Dr. Shalini R Tiwari
IMT Ghaziabad
Opportunities and Outcomes of
International Strategy
2
Identifying International Opportunities:
Incentives to Use an International Strategy (IS)
 International Strategy (IS): firm sells its goods or
services outside the domestic market
 Reasons for an IS
 International markets yield potential new opportunities
 International diversification: innovation occurs in home-
country market, especially in an advanced economy, and
demand for product develops in other countries, so
exports provided by domestic organization
 Multinational strategy: Secure need resources
 Other motives exist (i.e., pressure for global integration,
borderless demand for globally branded products)
3
Identifying International Opportunities: Incentives
to Use an International Strategy (IS) (Cont’d)
 Four primary reasons
 1. Increased market size

Domestic market may lack the size to support efficient scale
manufacturing facilities
 2. Return on Investment (ROI)

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
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Identifying International Opportunities: Incentives
to Use an International Strategy (IS)
(Cont’d)
 Four primary reasons (Cont’d)
 3. Economies of Scale and Learning

Expanding size or scope of markets helps to achieve economies of
scale in manufacturing as well as marketing, R&D, or distribution

Costs are spread over a larger sales base

Profit per unit is increased
 4. Location advantages: Low cost markets may…

… aid in developing competitive advantage

… achieve better access to critical resources:

i.e., raw materials, lower cost labor, key customers, energy
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International Strategies (IS)
 Firms choose one or both of two basic type of IS: Business
level and/or corporate level
 International business-level strategy
 Follows generic strategies of cost-leadership,
differentiation, focused or broad
 International corporate-level strategy (N=3)
 Home country usually most important source of
competitive advantage


Resources and capabilities frequently allow firm to pursue
markets in other countries
The determinants of national advantage includes 4 factors
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Determinants of National Advantage
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International Corporate-Level Strategies
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International Strategies (IS)
(Cont’d)
 International corporate-level strategies (N=3) (Cont’d)
 1. Multidomestic
 Decentralized strategic & operating decisions by strategic
business-unit (SBU) in each country allows units to tailor
products to local markets
 Focuses on variations of competition within each country
 Customized products to meet local customers’ specific needs
and preferences
 Takes steps to isolate the firm from global competitive forces


Establish protected market positions
Compete in industry segments most affected by differences among
local countries
 Deals with uncertainty due to differences across markets
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International Strategies (IS)
(Cont’d)
 2. Global
 Firm offers standardized products across country markets,
with the competitive strategy being dictated by the home
office
 Emphasizes economies of scale
 Facilitated by improved global reporting standards (i.e.,
accounting and financial)
 Strategic & operating decisions centralized at home office
10
International Strategies (IS)
(Cont’d)
 2. Global (Cont’d)
 Involves interdependent SBUs operating in each country
 Home office attempts to achieve integration across SBUs,
adding management complexity
 Produces lower risk
 Is less responsive to local market opportunities
 Offers less effective learning processes (pressure to
conform and standardize)
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International Strategies (IS)
(Cont’d)
 3. Transnational
 Firm seeks to achieve both global efficiency and local
responsiveness – these are competing goals!
 Requires both global coordination and local flexibility with this
strategy/structure combination

Flexible Coordination: Building a shared vision and individual
commitment through an integrated network
 Challenging, but becoming increasingly necessary to compete
in international markets
 Growing number of global competitors heightens need to keep
costs down while greater information flow and desire for
specialized products pressures firms to differentiate and even
customize products – nonetheless,
 Increasingly used as a strategy
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Environmental Trends
 Transnational strategy hard to implement
 Two new trends
 1. Liability of foreignness
 Increased after terrorists’ attacks and Iraq War
 Global strategies not as prevalent today, still difficult to
implement even with Internet-based strategies
 Regional focus allows firms to marshal resources to compete
effectively in regional markets
 2. Regionalization
 Focus to a particular region of the world


Increases understanding of market
Trade agreements (I.e., EU, OAS, NAFTA) promote flow of trade
across country boundaries with their respective regions
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International Entry Modes (N = 5)
 Follows the selection of an IS
 Five main entry modes
 1. Exporting
 2. Licensing
 3. Strategic Alliances
 4. Acquisitions
 5. New Wholly-Owned Subsidiary
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International Entry Modes (N = 5)
(Cont’d)
 1. Exporting
 Involves low expense to establish operations in host
country
 Often involves contractual agreements
 Involves high transportation costs
 May have some tariffs imposed
 Offers low control over marketing and distribution
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International Entry Modes (N = 5)
(Cont’d)
 2. Licensing
 Involves low cost to expand internationally
 Allows licensee to absorb risks
 Has low control over manufacturing and marketing
 Offers lower potential returns (shared with licensee)
 Involves risk of licensee imitating technology and product for
own use
 May have inflexible ownership arrangement
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International Entry Modes (N = 5)
(Cont’d)
 3. Strategic Alliances
 Involve shared risks and resources
 Facilitate development of core competencies
 Involve fewer resources and costs required for entry
 May involve possible incompatibility, conflict, or lack of
trust with partner
 Are difficult to manage
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International Entry Modes (N = 5)
(Cont’d)
 4. Acquisitions
 Allow for quick access to market
 Involve possible integration difficulties
 Are costly
 Have complex negotiations and transaction requirements
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International Entry Modes (N = 5)
(Cont’d)
 5. New Wholly-Owned Subsidiary
 Is costly
 Involves complex processes
 Allows for maximum control
 Has the highest potential returns
 Carries high risk
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International Entry Modes (N = 5)
(Cont’d)
 Dynamics of Mode of Entry: Use the best suited to the
situation at hand; affected by several factors
 Export, licensing and strategic alliance: good tactics for
early market development
 Strategic alliance: used in more uncertain situations
 Wholly-owned subsidiary may be preferred if



