International Strategy

1. Chapter 9 International Strategy Robert E. Hoskisson Michael A. Hitt R. Duane Ireland ©2004 by South-Western/Thomson Learning

2. The Strategic Management Process Chapter 1 Introduction to Strategic Management Chapter 2 Strategic Leadership Strategic Thinking Chapter 3 The External Environment Chapter 4 The Internal Organization Strategic Intent Strategic Mission Strategic Analysis Chapter 5 Business-Level Strategy Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 7 Corporate-Level Strategy Creating Competitive Advantage Chapter 8 Acquisitions and Restructuring Strategies Chapter 8 Acquisition and Restructuring Strategies Chapter 9 International Strategy Chapter 9 International Strategy Chapter 10 Cooperative Strategy Monitoring And Creating Entrepreneurial Opportunities Chapter 11 Corporate Governance Chapter 12 Strategic Entrepreneurship

3. Opportunities and Outcomes of International Strategy Identify International Opportunities Explore Resources and Capabilities Use Core Competence International Strategies Modes of Entry Increased market size Return on investment Economies of scale and learning Advantage in location International business-level strategy Multidomestic strategy Global strategy Transnational strategy Exporting Licensing Strategic alliances Acquisitions Establishment of a new subsidiary

4. Management problems and risk Management problems and risk Opportunities and Outcomes of International Strategy: Continued Use Core Competence Strategic Competitiveness Outcomes Modes of Entry Better performance Exporting Licensing Strategic alliances Acquisitions Establishment of a new subsidiary Innovation Return to Discussion Questions Click Here

5. Motivations for International Expansion • Increase Market Share • domestic market may lack the size to support efficient scale manufacturing facilities • Return on Investment • 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

6. Motivations for International Expansion • Economies of Scale or Learning • 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 • low cost markets may aid in developing competitive advantage • may achieve better access to: • Raw materials • Lower cost labor • Key customers • Energy

7. Factors of production Firm strategy, structure, and rivalry Demand conditions Related and supporting industries International Business-Level Strategy: Determinants of National Advantage

8. International Business-Level Strategy: Determinants of National Advantage • Factors of production: the inputs necessary to compete in any industry • labor • land • natural resources • capital • infrastructure • basic factors include natural and labor resources • advanced factors include digital communication systems and educated workforce

9. 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 • size of market segment can lead to scale-efficient facilities • efficiency can lead to domination of the industry in other countries • specialized demand may create opportunities beyond national boundaries

10. International Business-Level Strategy: Determinants of National Advantage • Related and supporting industries: supporting services, facilities, suppliers and so on • support in design • support in distribution • related industries as suppliers and buyers

11. International Business-Level Strategy: Determinants of National Advantage • Firm strategy, structure, and rivalry: the pattern of strategy, structure, and rivalry among firms • common technical training • methodological product and process improvement • cooperative and competitive systems

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

13. International Corporate-Level Strategy • 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

14. Multidomestic strategy International Corporate-Level 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 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

15. Europe United States Middle East/ Africa Asia Australia Latin America Multinational Headquarters Worldwide Geographic Area Structure: Multidomestic Strategy • 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

16. Global strategy International Corporate-Level 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

17. Worldwide Products Division Worldwide Products Division Worldwide Products Division Worldwide Products Division Worldwide Products Division Worldwide Products Division Global Corporate Headquarters Worldwide Product Divisional Structure: Global Strategy • standardized products across countries • economies of scope and scale • outsource some primary or support activities to the world’s best providers • decision-making authority centralized in worldwide division headquarters

18. Transnational strategy International Corporate-Level Strategy: Transnational Strategy • Seeks to achieve both global efficiency and local responsiveness • 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

19. Using the Combination Structure: Transnational Strategy • The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures • local responsiveness (multidomestic strategy) • global efficiency (global strategy)

20. Environmental Trends • Liability of Foreignness • security risks • tighter immigration policies • Regionalization • 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

21. Global Market Entry: Choice of Entry Mode Type of Entry Characteristics Exporting High cost, low control Licensing Low cost, low risk, little control, low returns Strategic alliances Shared costs, shared resources, shared risks, problems of integration Acquisition Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations New wholly owned subsidiary Complex, often costly, time consuming, high risk, maximum control, potential above-average returns

22. 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 • 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

23. Value Creation Outcomes: Innovation • 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

24. Risks in an International Environment Political Risks Political Risks Economic Risks • Political risks include • instability in national governments • war, both civil and international • potential nationalization of a firm’s resources

25. Risks in an International Environment Political Risks 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

26. Limits to International Expansion: Management Problems • Cost of coordination across diverse geographical business units • Institutional and cultural barriers • Understanding strategic intent of competitors • The overall complexity of competition