Chapter 8 International Strategy

Chapter 8International StrategyMichael A. HittR. Duane IrelandRobert E. Hoskisson©2000 South-Western College PublishingCompetitivenessChapter 3InternalEnvironmentChapter 2ExternalEnvironmentThe StrategicManagementProcessStrategic IntentStrategic MissionStrategicCompetitivenessAbove AverageReturnsFeedbackStrategy FormulationChapter 4Business-LevelStrategyChapter 5CompetitiveDynamicsChapter 6Corporate-LevelStrategyChapter 8InternationalStrategyChapter 9CooperativeStrategiesChapter 7Acquisitions &RestructuringStrategy ImplementationChapter 10CorporateGovernanceChapter 11Structure& ControlChapter 12StrategicLeadershipChapter 13Entrepreneurship & InnovationStrategicInputsStrategicActionsStrategic OutcomesInternational Strategy Opportunities and OutcomesIdentify International OpportunitiesExploreResources and CapabilitiesUse Core CompetenceStrategicCompetitivenessOutcomesInternational StrategiesModes of EntryIncreasedMarket SizeReturn on InvestmentEconomies of Scale and LearningLocation AdvantageInternationalBusiness-LevelStrategyMultidomestic StrategyGlobalStrategyTransnational StrategyExportingEstablishment of New SubsidiaryExportingStrategicAlliancesAcquisitionManagement Problems and RiskManagement Problems and RiskHigher Performance ReturnsInnovationIncreasedMarket SizeReturn on InvestmentEconomies of Scale and LearningLocation AdvantageSelling Products or Services Outside a Firm’s Domestic MarketInternational Strategy LifecycleFirm Introduces Innovation in Domestic Market1Product Demand Develops and Firm Exports Products2Foreign CompetitionBegins Production3Firm Begins Production Abroad4Production Becomes Standardized and is Relocated to Low Cost Countries5Example: Aircraft manufacturers Boeing or AirbusExample: Japanese electronics or automobile manufacturersMotivations for International ExpansionIncrease Market ShareDomestic market may lack the size to support efficient scale manufacturing facilitiesLarge investment projects may require global markets to justify the capital outlaysWeak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitatorsReturn on InvestmentMotivations for International ExpansionEconomies of Scale or LearningExpanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distribution- Can spread costs over a larger sales base- Increase profit per unitMay achieve better access to:- Raw materials- Lower cost labor- Key suppliers- Key customers- Energy- Natural resourcesLocation AdvantagesLow cost markets may aid in developing competitive advantageFactor ConditionsBasic Factors- Land, laborAdvanced Factors- Highly educated workers- Digital communicationsGeneralized Factors- Capital, infrastructureSpecialized Factors- Skilled personnelDemand ConditionsHome country may support scale efficient operations by itselfRelated & Supporting Industries- Japanese cameras & copiers- Italian shoes & leatherFirm Strategy, Structure & RivalryIntense rivalry fosters industry competitionPorter’s Determinants of National AdvantageHome Country of Origin Is Crucial to International SuccessInternational Strategy Opportunities and OutcomesIdentify International OpportunitiesExploreResources and CapabilitiesUse Core CompetenceStrategicCompetitivenessOutcomesInternational StrategiesModes of EntryIncreasedMarket SizeReturn on InvestmentEconomies of Scale and LearningLocation AdvantageInternationalBusiness-LevelStrategyMultidomestic StrategyGlobalStrategyTransnational StrategyExportingEstablishment of New SubsidiaryExportingStrategicAlliancesAcquisitionManagement Problems and RiskManagement Problems and RiskHigher Performance ReturnsInnovationInternational DifferentiationCountries with advanced or specialized factor conditions most likely to use this strategyExample: Japan, Germany, U.S.International Low CostUsually located in home countryExport to international marketsLow value added operations in foreign countriesHigh value added operations in home countryBusiness-Level International StrategiesInternational Focus StrategiesInternational Integrated Low Cost/DifferentiationCan be most effective in dealing with diverse marketsOften relies upon flexible manufacturing, total quality management or rapid communication networksTechnologically advanced firms follow focused low cost strategyFocused differentiation firms compete on the basis of image & designThird group competes on low price by imitatingBusiness-Level International StrategiesThree Corporate StrategiesGlobal StrategyTransnational StrategyMulti-Domestic StrategyCorporate-Level International StrategiesType of Corporate Strategy selected will have an impact on the selection and implementation of the business-level strategiesSome Corporate strategies provide individual country units with flexibility to choose their own strategiesOthers dictate business-level strategies from the home office and coordinate resource sharing across unitsMulti-Domestic StrategyBusiness units in each country are independent of each other Assumes markets differ by country or regionsFocus on competition in each marketProminent strategy among European firms due to broad variety of cultures and markets in EuropeStrategy and operating decisions are decentralized to strategic business units (SBU) in each countryProducts and services are tailored to local marketsCorporate-Level International StrategiesProducts are standardized across national marketsDecisions regarding business-level strategies are centralized in the home officeStrategic business units (SBU) are assumed to be interdependentEmphasizes economies of scaleOften lacks responsiveness to local marketsRequires resource sharing and coordination across borders (which also makes it difficult to manage)Global StrategyCorporate-Level International StrategiesSeeks to achieve both global efficiency and local responsivenessDifficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsivenessMust pursue organizational learning to achieve competitive advantageTransnational StrategyCorporate-Level International StrategiesInternational Corporate StrategyWhen is each strategy appropriate?Need for Global IntegrationNeed for Local Market ResponsivenessLowHighLowHighMulti-DomesticInternational Corporate StrategyWhen is each strategy appropriate?Need for Global IntegrationNeed for Local Market ResponsivenessLowHighLowHighMulti-DomesticGlobalStrategyInternational Corporate StrategyWhen is each strategy appropriate?Need for Global IntegrationNeed for Local Market ResponsivenessLowHighLowHighMulti-DomesticGlobalStrategyTrans-nationalInternational Strategy Opportunities and OutcomesIdentify International OpportunitiesExploreResources and CapabilitiesUse Core CompetenceStrategicCompetitivenessOutcomesInternational StrategiesModes of EntryIncreasedMarket SizeReturn on InvestmentEconomies of Scale and LearningLocation AdvantageInternationalBusiness-LevelStrategyMultidomestic StrategyGlobalStrategyTransnational StrategyExportingEstablishment of New SubsidiaryExportingStrategicAlliancesAcquisitionManagement Problems and RiskManagement Problems and RiskHigher Performance ReturnsInnovationCommon way to enter new international marketsNo need to establish operations in other countriesMay have high transportation costsMay have less control on marketing and distributionMay encounter high import tariffsDifficult to customize productsEstablish distribution channels through contractual relationshipsChoice of International Entry ModeExportingChoice of International Entry ModeLicensingFirm authorizes another firm to manufacture and sell its productsLicensing firm is paid a royalty on each unit produced and soldLicensee takes risks in manufacturing investmentsLeast risky way to enter a foreign marketLicensing firm loses control over product quality and distributionRelatively low profit potentialA significant risk is that licensor learns technology and competes when license expiresChoice of International Entry ModeStrategic AlliancesEnable firms to shares risks and resources to expand into international venturesMost joint ventures (JVs) involve a foreign company with a new product or technology and a host company with access to distribution or knowledge of local customs, norms or politics May experience difficulties in merging disparate culturesMay not understand the strategic intent of partners or experience divergent goalsChoice of International Entry ModeAcquisitionsEnable firms to make most rapid international expansionCan be very costlyLegal and regulatory requirements may present barriers to foreign ownershipUsually require complex and costly negotiationsPotentially disparate corporate culturesNew Wholly-Owned SubsidiaryChoice of International Entry ModeMost costly and complex of entry alternativesAchieves greatest degree of controlPotentially most profitable, if successfulMaintain control over technology, marketing and distributionMay need to acquire expertise and knowledge that is relevant to host countryCould require hiring host country nationals or consultants at high costInternational Strategy Opportunities and OutcomesIdentify International OpportunitiesExploreResources and CapabilitiesUse Core CompetenceStrategicCompetitivenessOutcomesInternational StrategiesModes of EntryIncreasedMarket SizeReturn on InvestmentEconomies of Scale and LearningLocation AdvantageInternationalBusiness-LevelStrategyMultidomestic StrategyGlobalStrategyTransnational StrategyExportingEstablishment of New SubsidiaryExportingStrategicAlliancesAcquisitionManagement Problems and RiskManagement Problems and RiskHigher Performance ReturnsInnovationStrategic Competitiveness OutcomesInternational diversification facilitates innovation in the firmProvides larger market to gain more and faster returns form investments in innovationMay generate resources necessary to sustain a large-scale R&D programGenerally related to above-average returns, assuming effective implementation and management of international operationsInternational diversification provides greater economies of scope and learningInternational Strategy Opportunities and OutcomesIdentify International OpportunitiesExploreResources and CapabilitiesUse Core CompetenceStrategicCompetitivenessOutcomesInternational StrategiesModes of EntryIncreasedMarket SizeReturn on InvestmentEconomies of Scale and LearningLocation AdvantageInternationalBusiness-LevelStrategyMultidomestic StrategyGlobalStrategyTransnational StrategyExportingEstablishment of New SubsidiaryExportingStrategicAlliancesAcquisitionManagement Problems and RiskManagement Problems and RiskHigher Performance ReturnsInnovationPolitical RiskMajor Risks of International DiversificationRebel fighting in Chechnya (Russia) and Liberia (Africa)Continual warfare among Middle Eastern nationsPotential renationalization of privatized enterprises in RussiaFailure of European Community in quest for economic superpower status because of intercountry disagreementsEconomic RiskMajor Risks of International DiversificationMexico’s effect on world trade with low wages and high quality but strong currency risksChina’s difficulty in enforcing intellectual property rights on CDs, software, etc. Germany’s struggle with high unemployment, high interest rates, sagging competitiveness, and cuts in social programsChina’s trade policies. $44 billion trade surplus with United States in 1977. China’s overall trade surplus increased twentyfold in first half of 1997.Management ProblemsLimits To International ExpansionCost of Coordination across diverse geographical business unitsInstitutional and cultural barriersUnderstanding strategic intent of competitorsThe overall complexity of competition