1. International Strategy©
Chapter Nine:
International Strategy
Chapter Three:
The External Environment
Chapter Three:
The External Environment
Hitt, Ireland, Hoskission, Rowe & Sheppard
Strategic
Management
N o t e s
Competitiveness & Globalization

2. The Strategic Management Process
Ch. 1: Strat. Mgmt. & Com-petitiveness
Ch. 2: Strat. Mgmt . & Performance
Chapter 3:
The External Environment
Chapter 4:
The Internal Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 11:
Corporate Governance
Ch. 12: Org. Structure & Controls
Chapter 13:
Strategic Leadership
Chapter 14:
Org. Renewal & Innovation
Strategy Implementation
Strategic
Actions
Chapter 5:
Bus.-Level Strategy
Chapter 6:
Competitive Dynamics
Chapter 7:
Corp.-Level Strategy
Chapter 8:
Acquisition & Restructuring
Chapter 9:
International Strategy
Chapter 10:
Cooperative Strategy
Strategy Formulation
Chapter 9:
International Strategy

3. International Strategy
Knowledge Objectives
Explain traditional & emerging motives for pursuing international diversification.
Note 4 factors leading to international b-level strat.s.
Define the 3 international corp. level strategies: multidomestic, global, and transnational.
Discuss environmental trends affecting international strategy, e.g. liability of foreignness & regionalization.
Describe the 5 international market entry modes.
Describe 2 major risks of international diversification.

4. International Strategy Opportunities & Benefits
Identify International Opportunities
Identify International Opportunities
Explore
Resources & Capabilities
Use Core Competence
Strategically
Competitive
Outcomes
International Strategies
Modes of Entry
Increased
Market Size
Return on Investment
Economies of Scale & Learning
Location Advantage
Increased
Market Size
Return on Investment
Economies of Scale & Learning
Location Advantage
International Corp. Level Strategy
Multidomestic,
Transnational, & Global Strategy
International Bus. Level Strategy
Influences of National Advantage
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Concerns & Risks
Problems& 1st Steps
Better Performance
Innovation
Opportunities & Benefits 3

5. International Strategy Opportunities & Benefits
Increased market size.
Greater returns on major capital investments or new products or processes.
Greater economies of scale, scope or learning.
A competitive advantage through location.
Opportunities & Benefits

6. International Business & Corporate Level Strategies
Identify International Opportunities
Identify International Opportunities
Explore
Resources & Capabilities
Explore
Resources & Capabilities
Use Core Competence
Strategically
Competitive
Outcomes
International Strategies
Modes of Entry
Increased
Market Size
Return on Investment
Economies of Scale & Learning
Location Advantage
Increased
Market Size
Return on Investment
Economies of Scale & Learning
Location Advantage
International Corp. Level Strategy
Multidomestic,
Transnational, & Global Strategy
International Bus. Level Strategy
Influences of National Advantage
International Corp. Level Strategy
Multidomestic,
Transnational, & Global Strategy
International Bus. Level Strategy
Influences of National Advantage
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Concerns & Risks
Problems& 1st Steps
Better Performance
Innovation
International Bus. Level Strategy 3

7. International Bus. Level Strategies
Each business must develop a competitive strategy focused on its own domestic market.
The home country of operation is often the most important source of competitive advantage.
Resources & capabilities established in the home country frequently allow a firm to pursue the strategy into markets located in other countries.
Factors determining International B-Level Strat.s:
Factors of Production;
Demand Conditions;
Related & Supporting Industries;
Firm Strategy Structure & Rivalry.
Porter’s Determinants of National Advantage
SEE NEXT PAGE 
International Bus. Level Strategy

8. International Bus. Level Strategies Determinants of National Advantage
Factors of Production
Basic Factors
- Land, labor
Advanced Factors
- Education / Communication
Generalized Factors
- Capital, infrastructure
Specialized Factors
- Skilled personnel
Firm Strategy, Structure & Rivalry
Local intense rivalry may create tough competitors.
Japan’s car makers faced tough local competition.
Demand Conditions
Nature & size of buyers needs in the home market
(some with special demands like the Swiss & Drilling Equip.)
Related & Supporting Industries
Industries in which the target country is considered the leader
Japan: Cameras  Copiers
Italy: Leather work  Shoes
International Bus. Level Strategy 21

