bilingual series-strategic management chapter 8. international strategy
TRANSCRIPT
Bilingual Series-Strategic Management
Chapter 8
International StrategyInternational Strategy
CompetitivenessCompetitiveness
Chapter 3Chapter 3InternalInternal
EnvironmentEnvironment
Chapter 2Chapter 2ExternalExternal
EnvironmentEnvironmentThe StrategicThe StrategicManagementManagement
ProcessProcess
The StrategicThe StrategicManagementManagement
ProcessProcess
Strategic IntentStrategic Intent
Strategic MissionStrategic Mission
StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average
ReturnsReturnsFeedback
Strategy FormulationStrategy Formulation
Chapter 4Chapter 4Business-LevelBusiness-Level
StrategyStrategy
Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics
Chapter 6Chapter 6Corporate-LevelCorporate-Level
StrategyStrategy
Chapter 8Chapter 8InternationalInternational
StrategyStrategy
Chapter 9Chapter 9CooperativeCooperativeStrategiesStrategies
Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring
Strategy ImplementationStrategy Implementation
Chapter 10Chapter 10CorporateCorporate
GovernanceGovernance
Chapter 11Chapter 11StructureStructure& Control& Control
Chapter 12Chapter 12StrategicStrategic
LeadershipLeadership
Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation
Str
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International Strategy Opportunities and International Strategy Opportunities and OutcomesOutcomes
Identify Identify International International OpportunitieOpportunitie
ss
ExploreExploreResources Resources
and and CapabilitiesCapabilities
Use Core Use Core CompetencCompetenc
ee
StrategicStrategicCompetitivenesCompetitivenes
ssOutcomesOutcomesInternational International
StrategiesStrategiesModes of Modes of
EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies Economies of Scale and of Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-Business-LevelLevelStrategyStrategyMultidomestiMultidomestic Strategyc Strategy
GlobalGlobalStrategyStrategy
TransnationTransnational Strategyal Strategy
ExportingExporting
Establishment Establishment of New of New SubsidiarySubsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovatioInnovationn
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies Economies of Scale and of Scale and LearningLearning
Location Location AdvantageAdvantage
Selling Products or Services Outside a Firm’s Domestic MarketSelling Products or Services Outside a Firm’s Domestic MarketInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy Lifecycle
Firm Introduces Firm Introduces Innovation in Domestic Innovation in Domestic
MarketMarket
11
Product Demand Product Demand Develops and Firm Develops and Firm Exports ProductsExports Products
22
Foreign CompetitionForeign CompetitionBegins ProductionBegins Production33
Firm Begins Production Firm Begins Production AbroadAbroad
44Production Becomes Production Becomes Standardized and is Relocated to Standardized and is Relocated to
Low Cost CountriesLow Cost Countries
55
Example: Example: Aircraft manufacturers Boeing or AirbusAircraft manufacturers Boeing or Airbus
Example: Example: Japanese electronics or automobile Japanese electronics or automobile manufacturersmanufacturers
Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion
Increase Market ShareIncrease Market ShareDomestic market may lack the size to support efficient scale Domestic market may lack the size to support efficient scale manufacturing facilitiesmanufacturing facilities
Large investment projects may require global markets to justify the capital Large investment projects may require global markets to justify the capital outlaysoutlays
Weak patent protection in some countries implies that firms should expand Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitatorsoverseas rapidly in order to preempt imitators
Return on InvestmentReturn on InvestmentReturn on InvestmentReturn on Investment
Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion
Economies of Scale or LearningEconomies of Scale or LearningExpanding size or scope of markets helps to achieve economies of Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distributionscale in manufacturing as well as marketing, R & D or distribution
- Can spread costs over a larger sales base- Can spread costs over a larger sales base
- Increase profit per unit- Increase profit per unit
May achieve better access to:May achieve better access to:
- Raw materials- Raw materials
- Lower cost labor- Lower cost labor
- Key suppliers- Key suppliers
- Key customers- Key customers
- Energy- Energy
- Natural resources- Natural resources
Location AdvantagesLocation AdvantagesLow cost markets may aid in developing competitive Low cost markets may aid in developing competitive advantageadvantage
Factor ConditionsFactor Conditions
Basic FactorsBasic Factors- Land, labor- Land, labor
Advanced FactorsAdvanced Factors- Highly educated workers- Highly educated workers- Digital communications- Digital communications
Generalized FactorsGeneralized Factors- Capital, infrastructure- Capital, infrastructure
Specialized FactorsSpecialized Factors- Skilled personnel- Skilled personnel
Demand Demand ConditionsConditions
Home country may Home country may support scale support scale efficient operations efficient operations by itselfby itself
Related & Supporting Related & Supporting IndustriesIndustries
- Japanese cameras & copiers- Japanese cameras & copiers- Italian shoes & leather- Italian shoes & leather
Firm Strategy, Structure & RivalryFirm Strategy, Structure & RivalryFirm Strategy, Structure & RivalryFirm Strategy, Structure & Rivalry
Intense rivalry fosters Intense rivalry fosters industry competitionindustry competitionIntense rivalry fosters Intense rivalry fosters industry competitionindustry competition
