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01Summary of Chapter

20. For some companies, international expansion represents a way of earning greater returns by transferring the skills and product offerings derived from their distinctive competencies to markets where indigenous competitors lack those skills. As barriers to international trade have fallen, industries have expanded beyond national boundaries and industry competition and opportunities have increased. 30. ecause of national differences, it pays a company to base each value creation activity it performs at the location where factor conditions are most conducive to the performance of that activity. !his strategy is known as focusing on the attainment of location economies. "0. y building sales volume more rapidly, international expansion can help a company gain a cost advantage through the reali#ation of scale economies and learning effects. $0. !he best strategy for a company to pursue may depend on the kind of pressures it must cope with% pressures for cost reductions or for local responsiveness. &ressures for cost reductions are greatest in industries producing commodity'type products, where price is the main competitive weapon. &ressures for local responsiveness arise from differences in consumer tastes and preferences, as well as from national infrastructure and traditional practices, distribution channels, and host government demands. (0. )ompanies pursuing an international strategy transfer the skills and products derived from distinctive competencies to foreign markets, while undertaking some limited local customi#ation. *0. )ompanies pursuing a locali#ation strategy customi#e their product offering, marketing strategy, and business strategy to national conditions.

+0. )ompanies pursuing a global standardi#ation strategy focus on reaping the cost reductions that come from scale economies and location economies. ,0. -any industries are now so competitive that companies must adopt a transnational strategy. !his involves a simultaneous focus on reducing costs, transferring skills and products, and being locally responsive. .mplementing such a strategy may not be easy. /00. !he most attractive foreign markets tend to be found in politically stable developed and developing nations that have free market systems.//0. 0everal advantages are

associated with entering a national market early, before other international businesses have established themselves. !hese advantages must be balanced against the pioneering costs that early entrants often have to bear, including the greater risk of business failure. /20. 1arge'scale entry into a national market constitutes a ma2or strategic commitment that is likely to change the nature of competition in that market and limit the entrant3s future strategic flexibility. !he firm needs to think through the implications of such commitments before embarking on a large'scale entry. Although making ma2or strategic commitments can yield many benefits, there are also risks associated with such a strategy. /30. !here are five different ways of entering a foreign market% exporting, licensing, franchising, entering into a 2oint venture, and setting up a wholly owned subsidiary. !he optimal choice among entry modes depends on the company3s strategy. /"0. 0trategic alliances are cooperative agreements between actual or potential competitors. !he advantages of alliances are that they facilitate entry into foreign markets, enable partners to share the fixed costs and risks associated with new products and processes, facilitate the transfer of complementary skills between companies, and help companies establish technical standards.

/$0. !he drawbacks of a strategic alliance are that the company risks giving away technological know'how and market access to its alliance partner while getting very little in return. /(0. !he disadvantages associated with alliances can be reduced if the company selects partners carefully, paying close attention to reputation, and structures the alliance so as to avoid unintended transfers of know'how.