Chapter 8

International
Strategy

2010 Universitas Internasional Batam

Strategic
Inputs

Chapter 2
External
Environment

Strategic Intent
Strategic Mission

Chapter 3
Internal
Environment

Strategy Implementation

Chapter 4
Business-Level
Strategy

Chapter 5
Competitive
Dynamics

Chapter 6
Corporate-Level
Strategy

Chapter 10
Corporate
Governance

Chapter 11
Structure
& Control

Chapter 7
Acquisitions &
Restructuring

Chapter 8
International
Strategy

Chapter 9
Cooperative
Strategies

Chapter 12
Strategic
Leadership

Chapter 13

Outcomes

Strategic

Strategic
Actions

Strategy Formulation

The Strategic
Management
Process

Feedback

Strategic
Competitiveness
Above Average
Returns

Entrepreneurship

& Innovation

International Strategy Opportunities and Outcomes

Identify
International
Opportunities

Explore
Resources and
Capabilities

Use Core
Competence

International

Modes of
Entry

Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage

International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy

Strategic
Competitiveness
Management
Outcomes
Problems
and Risk

Exporting
Higher
Performance
Returns

Exporting
Strategic
Alliances
Acquisition

Innovation

Establishment of
New Subsidiary
Management
Problems
and Risk

International Strategy Lifecycle

Selling Products or Services Outside a Firms Domestic Market

2
1

Product Demand
Develops and
Firm Exports
Products

Firm Introduces
Innovation in
Domestic Market

Production Becomes
Standardized and is
Relocated to Low Cost
Countries

Foreign
Competition
Begins Production

Firm Begins
Production Abroad

Motivations for International Expansion

Increase Market Share
Domestic market may lack the size to support efficient
scale manufacturing facilities
Example: Japanese electronics or
automobile manufacturers

Return on Investment
Large investment projects may require global markets to justify
the capital outlays
Example: Aircraft manufacturers Boeing or Airbus
Weak patent protection in some countries implies that firms
should expand overseas rapidly in order to preempt imitators

Motivations for International Expansion

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
- Increase profit per unit

Location Advantages
Low cost markets may aid in developing
competitive advantage
May achieve better access to:
- Raw materials
- Key customers
- Lower cost labor
- Energy
- Key suppliers
- Natural resources

Porters Determinants of National Advantage

Home Country of Origin Is Crucial to International Success
Related & Supporting
Industries
Factor Conditions
Basic Factors
- Land, labor
Advanced Factors
- Highly educated workers
- Digital communications
Generalized Factors
- Capital, infrastructure
Specialized Factors
- Skilled personnel

- Japanese cameras & copiers

- Italian shoes & leather

Demand
Conditions

Home country may

support scale efficient
operations by itself

Firm Strategy, Structure &

Rivalry
Intense rivalry fosters
industry competition

International Strategy Opportunities and Outcomes

Identify
International
Opportunities

Explore
Resources and
Capabilities

Use Core
Competence

International

Modes of
Entry

Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage

International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy

Strategic
Competitiveness
Management
Outcomes
Problems
and Risk

Exporting
Higher
Performance
Returns

Exporting
Strategic
Alliances
Acquisition

Innovation

Establishment of
New Subsidiary
Management
Problems
and Risk

Business-Level International Strategies

International Low Cost
Usually located in home country
Export to international markets
Low value added operations in foreign countries
High value added operations in home country

International Differentiation
Countries with advanced or specialized factor
conditions most likely to use this strategy
Example: Japan, Germany, U.S.

Business-Level International Strategies

International Focus Strategies
Technologically advanced firms follow focused
low cost strategy
Focused differentiation firms compete on the
basis of image & design
Third group competes on low price by imitating

International Integrated Low Cost/Differentiation

Can be most effective in dealing with diverse markets
Often relies upon flexible manufacturing, total quality
management or rapid communication networks

Corporate-Level International Strategies

Type of Corporate Strategy selected will have an
impact on the selection and implementation of the
business-level strategies
Some Corporate strategies provide individual country
units with flexibility to choose their own strategies
Others dictate business-level strategies from the home
office and coordinate resource sharing across units

Three
Corporate
Strategies

Multi-Domestic Strategy
Global Strategy
Transnational Strategy

Corporate-Level International Strategies

Multi-Domestic 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 each 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

Corporate-Level International Strategies

Global Strategy
Products are standardized across national markets
Decisions regarding business-level strategies are
centralized in the home office
Strategic business units (SBU) are assumed to be
interdependent
Emphasizes economies of scale
Often lacks responsiveness to local markets
Requires resource sharing and coordination across
borders (which also makes it difficult to manage)

