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CHAPTER 8

International Strategy

One of the primary reasons for implementing an international strategy (as opposed to a s trategy
focused on the domestic market) is that international markets yield potential new opportunities.
An international strategy is a strategy through which the firm sells its goods or services outside
its domestic market.
An international strategy is commonly designed primarily to capitalize on four benefits: (1)
increased market size; (2) earning a return on large investments; (3) greater economies of scale,
scope and learning; and competitive advantages of location (e.g., access to low-cost labor, critical
resources, or customers).

International business-level strategies are usually grounded in one or more home-country


advantages, as Porter’s model suggests. Porter’s model emphasizes four determinants:
describes the factors contributing to the advantage of firms in a dominant global industry and
associated with a specific home country or regional environment:
1. Factor of productions
2. Demand conditions
3. Related and supporting industries
4. Firm strategy, structure and rivalry

International Corporate-Level Strategy


Corporate strategies give individual country units the authority to develop their own business-level
strategies; other corporate strategies dictate the business-level strategies in order to standardize
the firm’s products and sharing of resources across countries. The three international corporate-
level strategies are multidomestic, global, and transnational.

Multidomestic Strategy. A multidomestic strategy is an international strategy in which strategic


and operating decisions are decentralized to the strategic business and operating decisions to
the business units operating in each country, so that each unit can tailor its goods and services
to the local. A multidomestic strategy focuses on competition within each country in which the firm
competes.

Global Strategy. A global strategy assumes more standardization of products across country
boundaries; therefore, a competitive strategy is centralized and controlled by the home office. The
strategic business units operating in each country are assumed to be interdependent, and the
home office attempts to achieve integration across these businesses. The firm uses a global
strategy to offer standardized products across country markets, with competitive strategy being
dictated by the home office.

Transnational Strategy. A transnational strategy is an international strategy through which the


firm seeks to achieve both global efficiency and local responsiveness. Realizing these goals is
difficult: One requires close global coordination while the other requires local flexibility. “Flexible
coordination”—building a shared vision and individual commitment
through an integrated network—is required to implement the transnational strategy

Environmental Trends
Two important trends are
Liability of Foreignness. A regional focus allows firms to marshal their resources to compete
effectively in regional markets rather than spreading their limited resources across many
international markets.

Regionalization. Deciding whether to compete in all or many global markets, or to focus on a


particular region or regions. Competing in all markets provides economies that can be achieved
because of the combined market size. Research suggests that firms that compete in risky
emerging markets can also have higher performance.

Choice of International Entry Mode


Firms may enter international markets in one of several ways, including exporting, licensing,
forming strategic alliances, making acquisitions, and establishing new wholly owned subsidiaries,
often referred to as greenfield ventures. Most firms begin with exporting or licensing, because of
their lower costs and risks, but later they might use strategic alliances and acquisitions to expand
internationally. The most expensive and risky means of entering a new international market is
through the establishment of a new wholly owned subsidiary. Each means of market entry has its
advantages and disadvantages.

Strategic Competitive Outcomes


International diversifi cation is a strategy through which a firm expands the sales of its goods or
services across the borders of global regions and countries into different geographic locations or
markets. International diversification facilitates innovation in a firm, because it provides a larger
market to gain more and faster returns from investments in innovation. In addition, international
diversification may generate the resources necessary to sustain a large-scale R&D program.

Risks in an International Environment


Several risks are involved with managing multinational operations. Among these are political risks
(e.g., instability of national governments) and economic risks (e.g., fluctuations in the value of a
country’s currency).