International Strategies

1. International Strategies

2. Knowledge Objectives • Studying this chapter should provide you with the strategic management knowledge needed to: • Explore the four factors that lead to a basis for international business-level strategies. • Identify the business-level international strategies. • Identify the corporate-level international strategies.

3. Opportunities and Outcomes of International Strategy Figure 8.1

4. 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 • Increased market size • Return on Investment • Economies of Scale and Learning • Location Advantage

5. International Strategy Benefits 1. Increased market share • Domestic markets may lack the size to support efficient scale manufacturing facilities and these markets may also have limited growth opportunities. • Firms can expand the size of their potential market by moving into international markets.

6. International Strategy Benefits 2. Return on investment • The primary reason for investing in international markets is to earn above-average returns on investments. • International expansion can enable firms to recover significant capital investments quickly and generate above average returns on investments.

7. International Strategy Benefits 3. Economies of scale or learning • By expanding their markets, firms are able to enjoy economies of scale in their manufacturing operations through: a). Standardizing products and using similar production facilities across borders; b). Exploiting core competencies in international markets through resource and knowledge sharing between units across country borders –helps to product higher quality goods at lower costs.

8. International Strategy Benefits 4. Competitive advantage through location • Firms located in other countries may result in lower costs of goods or services provided because of easier access to: • Raw materials • Lower cost labor • Energy • Other advantages include access to customers.

9. International Strategies 1. Business-Level International Strategies • Cost leadership strategies • Differentiation strategies • Focus strategies

10. 1. Business-Level Strategiesa) Cost Leadership Strategy Exploit economies of scale to have the lowest cost structure of any competitor in an industry Mantra is cutting costs Scale is barrier for new entrants Perhaps low customer loyalty

11. a). Cost Leadership Strategies • An integrated set of actions take to produce good or services with features that are acceptable to customers, relative to those of the competitors at the lowest cost. • Firms using this strategy attempt to have the industry's overall low-cost position. • This allows them to compete on the basis of price in all markets. • Usually located in home country and export to international markets.

12. Differentiators Quality Brand image Product design • Business-Level Strategies b) Differentiation Strategy Design products to be perceived as unique by buyers throughout an industry Effects Price premium Customer loyalty Portion of market only Higher production costs

13. b). Differentiation Strategies • An integrated set of actions taken to produce goods and services that customers perceive as unique within its market. • This strategy has the firm compete on the basis of offering different products and services in each country. • While the cost to the consumer of these products may be higher they are willing to pay a premium for the differences that exist or appear to exist.

14. 1. Business-Level Strategies c) Focus Strategy Focus on narrowly defined market segment by being the low-cost leader, differentiating, or both Many sub-segments today Need distinctive product Specific geography, ethnicity, etc.

15. c). Focus Strategies • An integrated set of actions that involves firms concentrating their products/services on a particular customer group, product line, geographical area or market niche. • Companies using this strategy do not deal with all countries available to them and/or they deal only with smaller customer segments in the world.

16. International Strategies • Corporate-level Strategy (Companywide) • Corporate level strategies refer to specific actions taken to develop and extend the firm’s competitive advantage to other activities or lines of business. • Such strategies are used when the firm operates in multiple industries, multiple countries or regions.

17. Corporate Level Strategies Three types: • Multidomestic • Transnational • Global

18. 1. Multidomestic Strategy • Products and services are tailored to local markets. • Assumes markets differ by country or regions and so customizes its products to meet the specific needs and preferences of local customers. • Strategic and operating decisions are decentralized to strategic business units (SBU) in each country to allow each unit to tailor products to the local market.

19. Europe United States Middle East/ Africa Asia Australia Latin America Multinational Headquarters Multidomestic Strategy • Competitive advantage is built in each separate national or regional market. • Markets and subunits are treated independently from one another. • Decentralized controls of activities, reporting back to headquarters.

20. Multidomestic Strategy • The firm can customize its products to meet the specific needs and preferences of local customers. • Respond quickly to • buyer preferences – Difficult to exploit economies of scale – Uncertainty

21. 2. Global Strategy • The firm offers standardized products across country markets. • Competitive strategies are centralized and controlled by the corporate office.

22. HQ Global Strategy of Expansion Exhibit 7-7 • Mutually interdependent subsidiaries • Centralized control and reporting of activities

23. Global Strategy + Advantages • Enables economies of scales. • Innovations developed in one country or the corporate office can be transferred more easily to other locations. • Standard level of quality in products throughout the world. - Disadvantages • Lacks responsiveness to local markets. • Difficult to coordinate strategies and operations across the different countries.

24. 3. Transnational Strategy • The firm combines both multidomestic and global strategies in order to emphasize both local responsiveness and global integration and coordination. • Difficult to achieve because of simultaneous requirements: • Strong central control and coordination to achieve efficiency • Decentralization to achieve local market responsiveness

25. Global strategy Transnational strategy Multidomestic strategy International Corporate-Level Strategies High Need for Global Integration Low Low High Need for Local Responsiveness