Transcript Competing for Advantage

International Strategy
1
Opportunities and Outcomes of
International Strategy
Identify International
Opportunities
Increased market
size
Return on
investment
Economies of scale
and learning
Advantage in
location
Explore Resources
and Capabilities
Use Core
Competence
International
Strategies
Modes of Entry
International
business-level
strategy
Exporting
Multidomestic
strategy
Strategic alliances
Global strategy
Establishment of a
new subsidiary
Transnational
strategy
Licensing
Acquisitions
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Need for Global Integration
International Corporate-Level
Strategy
High
Global
strategy
Transnational
strategy
Multidomestic
strategy
Low
Low
High
Need for Local Responsiveness
3
Pressures for Global Integration & Local
Responsiveness
High
Global Integration
Cost Reduction
Pressures
Low
Low
Ball bearings,
wheat
Cosmetics, food,
household goods
Local Responsiveness Pressures High
Country Differences in
- consumer tastes/preferences
- infrastructure/practices
- distribution channels
- host government needs
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Opportunities and Outcomes of International
Strategy: Continued
Use Core
Competence
Modes of Entry
Exporting
Management
problems and
risk
Strategic
Competitiveness
Outcomes
Better
performance
Licensing
Strategic
alliances
Innovation
Acquisitions
Establishment of
a new subsidiary
Management
problems and
risk
Return to
Discussion
Questions
Click
Here
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Motivations for International Expansion
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Increase Market Share
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domestic market may lack the size to support
efficient scale manufacturing facilities
Return on Investment
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large investment projects may require global
markets to justify the capital outlays
weak patent protection in some countries
implies that firms should expand overseas
rapidly in order to preempt imitators
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Motivations for International Expansion

Economies of Scale or Learning
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expanding 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 unit
Location Advantages

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low cost markets may aid in developing
competitive advantage
may achieve better access to:
• Raw materials
• Lower cost labor
• Key customers
• Energy
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International Business-Level Strategy:
Determinants of National Advantage
Factors of
production
Firm strategy,
structure, and
rivalry
Demand
conditions
Related and
supporting
industries
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International Business-Level Strategy:
Determinants of National Advantage
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Factors of production: the inputs necessary to
compete in any industry
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labor
land
natural resources
capital
infrastructure
basic factors include natural and labor resources
advanced factors include digital communication
systems and educated workforce
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International Business-Level Strategy:
Determinants of National Advantage

Demand conditions: characterized by the
nature and size of buyers’ needs in the
home market for the industry’s goods or
services
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size of market segment can lead to scaleefficient facilities
efficiency can lead to domination of the
industry in other countries
specialized demand may create opportunities
beyond national boundaries
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International Business-Level Strategy:
Determinants of National Advantage
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Related and supporting industries:
supporting services, facilities, suppliers
and so on
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support in design
support in distribution
related industries as suppliers and buyers
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International Business-Level Strategy:
Determinants of National Advantage

Firm strategy, structure, and rivalry: the
pattern of strategy, structure, and rivalry
among firms
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common technical training
methodological product and process
improvement
cooperative and competitive systems
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International Corporate-Level Strategy
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Type of corporate strategy selected will
have an impact on the selection and
implementation of the business-level
strategies
Some corporate strategies provide
individual country units with flexibility to
choose their own strategies
Others dictate business-level strategies
from the home office and coordinate
resource sharing across units
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International Corporate-Level Strategy:
Multidomestic Strategy
• Strategy and operating decisions are
decentralized to strategic business units
Multidomestic
(SBU) in each country
strategy
• Products and services are tailored to local
markets
• Business units in one country are
independent of each other
• 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
in Europe
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Worldwide Geographic Area Structure:
Multidomestic Strategy
Asia
Latin
America
United
States
Multinational
Headquarters
Australia
Europe
• product characteristics
tailored to local
preferences
• isolation from global
competition
– establish protected
market positions
–compete in industry
segments most
affected by differences
among local countries
Middle
East/
Africa
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International Corporate-Level Strategy: Global
Strategy
Global
strategy
• Products are standardized across national
markets
• Decisions regarding business-level
strategies are centralized in the home office
• Strategic business units (SBU) are assumed
to be interdependent
• Emphasizes economies of scale
• Often lacks responsiveness to local markets
• Requires resource sharing and coordination
across borders (which also makes it difficult
to manage)
• Historically prominent among Japanese
firms
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Worldwide Product Divisional Structure:
Global Strategy
• standardized products
across countries
• economies of scope
and scale
• outsource some
Global
Worldwide
Worldwide primary or support
Products
Products
Corporate
activities to the
Division
Division
Headquarters
world’s best providers
• decision-making
authority centralized
Worldwide
Worldwide
Products
Products
in worldwide division
Division
Division
headquarters
Worldwide
Products
Division
Worldwide
Products
Division
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International Corporate-Level Strategy:
Transnational Strategy
• Seeks to achieve both global efficiency and
local responsiveness
Transnational
strategy
• Difficult to achieve because of simultaneous
requirements
 strong central control and coordination to
achieve efficiency
 decentralization to achieve local market
responsiveness
• Must pursue organizational learning to
achieve competitive advantage
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Using the Combination Structure:
Transnational Strategy
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The combination structure has
characteristics and mechanisms that
result in an emphasis on both geographic
and product structures
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local responsiveness (multidomestic strategy)
global efficiency (global strategy)
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Environmental Trends
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Liability of Foreignness
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security risks
tighter immigration policies
Regionalization
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location can affect value creation
may wish to narrow focus to a
particular region of the world
enter regional markets sequentially,
beginning with the most familiar
market
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Global Market Entry: Choice of Entry
Mode
Type of Entry
Exporting
Licensing
Strategic alliances
Acquisition
New wholly owned
subsidiary
Characteristics
High cost, low control
Low cost, low risk, little control, low
returns
Shared costs, shared resources, shared
risks, problems of integration
Quick access to new market, high cost,
complex negotiations, problems of
merging with domestic operations
Complex, often costly, time consuming,
high risk, maximum control, potential
above-average returns
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Value Creation Outcomes: Returns