9. Multi-Domestic Strategy
Corp.-Level International Strategies
Type of Corp. Strategy selected will have an impact on the selection and implementation of business-level strategies.
Some Corp. strategies provide individual country units with flexibility to choose their own strategies.
Others dictate bus.-level strategies from home office & coordinate resource sharing across units.
Multi-Domestic Strategy
Three Corporate Strategies
Global Strategy
Transnational Strategy
International Corp. Level Strategy 34

10. Multi-Domestic Strategy
Corp.-Level International Strategies
Multi-Domestic Strategy
Strategy & operating decisions are decentralized to strategic business units (SBU) in each country.
Products & services are tailored to local markets.
Business units in each country are independent of each other.
Focus on competition in each market.
Assumes markets differ by country or regions.
Prominent strategy with European firms due to broad variety of cultures & markets in Europe.
International Corp. Level Strategy 41

11. International Corp. Level Strategy
Corp.-Level International Strategies
Global Strategy
Products are standardized across markets.
Strategic decisions are centralized in the home office.
Strategic business units (SBUs) are assumed to be interdependent.
Emphasizes economies of scale.
Firm often lacks responsiveness to local markets.
Requires resource sharing & coordination across borders (which also makes it difficult to manage).
International Corp. Level Strategy 48

12. Transnational Strategy
Corp.-Level International Strategies
Transnational Strategy
Seeks to achieve both global efficiency and local responsiveness.
Hard to achieve because of concurrent need for:
Central control & coordination for efficiency &
Local flexibility & decentralization to
achieve local market responsiveness.
Pursues organizational learning to achieve competitive advantage.
Pursues organizational learning to achieve competitive advantage.
International Corp. Level Strategy 52

13. International Corp. Level Strategy
Corp.-Level International Strategies
When is each strategy appropriate?
Need for Global Integration
Low
High
Need for Local Market Responsiveness
Low
High
International Corp. Level Strategy 53

14. International Corp. Level Strategy
Corp.-Level International Strategies
Multi-domestic Strategy
Strategic & operating decisions are decentralized to the strategic business unit in each country.
Products tailored to the local market.
Global Strategy
Assumes more standardization of products across country markets.
Transnational Strategy
The firm seeks to achieve both global efficiency and local responsiveness.
International Corp. Level Strategy

15. International Entry Mode Choice
Identify International Opportunities
Explore
Resources & Capabilities
Explore
Resources & Capabilities
Use Core Competence
Strategically
Competitive
Outcomes
International Strategies
International Strategies
Modes of Entry
Increased
Market Size
Return on Investment
Economies of Scale & Learning
Location Advantage
International Corp. Level Strategy
Multidomestic,
Transnational, & Global Strategy
International Bus. Level Strategy
Influences of National Advantage
International Corp. Level Strategy
Multidomestic,
Transnational, & Global Strategy
International Bus. Level Strategy
Influences of National Advantage
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Concerns & Risks
Problems& 1st Steps
Better Performance
Innovation
International Entry Modes 3

16. International Entry Modes
International Entry Mode Choice
Exporting
Common way to enter new international markets.
No need to establish operations in other nations.
Establish distribution channels through
contractual relationships.
May have high transportation costs.
May encounter high import tariffs.
May have less control of marketing & distribution.
Difficult to customize product.
International Entry Modes 63

17. International Entry Modes
International Entry Mode Choice
Licensing
Firm authorizes another firm to
manufacture & sell its products.
Licensing firm is paid a royalty
on each unit produced and sold.
Licensee takes investment risk in manufacturing.
Least risky way to enter a foreign market.
Licensing firm loses control over
product quality & distribution.
Relatively low profit potential.
International Entry Modes 71

18. International Entry Modes
International Entry Mode Choice
Strategic Alliances
Enable firms to shares risks and
resources to expand into international ventures.
Most joint ventures involve a foreign corp. with a new
product or technology & a host firm with distribution
access or knowledge of local customs, norms, politics.
May experience difficulties in
merging disparate cultures.
May not understand strategic intent
of partners or experience divergent goals.
International Entry Modes 79