Porter’s Determinants of National AdvantagePorter’s Determinants of National AdvantageHome Country Home Country of Origin Is Crucial to International Successof Origin Is Crucial to International Success
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify Identify International International OpportunitieOpportunitie
ss
ExploreExploreResources Resources
and and CapabilitiesCapabilities
Use Core Use Core CompetencCompetenc
ee
StrategicStrategicCompetitivenesCompetitivenes
ssOutcomesOutcomesInternational International
StrategiesStrategiesModes of Modes of
EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies Economies of Scale and of Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-Business-LevelLevelStrategyStrategyMultidomestiMultidomestic Strategyc Strategy
GlobalGlobalStrategyStrategy
TransnationTransnational Strategyal Strategy
ExportingExporting
Establishment Establishment of New of New SubsidiarySubsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovatioInnovationn
International DifferentiationInternational DifferentiationCountries with advanced or specialized factor conditions most Countries with advanced or specialized factor conditions most likely to use this strategylikely to use this strategy
Example:Example: Japan, Germany, U.S. Japan, Germany, U.S.
International Low CostInternational Low CostUsually located in home countryUsually located in home country
Export to international marketsExport to international markets
Low value added operations in foreign countriesLow value added operations in foreign countries
High value added operations in home countryHigh value added operations in home country
Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies
International Focus StrategiesInternational Focus Strategies
International Integrated Low International Integrated Low Cost/DifferentiationCost/Differentiation
Can be most effective in dealing with diverse marketsCan be most effective in dealing with diverse markets
Often relies upon flexible manufacturing, total quality Often relies upon flexible manufacturing, total quality management or rapid communication networksmanagement or rapid communication networks
Technologically advanced firms follow focused low cost strategyTechnologically advanced firms follow focused low cost strategy
Focused differentiation firms compete on the basis of image & designFocused differentiation firms compete on the basis of image & design
Third group competes on low price by imitatingThird group competes on low price by imitating
Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies
Three Three Corporate Corporate StrategiesStrategies
Global StrategyGlobal Strategy
Transnational StrategyTransnational Strategy
Multi-Domestic StrategyMulti-Domestic Strategy
Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies
Type of Corporate Strategy selected will have an impact Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level on the selection and implementation of the business-level strategiesstrategies
Some Corporate strategies provide individual country units Some Corporate strategies provide individual country units with flexibility to choose their own strategieswith flexibility to choose their own strategies
Others dictate business-level strategies from the home Others dictate business-level strategies from the home office and coordinate resource sharing across unitsoffice and coordinate resource sharing across units
Multi-Domestic StrategyMulti-Domestic Strategy
Business units in each country are independent Business units in each country are independent of each other of each other
Assumes markets differ by country or regionsAssumes markets differ by country or regions
Focus on competition in each marketFocus on competition in each market
Prominent strategy among European firms due to Prominent strategy among European firms due to broad variety of cultures and markets in Europebroad variety of cultures and markets in Europe
Strategy and operating decisions are Strategy and operating decisions are decentralized to strategic business units (SBU) decentralized to strategic business units (SBU) in each countryin each countryProducts and services are tailored to local marketsProducts and services are tailored to local markets
Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies
Products are standardized across national marketsProducts are standardized across national markets
Decisions regarding business-level strategies are Decisions regarding business-level strategies are centralized in the home officecentralized in the home office
Strategic business units (SBU) are assumed to be Strategic business units (SBU) are assumed to be interdependentinterdependent
Emphasizes economies of scaleEmphasizes economies of scale
Often lacks responsiveness to local marketsOften lacks responsiveness to local markets
Requires resource sharing and coordination across Requires resource sharing and coordination across borders (which also makes it difficult to manage)borders (which also makes it difficult to manage)
Global StrategyGlobal Strategy
Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies
Seeks to achieve both global efficiency and Seeks to achieve both global efficiency and local responsivenesslocal responsiveness
Difficult to achieve because of simultaneous Difficult to achieve because of simultaneous requirements for strong central control and requirements for strong central control and coordination to achieve efficiency and local coordination to achieve efficiency and local flexibility and decentralization to achieve local flexibility and decentralization to achieve local market responsivenessmarket responsiveness
Must pursue organizational learning to achieve Must pursue organizational learning to achieve competitive advantagecompetitive advantage
Transnational StrategyTransnational Strategy
Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies
International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?
