Business Strategy Week 7

International strategy
Copyright © 2017, 2014, 2011 Pearson Education, Inc. All Rights Reserved
Learning outcomes
• Assess the internationalisation drivers and potential of
different markets.
• Identify sources of competitive advantage in international
strategy, through both exploitation of local factors and global
sourcing.
• Understand the difference between global integration and
local responsiveness and four main types of international
strategy.
• Rank markets for entry or expansion, taking into account
attractiveness, cultural and other forms of distance and
competitor retaliation threats.
• Assess the relative merits of different market entry modes,
including joint ventures, licensing and and franchising and
wholly owned subsidiaries.
International strategy: main themes
International and global strategy
• International strategy refers to a range of
options for operating outside an organisation’s
country of origin.
• Global strategy involves high coordination of
extensive activities dispersed geographically in
many countries around the world.
N.B. Global strategy is just one kind of international

strategy.
Key Drivers of Global Strategy
• Common customer needs

• Global customers
DRIVERS
MARKET
• Global channels
• Transferable marketing
• Favorable trade
INDUSTRY policies
• Global scale COST GLOBALIZATION GOVERNMENT
DRIVERS DRIVERS • Compatible
POTENTIAL technical standards
• economies
Steep experience • Common
marketing
curve
regulations
COMPETITIVE
Differences in country costs (incl. Fx) • High exports and imports

• High product development costs • Interdependence of countries
DRIVERS
• Need for technology transfer

• Competitors from different
countries
• Globalized competitors
• Transferable competitive advantage
Internationalisation drivers (1 of 2)
Market drivers
− Similar customer needs (e.g. credit cards).
− Global customers (e.g. car components).
− Transferable marketing (e.g. Coca-Cola).
Cost drivers
− Scale economies (e.g. R&D in aircraft manufacturing).
− Country-specific differences (e.g. clothing:
manufacturing in Bangladesh/design in Paris).
− Favourable logistics (e.g. low cost of transporting
microchips).
Internationalisation drivers (2 of 2)
Government drivers
− Trade policies (e.g. reduction of trade barriers in
the EU; WTO policies).
− The liberalisation and adoption of free markets.
− Technical standardisation (e.g. in electronics).
Competitive drivers
− Interdependence (e.g. global coordination
between subsidiaries in different countries).
− Global competitors (e.g. rivals may use profits to
cross subsidise aggressive moves).
Locational advantage:
Porter’s Diamond
Porter’s Diamond – explains why some locations
tend to produce firms with competitive
advantages in some industries more than
others.
The four drivers in Porter’s Diamond arise from:
•local factor conditions;
•local demand conditions;
•local related and supporting industries;
•local firm strategy, industry structure and rivalry.
Porter’s Diamond – the determinants of
national advantages
Source: Adapted with permission of The Free Press, a Division of Simon & Schuster, Inc., from The Competitive Advantage of Nations by Michael E. Porter.
Copyright © 1990, 1998 by Michael E. Porter. All rights reserved.
Global sourcing
Global sourcing refers to purchasing services and
components from the most appropriate suppliers
around the world, regardless of their location.
The advantages include:
• Cost advantages: e.g. labour costs, transportation and
communications costs, taxation and investment
incentives.
• Unique local capabilities: e.g. centres of excellence in
R&D clusters globally.
• National market characteristics and national
reputation for a particular product.
Locational advantages
Locational advantages can be due to:
•Cost advantages including labour costs,
transportation and communications costs and taxation
and investment incentives e.g. employing software
engineers in India.
•Unique local capabilities. European pharma firms
locating in Boston and California to tap into local
research expertise.
•National market characteristics. Differentiated
product offerings aimed at different market segments
e.g. Gibson guitars.
The global–local dilemma
The global–local dilemma relates to the

