International Strategy

Chapter Nine

© 2006 by Nelson, a division of Thomson Canada Limited. 9-1

 Chapter 3
External The Strategic
Strategic
Inputs
Environment Strat. Intent
Management .

Chapter 4 Strat. Mission

Internal Process
Environment

Strategy Formulation Strategy Implementation

Strategic Actions

Chapter 5 Chapter 6 Chapter 7 Chapter 11 Chapter 12

Bus. - Level Competitive Corp. - Level Corporate Structure
Strategy Dynamics Strategy Governance & Control

Chapter 8 Chapter 9 Chapter 10 Chapter 13 Chapter 14

Acquisitions & International Cooperative Strategic Entrepreneurship
Restructuring Strategy Strategies Leadership & Innovation
Outcomes
Strategic

Chapter 2 Chapter 1 Feedback

Above Average Strategic
Returns Competitiveness

© 2006 by Nelson, a division of Thomson Canada Limited. 9-2

 International Strategy

Knowledge Objectives
1. Explain the traditional and emerging motives for firms
to pursue international diversification.
2. Explore the four factors that lead to a basis for
international business-level strategies.
3. Define the three international corporate-level
strategies: multidomestic, global, and transnational.
4. Discuss the environmental trends affecting
international strategy, especially liability of foreignness
and regionalization.

© 2006 by Nelson, a division of Thomson Canada Limited. 9-3

 International Strategy

Knowledge Objectives cont’d…

5. Name & describe the five alternative modes for
entering international markets.
6. Explain the effects of international diversification on
firm return and innovation.
7. Name and describe two major risks of international
diversification.
8. Explain why the positive outcomes from international
expansion are limited.

© 2006 by Nelson, a division of Thomson Canada Limited. 9-4

 International Strategy Opportunities & Outcomes
Identify Explore Use Core Strategic
International Resources & Competence Competitiveness
Opportunities Capabilities Outcomes
International Modes of Management
Strategies Entry Problems, Risk,
and First Steps
Increased International Exporting
Market Size Bus.-Level
Strategy Higher
Return on Licensing
Performance
Investment Multidomestic Returns
Strategic
Strategy
Economies Alliances
of Scale and Global
Acquisition Innovation
Learning Strategy
Location Transnational Establishment
Advantage Strategy of New Sub.
Management
Problems, Risk,
and First Steps

© 2006 by Nelson, a division of Thomson Canada Limited. 9-5

 Benefits of International Strategies

• Increased market size.

• Greater returns on major capital investments or
new products or processes.
• Greater economies of scale, scope or learning.
• A competitive advantage through location.

© 2006 by Nelson, a division of Thomson Canada Limited. 9-6

 International Strategy Opportunities & Outcomes
Identify Explore Use Core Strategic
International Resources & Competence Competitiveness
Opportunities Capabilities Outcomes
International Modes of Management
Strategies Entry Problems, Risk,
and First Steps
Increased International Exporting
Market Size Bus.-Level
Strategy Higher
Return on Licensing
Performance
Investment Multidomestic Returns
Strategic
Strategy
Economies Alliances
of Scale and Global
Acquisition Innovation
Learning Strategy
Location Transnational Establishment
Advantage Strategy of New Sub.
Management
Problems, Risk,
and First Steps

© 2006 by Nelson, a division of Thomson Canada Limited. 9-7

 International Strategies

• International Business Level Strategies

• International Corporate Level Strategies
– Multi-domestic Strategy
– Global Strategy
– Transnational Strategy

© 2006 by Nelson, a division of Thomson Canada Limited. 9-8

Determinants of National Advantage

© 2006 by Nelson, a division of Thomson Canada Limited. 9-9

 Determinants of National Advantage
• Factors of Production
– Inputs – Labour, land, natural resources, capital & infrastructure
• Demand Conditions
– The nature and size of he buyers needs in the home market of
goods & services
• Related & Supporting Industries
– Industries in which the target country is considered the leader
eg. Italy - shoes with a supporting leather industry,
Japan - cameras & photocopiers,
Denmark - diary & an industry focused on food enzymes.
• Firm Strategy, Structure & Rivalry make up
– Germany focused on methodical product & process improvements,
– Italy’s national pride of designers helped spawn fashion apparel,
furniture & sports car industries.

© 2006 by Nelson, a division of Thomson Canada Limited. 9-10

International Corporate-Level Strategy

© 2006 by Nelson, a division of Thomson Canada Limited. 9-11

International Corporate-Level Strategy

• Multi-domestic Strategy
– Strategic & operating decisions are decentralized
to the strategic business unit in each country to
tailor products to the local market.

