. What cost? How it drives internationalisation)
Government drivers? (How? Why?)
Competitive drivers?

5. Internationalisation drivers: Yip’s framework

6. Geographic sources of advantage
Porter’s Diamond: the determinants of national advantage
e.g.
Swiss in private banking
Italian in leather and fur fashion goods
Taiwanese in laptop computers

7. Geographic sources of advantage
Global sourcing and locational advantages
Cost advantages include labour costs, raw materials, transportation and communications costs, taxation and investment incentives.
Unique local capabilities.
National market characteristics and reputation.
Global-local dilemma relates to the extent to which products and services may be standardised across national boundaries or need to be adapted to meet the requirements of specific national markets.

8. International strategies
The fundamental issue in formulating an international strategy is to balance pressures for global integration versus those for local responsiveness.
The global-local dilemma:
The extent to which products and services may be standardised across national boundaries or need to be adapted to meet the requirements of specific national markets.
When to choose international strategies, companies come across the global-local dilemma

9. Four international strategies
The dilemma between global integration and local responsiveness suggests 4 international strategies

10. Market selection
Rank country markets against each other based on the PEST framework and criteria.
However, what matters is not just the attractiveness of different countries but also the compatibility of the countries with the internationalising firm itself.
Ghemawat’s CAGE framework to measure the compatibility.

11. Market selection: CAGE framework
Cultural
Distance?
Administrative and
political distance?
Geographic
Distance?
Economic/ wealth
Distance?

12. E.g. International cross-culture comparison

13. Assessing country markets’ competitive characteristics
Country markets can be assessed according to three criteria:
Market attractiveness to the new entrant
Defenders’ reactiveness
Defenders’ clout – the relative power of defenders to fight back.

14. e.g., Competitive characteristics

15. Modes of international market entry
Exporting
Licensing
Joint ventures and alliances
Foreign direct investment

16. Mode choice of international market entry
Gradualism of staged international expansion is now challenged by two phenomena:
Born-global firms. E.g., Twitter, Instagram and WeChat
Emerging-country multinationals, e.g., Chinese white-goods multinational Hailer

17. Modes of international market entry
Figure 8.7 Modes of international market entry

18. Exporting
Advantages
No need for operational facilities in host country
Economies of scale in the home country
Internet can facilitate exporting marketing opportunities
Disadvantages
Lose any location advantages in the host country
Dependence on export intermediaries
Exposure to trade barriers
Transportation costs

19. Joint ventures and alliances
Disadvantages
Difficult to find good partner
Relationship management
Loss of competitive advantage
Difficult to integrate and coordinate
Advantages
Shared investment risk
Complementary resources
Maybe required for market entry

20. Licensing Contractual source of income
Advantages
Contractual source of income
Limited economic and financial exposure
Disadvantages
Difficult to identify good partner
Loss of competitive advantage
Limited benefits from host nation

21. Foreign direct investment
Advantages
Full control
Integration and coordination possible
Rapid market entry through acquisitions
Greenfield investments are possible and may be subsidised
Disadvantages
Substantial investment and commitment
Acquisitions may create integration/ coordination issues
Greenfield investments are time consuming and unpredictable

22. Summary (1)
There are four main types of international strategy, varying according to extent of pressure for global integration and pressures for local responsiveness: simple export, multi-domestic, global, and transnational.

23. Summary (2)
Market selection for international entry or expansion should be based on attractiveness, multidimensional measures of distance and expectations of competitor retaliation.
Modes of entry into new markets include export, licensing and franchising, joint ventures and overseas subsidiarie.
Internationalisation has an uncertain relationship to financial performance, with an inverted U-curve warning against over-internationalisation.

24. Seminar case studies
Case studies: Wanda’s Acquisition re international strategy
Questions:
Considering Yip’s globalisation framework, what drivers of internationalisation do you think were most important when Wanda entered the US market through its AMC acquisition?
What national sources of competitive advantage might Wanda draw from its Chinese base? What disadvantages derive from its Chinese base?
In the light of the CAGE framework, what challenges may Wanda meet as it enters the US market?