Need for Global Need for Global IntegrationIntegration
Need for Local Market ResponsivenessNeed for Local Market Responsiveness
Low
High
Low High
Multi-Multi-DomesticDomestic
International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?
Need for Global Need for Global IntegrationIntegration
Need for Local Market ResponsivenessNeed for Local Market Responsiveness
Low
High
Low High
Multi-Multi-DomesticDomestic
GlobalGlobalStrategyStrategy
International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?
Need for Global Need for Global IntegrationIntegration
Need for Local Market ResponsivenessNeed for Local Market Responsiveness
Low
High
Low High
Multi-Multi-DomesticDomestic
GlobalGlobalStrategyStrategy
Trans-Trans-nationalnational
International Strategy Opportunities and International Strategy Opportunities and OutcomesOutcomes
Identify Identify International International OpportunitieOpportunitie
ss
ExploreExploreResources Resources
and and CapabilitiesCapabilities
Use Core Use Core CompetencCompetenc
ee
StrategicStrategicCompetitivenesCompetitivenes
ssOutcomesOutcomesInternational International
StrategiesStrategiesModes of Modes of
EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies Economies of Scale and of Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-Business-LevelLevelStrategyStrategyMultidomestiMultidomestic Strategyc Strategy
GlobalGlobalStrategyStrategy
TransnationTransnational Strategyal Strategy
ExportingExporting
Establishment Establishment of New of New SubsidiarySubsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovatioInnovationn
Common way to enter new international marketsCommon way to enter new international markets
No need to establish operations in other countriesNo need to establish operations in other countries
May have high transportation costsMay have high transportation costs
May have less control on marketing and distributionMay have less control on marketing and distribution
May encounter high import tariffsMay encounter high import tariffs
Difficult to customize productsDifficult to customize products
Establish distribution channels through contractual Establish distribution channels through contractual relationshipsrelationships
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode
ExportingExportingExportingExporting
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeLicensingLicensingLicensingLicensing
Firm authorizes another firm to manufacture and sell its Firm authorizes another firm to manufacture and sell its productsproductsLicensing firm is paid a royalty on each unit produced and Licensing firm is paid a royalty on each unit produced and soldsoldLicensee takes risks in manufacturing investmentsLicensee takes risks in manufacturing investments
Least risky way to enter a foreign marketLeast risky way to enter a foreign market
Licensing firm loses control over product quality and Licensing firm loses control over product quality and distributiondistribution
Relatively low profit potentialRelatively low profit potential
A significant risk is that licensor learns technology and A significant risk is that licensor learns technology and competes when license expirescompetes when license expires
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeStrategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances
Enable firms to shares risks and resources to Enable firms to shares risks and resources to expand into international venturesexpand into international ventures
Most joint ventures (JVs) involve a foreign Most joint ventures (JVs) involve a foreign company with a new product or technology and a company with a new product or technology and a host company with access to distribution or host company with access to distribution or knowledge of local customs, norms or politics knowledge of local customs, norms or politics
May experience difficulties in merging disparate May experience difficulties in merging disparate culturescultures
May not understand the strategic intent of partners May not understand the strategic intent of partners or experience divergent goalsor experience divergent goals
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeAcquisitionsAcquisitionsAcquisitionsAcquisitions
Enable firms to make most rapid Enable firms to make most rapid international expansioninternational expansion
Can be very costlyCan be very costly
Legal and regulatory requirements may Legal and regulatory requirements may present barriers to foreign ownershippresent barriers to foreign ownership
Usually require complex and costly negotiationsUsually require complex and costly negotiations
Potentially disparate corporate culturesPotentially disparate corporate cultures
New Wholly-Owned SubsidiaryNew Wholly-Owned SubsidiaryChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode
Most costly and complex of entry alternativesMost costly and complex of entry alternatives
Achieves greatest degree of controlAchieves greatest degree of control