IP rights in emerging economy not well protected
Number of firms in industry is growing fast
Need for global integration is high
 Acquisitions or greenfield ventures: secure a stronger
presence in international markets
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Strategic Competitive Outcomes (N = 3)
 International diversification: firm expands sales of its
goods or services across the borders of global regions and
countries into different geographic locations or markets
 Implementation follows selection of international
strategy and mode of entry (N=3)
1. International diversification and returns
2. International diversification and innovation
3. Complexity of managing multinational firms
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Strategic Competitive Outcomes (N = 3)
(Cont’d)
 1. International diversification and returns
 As international diversification increases, firms’ returns
initially decrease, but the increase quickly as firm learns to
manage international expansion
 2. International diversification and innovation
 Exposure to new products and markets
 Opportunity to integrate new knowledge into operations
 Generation of resources to sustain innovation efforts
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Strategic Competitive Outcomes (N = 3)
(Cont’d)
 3. Complexity of managing multinational firms
 Geographic dispersion
 Costs of coordination
 Logistical costs
 Trade barriers
 Cultural diversity
 Host government
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Risks in International Environment
 2 major risks
 1. Political
 2. Economic
 Limits to international expansions: management
problems
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Risk in the International Environment
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Risks in International Environment
(Cont’d)
 1. Political risks

Government instability

Conflict or war

Government regulations

Conflicting and diverse legal authorities

Potential nationalization of private assets

Government corruption

Changes in government policies
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Risks in International Environment
(Cont’d)
 2. Economic risks
 Differences and fluctuations in currency values
 Investment losses due to political risks
 Limits to international expansions: management problems
 Geographic dispersion
 Trade barriers
 Logistical costs
 Cultural diversity
 Other differences by country
 Relationship between organization and host country
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The Quest for Competitive
Advantage in Foreign Markets
 Three ways to gain competitive advantage
1. Locating activities among nations in ways that lower
costs or achieve greater product differentiation
2. Efficient/effective transfer of competitively
valuable competencies and capabilities from
company operations in one country to
company operations in another country
3. Coordinating dispersed activities in
ways a domestic-only competitor cannot
Locating Activities to Build a
Global Competitive Advantage
 Two issues
 Whether to

Concentrate each activity in a
few countries or

Disperse activities to many
different nations
 Where to locate activities

Which country is best
location for which activity?
Concentrating Activities to Build
a Global Competitive Advantage
 Activities should be concentrated when
 Costs of manufacturing or other value chain activities are
meaningfully lower in certain locations than in others
 There are sizable scale economies
in performing the activity
 There is a steep learning curve associated
with performing an activity in a single location
 Certain locations have

Superior resources

Allow better coordination of related activities or

Offer other valuable advantages
Dispersing Activities to Build a
Global Competitive Advantage
 Activities should be dispersed when
 They need to be performed close to buyers
 Transportation costs, scale diseconomies, or
trade barriers make centralization expensive
 Buffers for fluctuating exchange rates, supply
interruptions, and adverse politics are needed
Transferring Valuable Competencies to Build a Global
Competitive Advantage
 Transferring competencies, capabilities, and resource
strengths across borders contributes to
 Development of broader competencies and capabilities
 Achievement of dominating depth in some competitively
valuable area
 Dominating depth in a competitively valuable capability is
a strong basis for sustainable competitive advantage
over
 Other multinational or global competitors and
 Small domestic competitors in host countries
Coordinating Cross-Border Activities to Build a
Global Competitive Advantage
 Aligning activities located in different countries
contributes to competitive advantage in several ways
 Choose where and how to challenge rivals
 Shift production from one location to
another to take advantage of most favorable
cost or trade conditions or exchange rates
 Use online systems to collect ideas for new
or improved products and to determine which
products should be standardized or customized
 Enhance brand reputation by incorporating
same differentiating attributes in its
products in all markets where it competes
What Are Profit Sanctuaries?
 Profit sanctuaries are country
markets where a firm
 Has a strong, protected market
position and
 Derives substantial profits
 Generally, a firm’s most strategically
crucial profit sanctuary is its home market
Profit sanctuaries are a valuable
competitive asset in global industries!
Fig. 7.3: Profit Sanctuary Potential of Domestic-Only,
International, and Global Competitors
What Is Cross-Market Subsidization?
 Involves supporting competitive offensives in one market
with resources/profits diverted from operations in other
markets
 Competitive power of cross-market subsidization results
from a global firm’s ability to
 Draw upon its resources and profits in other country markets to
mount an attack on single-market or one-country rivals and
 Try to lure away their customers with




