International Strategy

Chapter Nine

2006 by Nelson, a division of Thomson Canada Limited.

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Strategic Inputs

Chapter 3 External Environment Chapter 4 Internal Environment

Strat. Intent Strat. Mission

The

Strategic Management Process

Strategic Actions

Strategy Formulation
Chapter 5 Bus. - Level Strategy Chapter 6 Chapter 7 Competitive Corp. - Level Dynamics Strategy Chapter 10 Cooperative Strategies

Strategy Implementation
Chapter 11 Chapter 12 Corporate Structure Governance & Control

Chapter 9 Chapter 8 Acquisitions & International Strategy Restructuring

Chapter 13 Chapter 14 StrategicEntrepreneurship Leadership Innovation &

Strategic Outcomes

Chapter 2 Above Average Returns

Chapter 1 Strategic Competitiveness

Feedback

2006 by Nelson, a division of Thomson Canada Limited.

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International Strategy
Knowledge Objectives 1. 2. 3. 4. Explain the traditional and emerging motives for firms to pursue international diversification. Explore the four factors that lead to a basis for international business-level strategies. Define the three international corporate-level strategies: multidomestic, global, and transnational. Discuss the environmental trends affecting international strategy, especially liability of foreignness and regionalization.
2006 by Nelson, a division of Thomson Canada Limited. 9-3

International Strategy
Knowledge Objectives contd 5. 6. 7. 8. Name & describe the five alternative modes for entering international markets. Explain the effects of international diversification on firm return and innovation. Name and describe two major risks of international diversification. Explain why the positive outcomes from international expansion are limited.

2006 by Nelson, a division of Thomson Canada Limited.

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International Strategy Opportunities & Outcomes

Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic

Competitiv eness
Outcomes Management Problems, Risk, and First Steps Higher Performance Returns

International
Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy

Modes of Entry
Exporting Licensing Strategic Alliances Acquisition Establishment of New Sub.

Innovation

Management Problems, Risk, and First Steps

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2006 by Nelson, a division of Thomson Canada Limited.

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.

2006 by Nelson, a division of Thomson Canada Limited.

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International Strategy Opportunities & Outcomes

Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic

Competitiv eness
Outcomes Management Problems, Risk, and First Steps Higher Performance Returns

International
Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy

Modes of Entry
Exporting Licensing Strategic Alliances Acquisition Establishment of New Sub.

Innovation

Management Problems, Risk, and First Steps

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2006 by Nelson, a division of Thomson Canada Limited.

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

2006 by Nelson, a division of Thomson Canada Limited.

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Determinants of National Advantage

2006 by Nelson, a division of Thomson Canada Limited.

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Determinants of National Advantage

Factors of Production Inputs Labour, land, natural resources, capital & infrastructure Demand Conditions The nature and size of he buyers needs in the home market of goods & services Related & Supporting Industries Industries in which the target country is considered the leader eg. Italy - shoes with a supporting leather industry, Japan - cameras & photocopiers, Denmark - diary & an industry focused on food enzymes. Firm Strategy, Structure & Rivalry make up Germany focused on methodical product & process improvements, Italys national pride of designers helped spawn fashion apparel, furniture & sports car industries.
2006 by Nelson, a division of Thomson Canada Limited. 9-10

International Corporate-Level Strategy

2006 by Nelson, a division of Thomson Canada Limited.

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International Corporate-Level Strategy

Multi-domestic Strategy
Strategic & operating decisions are decentralized to the strategic business unit in each country to tailor products to the local market.

2006 by Nelson, a division of Thomson Canada Limited.

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International Corporate-Level Strategy

Multi-domestic Strategy
Strategic & operating decisions are decentralized to the strategic business unit in each country to tailor products to the local market.

Global Strategy
Assumes more standardization of products across country markets

Transnational Strategy
The firm seeks to achieve both global efficiency and local responsiveness
2006 by Nelson, a division of Thomson Canada Limited. 9-13

International Strategy Opportunities & Outcomes

Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic

Competitiv eness
Outcomes Management Problems, Risk, and First Steps Higher Performance Returns

International
Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy

Modes of Entry
Exporting Licensing Strategic Alliances Acquisition Establishment of New Sub.

Innovation

Management Problems, Risk, and First Steps

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2006 by Nelson, a division of Thomson Canada Limited.

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.
2006 by Nelson, a division of Thomson Canada Limited. 9-15

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.
2006 by Nelson, a division of Thomson Canada Limited. 9-16

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.
2006 by Nelson, a division of Thomson Canada Limited. 9-17

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.
2006 by Nelson, a division of Thomson Canada Limited. 9-18

Choice of International Entry Mode

New Wholly-Owned Subsidiary

Greenfield Venture

Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing and
distribution. May need to acquire expertise & knowledge that is relevant to host country.
Could require hiring host country nationals or consultants at high cost.
2006 by Nelson, a division of Thomson Canada Limited. 9-19

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 greater economies of scope and learning.
2006 by Nelson, a division of Thomson Canada Limited. 9-20

International Strategy Opportunities & Outcomes

Identify International Opportunities Explore Resources & Capabilities Use Core Competence Strategic

Competitiv eness
Outcomes Management Problems, Risk, and First Steps Higher Performance Returns

International
Strategies Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy

Modes of Entry
Exporting Licensing Strategic Alliances Acquisition Establishment of New Sub.

Innovation

Management Problems, Risk, and First Steps

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2006 by Nelson, a division of Thomson Canada Limited.

Risks in the International Environment

2006 by Nelson, a division of Thomson Canada Limited.

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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.
2006 by Nelson, a division of Thomson Canada Limited. 9-23

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.
2006 by Nelson, a division of Thomson Canada Limited. 9-24