extent to which products and services may
be standardised across national boundaries
or need to be adapted to meet the
requirements of specific national markets.
International strategies
Four international strategies (1 of 4)
Export strategy:
• Leverages home country capabilities,
innovations and products in foreign markets.
• Used when pressure for both global integration
and local responsiveness is low.
• Suitable for companies with strong brands (e.g.
Google).
• The key risk is a home country-centred view in
contrast to skilled local rivals.
Multi-domestic strategy:
• Maximises local responsiveness – different
product offerings for different countries.
• A low level of international coordination.
• Organisation is like a collection of relatively
independent units.
• Commonly found in marketing-orientated
companies (e.g. food companies).
• Risks include manufacturing inefficiencies and
brand dilution.
Global strategy:
• Maximises global integration with little or no
local adaptation of products/services.
• Standardised products are deemed to suit all
markets and efficient production is
emphasised through economies of scale.
• Geographically dispersed activities are
centrally controlled from headquarters.
• Common for commodity products (e.g.
cement) but also might include IKEA.
Transnational strategy:
• Complex strategy that maximises local
responsiveness and global coordination.
• Aims to maximise learning and knowledge
exchange between dispersed units.
• Efficient operations but products/services
adapted to local conditions.
• Hard to achieve but General Electric is a
possible example.
Market selection and entry
Market characteristics
Four elements of the PESTEL framework are particularly
important in comparing countries for entry:
• Political – political environments vary widely between
countries and can alter rapidly.
• Economic – key comparators are gross domestic
product and disposable income indicating the
potential size of the market.
• Social – factors like population characteristics and
lifestyle and cultural differences.
• Legal – countries vary widely in their legal regime. .
The CAGE framework (1 of 2)
Cultural Administrative and

distance political distance
Geographic Economic/wealth
distance distance
The CAGE framework (2 of 2)
• Cultural distance – differences in language,
ethnicity, religion and social norms.
• Administrative and political distance –
compatibility of administrative, political or legal
traditions.
• Geographic distance – not just miles but also
aspects such as size, sea-access and the quality
of communications.
• Economic/wealth distance – wealth and income
differences.
The staged international
expansion model
The staged international expansion model proposes a
sequential process whereby companies gradually
increase their commitment to newly entered markets, as
they build market knowledge and capabilities.
This is challenged by two phenomena:
• ‘Born-global firms’ – new, small firms that
internationalise rapidly (usually in new technology
industries).
• Emerging-country multinationals – building unique
capabilities in the home market but exploiting them in
international markets very quickly.
Modes of entry
Export
Licensing or franchising
Joint ventures
Wholly owned subsidiaries
Table 9.1 Comparison of entry mode strategies
Export
Advantages Disadvantages
• No need for • Lose any location
operational facilities advantages in the
in host country host country
• Economies of scale • Dependence on
in the home country export
• Internet can intermediaries
facilitate export • Exposure to trade
marketing barriers
opportunities. • Transportation costs.
Licensing and franchising
• Contractual source • Difficult to identify
of income good partner
• Limited economic • Loss of competitive
and financial advantage
exposure. • Limited benefits
from host nation.
Joint ventures
• Shared investment • Difficult to find good
risk partners
• Complementary • Relationship
resources management issues
• Maybe a • Loss of competitive
requirement for advantage
market entry. • Difficult to integrate
and coordinate.
Wholly owned subsidiaries
• Full control • Substantial investment
• Integration and co- and commitment
ordination possible • Acquisitions may create
• Rapid market entry integration/
coordination issues
through acquisitions
• Greenfield investments
• Greenfield
are time consuming
investments are and unpredictable.
possible and may be
subsidised.
Summary (1 of 2)
• Internationalisation potential in any particular market is
determined by Yip’s four drivers of internationalisation:
market, cost, government and competitors’ strategies.
• Besides firm-specific advantages (see Chapter 3), there
are geographic sources of advantage in international
strategy that can be drawn from both national sources of
advantage, as captured in Porter’s Diamond, and global
sourcing through the international value system.
• There are four main types of international strategy,
varying according to extent of coordination and
geographical configuration: export strategy, multi-
domestic strategy, global strategy and transnational
strategy.
Summary (2 of 2)
• Market selection for international entry or expansion
should be based on attractiveness, institutional voids
multi-dimensional measures of distance and expectations
of competitor retaliation.
• Entry mode strategies into new markets include export,
licensing and franchising, joint ventures and overseas
wholly owned subsidiaries.
• Subsidiaries in an international firm can be managed by
portfolio methods just like businesses in a diversified firm.
• Internationalisation has an uncertain relationship to
financial performance, with an inverted U-curve warning
against over-internationalisation.

Business Strategy Week 7

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International strategy

N.B. Global strategy is just one kind of international

• Common customer needs

Differences in country costs (incl. Fx) • High exports and imports

• Need for technology transfer

The global–local dilemma relates to the

Cultural Administrative and

Wholly owned subsidiaries

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