Chapter 8: International Strategy summary

• An international strategy is a strategy through which the firm sells its goods or services
outside its domestic market.

The Tree Basic Benefits of an international strategy are:

1. Increased market size: higher potential returns and less risk

2. Economies of scale and learning: Create economies of scale, exploit core

competencies internationally, share knowledge between units, learning
opportunities and research and development (R&D)

3. Location advantages: reduce cost, easy access to lower cost labor, energy, natural
resources, customers. Manufacturing and distribution costs. The nature of
international customers’ needs. Cultural and formal country institutions (e.g., laws
and regulations)

Two types of basic international strategies:

• Business-level international strategy: Firms considering the use of any international

strategy first develop domestic-market strategies because some of the capabilities
and core competencies a firm has developed in its domestic market may possibly be
used as the foundation for competitive success in international markets.

The generic strategies of:

• Cost leadership

• Differentiation

• Focused cost leadership

• Focused differentiation

• Integrated cost leadership / differentiation

The four determinants of national advantage are: 1- Factor of production (labor, land, natural
rss) 2- Related and supporting industries, 3- Demand conditions, 4- Patterns of firm strategy,
structure, and rivalry

• Corporate-level international strategy: Is based partially on a firm’s international

business-level strategy and is used when a firm operates in different countries with
different products.

• There are three international corporate-level strategies:

1. Multi domestic: decentralized strategy, focuses on competition

in each country, best when difference between markets and
customers significant, less knowledge sharing, more cost and no
economies of scale.
 2. Global: economies of scale, customers have similar needs,
standardization of products, requires efficient operation to be
implemented.

3. Transnational: leverages a high level of local responsiveness and

a high level of global integration in its operations. It tries to
localize its offering to each global market while also
standardizing as much as possible.

• The three international corporate-level strategies vary in terms of two

dimensions:

1. The need for global

integration

2. The need for local

responsiveness

The trends influencing a firm’s choice and use of international strategies, particularly international
corporate-level strategies, are:

1. Liability of foreignness: unfamiliar operating environments, economic/ administrative

differences, challenges when coordinating over distances like cultural, administrative,
geographic, economic.
2. Regionalization: use international strategies in regions like EU, Asia, Latin America. Benefits,
when focusing on one region allow a better understanding of culture, market similarities can
allow coordination of resources.

• Firms can use one or more of five entry modes to enter international markets:

1. Exporting: High cost, low control

2. Licensing: Low cost, risk, control, and returns

3. Strategic alliances: shared risk, resources, risks, problems of integration (two

cultures)

4. Acquisitions: Quick access to new markets, high cost, complex negotiations,

problems of merging with domestic operations

5. New wholly owned subsidiaries/greenfield venture: Complex, costly, time

consuming, high risk, maximum control, potential above average returns
Firms can access in several ways for instance it can begin with exporting and eventually leading to
greenfield ventures.

• The two major categories of risks firms need to understand and address when diversifying
geographically through international strategies are:

1. Political risks; government regulation, corruption, conflicting authorities,

nationalization of private assets.

2. Economic risks: Terrorism, fluctuation of currencies, security risk.

International diversification strategy is a strategy through which a firm expands the sales of its
goods or services across the borders of global regions and countries into a potentially large number
of geographic locations or markets.

• Firms that are broadly diversified into multiple international markets usually achieve
the most positive stock returns. Factors to positive div:

• Private versus government ownership

• Potential economies of scale and experience

• Location advantages

• Increased market size

• The opportunity to stabilize returns

Challenges of an international strategy are:

Difficulty to manage firms size, greater operational complexity, different cultures and
practices, increase in coordination and distribution cost..