19. International Entry Modes
International Entry Mode Choice
Acquisitions
Enable firms to make most
rapid international expansion.
Can be very costly.
Legal and regulatory requirements may
present barriers to foreign ownership.
Usually require complex & costly negotiations.
Potentially disparate corporate cultures.
International Entry Modes 84

20. International Entry Modes
International Entry Mode Choice
New Wholly Owned Subsidiary
Most costly & complex of entry alternatives.
Achieves greatest degree of control.
Potentially most profitable, if successful.
Maintain control over technology, mktg. & dist.
May need to acquire expertise & knowledge
that is relevant to host country.
May require hiring host country nationals
or consultants at a high cost.
International Entry Modes 90

21. International Strategy Competitive Outcomes
Identify International Opportunities
Explore
Resources & Capabilities
Use Core Competence
Use Core Competence
Strategically
Competitive
Outcomes
Strategically
Competitive
Outcomes
International Strategies
Modes of Entry
Modes of Entry
Increased
Market Size
Return on Investment
Economies of Scale & Learning
Location Advantage
International Corp. Level Strategy
Multidomestic,
Transnational, & Global Strategy
International Bus. Level Strategy
Influences of National Advantage
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Concerns & Risks
Problems& 1st Steps
Better Performance
Innovation
Better Performance
Innovation
Competitive Outcomes 3

22. Strategic Competitiveness Outcomes
International diversification facilitates innovation in the firm.
Provides larger market to gain more and faster returns from innovation.
May generate resources necessary to sustain a large-scale R&D program.
Generally related to above-average returns, assuming effective implementation and management of international operations.
International diversification provides greater economies of scope and learning.
Competitive Outcomes
101

23. International Strategy Concerns, Risks, Problems & First Steps
Identify International Opportunities
Explore
Resources & Capabilities
Use Core Competence
Use Core Competence
Strategically
Competitive
Outcomes
Strategically
Competitive
Outcomes
Strategically
Competitive
Outcomes
Strategically
Competitive
Outcomes
International Strategies
Modes of Entry
Modes of Entry
Increased
Market Size
Return on Investment
Economies of Scale & Learning
Location Advantage
International Corp. Level Strategy
Multidomestic,
Transnational, & Global Strategy
International Bus. Level Strategy
Influences of National Advantage
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Exporting
Establish New Sub.
Licensing
Strategic
Alliances
Acquisition
Concerns & Risks
Problems& 1st Steps
Concerns & Risks
Problems& 1st Steps
Better Performance
Innovation
Better Performance
Innovation
Better Performance
Innovation
Better Performance
Innovation
Concerns & Risks 3

24. International Diversification Risks
Political Risks
National government instability may create problems for internationally diversified firms.
Potential changes in attitudes or regulations regarding foreign ownership.
Legal authority obtained from previous administration may become invalid.
Potential for nationalization of firms’ assets.
Concerns & Risks
107

25. International Diversification Risks
Economic Risks
Econ. risks are interdependent with political risks.
Differences and fluctuations in international currencies may affect value of assets & liabilities;
This affects prices & thus ability to compete.
Differences in inflation rates may affect inter-nationally diversified firms’ ability to compete.
Enforcing intellectual property rights on copyrights; CDs, software, etc.
Concerns & Risks
112

26. International Environment Risks
Political instability in Korea may create trade market uncertainty.
Economic Risks
Political Risks
Conflict between the Palestinians & Israel and may drive oil prices up.
Debates between parties in the U.S. create market uncertainties.
Uncertainties regarding Euro debt & the Euro may impact demand.
Accusations of Chinese currency manipulation may raise tariffs.
U.S. / Canada $ fluctuations impact ability to price long term contracts.
Concerns & Risks

