An international strategy is a strategy through which the firms sells its goods and services outsides its domestic market.

The importance of international strategy as a source of strategic competitiveness and above average return.
The basic reason for implementing an international strategy is that international markets yield potential new opportunity.


Mainly for three reasons firm go international Lower production cost

 

To secure needed resources Ex: minerals and energy (Tata power), backward integration
To extend product life cycle

INTERNATIONAL STRATEGY FOR PRODUCT LIFE CYCLE Firm Introduces Domestic Market Innovation in Product Demand Develops and Firm Exports Products Foreign Competition Begins Production Firm Begins Production Abroad Production Becomes Standardized and is Relocated to Low Cost Countries .

Expand the size of potential market Firms competing in domestic market has limited growth and opportunity. Ex: Pepsi & Coca-cola     .NEEDS FOR INTERNATIONAL EXPANSION   INCREASED MARKET SIZE Domestic market may lack the size to support efficient scale manufacturing facilities. Invest R&D to build competitive advantage.

New products become obsolete more rapidly . Ex: R&D . RETURN ON INVESTMENT  Large investment projects may require global markets to justify the capital outlays. imitation by competitors is more likely. new technologies are expanding and because of different patent laws across country borders. plant and capital    . Firms ability to develop . therefore investments need to be recouped more quickly.

Firms can standardized the product across the country border.    . ECONOMIES OF SCALE AND LEARNING  Economic of scale: refer to reduce unit cost by producing large volume of product. Exploit core competency in international market. Allow price their product competitively to gain market share .

 Sharing generates synergy which help the firm produced highly quality goods & services at lowest cost. Ex: Maruti udyog ltd & suzuki  .  Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing. R & D or distribution.

 LOCATION ADVANTAGES  Firms locate facilities in other countries to lower the basic costs of the goods or services they provide. May achieve easier access : Lower cost labor Energy Natural resources Supplier and customer Raw material       .

 . Location advantage help to earn positive return Helps in differentiation of product from competitors.

 Eg: WALLMART  .INTERNATIONAL BUSINESS LEVEL STRATEGY  The home country of operation is often the most important source of competitive advantage. The resources and capabilities established in the home country frequently allow the firm to pursue the strategy into markets located in other countries.

INTERNATIONAL STRATEGIES  • • • • Business level international strategy Cost leadership strategy Differentiation strategy Focused strategy Integrated low cost/differentiation Corporate level international strategy Multi domestic Global Transnational  • • • .

JAPAN  . • • • • INTERNATIONAL COST LEADERSHIP Usually located in home country Export to international market Low value added operations in foreign countries High value added operations in home country INTERNATIONAL DIFFERENTIATION • Countries with advanced or specialized factor conditions most likely to use this strategy.g. e.

 • • INTERNATIONAL FOCUSED STRATEGIES Technologically advanced firms follow focused low cost strategy Focused differentiation firms compete on the basis of image & design INTERNATIONAL INTEGRATED LOW COST/DIFFERENTIATION Can be most effective in dealing with diverse markets Often relies upon flexible manufacturing. total quality management or rapid communication networks  • • .


FACTOR OF PRODUCTION It refers to the inputs necessary to compete in any industry BASIC FACTORS  Land  Labour  Natural resources  Capital  Infrastructure  ADVANCED FACTORS  Digital communication systems  Supply of debt capital  SPECIALIZED FACTORS  Skilled personnel eg IT/BPO  .

Size of the market segment can lead to scale-efficient facilities.DEMAND CONDITIONS • It characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services. Specialized demand may create opportunities beyond national boundaries • • .

facilities.RELATED AND SUPPORTING INDUSTRIES • Supporting services. suppliers  Support  Support  Related in design in distribution industries as suppliers and buyers e.g : Reebok .

STRUCTURE AND RIVALRY Common technical training Methodological product and process improvement e.g.FIRM STRATEGY. kaizan/kanban Cooperative and competitive systems EG: IT/BPO .

CORPORATE LEVEL INTERNATIONAL STRATEGY  Type of Corporate Strategy selected will have an impact on the selection and implementation of the business-level strategies  Some Corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies in order to standardize the firm’s products and sharing of resources across countries.  .

g.MULTI DOMESTIC STRATEGY  Strategy and operating decisions are decentralized to strategic business units (SBU) in each country Products and services are tailored to local markets Business units in each country are independent of each other      Assumes markets differ by country or regions Focus on competition in each market e. MCDONALDS .

