International Business

Strategy

Moses Mudima, Associate Consultant

Uganda Management Institute
Tel: +256 753 008229, email: moses.mudima@bcmcorporate.com
September 2019

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Introduction
• Markets are becoming ever more international in their nature
• To achieve sustainable growth in markets that are becoming
increasingly global, or even to survive in domestic markets that
are increasingly attacked by international players, it is essential
that organisations understand the complexity and diversity of
international business strategy
• Managers must also develop the skills, aptitudes and
knowledge necessary to compete effectively around the globe

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International business strategy
• Strategy through which firm sells its goods or services
outside its domestic market
• Used as a growth strategy and also referred to as geographic
diversification
• Scope of international business strategy
oTypes of strategy: Multi-domestic, Global, or Transnational
oMode or means of entry
oStandardisation versus adaptation
oEthics and International Business
oMajor risks in International Business
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International Strategy framework

Drivers of Sources of
global competitive
business advantage

Market Mode of
Selection Entry
International
Strategy

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Domestic versus international markets
• Stable
• Predictable
DOMESTIC • Less complex
MARKETS • Globalization is reducing the
number of domestic-only markets

• Unstable
• Unpredictable
INTERNATIONAL • Complex and risky
MARKETS • Globalization is enabling global
markets to thrive

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 Increased complexity of International
business strategy
• Culture: often diverse and
multicultural markets
• Markets: widespread and
sometimes fragmented
• Data: difficult to obtain and often
expensive
• Politics: regimes vary in stability,
so political risk becomes an
important variable
• Governments: are a strong
influence in regulating importers
and foreign business ventures
• Economies: varying levels of
development and varying and
sometimes unstable currencies
• Finance: many differing finance
systems and regulatory bodies
• Stakeholders: commercial, home
country and host country
• Business: diverse rules, culturally
influenced
• Control: difficult to control and
coordinate across markets
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Factors driving international business
• Market drivers
oStandardisation of markets
oSimilar customer needs and tastes, global customers
oIncreased human migration, etc.
• Competitive drivers
oAdvances in information technology
oInternational financial flows

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Factors driving international business
(cont’d)
• Cost drivers
oEconomies of scale
oLower transport and communication costs
oTake advantage of country specific low costs
• Government drivers
oPolitical decisions toward de-regulation and liberalization of trade
oDevelopment of international institutions e.g. WTO, Regional
Trade Agreements like EAC …
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Reasons for international business strategy
• Potential new opportunities for growth
• Apply innovations in domestic market to foreign markets
• Extend product life cycle
• Secure needed resources
• Pressure for global integration and global brands
• Economies of scale
• Potential demand for products & services in foreign market
• Currency fluctuations and tariffs, etc.
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International business strategies
• Multi-domestic strategy: strategic & operating decisions are
decentralized to the strategic business unit in each country to
tailor products to the local market.
• Global strategy: assumes more standardization of products
across country markets
• Transnational strategy: seeks to achieve both global efficiency
and local responsiveness
• International strategy means focusing on exporting products
and services to foreign markets, or conversely, importing goods
and resources from other countries for domestic use.
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International business strategies (cont’d)