Lower prices
Discount promotions
Heavy advertising
Other offensive tactics
Thank you!
Global Strategic Offensives
Three Options
 Attack a foreign rival’s profit sanctuaries
 Approach places a rival on the defensive, forcing it to




Spend more on marketing/advertising
Trim its prices
Boost product innovation efforts
Take actions raising its costs and eroding its profits
 Employ cross-market subsidization
 Attractive offensive strategy for companies competing in multiple
country markets with multiple products
 Dump goods at cut-rate prices
 Approach involves a company selling goods in foreign markets at prices


Well below prices at which it sells in its home market or
Well below its full costs per unit
Achieving Global
Competitiveness via Cooperation
 Cooperative agreements with foreign companies are a
means to
 Enter a foreign market or
 Strengthen a firm’s competitiveness
in world markets
 Purpose of alliances
 Joint research efforts
 Technology-sharing
 Joint use of production or distribution facilities
 Marketing / promoting one another’s products
Strategic Appeal of Strategic Alliances
 Gain better access to attractive country markets from host






country’s government to import and market products locally
Capture economies of scale in production and/or marketing
Fill gaps in technical expertise or knowledge of local markets
Share distribution facilities and dealer networks
Direct combined competitive energies
toward defeating mutual rivals
Take advantage of partner’s local market
knowledge and working relationships with
key government officials in host country
Useful way to gain agreement on
important technical standards
Pitfalls of Strategic Alliances
 Overcoming language and cultural barriers
 Dealing with diverse or conflicting operating practices
 Time consuming for managers in terms of communication,
trust-building, and coordination costs
 Mistrust when collaborating in
competitively sensitive areas
 Clash of egos and company cultures
 Dealing with conflicting objectives, strategies, corporate values,
and ethical standards
 Becoming too dependent on another firm for essential expertise
over the long-term
Characteristics of Competing
in Emerging Foreign Markets
 Tailoring products for big, emerging markets often
involves
 Making more than minor product changes and
 Becoming more familiar with local cultures
 Companies have to attract buyers with
bargain prices as well as better products
 Specially designed and/or specially
packaged products may be needed to
accommodate local market circumstances
 Management team must usually consist
of a mix of expatriate and local managers
Strategic Options: How to Compete
in Emerging Country Markets
 Prepare to compete on the basis of low price
 Be prepared to modify aspects of
the company’s business model to
accommodate local circumstances
 Try to change the local market to better match the way
the company does business elsewhere
 Stay away from those emerging markets where it is
impractical or uneconomic to modify the company’s
business model to accommodate local circumstances
Fig. 7.4: Strategy Options for Local Companies
in Competing Against Global Challengers
Strategic Options for Local Companies:
Use Home-Field Advantages
 Concentrate on advantages enjoyed in the home
market
 Cater to customers who prefer a local touch
 Accept loss of customers attracted to global brands
 Astutely exploit its local orientation based on
 Familiarity with local preferences
 Expertise in traditional products
 Long-standing customer relationships
 Cater to the local market in ways that
pose difficulties for global rivals
Strategic Options for Local Companies:
Transfer Expertise to Cross-Border Markets
 When a local company trying to defend against a global
challenger has resource strengths and capabilities suitable for
competing in other country markets, then it should consider
 Launching initiatives to transfer its expertise to
cross-border markets
 Becoming more of an international competitor
 Such a move to enter foreign markets can help
 Build a bigger customer base (to offset
any losses in its home market)
 Grow sales and profits
 Put in a stronger position to contend with
global challengers in its home market
Strategic Options for Local Companies: Dodging Rivals
by Shifting to a New Business Model or Market Niche
 When industry pressures to globalize are high, viable strategic
options for a local company trying to defend against global
challengers in its home market include
 Shifting the business to a piece of the industry
value chain where the firm’s expertise/resources
provide a defendable position or maybe even
a competitive advantage
 Entering a joint venture with a globally
competitive partner
 Selling out to a global entrant into its
home market
Strategic Options for Local Companies:
Contend on a Global Level
 If a local company has resources and capabilities that it can
transfer to operations in other countries, it can launch a
strategy aimed at
 Entering markets of other countries as rapidly as possible
 Shifting to a more globalized strategy
 Building brand recognition and a brand
image that extends to more and more
countries
 Gradually establishing the resources and
capabilities to go head-to-head against
large global rivals