Chapter 8: Opportunities and Outcomes

of International Strategy

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Chapter 8: Opportunities and Outcomes
of International Strategy

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 Identifying International Opportunities:
Incentives to Use an International Strategy
 International Strategy: A strategy through which the firm
sells its goods or services outside its domestic market
 Also referred to as geographic diversification
 Implications at both corporate and business level
 Used as a growth strategy
 Level and type of geographic diversification
 Level - # of countries, markets, or regions
 Type – Multidomestic, Global, Transnational
 Mode or means of entry

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 Identifying International Opportunities:
Incentives to Use an International Strategy
 Reasons for an International Strategy
 Potential new opportunities
 Apply innovations in domestic market to foreign markets
 Extend product life cycle
 Secure needed resources
 Pressure for global integration and globally branded products
 Global economies of scale
 High potential demand for products and services
 Currency fluctuations and tariffs
 Capitalize on core competencies
 Growth

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 Identifying International Opportunities:
Incentives to Use an International Strategy
 Four primary benefits
 Increased market size
 Can expand size of potential market
 Domestic market may have limited growth opportunities
 Larger markets offer higher potential returns and pose less risk
for a firm’s investments
 Greater return on investment (ROI)
 Large investment projects may require global markets to justify
the capital outlays
 Larger markets are more attractive
 To generate above average returns on investments

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 Identifying International Opportunities:
Incentives to Use an International Strategy
 Four primary benefits (Cont’d)
 Greater economies of Scale, Scope, or Learning
 Expanding size or scope of markets can help firms achieve
economies of scale in manufacturing, marketing, R&D,
distribution, and service activities
 Can exploit core competencies in international markets through
resource and knowledge sharing across borders
 Competitive advantages through location
 Can help the firm reduce costs
 Access to lower-cost labor, energy, and other natural
resources
 Access to critical supplies and to customers
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 International Strategies
 Firms can choose to use one or both of two basic types
of International Strategy:
 International Business-level Strategy
 Firms select from among the generic strategies of low

cost, differentiation, focused low cost, focused

differentiation, or integrated low cost and differentiation
 International Corporate-level strategy
 Focuses on the scope of a firm’s operations through

geographic (and product) diversification

 3 Types

 Multidomestic
 Global
 Transnational
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International Corporate-Level Strategies

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 International Strategies
 Multidomestic
 Tailor products to each local market
 Strategic & operating decisions are decentralized to the
strategic business-unit (SBU) in each country
 Focuses on competition within each country
 Assumes that markets differ and are segmented by country
boundaries
 Customized products to meet local customers’ specific
needs and preferences
 Deals with uncertainty due to differences across markets
 Different competitive/business strategy in each market
 Think local and act local
 Addresses need for local responsiveness
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 International Strategies
 Global
 Firm offers standardized products across country markets
 Competitive strategy dictated by the home office
 Emphasizes economies of scale
 Strategic & operating decisions centralized at home office
 Involves interdependent SBUs operating in each country
 Home office attempts to achieve integration across SBUs,
adding management complexity
 Produces lower risk
 Is less responsive to local market opportunities
 Same competitive/business strategy in all markets
 Think global and act global 10

 Addresses need for global integration

 International Strategies
 Transnational
 Firm seeks to achieve both global efficiency and local
responsiveness – these can be competing goals!
 Requires both global coordination and local responsiveness
 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
 Think global and act local
 Increasingly used as a strategy - Toyota 11
 International Strategies
 Choosing an International Strategy
 Choice is dictated by the firms internal and external
environments
 Influenced by cross-country differences in market
conditions, culture, demographics, etc.
 Greater differences make things more complicated
for firms
 These differences also drive the pattern of
international competition that exists in an industry
 Greater differences then multidomestic
 Fewer differences then global
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 International Entry Modes

 Exporting
 Initial strategy used by many firms to test international
markets
 Involves low expense to establish operations in host
country
 Often involves contractual agreements with host country
firms
 May have some tariffs imposed
 Involves high transportation costs
 Offers low control over marketing and distribution

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 International Entry Modes

 Licensing
 Allows a foreign company to purchase the right to manufacture and
sell the firm’s products within a host country or set of countries
 Licensor paid royalty on units sold
 Involves low cost to expand internationally
 Allows licensee to absorb risks
 Has low control over manufacturing and marketing
 Offers lower potential returns (shared with licensee)
 Involves risk of licensee imitating technology and product for own
use
 May have inflexible ownership arrangement
 Works well for manufacturers (while franchising works well for
services and retailing)
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 International Entry Modes

 Strategic Alliances
 A cooperative strategy in which firms combine some of
their resources and capabilities to create a competitive
advantage (Chapter 9)
 Involve shared risks and resources
 Facilitate development of core competencies
 Involve fewer resources and costs required for entry
 May involve possible incompatibility, conflict, or lack of
trust with partner
 Are difficult to manage

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 International Entry Modes

 Acquisitions
 Allow for quick access to market
 Quicker entry than other modes
 Involve possible integration difficulties
 Are costly
 Have complex negotiations and transaction
requirements

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 International Entry Modes

 New Wholly-Owned Subsidiary

 Is costly
 Involves complex processes
 Allows for maximum control
 Has the highest potential for above average returns
 Carries high risk
 Greenfield venture: Establishment of a new wholly
owned subsidiary

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 International Entry Modes

 Dynamics of Mode of Entry: Use the mode best suited to

the situation at hand; affected by several factors
 Export, licensing and strategic alliance: good tactics for early
market development
 Strategic alliance: used in more uncertain situations
 Wholly-owned subsidiary may be preferred if
 Firm wants to maximize control and potential returns

 Firm has proprietary technology

 Acquisitions, greenfield ventures, and joint ventures: used to

secure a stronger presence in international markets
 Figure 8.5 – Covers costs and control characteristics

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International Entry Modes

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 Strategic Competitive Outcomes

 International diversification: A strategy through

which a firm expands the sale of its goods or services
across the borders of global regions and countries into
different geographic locations or markets
 Strategic Competitive Outcomes
 International diversification and returns
 As international diversification increases, firms’ returns
initially decrease, but then increase quickly as firm learns to
manage international expansion
 Firms that are broadly diversified into multiple international
markets usually achieve the most positive stock returns

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 Strategic Competitive Outcomes

 Strategic Competitive Outcomes (cont.)

 International diversification and innovation
 Potential to achieve greater returns on innovations while
reducing risks of R&D investments
 Exposure to new products and processes and the
opportunity to integrate this new knowledge into
operations
 Provides incentives to innovate
 Competitive advantage potential
 Locating activities
 Transferring competencies
 Coordinating activities
 Profit sanctuaries and cross market subsidization 21
 Risks in International Environment

 Political Risks
 The 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
 There are limits to international expansion

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