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

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

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

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

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

6. Motivations for International Expansion
Increase Market Share
domestic market may lack the size to support efficient scale manufacturing facilities
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
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
low cost markets may aid in developing competitive advantage
may achieve better access to:
Raw materials
Lower cost labor
Key customers
Energy

8. International Business-Level Strategy: Determinants of National Advantage
Factors of
production
Firm strategy,
structure, and
rivalry
Demand
conditions
Related and
supporting
industries

9. International Business-Level Strategy: Determinants of National Advantage
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
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
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
common technical training
methodological product and process improvement
cooperative and competitive systems

13. International Corporate-Level Strategy
Global
strategy
Transnational
strategy
High
Need for Global Integration
Multidomestic
strategy
Low
Low
High
Need for Local Responsiveness

14. International Corporate-Level Strategy
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
Others dictate business-level strategies from the home office and coordinate resource sharing across units

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

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

17. International Corporate-Level Strategy: 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
Must pursue organizational learning to achieve competitive advantage

18. Global Market Entry: Choice of Entry Mode
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

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
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
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
Political Risks
Economic Risks
Political risks include
instability in national governments
war, both civil and international
potential nationalization of a firm’s resources

22. Risks in an International Environment
Political Risks
Economic Risks
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

23. 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