G.GLOBAL STRATEGY Products are standardized across national markets  Decisions regarding business-level strategies are centralized in the home office  Strategic business units (SBU) are assumed to be interdependent  Emphasizes economies of scale  Often lacks responsiveness to local markets   E. AMWAY .

TRANSNATIONAL STRATEGY   Seeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsiveness  The effective implementation of transnational strategy often produces higher performance as compared to multi domestic or global corporate level strategy .


LIABILITY OF FORIEGNNESS  The company wants to capture global market Differences in culture and labour law Environmental factors are not favourable   .

that can be achieved because of combined market size  Countries that develop trade agreements to increase the economic power of their regions may promote regional strategies.  .REGIONALIZATION Firms location can affect its strategic competitiveness  Competing in all market provides economies.

.EXPORTING    Common way to enter new international markets.     May have high transportation costs. May encounter high import tariffs. No need to establish operations in other nations. May have less control on marketing and distribution. Establish distribution channels through contractual relationships. Difficult to customize product.

LG & VOLTAS . Least risky way to enter a foreign market. Licensing firm loses control over product quality & distribution. Licensee takes risks in manufacturing investments. Licensing firm is paid a royalty on each unit produced and sold.g. A significant risk is that licensor learns technology and competes when license expires  E.LICENSING       Firm authorizes another firm to manufacture & sell its products.

g.  E. with a new product or technology & a host company with access to distribution or knowledge of local customs.  .  May not understand the strategic intent of partners or experience differences in goals. Maruti udyog and suzuki.  Most joint ventures (JVs) involve a foreign corp.STRATEGIC ALLIANCES Enable firms to shares risks and resources to expand into international ventures. norms or politics.  May experience difficulties in merging disparate cultures.

   Usually require complex and costly negotiations. Legal and regulatory requirements may present barriers to foreign ownership. VODAFONE &HUTCH . Potentially disparate corporate culture.   Can be very costly.ACQUISITIONS  Enable firms to make most rapid international expansion.g. E.

marketing and distribution. if successful.  Achieves greatest degree of control.  .  New Wholly-Owned Subsidiary Could require hiring host country nationals or consultants at high cost.  Potentially most profitable.  May need to acquire expertise & knowledge that is relevant to host country.NEW WHOLLY OWNED SUBSIDIARY Most costly & complex of entry alternatives.  Maintain control over technology.

Risks of International Diversification Economic risks are interdependent with political risks.INTERNATIONAL DIVERSIFICATION AND RETURNS  May increase a firm’s returns (such firms usually achieve the most positive stock returns). increased market size and opportunity to stabilize returns.  May  Major . achieve economies of scale and experience. location advantages.

This affects prices & thus ability to compete.  Differences in inflation rates may affect internationally diversified firms’ ability to compete. Differences and fluctuations in international currencies may affect value of assets & liabilities. .

 Can  Provides exposure to new products and processes in international markets. generates additional knowledge leading to innovations. .INTERNATIONAL DIVERSIFICATION AND INNOVATION  May yield potentially greater returns on innovations (a larger market). generate additional resources for investment in innovation.

 Can  May  May produce greater uncertainty and risk.COMPLEXITY OF MANAGING MULTINATIONAL FIRMS  Expansion into global operations in different geographic locations or markets:  Makes implementing international strategy increasingly complex. result in the firm becoming unmanageable cause the cost of managing the firm to exceed the benefits of expansion. .

 Potential for nationalization of firms’ assets.  Legal authority obtained from previous administration may become invalid. .  Potential changes in attitudes or regulations regarding foreign ownership.RISKS IN AN INTERNATIONAL ENVIRONMENT Major Risks of International Diversification Political Risk  National government instability may create potential problems for internationally diversified firms.



LIMITS TO INTERNATIONAL EXPANSION: MANAGEMENT PROBLEMS  Cost of coordination across diverse geographical business units Institutional and cultural barriers    Understanding strategic intent of competitors The overall complexity of competition .


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