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International business: multi-domestic strategy
• Tailor products to each local market i.e. customized products to meet
local customers’ specific needs and preferences
• Strategic & operating decisions are decentralized to the strategic
business unit (SBU) in each country
• Focuses on competition within each country with different competitive
& business strategy in each market
• Assumes that markets differ and are segmented by country boundaries
• Deals with uncertainty due to differences across markets
• Think local and act local; addresses need for local responsiveness
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International business: global strategy
• Firm offers standardized products across country markets i.e. same
competitive and business strategy in all markets
• Competitive strategy and strategic decisions are centralized at HQ
• Involves interdependent SBUs operating in each country with HQ
attempting to achieve integration that adds to management
complexity
• Produces lower risk and emphasizes economies of scale but is less
responsive to local market opportunities
• Think global and act global i.e. addresses need for global integration
e.g. vehicle and electronic goods manufacturers
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International business: transnational strategy
• Seeks to achieve both global efficiency and local responsiveness
• Requires both global coordination and local responsiveness i.e.
flexible Coordination
• Challenging, but becoming increasingly necessary to compete in
international markets
• Growing number of global competitors increases need to lower costs
while greater information flow and desire for specialized products
pressures firms to differentiate and even customize products
• Tailor strategy where needed, also exploiting differences in cost and
quality of resources i.e. think global and act local
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 Advantages and disadvantages of the
international strategies
Strategy Advantages Disadvantages
Global Experience curve and Lack of responsiveness
location economies
International Low risk and cost hence Low learning and scale
goods for firms just go effects and low
international responsiveness
Multi-domestic Customisation of products to Low learning and scale
local needs and tastes effects and low transfer of
core competencies
Trans-national Combines benefits of global Costly implementation
and multi-domestics Costly management
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Market entry decisions
• Decision to go international should reflect an analysis of market
potential, company capabilities, and degree of involvement and
commitment management is prepared to make
• Approach to international business strategy can require minimal
investment (e.g. exporting) or companies could invest in assets
and management effort to capture and maintain permanent
presence in foreign markets; both approaches can be profitable.
• All foreign market entry strategies have advantages and
shortcomings; depending on company strengths and
weaknesses, and degree of commitment the company is willing
or able to make 16
Key decision criteria for mode of entry
• Market size and growth • Mode of entry into
• Risks associated with international markets
international strategy • Need for control
• Government regulations • Internal resources, assets
• Competitive environment and capabilities
• Local infrastructure • Flexibility, etc.
• Company objectives
• Timing of entry
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Risks in global environments
• Political Risks: Possibility of the disruption of operations
by political forces or events in host countries, home
country, or as a result of changes in the international
environment
• Economic Risks: Fundamental weaknesses in a country
or region's economy with the potential to cause adverse
effects on a firm's international strategies
• Management Problems: Larger more complex firms are
more difficult to manage
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Timing of Entry
• First-mover advantage:
o Preempt rivals and capture demand
o Build sales volume and market share
o Move down experience curve before rivals and achieve cost advantage
o Create switching costs
• Disadvantages:
o Pioneering costs i.e. costs early entrant bears that later entrant can avoid
o High risks due to uncertain nature of markets & high development costs
o Changes in government policy

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Timing of Entry (cont’d)
• The more difficult and costly an advantage to imitate the longer
the first-mover receives the benefit
• Late-movers respond to competitive actions but after time has
elapsed i.e. after first movers action and second movers response
• Late movers have some advantages too:
oImprove on offerings to meet desires and needs
oMore time to perfect & develop innovative goods

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Managing global expansion / modes of entry
• Modes of entry are the channels which organizations uses
to gain entry to new international markets
• Various options available for businesses:
oExporting (including e-commerce)
oLicensing & franchising
oStrategic alliances & Joint Ventures
oWholly owned subsidiaries
oMergers and acquisitions, etc.
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Modes of entry (cont’d)
Entry mode Advantages Disadvantages
Exporting High experience and location Transport costs, trade barriers
economies (tariff and non-tariff), and low
control
Licensing Low entry costs and for firm Low control, low learning and
reduced development costs creation of future competitor
Franchising Low entry costs and for firm Low control and creation of future
reduced development costs competitor
Joint Ventures Sharing of costs and knowledge, Shared ownership with related
and risk management problems
Alliances Sharing of costs and knowledge, Conflicting priorities
and risk management
Wholly owned High learning, protection of High costs and risks
subsidiaries knowledge
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 Sony TVs, Matsushita VCRs

