Copyright © 2004 South-Western. All rights reserved.8–1 Figure 1.1 Copyright © 2004 South-Western. All rights reserved. The Strategic Management Process

Copyright © 2004 South-Western. All rights reserved. 8–1

Figure 1.1Figure 1.1

Copyright © 2004 South-Western. All rights reserved.

The Strategic

Management Process


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


International Expansion

Motives Facilitators


Opportunities and Outcomes of International Strategy



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


ROI pressures drive international expansion-

• Increasingly costly R&D

• More rapid pace of imitation and product obsolescence (hypercompetition)

• Global difficulties with intellectual property laws


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. Figure 8.2Figure 8.2


Outsourcing/”Off-shoring”

The good, the bad, and the ugly . . . .


International Expansion - Major Facilitators

• Technology• Mobility• Increased demand homogeneity worldwide• Comfort with (embrace of) diversity• Global industrialization• Capitalism• Falling trade barriers





Choice of International Entry Mode (pg.248)

Type of EntryType of Entry Characteristics (+; -)Characteristics (+; -)

ExportingExporting Incremental start; High cost, low control Incremental start; High cost, low control

LicensingLicensing Low cost, low risk; Little control, lower Low cost, low risk; Little control, lower returns (royalty payments)returns (royalty payments)

Strategic alliancesStrategic alliances Shared costs, resources, and risks; Shared costs, resources, and risks; Cultural differences, integration problems, Cultural differences, integration problems,

AcquisitionAcquisition Quick access to new market, new product, Quick access to new market, new product, existing distribution and employees; High existing distribution and employees; High cost, complex negotiations, regulatory cost, complex negotiations, regulatory restrictions, integration problems restrictions, integration problems

New wholly owned New wholly owned subsidiarysubsidiary

Maximum control, potentially the most Maximum control, potentially the most profitable; Complex, costly in time and profitable; Complex, costly in time and money, high riskmoney, high risk Table 8.1Table 8.1





Selecting a Basic (“Corporate-Level”) International Strategy

• Impacts the selection and implementation of strategies in specific countriesSome 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


Basic International Strategies



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 purchasing/usage habits


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)


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


EvolutionaryTrends in International Strategy1. 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


Obstacles/Challenges to Internationalization


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


Risk in the International Environment

Political risks include:Political risks include:

• Instability in national governmentsInstability in national governments

• War, both civil and internationalWar, both civil and international

• Potential nationalization of a firm’s resourcesPotential nationalization of a firm’s resources

Political Political RisksRisks

Economic Economic RisksRisks



Figure 8.4aFigure 8.4a



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

Political Political RisksRisks

Economic Economic RisksRisks


Risk in the International Environment (cont’d)

Figure 8.4bFigure 8.4b


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

Documents

Copyright © 2004 South-Western. All rights reserved.8–1 Figure 1.1 Copyright © 2004 South-Western. All rights reserved. The Strategic Management Process