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Chapter 8: Opportunities and Outcomes of International Strategy

This document discusses international strategies and opportunities for firms. It identifies the key reasons firms pursue international strategies, including potential new opportunities, global economies of scale, and high demand in foreign markets. The document also outlines the main international strategy types - multidomestic, global, and transnational - and explains how firms can choose between international entry modes like exporting, licensing, strategic alliances, acquisitions, and new wholly-owned subsidiaries.

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Ciise Cali Haybe
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0% found this document useful (0 votes)
36 views22 pages

Chapter 8: Opportunities and Outcomes of International Strategy

This document discusses international strategies and opportunities for firms. It identifies the key reasons firms pursue international strategies, including potential new opportunities, global economies of scale, and high demand in foreign markets. The document also outlines the main international strategy types - multidomestic, global, and transnational - and explains how firms can choose between international entry modes like exporting, licensing, strategic alliances, acquisitions, and new wholly-owned subsidiaries.

Uploaded by

Ciise Cali Haybe
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Chapter 8: Opportunities and Outcomes

of International Strategy

1
Chapter 8: Opportunities and Outcomes
of International Strategy

2
Identifying International Opportunities:
Incentives to Use an International Strategy
 International Strategy: A strategy through which the firm
sells its goods or services outside its domestic market
 Also referred to as geographic diversification
 Implications at both corporate and business level
 Used as a growth strategy
 Level and type of geographic diversification
 Level - # of countries, markets, or regions
 Type – Multidomestic, Global, Transnational
 Mode or means of entry

3
Identifying International Opportunities:
Incentives to Use an International Strategy
 Reasons for an International Strategy
 Potential new opportunities
 Apply innovations in domestic market to foreign markets
 Extend product life cycle
 Secure needed resources
 Pressure for global integration and globally branded products
 Global economies of scale
 High potential demand for products and services
 Currency fluctuations and tariffs
 Capitalize on core competencies
 Growth

4
Identifying International Opportunities:
Incentives to Use an International Strategy
 Four primary benefits
 Increased market size
 Can expand size of potential market
 Domestic market may have limited growth opportunities
 Larger markets offer higher potential returns and pose less risk
for a firm’s investments
 Greater return on investment (ROI)
 Large investment projects may require global markets to justify
the capital outlays
 Larger markets are more attractive
 To generate above average returns on investments

5
Identifying International Opportunities:
Incentives to Use an International Strategy
 Four primary benefits (Cont’d)
 Greater economies of Scale, Scope, or Learning
 Expanding size or scope of markets can help firms achieve
economies of scale in manufacturing, marketing, R&D,
distribution, and service activities
 Can exploit core competencies in international markets through
resource and knowledge sharing across borders
 Competitive advantages through location
 Can help the firm reduce costs
 Access to lower-cost labor, energy, and other natural
resources
 Access to critical supplies and to customers
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International Strategies
 Firms can choose to use one or both of two basic types
of International Strategy:
 International Business-level Strategy
 Firms select from among the generic strategies of low

cost, differentiation, focused low cost, focused


differentiation, or integrated low cost and differentiation
 International Corporate-level strategy
 Focuses on the scope of a firm’s operations through

geographic (and product) diversification


 3 Types

 Multidomestic
 Global
 Transnational
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International Corporate-Level Strategies

8
International Strategies
 Multidomestic
 Tailor products to each local market
 Strategic & operating decisions are decentralized to the
strategic business-unit (SBU) in each country
 Focuses on competition within each country
 Assumes that markets differ and are segmented by country
boundaries
 Customized products to meet local customers’ specific
needs and preferences
 Deals with uncertainty due to differences across markets
 Different competitive/business strategy in each market
 Think local and act local
 Addresses need for local responsiveness
9
International Strategies
 Global
 Firm offers standardized products across country markets
 Competitive strategy dictated by the home office
 Emphasizes economies of scale
 Strategic & operating decisions centralized at home office
 Involves interdependent SBUs operating in each country
 Home office attempts to achieve integration across SBUs,
adding management complexity
 Produces lower risk
 Is less responsive to local market opportunities
 Same competitive/business strategy in all markets
 Think global and act global 10

