7-1
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
Chapter 7
International
Strategy:
Creating Value in
Global Markets
McGraw-Hill/Irwin
Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.
7-3
Learning
Objectives
After studying this chapter, you will have
a good understanding of:
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•
•
•
•
•
The importance of international expansion as a viable
diversification strategy
The sources of national advantage
The benefits and risks associated with international
expansion
The two opposing forces—cost reduction and
adaptation to local markets—that firms face when
entering international markets
The advantages and disadvantages associated with each
of the three basic international strategies—global,
multidomestic, and transnational
The four basic types of entry strategies and their
relative benefits and risks
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
7-4
Exhibit 7.3
2001 Census Statistics
Country
2001 Census
China
1,273,111,290
India
1,029,991,145
Germany
83,030,000
United States
278,058,881
Japan
126,635,626
Sources: U.S. Bureau of the Census. World Population Profile; 2001. Washington: U.S. Government Printing Office, 2001.
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
7-5
The Extremes of Global Capitalism
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•
Exports have surged for two decades
While foreign investment has expanded
. . . But growth has been highly uneven
. . . And poverty is still widespread
Over 40% in South Asia and Sub-Saharan
Africa make less than $1 a day.
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
7-6
Porter’s Determinants of National
Advantage
Factor Conditions
Demand Conditions
Related and Supporting Industries
Firm Strategy, Structure and Rivalry
(Domestic Rivalry)
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
7-7
Exhibit 7.2
India’s Virtual Diamond in Software
Domestic rivalry
Factor
conditions
Large pool of
skilled labor;
low salaries;
Englishlanguage
capability
Source: Kapar, D.
& Ramamurti, R.
2001. India’s
emerging
competitive
advantage in
services. Academy
of Management
Executive, 15(2):
20-31.
No regulatory barriers to entry or startup;
800 firms, mostly small, in fierce rivalry;
growing number of MNC softwaredevelopment centers in India
Domestic
demand
conditions
U.S. demand
conditions
Large, growing market;
sophisticated customers; cuttingedge applications
Related and
supporting
industries
Large network of public and private educational
institutions; weak but rapidly improving
communications infrastructure; duty-free access
to imported computers and software, following
economic liberalization
Note: Dashed lines represent weaker interactions.
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
7-8
Types of Risks Within a Country
Political
Economic
Social
Currency
Management
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
7-9
Exhibit 7.4
A Sample of International Country
Risk Rankings
Political
Risk
Total of
Debt
Indicators
Total of Credit
and Access to
Finance
Indicators
Rank
COUNTRY
Total
Risk
Assessment
1
Luxembourg
99.51
25.00
24.51
20.00
30.00
2
Switzerland
98.84
23.84
25.00
20.00
30.00
3
United States
98.37
23.96
24.41
20.00
30.00
40
China
71.27
18.93
16.87
19.73
15.74
55
Poland
57.12
18.56
13.97
9.36
15.23
63
Vietnam
52.04
14.80
11.91
18.51
6.82
86
Russia
42.62
11.47
8.33
17.99
4.83
114
Albania
34.23
8.48
5.04
19.62
1.09
161
Mozambique
21.71
3.28
2.75
13.85
1.83
178
Afghanistan
3.92
0.00
3.04
0.00
0.88
Economic
Performance
Source: Adapted from http://worldbank.org/html/prddr/trans/so96/art7.htm
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
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Exhibit 7.5
Opposing Pressures and Three
International Strategies
Pressures to Lower Costs
High
Global
strategy
Transnational
strategy
Multidomestic
strategy
Low
Low
High
Pressures for Local Adaptation
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin
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Exhibit 7.6
Strengths and Limitations of Various
International Strategies
Strategy
Strengths
Global
Multidomestic
Transnational
• Strong integration
• Standardization, economies of
scale, lowers costs
• Uniform standards of quality
Limitations
• Limited ability to adapt
• Dependence on a single facility
• Higher tariffs and transportation
costs
• Ability to adapt
• Less ability to realize cost savings
• Ability to detect opportunities • Difficulty in transferring knowledge
• “Overadaptation” as conditions
change
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•
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Economies of scale
Ability to adapt
Activities in optimal locations
Knowledge flows, learning
STRATEGIC MANAGEMENT 
CHAPTER 7
• Unique challenges in determining
optimal locations of activities cost and quality
• Unique managerial challenges in
fostering knowledge transfer
Gregory G. Dess and G. T. Lumpkin
Entry Modes for International Expansion
Extent of Investment and Risk
7-12
Exhibit 7.7
High
Wholly Owned
Subsidiary
Joint Venture
Strategic Alliance
Franchising
Licensing
Exporting
Low
Low
High
Degree of Ownership and Control
STRATEGIC MANAGEMENT 
CHAPTER 7
Gregory G. Dess and G. T. Lumpkin