Strategic Management/ Business Policy

Power Point Set #7:

International Strategy

Questions Concerning International Strategy What is the economic value of international strategies, according to Richard Caves of Harvard University? Why are some countries more competitive than others in international competition? How do companies diversify internationally? How do you organize an international company?

Value of International Strategies

Gain Access to Low-Cost Factors of Production
For example, achieving global economies of scale such as can be observed in the automobile industry.

Leverage Core Competencies

E.g., We saw earlier in the semester Honda developing and leveraging its competencies in producing motors for motorcycles, automobiles, snow blowers and lawn mowers

Value of International Strategies

Managing Corporate Risk
As global capital markets become more efficient over time, the benefit provided by this corporate strategy diminishes.

Stretching to Develop New Core Competencies

E.g., Learning new skills in international markets

Gain Access to New Customers for Current Products or Services

Disneyland Tokyo, and Euro Disney

3-34

The Determinants of National Competitive Advantage

Intensity Intensity of of Rivalry Rivalry

Factor Conditions

National Competitive Advantage

Local Local Demand Demand Conditions Conditions

Competitiveness Competitiveness of Related and of Related and Supporting Industries Supporting Industries
Copyright 1998 by Houghton Mifflin Company. All rights reserved.

Four Basic Strategies

High Global Strategy Transnational Strategy

8-15

Cost Pressures

International Strategy

Multidomestic Strategy

Low Low High Pressures for Local Responsiveness

Copyright 1998 by Houghton Mifflin Company. All rights reserved.

Corporate-level International Strategies

Global Strategy
(cost leadership strategy)

Products are standardized across national markets; Emphasizes economies of scale; Lacks responsiveness to local markets; and Requires resource sharing and coordination across borders

Corporate-level International Strategies Multi-Domestic Strategy

(product differentiation strategy)

Decentralized strategy; Products and services tailored to local markets; Focus on competition in each market; and is a: Prominent strategy among European firms due to broad variety of cultures and markets in Europe

Corporate-level International Strategies Transnational Strategy

Seeks to achieve both global efficiency (cost leadership) and local responsiveness (product differentiation) 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.

Types of Corporate-Level Strategic Alliances

Diversifying Alliances
e.g., Samsung Group joins with Nissan to build new automobiles

Synergistic Alliances
e.g., Sony shares development with many small firms

Franchising
e.g., Century 21 or McDonalds

How Should We Enter A Foreign Country?

Entry Mode Exporting Advantages High Experience & Location Economies Low entry costs Disadvantages Transport Costs Trade Barriers Agency Low control Low learning Low coordination Low control Low coordination

Licensing

Franchising Joint Ventures

Low entry costs Sharing of costs & knowledge Political Risk High Learning Protection of Tech. High coordination

Wholly Owned Subsidiaries

Low control Diffusion of knowledge High costs & risks