Chapter 8

International Strategy
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 Learning Objectives
Studying this chapter should provide you with
the strategic management knowledge needed to:
1. Explain incentives that can influence firms to use an international strategy.
2. Identify three basic benefits firms achieve by successfully implementing an
international strategy.
3. Explore the determinants of national advantage as the basis for
international business-level strategies.
4. Describe the three international corporate-level strategies.
5. Discuss environmental trends affecting the choice of international
strategies, particularly international corporate-level strategies.
6. Explain the five modes firms use to enter international markets.
7. Discuss the two major risks of using international strategies.
8. Discuss the strategic competitiveness outcomes associated with
international strategies particularly with an international diversification
strategy.
9. Explain two important issues firms should have knowledge about when
using international strategies.
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Opportunities and Outcomes of International
Strategy

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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

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Classic Rationale for International Diversification:
Extend a Products 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

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 International Strategy Benefits

Increased Market Size

Domestic market may lack the size to support efficient
scale manufacturing facilities.

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

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International Strategy Benefits (contd)

Location Advantages
Low cost markets aid in developing competitive
advantage by providing access to:
raw materials
transportation
lower costs for labor
key customers
energy

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Incentives and Basic Benefits of International
Strategy

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 Determinants of National Advantage

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 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
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 Determinants of National Advantage
(contd)

Demand Conditions
Characterized by the nature and size of buyers needs
in the home market for the industrys 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.

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 Determinants of National Advantage
(contd)

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

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 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.

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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.

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International Corporate-Level Strategy

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 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.
Multi-domestic
strategy

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 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).
Global Strategy

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 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.
decentralization to achieve local market responsiveness.
pursuit of organizational learning to achieve competitive
advantage.

Transnational
Strategy

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 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

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 Environmental Trends

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Choice of International Mode of Entry

Whats the best solution?

Situation Optimal Solution
The firm has no foreign Exporting
manufacturing expertise
and requires investment
only in distribution.

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Choice of International Mode of Entry

Whats the best solution?

Situation Optimal Solution
The firm needs to Licensing
facilitate the product
improvements
necessary to enter
foreign markets.

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Choice of International Mode of Entry

Whats the best solution?

Situation Optimal Solution
The firm needs to Strategic Alliance
connect with an
experienced partner
already in the targeted
market and to reduce its
risk through the sharing
of costs.

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Choice of International Mode of Entry

Whats the best solution?

Situation Optimal Solution
The firm is facing Strategic Alliance
uncertain situations
such as an emerging
economy in its targeted
market.

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Choice of International Mode of Entry

Whats the best solution?

Situation Optimal Solution
The firm needs rapid Acquisitions
cross-border access to
new international
markets

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Choice of International Mode of Entry

Whats the best solution?

Situation Optimal Solution
The firms intellectual Wholly-owned
property rights in an Subsidiary
emerging economy are
not well protected, the
number of firms in the
industry is growing fast,
and the need for global
integration is high.

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Risks in an International Environment

Political Risks Economic Risks

Instability in national Differences and
governments fluctuations in the value of
War, both civil and different currencies
international Differences in prevailing
Potential nationalization of wage rates
a firms resources Difficulties in enforcing
property rights
Unemployment
? ?
?
?
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International Diversification and Returns

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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 firms 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.

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 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

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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.

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 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

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