Chapter

Chapter 8
8

International Strategy

Michael
Michael A.
A. Hitt
Hitt
R.
R. Duane
Duane Ireland
Ireland
Robert
Robert E.
E. Hoskisson
Hoskisson

©2000 South-Western College Publishing

Ch8
 Chapter 2
Strategic External
Environment
The Strategic
Management
Inputs
Strategic Intent
Strategic Mission
Chapter 3
Internal
Environment
Process

Strategy Formulation Strategy Implementation

Chapter 4 Chapter 5 Chapter 6 Chapter 10 Chapter 11

Business-Level Competitive Corporate-Level Corporate Structure
Strategic
Actions

Strategy Dynamics Strategy Governance & Control

Chapter 7 Chapter 8 Chapter 9 Chapter 12 Chapter 13

Acquisitions & International Cooperative Strategic Entrepreneurship
Restructuring Strategy Strategies Leadership & Innovation
Outcomes
Strategic

Strategic
Competitiveness
Above Average
Feedback
Returns
Ch8
International Strategy Opportunities and Outcomes
Identify Explore Use Core Strategic
International Resources and Competence Competitiveness
Opportunities Capabilities Management Outcomes
Problems
International Modes of and Risk
Strategies Entry
Increased International Exporting
Market Size Business-Level Higher
Strategy Exporting Performance
Return on
Investment Multidomestic Returns
Strategic
Strategy
Economies of Alliances
Scale and Global
Acquisition
Learning Strategy
Innovation
Location Transnational Establishment of
Advantage Strategy New Subsidiary

Management
Problems
and Risk
Ch8
 International Strategy Lifecycle
Selling Products or Services Outside a Firm’s Domestic Market

2 Product Demand
Develops and
Firm Exports
Products
1 Firm Introduces
3 Foreign
Innovation in
Domestic Market Competition
Begins Production

5 Production Becomes
Standardized and is 4
Relocated to Low Cost Firm Begins
Countries Production Abroad
Ch8
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
Ch8
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 Ch8
Porter’s Determinants of National Advantage
Home Country of Origin Is Crucial to International Success

Related & Supporting

Industries
- Japanese cameras & copiers
Factor Conditions - Italian shoes & leather
Basic Factors
- Land, labor Demand
Advanced Factors Conditions
- Highly educated workers Home country may
- Digital communications support scale efficient
Generalized Factors operations by itself
- Capital, infrastructure
Specialized Factors Firm Strategy, Structure &
- Skilled personnel Rivalry
Intense rivalry fosters
industry competition
Ch8
International Strategy Opportunities and Outcomes
Identify Explore Use Core Strategic
International Resources and Competence Competitiveness
Opportunities Capabilities Management Outcomes
Problems
International Modes of and Risk
Strategies Entry
Increased International Exporting
Market Size Business-Level Higher
Strategy Exporting Performance
Return on
Investment Multidomestic Returns
Strategic
Strategy
Economies of Alliances
Scale and Global
Acquisition
Learning Strategy
Innovation
Location Transnational Establishment of
Advantage Strategy New Subsidiary

Management
Problems
and Risk
Ch8
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.

Ch8
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
Ch8-
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

Multi-Domestic Strategy
Three
Corporate Global Strategy
Strategies
Transnational Strategy
Ch8-
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
Ch8-
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)
Ch8-
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
Ch8-
International Corporate Strategy
When is each strategy appropriate?
High

Need for
Global
Integration

Multi-
Domestic
Low
Low High
Need for Local Market Responsiveness Ch8-
International Corporate Strategy
When is each strategy appropriate?
High

Global
Strategy

Need for
Global
Integration

Multi-
Domestic
Low
Low High
Need for Local Market Responsiveness Ch8-
International Corporate Strategy
When is each strategy appropriate?
High

Global Trans-
Strategy national

Need for
Global
Integration

Multi-
Domestic
Low
Low High
Need for Local Market Responsiveness Ch8-
International Strategy Opportunities and Outcomes
Identify Explore Use Core Strategic
International Resources and Competence Competitiveness
Opportunities Capabilities Management Outcomes
Problems
International Modes of and Risk
Strategies Entry
Increased International Exporting
Market Size Business-Level Higher
Strategy Exporting Performance
Return on
Investment Multidomestic Returns
Strategic
Strategy
Economies of Alliances
Scale and Global
Acquisition
Learning Strategy
Innovation
Location Transnational Establishment of
Advantage Strategy New Subsidiary

Management
Problems
and Risk
Ch8-
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
Ch8-
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
Ch8-
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
Ch8-
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

Ch8-
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
Ch8-
International Strategy Opportunities and Outcomes
Identify Explore Use Core Strategic
International Resources and Competence Competitiveness
Opportunities Capabilities Management Outcomes
Problems
International Modes of and Risk
Strategies Entry
Increased International Exporting
Market Size Business-Level Higher
Strategy Exporting Performance
Return on
Investment Multidomestic Returns
Strategic
Strategy
Economies of Alliances
Scale and Global
Acquisition
Learning Strategy
Innovation
Location Transnational Establishment of
Advantage Strategy New Subsidiary

Management
Problems
and Risk
Ch8-
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 large-
scale 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 Ch8-
International Strategy Opportunities and Outcomes
Identify Explore Use Core Strategic
International Resources and Competence Competitiveness
Opportunities Capabilities Management Outcomes
Problems
International Modes of and Risk
Strategies Entry
Increased International Exporting
Market Size Business-Level Higher
Strategy Exporting Performance
Return on
Investment Multidomestic Returns
Strategic
Strategy
Economies of Alliances
Scale and Global
Acquisition
Learning Strategy
Innovation
Location Transnational Establishment of
Advantage Strategy New Subsidiary

Management
Problems
and Risk
Ch8-
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
Ch8-
Major Risks of International Diversification
Economic Risk

Mexico’s effect on world trade with low wages and high

quality but strong currency risks

China’s difficulty in enforcing intellectual property rights

on CDs, software, etc.

Germany’s struggle with high unemployment, high

interest rates, sagging competitiveness, and cuts in social
programs

China’s trade policies. $44 billion trade surplus with

United States in 1977. China’s overall trade surplus
increased twentyfold in first half of 1997. Ch8-
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

Ch8-