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Unit 5

International Strategy

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Explain the following with examples.
G1. What are the benefits of International
strategy?
G2. What are the factors of national advantage
for international strategy?
G3. What are the disadvantages of international
strategy?
G4. How does international market entry
happen?
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 Identifying International Opportunities
International Strategy-a strategy through which
the firm sells its goods or services outside its
domestic market.
Reasons to having an international strategy
 International markets yield potential new opportunities
 New market expansion extends product life cycle
 Needed resources can be secured
 Greater potential product demand

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Benefits of International Strategy

 increased market size

 greater returns on major capital investments or
on investments in new products and processes
 greater economies of scale, scope, or learning,
innovation (high production facilities)
 a competitive advantage through location (for
example, access to low-cost labor, critical
resources, or customers).

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International Strategies

The four basic strategies are:

1. Global Standardization strategy
2. Transnational strategy
3. International strategy
4. Localization strategy

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Pressures for cost reduction
 Lowering costs of mass-produced
standardized product.
 Meaningful differentiation on non-price
factors is difficult
 Price is the main competitive weapon for
products of universal needs.
 Intense in low-cost locations, where
consumers are powerful and switching costs
are low.
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Pressures for local responsiveness
 Differences in consumer taste and
preferences. (infrastructure, channel,
culture, government demands)
 Requires product differentiation which raise
firm’s cost structure

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  Products are standardized
Cont… worldwide.
 Business-level strategic
decisions are centralized in
the home office.
Global  Emphasizes on economies of
standardization scale.
strategy  Business model based on
pursuing a low-cost strategy
on a global scale.
 Appropriate when cost
reduction pressures are strong
& minimum local
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responsiveness.
Cont…
 Product value increases in the local
market.
 Standardization and cost reduction
is not possible.
Localization  Focuses on increasing profitability
strategy by customizing products.(increases
value of product)
 Assumes markets differ by country
or regions.
 Focus on competition in each
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market. 11
 Cont…
 Seeks to achieve both global
efficiency and local responsiveness.
 Differentiates the product offering
across geographic markets.
Transnational  Difficult to achieve because of
strategy simultaneous requirements:
 Foster a flow of skills between
global firms to achieve competitive
advantage.

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International strategy
 Sell products that serve
universal needs and not
confronted with pressures to
reduce their cost structure.
International  Local customization of product
strategy offering and marketing
strategy is limited in scope
as there is tight control from
the head office on marketing
and product strategy.
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 Global Market Entry: Choice of Entry
Type of Entry Characteristics
Exporting High cost, low control/trade
barriers
Licensing Low cost, low risk, little control
over technology, low returns
joint venture Quick access to new market, high cost,
complex negotiations,
problems of merging with
domestic operations
Franchising Shared costs, shared resources, shared
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risks, problems of integration 14
(e.g., two corporate
 Global Market Entry: Choice of Entry
Type of Entry
Characteristics
New wholly owned ‘subsidiary
Complex, often costly, time
consuming, high risk,
maximum control, potential
above-average returns

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Global Strategic Alliances
Cooperative agreements between companies from different
countries that are actual or potential competitors.
It facilitate entry into a foreign market and allow firms to
share the costs of developing new products.
It also helps establish technological standards for the
industry that will benefit the firm.
It bring together skills and assets that cannot be developed
alone.
Therefore
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success of an alliance depends on partner22
selection.