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Exploring Business Strategy (247SAM)


Lecture 8 International Strategy

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Learning outcomes

  • Assess the internationalisation drivers.
  • Identify sources of advantage in international strategy.
  • Distinguish between four main types of international strategy.
  • Select markets for entry or expansion.
  • Assess the relative merits of different market entry modes.

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International strategy framework

Internationalisation drivers: market demand, the potential for cost advantages, government pressures and inducements and the need to respond to competitor moves.

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Internationalisation drivers

  • International strategy potential as determined by:
  • Market drivers? (e.g., BRICs?)
  • Cost drivers? (e.g. What cost? How it drives internationalisation)
  • Government drivers? (How? Why?)
  • Competitive drivers?

Internationalisation drivers: Yip’s framework

Geographic sources of advantage

  • Porter’s Diamond: the determinants of national advantage

e.g.

  • Swiss in private banking
  • Italian in leather and fur fashion goods
  • Taiwanese in laptop computers

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Geographic sources of advantage

Global sourcing and locational advantages

Cost advantages include labour costs, raw materials, transportation and communications costs, taxation and investment incentives.

Unique local capabilities.

National market characteristics and reputation.

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.

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International strategies

  • The fundamental issue in formulating an international strategy is to balance pressures for global integration versus those for local responsiveness.
  • The global-local dilemma:

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.

When to choose international strategies, companies come across the global-local dilemma

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Four international strategies

The dilemma between global integration and local responsiveness suggests 4 international strategies

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Market selection

  • Rank country markets against each other based on the PEST framework and criteria.
  • However, what matters is not just the attractiveness of different countries but also the compatibility of the countries with the internationalising firm itself.
  • Ghemawat’s CAGE framework to measure the compatibility.

Market selection: CAGE framework

Cultural

Distance?

Administrative and

political distance?

Geographic

Distance?

Economic/ wealth

Distance?

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E.g. International cross-culture comparison

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Assessing country markets’ competitive characteristics

Country markets can be assessed according to three criteria:

Market attractiveness to the new entrant

Defenders’ reactiveness

Defenders’ clout – the relative power of defenders to fight back.

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e.g., Competitive characteristics

Modes of international market entry

Exporting

Joint ventures and alliances

Licensing

Foreign direct investment

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Mode choice of international market entry

Gradualism of staged international expansion is now challenged by two phenomena:

  • Born-global firms. E.g., Twitter, Instagram and WeChat
  • Emerging-country multinationals, e.g., Chinese white-goods multinational Hailer

Modes of international market entry

Figure 8.7 Modes of international market entry

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Exporting

Advantages

  • No need for operational facilities in host country
  • Economies of scale in the home country
  • Internet can facilitate exporting marketing opportunities

Disadvantages

  • Lose any location advantages in the host country
  • Dependence on export intermediaries
  • Exposure to trade barriers
  • Transportation costs

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Joint ventures and alliances

Advantages

  • Shared investment risk
  • Complementary resources
  • Maybe required for market entry

Disadvantages

  • Difficult to find good partner
  • Relationship management
  • Loss of competitive advantage
  • Difficult to integrate and coordinate

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Licensing

Advantages

  • Contractual source of income
  • Limited economic and financial exposure

Disadvantages

  • Difficult to identify good partner
  • Loss of competitive advantage
  • Limited benefits from host nation

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Foreign direct investment

Advantages

  • Full control
  • Integration and coordination possible
  • Rapid market entry through acquisitions
  • Greenfield investments are possible and may be subsidised

Disadvantages

  • Substantial investment and commitment
  • Acquisitions may create integration/ coordination issues
  • Greenfield investments are time consuming and unpredictable

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Summary (1)

  • There are four main types of international strategy, varying according to extent of pressure for global integration and pressures for local responsiveness: simple export, multi-domestic, global, and transnational.

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Summary (2)

  • Market selection for international entry or expansion should be based on attractiveness, multidimensional measures of distance and expectations of competitor retaliation.
  • Modes of entry into new markets include export, licensing and franchising, joint ventures and overseas subsidiarie.
  • Internationalisation has an uncertain relationship to financial performance, with an inverted U-curve warning against over-internationalisation.

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Seminar case studies

  • Case studies: Wanda’s Acquisition re international strategy
  • Questions:

Considering Yip’s globalisation framework, what drivers of internationalisation do you think were most important when Wanda entered the US market through its AMC acquisition?

What national sources of competitive advantage might Wanda draw from its Chinese base? What disadvantages derive from its Chinese base?

In the light of the CAGE framework, what challenges may Wanda meet as it enters the US market?