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CHAPTER 7

International Strategy:
Creating Value in Global
Markets

© 2021 McGraw Hill. All rights reserved. Authorized only for instructor use in the classroom.
International Strategy: Globalization

Globalization has to do with the rise of market

capitalization around the world.
.

•
International exchanges have increased.
•

•
Trade in goods and services.
•
Exchange of money, information, and ideas.
•
Laws, rules, norms, values, and ideas are growing
more similar across countries.
Challenges include balancing between emerging
markets and developed markets.
.
Factors Affecting a Nation’s Competitiveness

Michael Porter’s diamond of national advantage

explains why some nations and their industries
outperform others.
.

• Factor endowments.
• Demand conditions.
• Related and supporting industries.
• Firm strategy, structure, and rivalry.
Factors Affecting a Nation’s Competitiveness: Factor
Endowments
Factor endowments involve factors of production.
.

•
Land.
•
Capital.
•
Labor.
Factors of production must be industry and firm
specific.
.

•
Must be rare, valuable, difficult to imitate, and
rapidly and efficiently deployed.
Factors Affecting a Nation’s Competitiveness:
Demand Conditions
Demand conditions refer to the demands that
consumers place on an industry.
Demanding consumers drive firms in that
country to:
.

•
Meet high standards.
•
Upgrade existing products and services.
•
Create innovative products and services.
•
Better anticipate future global demand.
•
Proactively respond to product and service
requirements.
Factors Affecting a Nation’s Competitiveness: Related
and Supporting Industries

Related and supporting industries enable firms to

manage inputs more effectively via:
.

•
A competitive supplier base.
•

•
Reduces manufacturing costs.
•
Close working relationships with suppliers.
•

•
Allows for joint research and development.
•
Development of related industries.
•

•
Forces existing firms to practice cost control,
Factors Affecting a Nation’s Competitiveness: Firm
Strategy
Firm strategy, structure, and rivalry affect
competitiveness via:
.

•
Strong consumer demand.
•
Strong supplier base.
•
High new entrant potential from related
industries.
Domestic rivalry leads to a search for new
markets.
Intense domestic competition is a strong
indicator of global competitive success.
 Example: Factors Affecting a Nation’s
Competitiveness

Exhibit 7.1
India’s
Software
Diamond
Source: From Kampur
D., and Ramamurti
R., “India’s Emerging
Competition
Advantage in
Services,” Academy of
Management Executive:
The Thinking Managers
Source. Copyright ©
2001 by Academy of
Management.

Access the text alternative for slide images.

Question 1

All of the factors below have made India’s

software services industry extremely
competitive on a global scale except:
A.

A. a large pool of skilled workers.

B. a large network of public and private
educational institutions.
C. tax and antitrust legislation that protect the
dominant players in the industry.
D. a large, growing market, and sophisticated
customers.
 Brandon’s Note

I. Go international???
II.
International Expansion: Motivations 1

A company pursues international expansion for

many reasons. A company decides to become a
multinational firm in order to:
.

•
Increase size of potential markets.
•

•
Attain economies of scale.
•
Take advantage of arbitrage opportunities.
•

•
Applied to every stage of the value chain.
•
Enhance a product’s growth potential.
•

•
Reinvigorate the product life cycle.
•
Explore reverse innovation
International Expansion: Risks 1

Multinational firms also encounter risks.

.

•
Political risk due to social unrest, military
turmoil, demonstrations, terrorism, absence of
the rule of law can lead to:
•

•
Destruction of property.
•
Disruption of operations.
•
Non-payment for goods and services.
•
Arbitrary government decisions.
•
Economic risk due to piracy and counterfeiting.
 International Expansion: Risks 2

Multinational firms also encounter other risks.

.

•
Currency risk due to fluctuations in the local
currency’s exchange rate.
•

•
Affects cost of production or net profit.
•
Management risk due to culture, customs,
language, income level, customer preferences,
distribution systems.
•

•
Could lead to the need for local adaptation of
apparently standard products.
Interesting Info (Brandon’s Search)

List of National Legal Systems

List of national legal systems – Wikipedia

Corruption Perception Index

Corruption Perceptions Index – Wikipedia

Hofstede’s National Culture Dimensions

The 6 dimensions model of national culture by Geert Hofstede