The Strategic
Management
Process
Figure 1.1
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8–1
Chapter 8: International Strategy
1.Motives and facilitators for international
business
2.Five modes of international entry
3.Basic approaches to international strategy
- Multi-domestic strategy
- Global strategy
- Transnational strategy
1.Notable obstacles, challenges, and risks of
international expansion
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8–2
International Expansion
Motives
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Facilitators
8–3
Opportunities and Outcomes of International Strategy
Figure 8.1
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8–4
International Expansion - Major Motives
• Increased market size
• Increased return on investment
• Economies of scale/learning curve
• Location advantages
- factors of production
- country infrastructure
- trade restrictions/legal advantages
- access to customers
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8–5
ROI pressures drive international expansion• Increasingly costly R&D
• More rapid pace of imitation and product
obsolescence (hypercompetition)
• Global difficulties with intellectual property
laws
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8–6
Determinants of National Advantage
SOURCE: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group,
from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright ©1990, 1998 by Michael E. Porter.
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Figure 8.2
8–7
Outsourcing/”Off-shoring”
The good, the bad, and the ugly . . . .
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8–8
International Expansion - Major Facilitators
• Technology
• Mobility
• Increased demand homogeneity worldwide
• Comfort with (embrace of) diversity
• Global industrialization
• Capitalism
• Falling trade barriers
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8–9
Opportunities and Outcomes of International Strategy
Figure 8.1
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8–10
Choice of International Entry Mode (pg.248)
Type of Entry
Characteristics (+; -)
Exporting
Incremental start; High cost, low control
Licensing
Low cost, low risk; Little control, lower
returns (royalty payments)
Strategic alliances
Shared costs, resources, and risks;
Cultural differences, integration problems,
Acquisition
Quick access to new market, new product,
existing distribution and employees; High
cost, complex negotiations, regulatory
restrictions, integration problems
New wholly owned
subsidiary
Maximum control, potentially the most
profitable; Complex, costly in time and
money, high risk
Table 8.1
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8–11
Opportunities and Outcomes of International Strategy
Figure 8.1
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8–12
Selecting a Basic (“Corporate-Level”)
International Strategy
• Impacts the selection and implementation of
strategies in specific countries
 Some strategies provide individual country units
with the flexibility to choose their own strategies
 Others dictate country-level strategies from
headquarters, and coordinate resource sharing
across units in different countries
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8–13
Basic
International
Strategies
Figure 8.3
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8–14
Multidomestic Strategy
• Strategy, marketing, and operating
decisions are decentralized to business
units in each country (or region)
• Products and services are tailored to
local markets
• Business units in one country are
independent of units elsewhere
• Assumes that markets differ by country
or region
• Focus on competition in each market
• Prominent strategy among European
firms due to broad variety of cultures and
markets in Europe
• Also important for products where
national culture strongly influences
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purchasing/usage habits
8–15
Global Strategy
• Products are standardized across
national markets
• Decisions regarding strategies,
marketing, and operations are centralized
in the home office
• Business units are assumed to be
interdependent
• Emphasizes economies of scale
• Often lacks responsiveness to local
markets
• Requires resource sharing and
coordination across borders (can be
complex and difficult to manage)
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8–16
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
• Organizational learning,
organizational information
processing, and flexible
manufacturing skills important
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8–17
EvolutionaryTrends in International Strategy
1. Domestic strategy
2. Multi-Domestic strategy - to build market
acceptance and international skills
3. Global strategy - to build efficiency and
dominance
4. Transnational strategy - to be it all!
5. Regionalization - recognition that global
strategies are difficult to implement and may
not be as effective as previously thought returning attention to individual market and
cultural variations
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8–18
Obstacles/Challenges to Internationalization
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8–19
International Expansion (“Diversification”):
Performance Outcomes
• High potential for increased returns
(from both revenue and cost sides)
• Expanded incentives for innovation
• Benefits can be eroded by increased risk
and management complexities
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8–20
Risk in the International Environment
Political Risks
Economic Risks
Political risks include:
• Instability in national governments
• War, both civil and international
• Potential nationalization of a firm’s resources
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8–21
Risk in the International Environment
Figure 8.4a
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8–22
Risk in the International Environment
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
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8–23
Risk in the International Environment
(cont’d)
Figure 8.4b
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8–24
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 and the
business environment
 Shortage of internationally equipped leadership
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8–25