Exporting
• Ship to another country for sale or exchange; it can be direct
(own company) or indirect (using existing distribution channels)
• Advantages are avoidance of cost of establishing operations and
helps achieve experience curve and location economies
• Disadvantages:
oMay compete with low-cost location manufacturers
oPossible high transportation costs
oTariff barriers
oPossible lack of control over marketing reps
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Direct marketing including electronic
commerce
• e-commerce is trading or facilitation of trading in products or
services using computer networks, such as Internet or online
social networks
• E-commerce businesses may employ some or all of the following:
oOnline shopping web sites for retail sales direct to consumers
oMarketing to prospective and established customers by e-mail
oOnline financial exchanges for currency exchanges or trading
purposes
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Licensing Euro-Disney Japan

• Organizations charge a fee and/or royalty for the use of its

technology, brand and/or expertise
• Licensor grants rights to intangible property to another entity for
a specified period of time in return
• Advantages:
oReduces development costs and risks of establishing foreign
firms (lack capital for venture, unfamiliar markets, etc.)
oOvercomes restrictive investment barriers, etc.
• Disadvantages include: lack of control, cross-border licensing
may be difficult, creating future competitor, etc.
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Franchising
• Franchisers sell intangible property and provides guidelines
for operating the business
• Franchising involves the franchiser providing to the
franchisee branding, concepts, expertise, and most facets
that are needed to operate in an overseas market
• In franchising, management tends to be controlled by the
franchiser.
• Main advantage is the reduced costs and risk of
establishing enterprise
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Joint Ventures (JV’s)
• JV’s tend to be equity-based
• New company is set up with parties owning proportion of the
new business i.e. companies pool resources to create a
separate business entity
• Advantages:
oBenefit from local partner’s knowledge i.e. access to technology,
core competencies, etc.
oShared costs and access to existing distribution and
manufacturing channels which reduces financial risks
oGain entry to a foreign market with reduced political risk
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Joint Ventures (cont’d)
• Disadvantages:
oRisk giving control of technology to partner
oMay not realize experience curve or location economies
oShared ownership can lead to conflict
• The main reasons for establishing joint ventures are:
oGovernment policy or legislation
oPartner needs another partner’s skills
oPartner’s needs another partner’s attributes or assets
• Key to JV’s is the sharing of common business objectives
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Strategic alliances
• Agreement between two or more parties to pursue agreed objectives
while remaining independent organizations
• Organisations share resources to undertake specific, mutually beneficial
projects
• It is less involved and less permanent than a joint venture
• Essentially, Strategic Alliances are non-equity based agreements i.e.
companies remain independent and separate
• Sometimes the relationships may even be between competitors,
examples include: Shared facilities e.g. code-sharing amongst airlines,
collaboration amongst higher education institutions, etc.
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Consortia
• Similar to JV’s except for two unique characteristics:
oTypically they involve a large number of participants
oFrequently they operate in a country or market in which none of the
participants is currently active
• Mainly developed for pooling financial and managerial resources and to
lessen risks
• Huge construction projects are ordinarily built under consortia
arrangements where contractors with different specialities form
separate company specifically to negotiate for and produce one job
• One firm usually acts as the lead firm or the newly formed corporation
may exist quite independently of its originators
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Wholly-owned subsidiaries
• Where a facility is fully owned and controlled by a single parent
company through foreign direct investment;
• Established by purchasing an existing facility or developing an
entirely new greenfield investment.
oAcquisitions
oGreenfield Operations
• Allow you to retain complete control of operations in your target
market, and to acquire and own valuable processes and
technologies
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Wholly-owned subsidiaries (cont’d)
• On downside, cost can be prohibitive for SME’s and risk
exposure is high especially because of substantial costs
involved
• In order to make rational decisions about extent of
ownership, management must evaluate extent to which
control is important to success of its international activities
• Increasingly, the international environment is hostile to full
ownership by multinational firms

