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INTERNATIONAL

STRATEGY
ENVIRONMENT PERSPECTIVE

KNOWLEDGE OBJECTIVES
1. Identifying International Opportunities: Incentives to use an
International strategy
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. Choices of International Entry Mode
5. Strategic Competitive outcomes
6. Risks in an International Environments

WHAT IS INTERNATIONAL
STRATEGY?
An international strategy is a
strategy through which the firm sells
its goods or services outside its
domestic market" (Hill 378). One of
the primary reasons for
implementing an international
strategy (as opposed to a strategy
focused on the domestic market) is
that international markets yield
potential new opportunities

WHY - INTERNATIONAL STRATEGY?


International strategy is important because it will establish
the product or service as a competitive product among
other products of the international country and could
garner major profits for the company releasing the product
or service.
Give support to potential international operations which
will give growth to the company and increase profits on the
bottom line.
Strategy is important overall because it is the only way to
effectively use the resources the company has in order to
increase profits and use the least amount of resources
possible.
Domestic strategic planning only includes the product and
strategy that has to do with that product and target
markets.
International strategic planning includes different cultures
so for each culture the product may have to be modified.

International Strategy Opportunities &


Outcomes

Identify
Internationa
l
Opportunitie
s

Explore
Resources
&
Capabilities

Use Core
Competenc
e

Internatio
nal

Modes of
Entry

Increased
Market
Size
Return on
Investmen
t
Economies
of Scale
and
Learning
Location
Advantage

Strategies
Internation
al
Bus.-Level
Strategy
Multidomes
tic Strategy

Exporting

Global
Strategy
Transnation
al Strategy

Licensing
Strategic
Alliances

Strategic

Competitive
ness
Outcomes
Management
Problems,
Risk,and First
Steps
Higher
Performanc
e Returns

Acquisitio
Innovatio
n
n
Establishme
nt of New
Sub.
Management
Problems,
Risk,
and
First Steps

IDENTIFY INTERNATIONAL
OPPORTUNITIES
Mainly for three reasons firms go international
1. Lower Production cost

E.g. :- Clothing, Electronics, watch making

2. To secure needed resources

E.g.:- Gems & Jwellery (Europe:- Roseyblu, Eurostar),


Minerals and Energy

3. To extend a product`s life cycle

E.g.:- Bajaj Auto (Sri Lanka, Bangladesh & China)

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.

1. INCREASED MARKET SIZE


Expand the size of potential market
Ex. General motors- Asia, Pharmaceutical Firms
(85% Firms)- FDI- China

Firms competing in Domestic markets have


limited growth opportunities
Ex. Pepsi and Coca-cola

Invest in R&D to build competitive advantaages


Ex. Ranbaxy in Africa

2. RETURN ON INVESTMENT
Large markets needs heavy
investment
Ex.: R&D, Plant and capital

Reverse Engineering
Above average return on
Investments

3. ECONOMIES OF SCALE AND


LEARNING
Economies of scale:- Refers to reduction in unit cost by

producing a large volume of a product


Firm can standardize products across country Borders
Ex. Production and R&D across country---Pepsi & coke

Allow price their product competitively to gain


market share
Ex. Automobile Industry such as Toyota, GM

Exploit core competencies in international markets

4. LOCATION ADVANTAGES
Lower the basic costs of the goods
and services
Lower labour cost, energy and
natural resources
Access to critical suppliers and to
customers
Help to earn positive returns.
Ex.: GM- Asia
Help in differentiation of products from
competitors

International Strategy Opportunities &


Outcomes
Identify
Internationa
l
Opportunitie
s
Increased
Market
Size
Return on
Investmen
t
Economies
of Scale
and
Learning
Location
Advantage

Explore
Resources
&
Capabilities

Internatio
nal
Strategies
Internation

al
Bus.-Level
Strategy
Multidomes
tic Strategy
Global
Strategy
Transnation
al Strategy

Use Core
Competenc
e

Modes of
Entry
Exporting
Licensing
Strategic
Alliances
Acquisitio
n
Establishme
nt of New
Sub.

Strategic

Competitive
ness
Outcomes
Management
Problems, Risk,
and First Steps
Higher
Performanc
e Returns

Innovatio
n
Management
Problems,
Risk,
and
First Steps

International Strategies
International Business Level
Strategies
International Corporate Level
Strategies
Multi-domestic Strategy
Global Strategy
Transnational Strategy

International Business Level Strategies

International Low Cost

Usually located in home country


Export to international markets
Low value added operations in foreign countries
High value added operations in home country

International Differentiation
Countries with advanced or specialized factor
conditions most likely to use this strategy

Example: Japan, Germany, U.S.

