INTRODUCTION: MOTIVATION AND

DEFINITION – WHAT IS INTERNATIONAL

STRATEGY?

CHALLENGE
Not so long ago, three books arrived on my desk on the same day. Each is by a
well-respected academic author, and each is replete with endorsements from success-
ful executives. All are zealous, almost messianic, in their advocacy of a particular
approach to international strategy. One proclaims that the only successful interna-
tional strategy is to be “globally dominant” (Govindarajan and Gupta, 2001). Another
argues instead that there is an absolute requirement to transform corporations “from
global to metanational” (Doz et al., 2001). The third states in no uncertain terms that
the other two are wrong, and that when dealing with “the end of globalization” the
only viable strategy is “to profit from the realities of regional markets” (Rugman, 2005).
What are reasonable managers supposed to think, let alone do, when faced with such
vehemently argued, yet contradictory, advice?
The answer is simple. All three authors are correct. And all three authors are wrong.
Each is promulgating a strategy that is sensible – that can lead to competitive advantage
and international success under the appropriate circumstances. All are badly overstat-
ing their case by arguing that every company should pursue their particular recom-
mendation. In the vernacular of the racetrack, the real answer is that there are “horses
for courses.” There is no one right international strategy that is best for every firm
under every circumstance. Instead there is a set of strategies, each of which can be
very powerful and successful, if chosen at the right time for the right industry, and if
implemented effectively.
Indeed the lesson of this book is that implementing any one international strategy
successfully is more important than blindly pursuing the “ideal” strategy that the cur-
rent management guru is advocating. The challenge for most managers is not to choose
the single best international strategy, but to align the answers to four fundamental
questions that all firms which compete internationally confront: in which countries to

1
 compete; what product variation to allow around the world; where to locate activities;
and how to organize the multinational to be consistent with the underlying advantage
they are building around the world? It is the orientation of this book, first, around the
underlying sources of advantage that firms can exploit by virtue of competing inter-
nationally, and then around the four critical choices that come up every day in every
firm competing across borders, that differentiates this text from so many others. It is
a pragmatic handbook for managers, not a manifesto for leaders. And that is its value.

MOTIVATION
A large global financial services firm recently acquired the international operations of
a competitor for nearly $15 billion. The acquisition doubled the firm’s international
presence and brought with it operations in nearly 30 countries, an expanded product
range, and an organization with a global headquarters in the USA and several regional
offices.
As with all effective acquisition processes, the company required a detailed post-
merger integration plan to address the myriad decisions involved in combining two
entities, ranging from the choice of IT platforms to personnel appointments and
compensation. Yet none of the individual integration projects could begin until the
acquirer had articulated the overall international strategy for the company going for-
ward. Without a strategic direction, teams would lack clear objectives and guiderails
for their work, and might even propose conflicting plans.
Consider that the combined entity had a presence in 64 countries ranging from
the tiny (Nepal and Jamaica), through the emerging (India and China), to the sub-
stantial (USA and Japan). Which of these countries should be exited, and how should
resources be allocated among those retained? What should the company’s final geo-
graphic footprint look like if it sought to balance mature but profitable markets with
fast-growing but investment-needy developing countries? A 64-nation portfolio, for
example, would have very different implications than a choice to focus on driving rev-
enue to more than $1 billion in each of 10 nations.
As the provider of a range of financial products sold through multiple distribution
channels, the firm also had to decide its future product portfolio. Retirement products
with onerous capital requirements had been the core of sales in mature geographies.
In contrast, simple life insurance products were in strong demand in rapidly growing
markets. Distribution also varied around the globe from banc-assurance in Europe to
owned agency in China. Which should be pursued where? And, more important, to
what degree should those products and channels be allowed to vary between coun-
tries? Would there be strict limits on what could and could not be sold, and by which

2 International Strategy
method, around the world? Or would country managers be given autonomy to select
from a substantial product range those few appropriate to their own market?
Unlike a manufacturing firm for whom optimizing the location and configuration
of factories is typically a major source of value creation, the location of most activ-
ities in the combined entity, such as sales, was not in question since they had to be
performed close to the customer. Even the location of functions outsourced to low
labor-cost countries, like call centers and software development, were not contentious
as both entities had been pursuing similar approaches. Nevertheless, certain location
choices did arise. Each entity had a well-recognized brand, but their geographic foot-
prints now overlapped. Deciding which brand name should be chosen, and whether
corporate marketing based in the USA would have sole responsibility for driving the
new positioning and advertising worldwide, was, therefore, critical.
Finally, the acquired firm had been run as a series of country fiefdoms with
each country manager held accountable for aggressive growth and profit targets, but
allowed to pursue whatever actions were deemed necessary to deliver results. The
acquirer had a more centralized structure, with a relatively large head office and more
direct influence over each country. How should the combined entity be organized
going forward? What role should the global headquarters play? Should the company
perhaps be divided regionally, rather than, as historically, split between US and inter-
national units?