International diversification and returns:
firm expands the sales of its goods or services
across the borders of global regions and countries
into different geographic locations or markets
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may increase a firm’s returns
such firms usually achieve the most positive
stock returns
firm may achieve economies of scale and
experience, location advantages, increased
market size and opportunity to stabilize
returns
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Value Creation Outcomes: Innovation
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International diversification and
innovation: firm expands the sales of its goods
or services across the borders of global regions
and countries into different geographic locations or
markets
 potentially greater returns on innovations
(larger markets)
 generate additional resources for investment
in innovation
 exposed to new products and processes in
international markets, generates additional
knowledge leading to innovations
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Risks in an International Environment
Political Risks
Economic Risks
Political risks include
• instability in national governments
• war, both civil and international
• potential nationalization of a firm’s resources
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Risks in an International Environment
Political Risks
Economic Risks
Economic risks are interdependent with political
risks and include
• differences and fluctuations in the value of different
currencies
• differences in prevailing wage rates
• difficulties in enforcing property rights
• unemployment
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Risk Rankings
Rank Country
1
2
3
40
55
63
86
114
161
178
Total Risk
Economic Political
Assessment Performance Risk
Luxembourg
Switzerland
United States
China
Poland
Vietnam
Russia
Albania
Mozambique
Afghanistan
McGraw-Hill/Irwin
Strategic Management, 3/e
99.51
98.84
98.37
71.27
57.12
52.04
42.62
34.23
21.71
3.92
25.00
23.84
23.96
18.93
18.56
14.80
11.47
8.48
3.28
0.00
24.51
25.00
24.41
16.87
13.97
11.91
8.33
5.04
2.75
3.04
Total of Credit
Total
and Access
Debt
to Finance
Indicators Indicators
20.00
20.00
20.00
19.73
9.36
18.51
17.99
19.62
13.85
0.00
30.00
30.00
30.00
15.74
15.23
6.82
4.83
1.09
1.83
0.88
Exhibit 7.3
A Sample of International Country Risk Rankings
Source: Adapted from worldbank.org/html/prddr/trans/so96/art7.htm.
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Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
National Differences in Political
Economy
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Economic Systems
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Market economy: what is produced in
what quantity is determined by
supply/demand and signaled to producers
through a price system
Command economy: planned by
government
Mixed economy: a balance of both of the
above
State-Directed economy: the state
directly influences the investment
activities of private enterprise through
“industrial policy.”
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National Differences in Political
Economy
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A Legal
System is:
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rules - laws - that
regulate behavior
process through
which
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laws are
enforced
grievances are
redressed
Businesses
must observe
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Home country laws
Host country laws
International Laws
and Treaties
Different
Legal
Systems
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Common Law
Civil Law
Theocratic Law
Bureaucratic Law
Dispute
resolution
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Where to
arbitrate?
Validity of
contracts and
decisions
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Legal Systems and International
Business
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Legal Systems and International
Business
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property rights
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use of a resource
use made of income from resource
enforcement issues
Public vs private action violations
protection of Intellectual Property
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patent: inventors’ exclusive rights to manufacture, use,
sale an invention
copyright: same for authors, composers, artists,
publishers
trademarks: unique designs and names, often officially
registered
Paris Convention for the Protection of Industrial
Property (96 countries)
WTO/GATT
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Legal Systems and International
Business
 product
liability
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criminal / civil liability
 contract
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law
document that specifies
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safety and product
conditions under which an exchange will
happen
rights/obligations of parties
differences based on legal
tradition
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common law system
civil law system
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Language and Culture
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Language, spoken
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“private” does not exist as a word in many languages
Eskimos: 24 words for snow
Words which describe moral concepts unique to
countries or areas: “face” in Asian cultures, “filotimo”
in Greece
Spoken language precision important in low-context
cultures
Language, unspoken
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Context... more important than spoken word in low
context cultures
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R
a
n
k
i
n
g
o
u
t
50
Relative Ranking of Four Countries
on Cultural Values
40
30
o
f
5
0
c
o
u
n
t
r
i
e
s
20
10
Power
Distance
Rank Numbers:
1 = Highest; 50 = Lowest
Uncertainty
Avoidance
Individualism
Masculinity
Confucian
Dynamics
Cultural Value Dimension
Source: Adapted from G. Hofstede and M. H. Bond. The Confucius connection:
From cultural roots to economic growth. Organization Dynamics, Spring 1988, pp. 12-13
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Limits to International Expansion:
Management Problems
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Cost of coordination across diverse
geographical business units
Institutional and cultural barriers
Understanding strategic intent of competitors
The overall complexity of competition
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