PUJA
h6000
cap_8_hitt.pptx
PART 2: STRATEGIC ACTIONS:
STRATEGY FORMULATION
CHAPTER 8 INTERNATIONAL STRATEGY
Authored by:
Marta Szabo White, PhD.
Georgia State University
THE STRATEGIC MANAGEMENT PROCESS
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KNOWLEDGE OBJECTIVES
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
● Explain incentives that can influence firms to use an international strategy.
● Identify three basic benefits firms achieve by successfully implementing an international strategy.
● Explore the determinants of national advantage as the basis for international business-level strategies.
● Describe the three international corporate-level strategies.
● Discuss environmental trends affecting the choice of international strategies, particularly international corporate-level strategies.
KNOWLEDGE OBJECTIVES
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
● Explain the five modes firms use to enter international markets.
● Discuss the two major risks of using international strategies.
● Discuss the strategic competitiveness outcomes associated with international strategies particularly with an international diversification strategy.
● Explain two important issues firms should have knowledge about when using international strategies.
DOMESTIC VERSUS GLOBAL MARKETS
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DOMESTIC
MARKETS
GLOBAL
MARKETS
Unstable
Stable
Predictable
Unpredictable
Complex and risky
Less complex
Globalization is enabling global markets
Globalization is reducing the number of domestic-only markets
INCENTIVES AND BASIC BENEFITS OF INTERNATIONAL STRATEGY
FIGURE 8.2
Incentives and Basic Benefits of International Strategy
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IDENTIFYING INTERNATIONAL OPPORTUNITIES
INCENTIVES TO USE INTERNATIONAL STRATEGIES
● Firms derive three basic benefits by successfully using international strategies:
1. increased market size
2. increased economies of scale and learning
3. development of a competitive advantage through location (e.g., access to low-cost labor, critical resources, or customers)
● Raymond Vernon states that the classic rationale for international diversification is to:
4. extend the product’s life cycle
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IDENTIFYING INTERNATIONAL OPPORTUNITIES
CLASSIC RATIONALE: EXTENDING THE PRODUCT’S LIFE CYCLE
Production is standardized and relocated to low cost countries
Product demand
develops and firm
exports products
Firm introduces
innovation in
domestic market
Foreign
competition
begins production
Firm begins
production abroad
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INTERNATIONAL STRATEGIES
Firms choose one or both of two basic types of international strategies:
business level and corporate level
International business-level strategies
Cost leadership
Differentiation
Focused cost leadership
Focused differentiation
Integrated cost leadership/differentiation
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INTERNATIONAL STRATEGIES
International Corporate-level strategies
Multidomestic
Global
Transnational (the combination of the multidomestic and global strategies)
Each international strategy the firm uses must be based on one or more core competencies
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INTERNATIONAL STRATEGIES
INTERNATIONAL BUSINESS-LEVEL STRATEGY
● International business-level strategy is selected based on structural characteristics of an economy, as identified by Porter’s four determinants of national advantage (see Figure 8.3).
● Porter’s core argument is that conditions/ factors in a firm’s domestic market either help or hinder the firm’s international business-level strategy implementation.
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INTERNATIONAL STRATEGIES
DETERMINANTS OF NATIONAL ADVANTAGE
FIGURE 8.3
Determinants of National Advantage
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FIGURE 8.4
International Corporate-Level Strategies
INTERNATIONAL STRATEGIES
INTERNATIONAL CORPORATE-LEVEL STRATEGY
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INTERNATIONAL STRATEGIES
INTERNATIONAL CORPORATE-LEVEL STRATEGIES
MULTIDOMESTIC STRATEGY
Multidomestic
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
Assumes markets differ by country or regions
Focus on competition in each market
Prominent strategy among European firms due to broad variety of cultures and markets
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INTERNATIONAL STRATEGIES
INTERNATIONAL CORPORATE-LEVEL STRATEGIES
GLOBAL STRATEGY
Global
strategy
Firm offers standardized products across country markets, with the competitive strategy being dictated by the home office
Strategic and operating decisions are centralized at the home office
Involves interdependent SBUs operating in each country
Home office attempts to achieve integration across SBUs, adding management complexity
Produces lower risk
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INTERNATIONAL STRATEGIES
INTERNATIONAL CORPORATE-LEVEL STRATEGIES
TRANSNATIONAL STRATEGY
Transnational
strategy
Seeks to achieve both global efficiency and local responsiveness—competing goals
Requires both:
Centralization - global coordination and control
Decentralization - local flexibility
Global competitive landscape fosters intense competition, thus pressures to reduce costs, while at the same time information sharing has intensified the desire for specialized, customized, differentiated products
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
INTERNATIONAL STRATEGIES
INTERNATIONAL CORPORATE-LEVEL STRATEGIES
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
MULTIDOMESTIC
GLOBAL
TRANSNATIONAL
KEY ASSUMPTION: universal demand → need for global integration
KEY ASSUMPTION: country/cultural differences → need for local responsiveness
ADVANTAGE: BOTH
ADVANTAGE: local responsiveness
ADVANTAGE: global efficiencies
local responsiveness and global efficiencies
INTERNATIONAL STRATEGIES
INTERNATIONAL CORPORATE-LEVEL STRATEGIES
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MULTIDOMESTIC
GLOBAL
TRANSNATIONAL
EXAMPLE: CEMEX is a global building materials company that centralizes operations in order to gain scale economies, among other benefits
EXAMPLE: Starbucks in China standardizes operations while simultaneously decentralizes some decision-making for local responsiveness
EXAMPLE: Unilever is transitioning from a multidomestic strategy to a transnational strategy
CHOICE OF INTERNATIONAL ENTRY MODE
FIGURE 8.5
Modes of Entry and Their Characteristics
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CHOICE OF INTERNATIONAL ENTRY MODE
©Copyrighted 2011 Marta Szabo White, Ph.D.