Potentially most profitable, if successfulPotentially most profitable, if successful
Maintain control over technology, marketing Maintain control over technology, marketing and distributionand distributionMay need to acquire expertise and May need to acquire expertise and knowledge that is relevant to host countryknowledge that is relevant to host country
Could require hiring host country nationals or Could require hiring host country nationals or consultants at high costconsultants at high cost
International Strategy Opportunities and International Strategy Opportunities and OutcomesOutcomes
Identify Identify International International OpportunitieOpportunitie
ss
ExploreExploreResources Resources
and and CapabilitiesCapabilities
Use Core Use Core CompetencCompetenc
ee
StrategicStrategicCompetitivenesCompetitivenes
ssOutcomesOutcomesInternational International
StrategiesStrategiesModes of Modes of
EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies Economies of Scale and of Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-Business-LevelLevelStrategyStrategyMultidomestiMultidomestic Strategyc Strategy
GlobalGlobalStrategyStrategy
TransnationTransnational Strategyal Strategy
ExportingExporting
Establishment Establishment of New of New SubsidiarySubsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovatioInnovationn
Strategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness Outcomes
International diversification facilitates innovation International diversification facilitates innovation in the firmin the firmProvides larger market to gain more and faster Provides larger market to gain more and faster returns form investments in innovationreturns form investments in innovationMay generate resources necessary to sustain a May generate resources necessary to sustain a large-scale R&D programlarge-scale R&D programGenerally related to above-average returns, Generally related to above-average returns, assuming effective implementation and assuming effective implementation and management of international operationsmanagement of international operations
International diversification provides greater International diversification provides greater economies of scope and learningeconomies of scope and learning
International Strategy Opportunities and International Strategy Opportunities and OutcomesOutcomes
Identify Identify International International OpportunitieOpportunitie
ss
ExploreExploreResources Resources
and and CapabilitiesCapabilities
Use Core Use Core CompetencCompetenc
ee
StrategicStrategicCompetitivenesCompetitivenes
ssOutcomesOutcomesInternational International
StrategiesStrategiesModes of Modes of
EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies Economies of Scale and of Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-Business-LevelLevelStrategyStrategyMultidomestiMultidomestic Strategyc Strategy
GlobalGlobalStrategyStrategy
TransnationTransnational Strategyal Strategy
ExportingExporting
Establishment Establishment of New of New SubsidiarySubsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovatioInnovationn
Political RiskPolitical RiskMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification
Rebel fighting in Chechnya (Russia) and Rebel fighting in Chechnya (Russia) and Liberia (Africa)Liberia (Africa)
Continual warfare among Middle Eastern nationsContinual warfare among Middle Eastern nations
Potential renationalization of privatized Potential renationalization of privatized enterprises in Russiaenterprises in Russia
Failure of European Community in quest for Failure of European Community in quest for economic superpower status because of economic superpower status because of intercountry disagreementsintercountry disagreements
Economic RiskEconomic RiskMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification
Mexico’s effect on world trade with low wages and Mexico’s effect on world trade with low wages and high quality but strong currency riskshigh quality but strong currency risks
China’s difficulty in enforcing intellectual property China’s difficulty in enforcing intellectual property rights on CDs, software, etc. rights on CDs, software, etc.
Germany’s struggle with high unemployment, high Germany’s struggle with high unemployment, high interest rates, sagging competitiveness, and cuts in interest rates, sagging competitiveness, and cuts in social programssocial programs
China’s trade policies. $44 billion trade surplus China’s trade policies. $44 billion trade surplus with United States in 1977. China’s overall trade with United States in 1977. China’s overall trade surplus increased twentyfold in first half of 1997.surplus increased twentyfold in first half of 1997.
Management ProblemsManagement Problems
Limits To International ExpansionLimits To International ExpansionLimits To International ExpansionLimits To International Expansion
Cost of Coordination across diverse geographical business units
Institutional and cultural barriers
Understanding strategic intent of competitors
The overall complexity of competition