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Mergers & Acquisitions
• To strategically position themselves for global
competitiveness, companies consolidate through mergers,
acquisitions and alliances to reach the scale considered
necessary to compete in the global arena
• A merger is a strategy through which two firms agree to
integrate their operations on a relatively co-equal basis
because they have resources and capabilities that together
may create a stronger competitive advantage.
Mergers & Acquisitions (cont’d)
• Acquisition is a strategy through which one firm buys a
controlling or 100% interest in another firm with the intent of
using a core competence more effectively by making the
acquired firm a subsidiary business within its portfolio.
• Cross-border acquisition occurs when a firm from one
country acquires a stake in or purchases 100% of a firm
located in another country
Exit or divestment decisions
• 2009 Chevron (commonly known as Caltex) left the East African
market and sold out to TOTAL
• 2011 Shell divested from the African market and sold majority
shares to Vivo Energy
• 2014 Orange Telekom exited the Uganda and sold to Africell
• 2015 British Airways exited the Uganda market
• 2017 AIG pulled out of the Uganda market
• 2017 has seen the exits of Nakumatt and Uchumi Supermarkets
• Etc.
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Why do companies exit global markets?
• Sustained losses: Companies may recognize that
investment payback is not feasible within initially projected
period and are unwilling to revise profit projection or unwilling
to continue to absorb losses or
• Difficulty in penetrating the market: Company may also
decide to withdraw on finding difficulties to penetrate the
market in host country
• Volatility: Company may have underestimated the risks of
the host country’s economic and political environment
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Why do companies exit global markets?
cont’d
• Premature entry: the entry-timing decision is a crucial matter,
entering a market too early can be an expensive mistake
• Ethical reasons: Companies that operate in countries with a
questionable human rights record often get a lot of criticism
• Intense competition: Intense rivalry is often another strong
reason for exiting a country
• Resource reallocation: Strategic review of foreign operations
often leads to a shake-up of the company’s country portfolio
leading to reallocation of resources across markets
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Exit decision risks to be considered
• Fixed costs of exit: Exiting often involves substantial fixed costs
e.g. severance package payments, long term contracts with
suppliers, etc.
• Damage to corporate image: Negative spill-over of a divestment
decision could also include damage to the firm’s corporate image
• Signal to other markets: Exiting one country or region may send
strong negative signals to other countries where the company
operate
• Nature of assets: Assets that are highly specialized to the particular
business or location for which they are being used also create an exit
barrier 38
Exit decision risks to be considered
(cont’d)
• Long-term opportunities: Although exit is sometimes the
only sensible thing to do, firms should avoid short-sightedness
• Some guidelines before making an exit decision could
include:
oContemplate and assess all options to salvage the
business
oIncremental exit
oMigrate customers, etc.
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International business ethical perspective
• Treat corporate values and formal standards as absolutes
• Design and implement conditions of engagement for service
providers, suppliers and customers
• Allow foreign business units to help formulate ethical
standards and interpret ethical issues
• In host countries, support efforts to decrease institutional
corruption
• Exercise moral imagination especially in determining what is
wrong or right
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International business ethics guiding
principles
• Respect for core human values, which determine the
absolute moral threshold for all business activities
• Respect for local traditions
• The belief that context matters when deciding what is right
and what is wrong
• Etc.

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1. One can argue that corporate governance is only relevant for large businesses
or those that have aspirations to compete on the global market; using relevant
illustrations from the Ugandan business setting justify the importance and
relevance of corporate governance for all business sizes
2. Do ethics really matter in business? Business is about a positive P & L to
continuously maximise shareholder value; everything else is secondary. Discuss
this statement using relevant illustrations from the Ugandan business setting
3. Economists always remind us that at the end of the day the main reason for
business is and has always been maximising shareholder value; so bearing this
in mind, is corporate social responsibility (CSR) really that important or is it
simply a fad?
4. The development of business strategies requires decision making on issues such
as goals and objectives, allocation of resources and how the strategy shall be
implemented. Using relevant illustrations discuss the main factors that can
influence successful strategy implementation and why many strategy initiatives
very often fail
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