EXPORTING
LICENSING
STRATEGIC ALLIANCES
ACQUISITIONS
NEW WHOLLY
OWNED SUBSIDIARY
RISK
INCREASES
CONTROL
INCREASES
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CHOICE OF INTERNATIONAL ENTRY MODE
EXPORTING
1. Exporting: the firm sends products it produces in its domestic market to international markets
Involves low expense to establish operations in host country
Often involves contractual agreements
Involves high transportation costs
Tariffs maybe imposed
Low control over marketing and distribution
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CHOICE OF INTERNATIONAL ENTRY MODE
LICENSING
2. Licensing: an agreement is formed that allows a foreign company to purchase the right to manufacture and sell a firm’s products within a host country’s market or a set of markets
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CHOICE OF INTERNATIONAL ENTRY MODE
STRATEGIC ALLIANCES
3. Strategic alliance: collaboration with a partner firm for international market entry
Involves shared risks and resources
Facilitates development of core competencies
Involves fewer resources and costs required for entry
May involve possible incompatibility, conflict, or lack of trust with partner
Is difficult to manage
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CHOICE OF INTERNATIONAL ENTRY MODE
ACQUISITIONS
4. Acquisitions
Cross-border acquisition: a firm from one country acquires a stake in or purchases 100% of a firm located in another country
Allows for quick access to market
Involves possible integration difficulties
Is costly (debt financing)
Has complex negotiations and transaction requirements
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CHOICE OF INTERNATIONAL ENTRY MODE
NEW WHOLLY OWNED SUBSIDIARY
5. New Wholly Owned Subsidiary
Greenfield venture: a firm invests directly in another country/market by establishing a new wholly owned subsidiary
Is costly
Involves complex processes
Allows for maximum control
Has the highest potential returns
Carries high risk
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CHOICE OF INTERNATIONAL ENTRY MODE
EXPORTING
Situation
Optimal Solution
The firm has no foreign manufacturing expertise and requires investment only in distribution.
Exporting
What’s the best solution?
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CHOICE OF INTERNATIONAL ENTRY MODE
LICENSING
Situation
Optimal Solution
The firm needs to facilitate the product improvements necessary to enter foreign markets.
Licensing
What’s the best solution?
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CHOICE OF INTERNATIONAL ENTRY MODE
STRATEGIC ALLIANCES
Situation
Optimal Solution
The firm needs to connect with an experienced partner already in the targeted market.
Strategic Alliance
What’s the best solution?
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CHOICE OF INTERNATIONAL ENTRY MODE
ACQUISITIONS
Situation
Optimal Solution
The firm must act quickly to gain rapid access to this new market, where corruption is not an issue.
Acquisition
What’s the best solution?
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CHOICE OF INTERNATIONAL ENTRY MODE
WHOLLY OWNED SUBSIDIARY
Situation
Optimal Solution
The firm’s intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high.
Wholly Owned Subsidiary
(Greenfield Venture)
What’s the best solution?
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RISKS IN AN INTERNATIONAL ENVIRONMENT
FIGURE 8.6
Risks in the International Environment
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STRATEGIC COMPETITIVENESS OUTCOMES
INTERNATIONAL DIVERSIFICATION AND RETURNS
● As international diversification increases, firms’ returns initially decrease, but then increase quickly as the firm learns to manage international expansion.
● Firms that are broadly diversified into multiple international markets usually achieve the most positive stock returns, especially when they diversify geographically into core business areas.
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STRATEGIC COMPETITIVENESS OUTCOMES
ENHANCED INNOVATION
● Some level of performance is necessary to provide the resources the firm needs to diversify geographically; in turn, geographic diversification provides incentives and resources to invest in R&D.
● Effective R&D should enhance the firm’s returns, which then provides more resources for continued geographic diversification and investment in R&D.
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