© 2006 by Nelson, a division of Thomson Canada Limited. 9-12

International Corporate-Level Strategy
• Multi-domestic Strategy
– Strategic & operating decisions are decentralized to
the strategic business unit in each country to tailor
products to the local market.
• Global Strategy
– Assumes more standardization of products across
country markets
• Transnational Strategy
– The firm seeks to achieve both global efficiency and
local responsiveness

© 2006 by Nelson, a division of Thomson Canada Limited. 9-13

 International Strategy Opportunities & Outcomes
Identify Explore Use Core Strategic
International Resources & Competence Competitiveness
Opportunities Capabilities Outcomes
International Modes of Management
Strategies Entry Problems, Risk,
and First Steps
Increased International Exporting
Market Size Bus.-Level
Strategy Higher
Return on Licensing
Performance
Investment Multidomestic Returns
Strategic
Strategy
Economies Alliances
of Scale and Global
Acquisition Innovation
Learning Strategy
Location Transnational Establishment
Advantage Strategy of New Sub.
Management
Problems, Risk,
and First Steps

© 2006 by Nelson, a division of Thomson Canada Limited. 9-14

 Choice of International Entry Mode
Exporting
Common way to enter new international markets.
No need to establish operations in other nations.
Establish distribution channels through contractual
relationships.
May have high transportation costs.
May encounter high import tariffs.
May have less control on marketing and distribution.
Difficult to customize product.
© 2006 by Nelson, a division of Thomson Canada Limited. 9-15
 Choice of International Entry Mode
Licensing

Firm authorizes another firm to

manufacture & sell its products -
Licensing firm is paid a royalty on each unit
produced and sold.
Licensee takes risks in manufacturing investments.
Least risky way to enter a foreign market.
Licensing firm loses control over product quality &
distribution.
Relatively low profit potential.
© 2006 by Nelson, a division of Thomson Canada Limited. 9-16
 Choice of International Entry Mode

Strategic Alliances
Enable firms to shares risks and
resources to expand into international ventures.
Most joint ventures (JVs) involve a foreign corp. with
a new product or technology & a host company with
access to distribution or knowledge of local customs,
norms or politics.
May experience difficulties in merging disparate
cultures.
May not understand the strategic intent of partners
or experience divergent goals.
© 2006 by Nelson, a division of Thomson Canada Limited. 9-17
 Choice of International Entry Mode
Acquisitions

Enable firms to make most rapid international

expansion.
Can be very costly.
Legal and regulatory requirements may
present barriers to foreign ownership.
Usually require complex and costly
negotiations.
Potentially disparate corporate culture.
© 2006 by Nelson, a division of Thomson Canada Limited. 9-18
 Choice of International Entry Mode
New Wholly-Owned Subsidiary –
Greenfield Venture

Most costly & complex of entry alternatives.

Achieves greatest degree of control.
Potentially most profitable, if successful.
Maintain control over technology, marketing and
distribution.
May need to acquire expertise & knowledge that
is relevant to host country.
Could require hiring host country nationals or
consultants at high cost.
© 2006 by Nelson, a division of Thomson Canada Limited. 9-19
Strategic Competitiveness Outcomes
International diversification facilitates
innovation in the firm.
Provides larger market to gain more and faster
returns form investments in innovation.
May generate resources necessary to sustain a
large-scale R&D program.
Generally related to above-average returns,
assuming effective implementation and
management of international operations.
International diversification provides greater
economies of scope and learning.
© 2006 by Nelson, a division of Thomson Canada Limited. 9-20
 International Strategy Opportunities & Outcomes
Identify Explore Use Core Strategic
International Resources & Competence Competitiveness
Opportunities Capabilities Outcomes
International Modes of Management
Strategies Entry Problems, Risk,
and First Steps
Increased International Exporting
Market Size Bus.-Level
Strategy Higher
Return on Licensing
Performance
Investment Multidomestic Returns
Strategic
Strategy
Economies Alliances
of Scale and Global
Acquisition Innovation
Learning Strategy
Location Transnational Establishment
Advantage Strategy of New Sub.
Management
Problems, Risk,
and First Steps

© 2006 by Nelson, a division of Thomson Canada Limited. 9-21

Risks in the International Environment

© 2006 by Nelson, a division of Thomson Canada Limited. 9-22

 Major Risks of
International Diversification
Political Risk
National government instability may create
potential problems for internationally
diversified firms.
Potential changes in attitudes or
regulations regarding foreign ownership.
Legal authority obtained from previous
administration may become invalid.
Potential for nationalization of firms’ assets.
© 2006 by Nelson, a division of Thomson Canada Limited. 9-23
 Major Risks of International
Diversification

Economic Risk
Econ. risks are interdependent with political risks.
Differences and fluctuations in international
currencies may affect value of assets & liabilities.
This affects prices & thus ability to compete.
Differences in inflation rates may affect inter-
nationally diversified firms’ ability to compete.
Enforcing intellectual property rights on CDs,
software, etc.
© 2006 by Nelson, a division of Thomson Canada Limited. 9-24