INTERNATIONAL STRATEGY

O Multinational firms are constantly faced with

many important decisions. These include entry
strategies; the dilemma of choosing between local
adaptation (in product offerings, locations,
advertising, and pricing) and global integration;
and others.

O This lesson will discuss how firms create value

and achieve competitive advantage in the global
marketplace.
 Globalization - a term that has two meanings:

1. The increase in international exchange, including

trade in goods and services as well as exchange of
money, ideas, and information;

2. The growing similarity of laws, rules, norms,

values, and ideas across countries.
Factors Affecting Nation’s
Competitiveness
 Motivations for
International Expansion
1. Increase Market Size
O To increase the size of potential markets for a firm‘s
products and services
2. Take Advantage of Arbitrage
O Arbitrage opportunities - an opportunity to profit by
buying and selling the same good in different markets.
3. Enhancing a Product’s Growth Potential
O Enhancing the growth rate of a product that is in its maturity
stage in a firm‘s home country but that has greater demand
potential elsewhere is another benefit of international
expansion.
4. Optimize the Location of Value-Chain Activities

O Optimizing the location for every activity in the value chain can yield
one or more of three strategic advantages: performance enhancement,
cost reduction, and risk reduction.

5. Learning Opportunities
O By expanding into new markets, corporations expose themselves to
differing market demands, R&D capabilities, functional skills,
organizational processes, and managerial practices

6. Explore Reverse Innovation

O Reverse innovation - new products developed by developed-country
multinational firms for emerging markets that have adequate
functionality at a low cost
 Potential Risks of
International Expansion
1. Political risk - potential threat to a firm‘s operations in a
country due to ineffectiveness of the domestic political
system.

2. Economic risk - potential threat to a firm‘s

operations in a country due to economic policies and
conditions, including property rights laws and
enforcement of those laws.

3. Counterfeiting - selling of trademarked goods

without the consent of the trademark holder.
4. Currency risk - potential threat to a firm‘s operations
in a country due to fluctuations in the local currency‘s
exchange rate.

5. Management - risk potential threat to a firm‘s

operations in a country due to the problems that
managers have making decisions in the context of
foreign markets.