 Addresses need for global integration


International Strategies
 Transnational
 Firm seeks to achieve both global efficiency and local
responsiveness – these can be competing goals!
 Requires both global coordination and local responsiveness
 Flexible Coordination
 Challenging, but becoming increasingly necessary to compete
in international markets
 Growing number of global competitors increases need to lower
costs while greater information flow and desire for specialized
products pressures firms to differentiate and even customize
products
 Tailor strategy where needed
 Think global and act local
 Increasingly used as a strategy - Toyota 11
International Strategies
 Choosing an International Strategy
 Choice is dictated by the firms internal and external
environments
 Influenced by cross-country differences in market
conditions, culture, demographics, etc.
 Greater differences make things more complicated
for firms
 These differences also drive the pattern of
international competition that exists in an industry
 Greater differences then multidomestic
 Fewer differences then global
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International Entry Modes

 Exporting
 Initial strategy used by many firms to test international
markets
 Involves low expense to establish operations in host
country
 Often involves contractual agreements with host country
firms
 May have some tariffs imposed
 Involves high transportation costs
 Offers low control over marketing and distribution

13
International Entry Modes

 Licensing
 Allows a foreign company to purchase the right to manufacture and
sell the firm’s products within a host country or set of countries
 Licensor paid royalty on units sold
 Involves low cost to expand internationally
 Allows licensee to absorb risks
 Has low control over manufacturing and marketing
 Offers lower potential returns (shared with licensee)
 Involves risk of licensee imitating technology and product for own
use
 May have inflexible ownership arrangement
 Works well for manufacturers (while franchising works well for
services and retailing)
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International Entry Modes

 Strategic Alliances
 A cooperative strategy in which firms combine some of
their resources and capabilities to create a competitive
advantage (Chapter 9)
 Involve shared risks and resources
 Facilitate development of core competencies
 Involve fewer resources and costs required for entry
 May involve possible incompatibility, conflict, or lack of
trust with partner
 Are difficult to manage

15
International Entry Modes

 Acquisitions
 Allow for quick access to market
 Quicker entry than other modes
 Involve possible integration difficulties
 Are costly
 Have complex negotiations and transaction
requirements

16
International Entry Modes

 New Wholly-Owned Subsidiary


 Is costly
 Involves complex processes
 Allows for maximum control
 Has the highest potential for above average returns
 Carries high risk
 Greenfield venture: Establishment of a new wholly
owned subsidiary

17
International Entry Modes

 Dynamics of Mode of Entry: Use the mode best suited to


the situation at hand; affected by several factors
 Export, licensing and strategic alliance: good tactics for early
market development
 Strategic alliance: used in more uncertain situations
 Wholly-owned subsidiary may be preferred if
 Firm wants to maximize control and potential returns

 Firm has proprietary technology

 Acquisitions, greenfield ventures, and joint ventures: used to


secure a stronger presence in international markets
 Figure 8.5 – Covers costs and control characteristics

18
International Entry Modes

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Strategic Competitive Outcomes

 International diversification: A strategy through


which a firm expands the sale of its goods or services
across the borders of global regions and countries into
different geographic locations or markets
 Strategic Competitive Outcomes
 International diversification and returns
 As international diversification increases, firms’ returns
initially decrease, but then increase quickly as firm learns to
manage international expansion
 Firms that are broadly diversified into multiple international
markets usually achieve the most positive stock returns

20
Strategic Competitive Outcomes

 Strategic Competitive Outcomes (cont.)


 International diversification and innovation
 Potential to achieve greater returns on innovations while
reducing risks of R&D investments
 Exposure to new products and processes and the
opportunity to integrate this new knowledge into
operations
 Provides incentives to innovate
 Competitive advantage potential
 Locating activities
 Transferring competencies
 Coordinating activities
 Profit sanctuaries and cross market subsidization 21
Risks in International Environment

 Political Risks
 The possibility of the disruption of operations by political
forces or events in host countries, home country, or as a
result of changes in the international environment
 Economic Risks
 Fundamental weaknesses in a country or region's
economy with the potential to cause adverse effects on a
firm's international strategies
 Management Problems
 Larger more complex firms are more difficult to manage
 There are limits to international expansion

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