Corporate-Level International Strategies

Transnational Strategy
Seeks to achieve both global efficiency and local
responsiveness
Difficult to achieve because of simultaneous
requirements for strong central control and
coordination to achieve efficiency and local
flexibility and decentralization to achieve local
market responsiveness
Must pursue organizational learning to achieve
competitive advantage

International Corporate Strategy

When is each strategy appropriate?
High

Need for
Global
Integration
MultiDomestic
Low
Low

High

Need for Local Market Responsiveness

International Corporate Strategy

When is each strategy appropriate?
High

Global
Strategy
Need for
Global
Integration
MultiDomestic
Low
Low

High

Need for Local Market Responsiveness

International Corporate Strategy

When is each strategy appropriate?
High

Global
Strategy

Transnational

Need for
Global
Integration
MultiDomestic
Low
Low

High

Need for Local Market Responsiveness

International Strategy Opportunities and Outcomes

Identify
International
Opportunities

Explore
Resources and
Capabilities

Use Core
Competence

International

Modes of
Entry

Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage

International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy

Strategic
Competitiveness
Management
Outcomes
Problems
and Risk

Exporting
Higher
Performance
Returns

Exporting
Strategic
Alliances
Acquisition

Innovation

Establishment of
New Subsidiary
Management
Problems
and Risk

Choice of International Entry Mode

Exporting
Exporting
Common way to enter new international markets
No need to establish operations in other countries
Establish distribution channels through contractual
relationships
May have high transportation costs
May encounter high import tariffs
May have less control on marketing and distribution
Difficult to customize products

Choice of International Entry Mode

Licensing
Licensing
Firm authorizes another firm to manufacture and
sell its products
Licensing firm is paid a royalty on each unit
produced and sold
Licensee takes risks in manufacturing investments
Least risky way to enter a foreign market
Licensing firm loses control over product quality
and distribution
Relatively low profit potential
A significant risk is that licensor learns technology
and competes when license expires

Choice of International Entry Mode

Strategic
Strategic Alliances
Alliances
Enable firms to shares risks and resources to expand into
international ventures
Most joint ventures (JVs) involve a foreign company
with a new product or technology and a host company
with access to distribution or knowledge of local
customs, norms or politics
May experience difficulties in merging disparate
cultures
May not understand the strategic intent of partners or
experience divergent goals

Choice of International Entry Mode

Acquisitions
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 and costly negotiations
Potentially disparate corporate cultures

Choice of International Entry Mode

New Wholly-Owned Subsidiary
Most costly and complex of entry alternatives
Achieves greatest degree of control
Potentially most profitable, if successful
Maintain control over technology, marketing
and distribution
May need to acquire expertise and knowledge
that is relevant to host country
Could require hiring host country
nationals or consultants at high cost

International Strategy Opportunities and Outcomes

Identify
International
Opportunities

Explore
Resources and
Capabilities

Use Core
Competence

International

Modes of
Entry

Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage

International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy

Strategic
Competitiveness
Management
Outcomes
Problems
and Risk

Exporting
Higher
Performance
Returns

Exporting
Strategic
Alliances
Acquisition

Innovation

Establishment of
New Subsidiary
Management
Problems
and Risk

Strategic Competitiveness Outcomes

International diversification facilitates innovation in
the firm
Provides larger market to gain more and faster returns
form investments in innovation
May generate resources necessary to sustain a largescale 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

International Strategy Opportunities and Outcomes

Identify
International
Opportunities

Explore
Resources and
Capabilities

Use Core
Competence

International

Modes of
Entry

Strategies
Increased
Market Size
Return on
Investment
Economies of
Scale and
Learning
Location
Advantage

International
Business-Level
Strategy
Multidomestic
Strategy
Global
Strategy
Transnational
Strategy

Strategic
Competitiveness
Management
Outcomes
Problems
and Risk

Exporting
Higher
Performance
Returns

Exporting
Strategic
Alliances
Acquisition

Innovation

Establishment of
New Subsidiary
Management
Problems
and Risk

Major Risks of International Diversification

Political Risk
Rebel fighting in Chechnya (Russia) and
Liberia (Africa)
Continual warfare among Middle Eastern nations
Potential renationalization of privatized enterprises
in Russia
Failure of European Community in quest for
economic superpower status because of intercountry
disagreements

Major Risks of International Diversification

Economic Risk
Mexicos effect on world trade with low wages and high
quality but strong currency risks
Chinas difficulty in enforcing intellectual property rights
on CDs, software, etc.
Germanys struggle with high unemployment, high
interest rates, sagging competitiveness, and cuts in social
programs
Chinas trade policies. $44 billion trade surplus with
United States in 1977. Chinas overall trade surplus
increased twentyfold in first half of 1997.

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