International Strategy

How do we become a
Global Corporation?
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 Opportunities and Outcomes of
International Strategy
Identify International Explore Resources Use Core
Opportunities and Capabilities Competence
International
Strategies Modes of Entry

Increased market International Exporting

size business-level
strategy Licensing
Return on
investment Multidomestic Strategic
strategy alliances
Economies of
scale and learning Global strategy Acquisitions

Advantage in Transnational Establishment of

location strategy a new subsidiary
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 International Strategy Life Cycle
Product Demand Foreign
Develops and Firm Competition
Exports Products Begins Production
Selling Products
or Services
Firm Introduces Outside a Firm’s
Firm Begins
Innovation in Domestic Market Production Abroad
Domestic Market

Production Becomes
Standardized and is
Relocated to Low
Cost Countries 3
Motivations for International
Expansion
 Increase Market Share
– domestic market may lack the size to support
efficient scale manufacturing facilities

 Return on Investment
– large investment projects may require global
markets to justify the capital outlays
– weak patent protection in some countries implies
that firms should expand overseas rapidly in order
to preempt imitators

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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 5
International Business-Level Strategy:
Determinants of National Advantage
Factors of
production

Firm strategy,
Demand
structure, and
conditions
rivalry

Related and
supporting
industries
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 International Business-Level Strategy:
Determinants of National Advantage
Factors of production:
the inputs necessary to compete in any industry

 basic factors include natural and labor resources

– land
– labor
– capital
– natural resources

 advanced factors include digital communication

systems and educated workforce
– technology
– infrastructure 7
 International Business-Level Strategy:
Determinants of National Advantage
Demand conditions:
the nature and size of buyers’ needs in the
home market for the industry’s goods or
services

– size of 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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International Business-Level Strategy:
Determinants of National Advantage
 Related and supporting industries:
supporting services, facilities, suppliers
and so on
– support in design

– support in distribution

– related industries as suppliers and buyers

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International Business-Level Strategy:
Determinants of National Advantage
 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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 International Corporate-Level
Strategy
 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
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International Corporate-Level
Strategy
Need for Global Integration
High

Global Transnational
strategy strategy

Multidomestic
strategy

Low

Low High
Need for Local Responsiveness 12
 International Corporate-Level
Strategy: Multidomestic Strategy
• Strategy and operating decisions are decentralized to
strategic business units (SBU) in each country
Multidomestic
strategy • 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

Examples:
Unilever, • Focus on competition in each market
Breweries
• Prominent strategy among European firms due to
broad variety of cultures and markets in Europe
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 International Corporate-Level
Strategy: Global Strategy
• Products are standardized across national
markets
Global
strategy • Decisions regarding business-level strategies are
centralized in the home office

• Emphasizes economies of scale

Examples: • Often lacks responsiveness to local markets
Cemex,
Computer • Requires resource sharing and coordination
Hardware across borders (which also makes it difficult to
manage)
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 International Corporate-Level
Strategy: Transnational Strategy
• Seeks to achieve both global efficiency and local
responsiveness
Transnational
strategy • Difficult to achieve because of simultaneous
requirements
 strong central control and coordination to
achieve efficiency
 decentralization to achieve local market
Examples: responsiveness
Fast Foods,
Wal-mart • Must pursue organizational learning to achieve
competitive advantage

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 Global Market Entry: Choice of
Entry Mode
Type of Entry
Exporting
Licensing

Strategic alliances

Acquisition

New wholly owned

subsidiary
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Choice of International Entry Mode
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 17
Choice of International Entry Mode
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 18
Choice of International Entry Mode
Strategic 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 19
Choice of International Entry Mode
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

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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
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Risks in an International
Environment

Political Risks Economic Risks

• instability in national governments

• war, both civil and international

• potential nationalization of a firm’s resources

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 Risks in an International
Environment

Political Risks Economic Risks

Economic risks are interdependent from political risks and can

include:
• differences and fluctuations in the value of different currencies
• differences in prevailing wage rates
• difficulties in enforcing property rights
• unemployment
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