INTERNATIONAL LEVEL STRATEGY
WHY FIRMS GO INTERNATIONAL??
1. DOMESTIC MARKET SATURATION
• Oversupply and excess capacity
• Indigenous Demand Slackening
• Declining phase
2. HEDGING BUSINESS RISKS
• Scope widening to fight adverse trends
• Balancing cash flow pattern
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INTERNATIONAL LEVEL STRATEGY
3. HUGE MARKET POTENTIAL
• International market scope attractive
• Chronic product shortage
• Better value of product
4. ECONOMICS OF SCALE & LEARNING
• Knowledge Transfer
• Access to superior technology, RMs
5. Conducive “SLEPT” Environment
• Political Stability
• Market Access
• Taxation Policies
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INTERNATIONAL STRATEGY: Types and Content
1. BUSINESS LEVEL STRATEGY
•
Resources & Capabilities Established allow the firm to pursue strategies
in overseas markets
MICHAEL PORTER FRAMEWORK
Factors of
Production
Strategy, Structure
& Control
Systems Process
Expertise of Workforce
Land, Labour, Capital and
Infrastructure
Compete by Leveraging
Demand Situation
Related and
Supporting Industries
Italy
• Shoe Industry Supply of
Leather, Machinery,
Design Services
• Healthy Demand
• Viable Segment
• Scale Efficient Facilities
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1. INTERNATIONAL COST LEADERSHIP
•
Low cost strategy in nations with huge demand
•
Centralize operations and obtain scale economies
e.g. WALMART Globalize Operations at Low cost
- Operational Efficiency
•
Customize and Adapt Products to satisfy local tastes
e.g. VOLKSWAGEN  Launch in China
2. INTERNATIONAL DIFFERENTIATION STRATEGY
•
Advanced and Specialized Factor Endowments
•
Differentiate Products and Services Through
•
Physical Characteristics, Features, Attributes
•
Advertising and brand differentiation
•
Positioning in the minds of consumers
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INTERNATIONAL CORPORATE LEVEL STRATEGY
• Individual Country Units Develop Nation Specific Strategies or
Corporate Dictate Strategies
1. INTERNATIONAL INTEGRATED STRATEGY
• Strategic and Operating Decisions are Decentralized
• “PEST” Conditions are Diverse Therefore Tailor Products to
fulfill local market tastes
• However, Diseconomies of scale can make operations more costly
• Different markets Diverse Strategies  Uncertainty
2. GLOBAL STRATEGY
• Strategic and Business Decisions are Centralized
• Standardized Products Across Global Markets
• High Economies of Scale and low costs
• Lacks Differentiation and Adaptation Across Borders
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CHOICE OF INTERNATIONAL ENTRY
International presence Accomplished Through Exporting, Licensing, Alliances,
Wholly Owned Units
1. EXPORTING  PROBLEMS??
•
High transportations/ freight costs
•
Tariff and non tariff barriers
•
Common economic zones (e.g. NAFTA EU)
Low cost products  Developed countries.
Differentiated products  emerging markets
2. LICENSING: Purchase the right to manufacture
and sell products within host country
3. ALLIANCES  Risk sharing, competency pooling removing cultural roadblocks
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CHOICE OF INTERNATIONAL ENTRY
4. WHOLLY OWNED  SUBSIDIARY  FULL OWNERSHIP (FDI)
Long Term
100 %
Owned &
Controlled
Outfit
Ownership
Quick
Access
JV/
Alliances
Licensing
0%
Franchisin
g
CONTROL
Contract
100%
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STRATEGIC COMPETITIVE OUTCOMES
STRATEGY  MODE OF ENTRY  OVERALL SUCCESS
1. DIVERSIFICATION AND RETURNS
•
Firm Expands sales  Across Countries  Different Location
•
Incentives are manifold
•
High Returns and Earnings
•
Economies of scale
•
Locational Advantages
•
Increased Market Size
(e.g. Japanese Automobile Firms - Sharing Knowledge Yields
Synergy)
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STRATEGIC COMPETITIVE OUTCOMES
2. DIVERSIFICATION AND INNOVATIONS
•
Development of new technology  Competitiveness
•
Innovate, Improve and Upgrade Operations and Products.
Product Diversification
International Diversification
Innovations
High Returns
Managing to Cope with Complexity
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