International Business Level Strategies


International Focus Strategies
Technologically advanced firms follow focused low cost
strategy
Focused differentiation firms compete on the basis of
image & design
Third group competes on low price by imitating

International Integrated Low


Cost/Differentiation
Can be most effective in dealing with diverse markets
Often relies upon flexible manufacturing, total quality
management or rapid communication networks

Corporate-Level International Strategies


Type of Corporate Strategy selected will have an
impact on the selection and implementation of the
business-level strategies
Some Corporate strategies provide individual
country units with flexibility to choose their own
strategies
Others dictate business-level strategies from the
home office and coordinate resource sharing across
units

Three
Corpora
te
Strategi

Multi-Domestic
Strategy
Global Strategy
Transnational

Multi-domestic Strategy

Strategy and operating decisions are decentralized


to strategic business units (SBU) in each country.
Products and services are tailored to local markets
Business units in each country are independent of
each other
Assumes markets differ by country or regions
Focus on competition in each market

Global Strategy

Products are standardized across national markets


Decisions regarding business-level strategies are
centralized in the home office
Strategic business units (SBU) are assumed to be
interdependent
Often lacks responsiveness to local markets
Requires resource sharing and coordination across
borders (which also makes it difficult to manage)

Transnational Strategy
Seeks to achieve both global efficiency and
local responsiveness
Difficult to achieve because of simultaneous
requirements for strong central control and
coordination to achieve efficiency and local
flexibility and decentralization to achieve
local market responsiveness
Eg.FORD

The Advantages and Disadvantages of Different


Strategies for Competing Globally
Strategy

Advantages

Disadvantages

International

Transfer of distinctive competencies


to foreign markets

Lack of local responsiveness


Inability to realize location economies
Failure to exploit experience-curve
effects

Multidomestic

Ability to customize product offerings


and marketing in accordance with
local responsiveness

Inability to realize location economies


Failure to exploit experience-curve
effects
Failure to transfer distinctive
competencies to foreign markets

Global

Ability to exploit experience-curve


effects
Ability to exploit location economies

Lack of local responsiveness

Transnational

Ability to exploit experience-curve


effects
Ability to exploit location economies
Ability to customize product offerings
and marketing in accordance with
local responsiveness
Reaping benefits of global learning

Difficulties in implementation because


of organizational problems

International Corporate-Level Strategy

HIGH

When is each strategy


appropriate?

NEED FOR
GLOBAL
INTEGRATIO
N

MULTIDOM
-ESTIC
STRATEGY
LOW
LOW

HIGH
NEED FOR LOCAL RESPONSIVENESS

International Corporate-Level Strategy

HIGH

When is each strategy


appropriate?
GLOBAL
STRATEG
Y

NEED FOR
GLOBAL
INTEGRATIO
N

MULTIDOM
-ESTIC
STRATEGY
LOW
LOW

HIGH
NEED FOR LOCAL RESPONSIVENESS

International Corporate-Level Strategy

HIGH

When is each strategy


appropriate?
GLOBAL
STRATEG
Y

NEED FOR
GLOBAL
INTEGRATIO
N

TRANSNAT
I-ONAL
STRATEGY

MULTIDOM
-ESTIC
STRATEGY
LOW
LOW

HIGH
NEED FOR LOCAL RESPONSIVENESS

nternational
nternational Strategy
Strategy Opportunities
Opportunities &
& Outcomes
Outcome
Identify
Internationa
l
Opportunitie
s

Explore
Resources
&
Capabilities

Use Core
Competenc
e

Internatio
nal

Modes of
Entry

Increased
Market
Size
Return on
Investmen
t
Economies
of Scale
and
Learning
Location
Advantage

Strategies
Internation
al
Bus.-Level
Strategy
Multidomes
tic Strategy

Exporting

Global
Strategy
Transnation
al Strategy

Licensing
Strategic
Alliances

Strategic

Competitiveness
Outcomes
Management
Problems,
Risk,and First
Steps
Higher
Performanc
e Returns

Acquisitio
Innovatio
n
n
Establishme
nt of New
Sub.
Management
Problems,
Risk,
and
First Steps

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.

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.

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.
Eg. Maruti udyog and suzuki.
Dow Jones and Bennett and Coleman & co. Ltd.

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.

Choice of International Entry


ModeNew Wholly-Owned Subsidiary
Most costly & complex of entry
alternatives.
Achieves greatest degree of control.
Potentially most profitable, if
successful.
Maintain
control
technology,
Could require
hiring over
host country
nationals
or consultants
at high cost.
marketing
and distribution.
May need to acquire expertise &
knowledge that is relevant to host

The Advantages and Disadvantages of Different Entry Modes


Entry Mode

Advantages

Disadvantages

Exporting

Ability to realize location and


experience-curve economies

High transport costs


Trade barriers
Problems with local marketing agents

Licensing

Low development costs and risks

Inability to realize location and


experience-curve economies
Inability to engage in global strategic
coordination
Lack of control over technology

Franchising

Low development costs and risks

Inability to engage in global strategic


coordination
Lack of control over quality

Joint
ventures

Access to local partners knowledge


Shared development costs and risks
Political dependency

Inability to engage in global strategic


coordination
Inability to realize location and
experience-curve economies
Lack of control over technology

Wholly owned
subsidiaries

Protection of technology
Ability to engage in global strategic
coordination
Ability to realize location and
experience-curve economies

High costs and risks

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

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.

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 internationally diversified firms ability to compete.
Enforcing intellectual property rights on CDs,
software, etc.

Risks in the International


Environment
Political instability in
INDONESIA brought about by
continuing ethnic strife

POLITICAL RISK

Uncertain future of peace in


the middle east because of
changes in national leaders
Failure of the european unions
quest for economic superpower

Chinas
difficulty
in enforcing
status
because
of inter-country
intellectual
property rights on
disagreements
CDs software,etc.,

ECONOMIC RISK

Russias struggle with low


productivity, currency problems
and high unemployment
Exchange rate exposure due to
the U.S.-conadian dollar
fluctuations