CRITICAL CHOICES
Hopefully these questions that this firm was wrestling with will resonate with the
reader. It is the tough choices they raise that confront executives of every multina-
tional every day. Importantly, they cannot be answered independently but must be
resolved in a consistent fashion. That is the reason that companies need an interna-
tional strategy, and laying out a framework for developing such a strategy and applying
it to answer these choices is the task of this book.
Central to that framework will be the notion of how the firm creates value by virtue
of its international activities – of what advantage it exploits in order to triumph in
international competition. Without this guiding principle to align answers to those
difficult strategic decisions, the firm is doomed to underperform.
Importantly, the international advantage that multinationals create is not the cost
leadership, focus, or differentiation that many are familiar with from the competi-
tive positioning approach to business unit strategy. That the firm has a favorable ini-
tial position in the marketplace is taken for granted. The question for international
strategy is not whether we should be low cost or differentiated. It is how international

Introduction 3
 activities contribute to the further realization of whatever advantage has already been
chosen. If we seek to win in the marketplace by being low cost, how can the selection
of products we offer around the world and the location of our manufacturing facilities
contribute to furthering our low-cost position? If we have a unique product or capa-
bility in our home country, in which other countries can we successfully exploit that
range of products or capabilities, and how do we structure the firm to continuously
transfer our new innovations around the globe?

DEFINITION OF INTERNATIONAL STRATEGY

So what are the elements of an international strategy? Here goes … But be aware that
the full meaning of this definition of international strategy as specifying how the multi-
national creates value across countries, and what principles and constraints guide
decisions in every part of the organization, will only become apparent as you read
more of the text.
Every strategy must fulfill two purposes. The first is to identify how the firm creates
value by capturing a strategic sweet spot where its capabilities satisfy a set of customer
needs in a way that competitors cannot – external positioning. The second is to estab-
lish the boundaries and guiding principles for the organization, so that each and every
individual and department know the choices they should make to support the chosen
positioning – internal alignment. Setting these bounds empowers front line employees
and allows the organization to delegate decisions, secure in the knowledge that they
will work synergistically to achieve the global optimum.
Since the strategy needs to be effectively communicated in order to be implemented,
these principles should be captured in a succinct statement identifying a firm’s (O)
objective, (S) scope, and (A) advantage (Collis and Rukstad, 2008).
The Objective is (ideally) the single metric that will drive behavior throughout the
multinational and for which senior management will be held accountable.
Scope defines the broad domain in which the firm will operate – typically a defi-
nition of the core business model that will be deployed throughout the world. It then
describes the boundaries to the multinational’s product market presence – the con-
straints on the range of products it will offer, and the limits to the geographies in which
it will operate.
The Advantage element is more complex. In the international context it is impos-
sible to describe a customer-facing value proposition in detail because the exact man-
ifestation of the business often differs between countries. Instead, the international
advantage identifies the asset stocks which the firm leverages to create value across
countries – what the international business literature calls firm-specific advantages

4 International Strategy
(FSAs), and the strategy field calls resources (from the resource-based view of the
firm). To achieve the internal alignment of activities, the advantage then describes
how the firm is configured to leverage those resources internally. This identifies the
countries whose factor markets it will exploit, and how the firm will be organized to
realize value from its resources.
Note that the four fundamental strategic decisions are answered by the scope and
advantage elements of the strategy statement. Scope addresses the choice of what prod-
uct to offer and in which countries to compete. Advantage covers where to locate activ-
ities and how to organize the firm.
If this sounds difficult, rest assured that it can be done. Reading the rest of this
book will help you do so and will describe in detail the ideas just introduced. For the
moment let us examine an international strategy statement that captures these ideas
in 100 words or less and that could be applied to the company mentioned earlier (more
examples and their deconstruction are given in Chapter 5). A complete version of the
strategy includes a detailed deconstruction of this statement – typically a few pages
long – that elucidates the full meaning behind each phrase and provides detail behind
the cryptic summary of “a balanced set of larger countries.” The short statement is,
however, useful in clarifying management thinking and as the vehicle for organization-
wide communication.

International Strategy Statement

Global Insurance Company

OBJECTIVE: To generate 40% of corporate earnings from international activities by
2016, with over $100 million of earnings from six markets.

SCOPE: Providing broad-based solutions for protection and savings needs to

middle-income consumers with outstanding service levels
r through locally appropriate products and channels
r in a balanced set of larger countries where we can achieve competitive scale

ADVANTAGE: Leveraging our underwriting, asset/liability management, and

multichannel distribution and marketing capabilities to build strong local market shares
with
r local distribution and marketing, supported by global IT and product development,
within
r a regional organization structure

Introduction 5
 If you think this statement offers valuable guidance to those working in the organi-
zation, then the strategy has served its purpose. I would like everyone who completes
this book to be able to come up with a similar strategy statement for their multina-
tional. That is my promise, and your challenge!

REFERENCES AND FURTHER READING

Bartlett, C.A. and Ghoshal, S. (2002) Managing Across Borders: The Transnational Solution, 2nd
edition. Harvard Business School Press: Boston, MA.
Collis, D. and Rukstad, M. (2008) Can you say what your strategy is? Harvard Business Review,
86(4), 82–90.
Doz, Y.L., Santos, J., and Williamson, P. (2001) From Global to Metanational: How Companies
Win in the Knowledge Economy. Harvard Business Publishing: Boston, MA.
Ghemawat, P. (2007) Redefining Global Strategy: Crossing Borders in a World Where Differences
Still Matter. Harvard Business Review Press: Boston, MA.
Govindarajan, V. and Gupta, A.K. (2001) The Quest for Global Dominance: Transforming
Global Presence into Global Competitive Advantage. Jossey-Bass: San Francisco.
Rugman, A.M. (2001) The End of Globalization: Why Global Strategy Is a Myth & How to Profit
from the Realities of Regional Markets. American Management Association: New York.
Rugman, A.M. (2005) The Regional Multinationals. Cambridge University Press: Cambridge.

6 International Strategy