27. Taking the 1st International Step: Challenges of going to the U.S.
Failure to recognize Market differences.
- Keg Portions in the U.S. need to be larger.
Customer Expectations.
Regional Differences.
- Couche-Tard stocks & lays out each region differently.
Failure to recognize Competitive differences.
- Manulife’s purchase of John Hancock.
Risk Preferences differ.
Failure to recognize Market differences.
Customer Expectations.
- Keg Portions in the U.S. need to be larger.
Regional Differences.
- Couche-Tard stocks & lays out each region differently.
Failure to recognize Competitive differences.
Risk Preferences differ.
- Manulife’s purchase of John Hancock.
Failure to see differences in attitudes & values.
Worker Attitudes differ.
E.D. Smith’s product goals required a culture of
dedication that was lacking in its U.S. facilities.
Problems & 1st Steps

28. Taking the 1st International Step: Basic Advice about going to the U.S.
Subtle cultural differences need attention.
E.g., again Keg Restaurants larger U.S. portions.
Move quickly, get involved in details & discover:
What customers expect,
What local competitors are doing,
What works and does not work.
Remember the basics:
Be close to your customers to know what will keep them happy.
Provide a good product at a fair price.
Problems & 1st Steps

29. Hofstede’s Cultural Dimensions
B O N U S
Hofstede’s Cultural Dimensions
1. Power distance: extent to which less powerful institutional members accept & expect that power is unequally distributed.
Latin America U.S. Canada Northern Europe
Accepting of power distance Not accepting of power distance
2. Individualism vs. Collectivism: the degree to which individuals are integrated into groups.
U.S Canada Japan Guatemala
Individualist Collectivist
A really good site that maps out a lot of countries (for fun) is:
Cultural Dimensions

30. Hofstede’s Cultural Dimensions
B O N U S
Hofstede’s Cultural Dimensions
3. Uncertainty avoidance: The extent to which rules are used to reduce uncertainty.
Sweden India Canada Belgium Portugal
Lesser Use of Rules Greater Use of Rules
4. Masculinity: Extent to which traditional gender roles, and competitive relations dominate over more equal & cooperative interpersonal relationships.
Japan U.S. Canada Sweden
Masculine Feminine
Cultural Dimensions

31. Hofstede’s Cultural Dimensions
B O N U S
Hofstede’s Cultural Dimensions
5. Foundational Depth (Long term orientation):
Floating Foundations (long term) stress the future and traits of persistence, adaptation & saving.
Deep Foundations (short term) stress the past, social obligation, saving face, tradition, stability & reciprocity.
Latin America Western Europe China
Long Term (floating) Short Term (deep)
6. Indulgence versus restraint: The extent to which people try to control their desires & impulses.
East Asia Latin America
Restraint Indulgence
Cultural Dimensions

32. Kluckhohn & Strodbeck’s Cultural Values
B O N U S
Kluckhohn & Strodbeck’s Cultural Values
Good Mutable / Immutable Evil
What is the innate nature of people?
Individual Collective Lineal / Hierarchical
People’s Relationship with one another?
Mastery Harmony Subjugation
What are People’s Relation to Nature?
Some useful points here:
Cultural Dimensions

33. Kluckhohn & Strodbeck’s Cultural Values
B O N U S
Kluckhohn & Strodbeck’s Cultural Values
Being Becoming Doing
(Spontaneous) (Self Development) (Work / Action)
What is the Nature of Human Activity
Past Present Future
What are People’s Time Orientation?
What are People’s Privacy of Space?
Public Private
See:
Cultural Dimensions

34. The Strategic Management Process
Ch. 1: Strat. Mgmt. & Com-petitiveness
Ch. 2: Strat. Mgmt . & Performance
Chapter 3:
The External Environment
Chapter 4:
The Internal Environment
Strategic Competitiveness
Strategic Mission & Strategic Intent
Strategic Objectives & Inputs
Chapter 11:
Corporate Governance
Ch. 12: Org. Structure & Controls
Chapter 13:
Strategic Leadership
Chapter 14:
Org. Renewal & Innovation
Strategy Implementation
Strategic
Actions
Chapter 5:
Bus.-Level Strategy
Chapter 6:
Competitive Dynamics
Chapter 7:
Corp.-Level Strategy
Chapter 8:
Acquisition & Restructuring
Chapter 9:
International Strategy
Chapter 10:
Cooperative Strategy
Strategy Formulation
Chapter 9:
International Strategy