By: Akbar-The Great

The term International Strategy can be defined as,

Trying to create value by transferring core competencies to foreign markets where indigenous competitors lack those competencies.

Mainly for three reasons firms go international

Lower Production cost

E.g. :- Clothing, Electronics, watch making.

To secure needed resources E.g.:- Gems & Jewellery (Europe:- Roseyblu, Eurostar), Minerals and Energy

To extend a product`s life cycle

E.g.:- Coca-Cola (Japan)

Following are the benefits of international strategies:

Increased market size Return on Investment Economies of Scale Location advantage

Expand the size of potential market Ex. General motors- Asia, Pharmaceutical- China

International strategy is particularly an attractive option to firms competing in domestic markets that have limited growth opportunities.
Ex. Pepsi & coca-cola entering Japanese market. Larger markets usually offer higher potential returns thus investments can be made in R&D.

Ex. Ranbaxy in Africa

Large markets can help a firm to earn proper return on investments such as plant & machinery or R&D. Ex. Electronics Due to Reverse Engineering, products are imitated easily so international expansion provide large market to get proper return on investments. Ex. Pharmaceuticals Above average return on Investments

Economies of scale:- Refers to reduction in unit cost by producing a large volume of a product Firm can standardize products across country Borders Ex. Auto industry-China Allow price their product competitively to gain market share Exploit core competencies in international markets

Easier access to Lower cost- labor, energy and natural resources Access to critical suppliers and to customers Ex.: GM- Asia ,China Once positioned favorably with an attractive location, firms must manage their facilities effectively to gain the full benefit of a location advantage.

International Business Level Strategies

International low cost International differentiation International focused International integration low cost/Differentiation

International Corporate Level Strategies

Multi-domestic Strategy Global Strategy Transnational Strategy

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

E.g.: Mc Donald's.

International Differentiation
Countries with advanced or specialized factor conditions most likely to use this strategy E.g.: Mercedes.

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 E.g..: Johnsons & Johnsons.

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

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
Multi-Domestic Strategy Global Strategy Transnational 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

E.g. Coca-Cola

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 Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage)

E.g. Apple Inc.

Seeks to achieve both global efficiency and local responsiveness

E.g. Nokia

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

Exporting Licensing Strategic Alliance Acquisition New wholly owned subsidiary

E.g. Zealot Pharmaceuticals

Common way to enter new international markets. No need to establish operations in other nations 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 product.

E.g. Dominos pizza

Firm authorizes another firm to manufacture & 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 & distribution. Relatively low profit potential.

E.g. Bharti AXA

Mode Enable firms to shares risks and resources to expand into international ventures Most joint ventures (JVs) involve a foreign corp. with a new product or technology & 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 o. f partners or experience divergent goals.

E.g. Vodafone-Hutch Essar

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 culture.

Most costly & 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 & knowledge that is relevant to host country.

E.g. Dabur international have an subsidiary in Sri Lanka named Dabur Lanka.

International diversification and returns International diversification and innovation Complexity of managing multinational firms

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

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

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

1. POLITICAL RISK
National government instability may create potential

problems for internationally diversified firms. foreign ownership. become invalid.

Potential changes in attitudes or regulations regarding

Legal authority obtained from previous administration may

Potential for nationalization of firms assets.

 Economical risks are interdependent with political risks.

Differences and fluctuations in international currencies may affect value of assets & liabilities.

This affects prices & thus ability to compete.

Differences in inflation rates may affect inter-nationally diversified firms ability to compete. Enforcing intellectual property rights on CDs, software, etc.