International Strategy

Opportunities and Outcomes of

International Strategy

8–2
 Identifying International Opportunities
• International Strategy
• A strategy through which the firm sells its goods or services outside its
domestic market.
• Incentives to use international strategy
• New market expansion extends product life cycle
• Gain access to materials and resources
• Integration of operations on a global scale
• Better use of rapidly developing technologies
• International markets yield potential new opportunities

8–3
Classic Rationale for International Diversification: Extend a Product’s
Life Cycle

Firm introduces Product demand Foreign

innovation in develops and firm competition
domestic market exports products begins production

Production is standardized Firm begins

and relocated to low cost countries production abroad

8–4
 International Strategy Benefits
• Increased Market Size
• Domestic market may lack the size to support efficient scale manufacturing
facilities (operational and technical too).
• 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
• Can increase profit per unit
• New learning opportunities (but must have intention to absorb).

8–5
 International Strategy Benefits (cont’d)
• Location Advantages
• Low cost markets aid in developing competitive advantage by providing
access to:
• raw materials
• transportation
• lower costs for labor
• key customers
• energy

8–6
Incentives and Basic Benefits of International
Strategy

8–7
 International Business Level
Strategies
Firms considering international strategies first develop domestic-market strategies.
Competencies may be used as a foundation for competitive success in international markets.
Geographic boundaries may diminish this value though.
However, conditions in a domestic market affect the degree to which firm build capabilities in
international markets.
Reason behind this is Michael Porter’s analysis of why some nations/industries in a nation are
more competitive than other nations/industries.
Domestic markets may hinder/support firm’s effort to use an international level business
strategy.

1–8
Determinants of National Advantage

8–9
Determinants of National Advantage
• Factors of production
• The inputs necessary to compete in any industry.
• Labor
• Land
• Capital
• Infrastructure
• Natural Resources
• Basic factors
• Natural and labor resources
• Advanced factors
• Digital communication systems
• Educated workforce 8–10
 Determinants of National Advantage
(cont’d)

• Demand Conditions
• Characterized by the nature and size of buyers’ needs in the home market for
the industry’s goods or services.
• Size of the 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.

8–11
Determinants of National Advantage
(cont’d)
• Related and Supporting Industries
• Supporting services, facilities, suppliers, etc.
• Support in design
• Support in distribution
• Related industries as suppliers and buyers
• 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

8–12
 Selecting an International
Corporate-Level Strategy
• The type of corporate strategy selected will have an impact on the
selection and implementation of the business-level strategies.
• Some strategies provide individual country units with the flexibility to choose
their own strategies.
• Other strategies dictate business-level strategies from the home office and
coordinate resource sharing across units.

8–13
 International Corporate-Level Strategy
• Focuses on the scope of operations
• Product diversification
• Geographic diversification
• Required when the firm operates in:
• multiple industries
• multiple countries or regions
• Headquarters unit guides the strategy,
• but business or country-level managers can have substantial strategic input.

8–14
International Corporate-Level Strategy

8–15
 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.
• Ex. Unilever
Multi-domestic
strategy

8–16
 Global Strategy
• Products are standardized across national markets.
• Business-level strategic decisions are centralized in the home office.
• Strategic business units (SBUs) are assumed to be interdependent.
• Emphasizes economies of scale.
• Often lacks responsiveness to local markets.
• Requires resource sharing and coordination across borders (hard to manage).
• Ex. IKEA

Global Strategy

8–17
 Transnational Strategy
• Seeks to achieve both global efficiency and local responsiveness.
• Flexible coordination, building a shared vision and individual commitment are
required.
• Difficult to achieve because of simultaneous requirements for:
• strong central control and coordination to achieve efficiency.
• decentralization to achieve local market responsiveness.
• pursuit of organizational learning to achieve competitive advantage.
Ex. Mondelez Foods.

Transnational
Strategy

8–18
 Environmental Trends
• Liability of Foreignness
• Legitimate concerns about the relative attractiveness of global strategies
• Global strategies not as prevalent as once thought
• Difficulty in implementing global strategies
• Regionalization
• Focusing on particular region(s) rather than on global markets
• Better understanding of the cultures, legal and social norms

8–19
International Entry Modes

8–20
Choice of International Mode of Entry

What’s the best solution?

Situation Optimal Solution
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8–21
Choice of International Mode of Entry

What’s the best solution?

Situation Optimal Solution
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8–22
Choice of International Mode of Entry

What’s the best solution?

Situation Optimal Solution
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8–23
Choice of International Mode of Entry

What’s the best solution?

Situation Optimal Solution
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8–24
Choice of International Mode of Entry

What’s the best solution?

Situation Optimal Solution
The
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international
markets
markets

© 2017 Cengage Learning. All rights reserved. May not be copi 8–25
ed, scanned, or duplicated, in whole or in part, except for use as
Choice of International Mode of Entry

What’s the best solution?

Situation Optimal Solution
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integrationis ishigh.
high.

8–26
 Risks in an International Environment

• Political Risks • Economic Risks

• Instability in national governments • Differences and fluctuations in the value
• War, both civil and international of different currencies
• Potential nationalization of a firm’s • Differences in prevailing wage rates
resources • Difficulties in enforcing property rights
• Unemployment

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?
?
8–27
International Diversification and Returns

8–28
 International Diversification and Returns
• Expanding sales of goods or services across global regions and
countries and into different geographic locations or markets:
• may increase a firm’s returns (such firms usually achieve the most positive
stock returns).
• may achieve economies of scale and experience, location advantages,
increased market size and opportunity to stabilize returns.

8–29
 International Diversification
and Innovation

• Expansion sales of goods or services across global regions and

countries and into different geographic locations or markets:
• may yield potentially greater returns on innovations (a larger market)
• can generate additional resources for investment in innovation
• provides exposure to new products and processes in international markets;
generates additional knowledge leading to innovations

8–30
 Complexity of Managing Multinational
Firms
• Expansion into global operations in different geographic locations or
markets:
• makes implementing international strategy increasingly complex.
• can produce greater uncertainty and risk.
• may result in the firm becoming unmanageable
• may cause the cost of managing the firm to exceed the benefits of expansion.
• exposes the firm to possible instability of some national governments.

8–31
 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

8–32