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Exporting
Licensing
Strategic alliances
Acquisitions
Establishment of a new subsidiary
International business-level strategy
Multidomestic strategy
Global strategy
Transnational strategy
Opportunities and Outcomes of International Strategy
Increased market size
Return on investment
Economies of scale and learning
Advantage in location
Identify International Opportunities
Explore Resources and Capabilities
Use Core Competence
International Strategies Modes of Entry
3
International Corporate-Level Strategy
Need for Local Responsiveness
Ne
ed
fo
r G
lob
al In
teg
rati
on
LowLow
HighHigh
LowLow HighHigh
GlobalGlobalstrategystrategy
TransnationalTransnationalstrategystrategy
MultidomesticMultidomesticstrategystrategy
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Pressures for Global Integration & Local Responsiveness
High
HighLowLow
Global Integration
Local Responsiveness Pressures
Country Differences in - consumer tastes/preferences- infrastructure/practices- distribution channels- host government needs
Ball bearings,wheat
Cosmetics, food,household goods
Cost ReductionPressures
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Better Better performanceperformance
InnovationInnovation
Opportunities and Outcomes of International Strategy: Continued
ExportingExporting
LicensingLicensing
Strategic Strategic alliancesalliances
AcquisitionsAcquisitions
Establishment of Establishment of a new subsidiarya new subsidiary
Use Core Use Core CompetenceCompetence
Modes of EntryModes of Entry Managementproblems andrisk
Managementproblems andrisk
Strategic Strategic Competitiveness Competitiveness OutcomesOutcomes
Click Here
Return to Discussion Questions
6
Motivations for International Expansion
Increase Market ShareIncrease Market Share domestic market may lack the size to support efficient scale domestic market may lack the size to support efficient scale
manufacturing facilitiesmanufacturing facilities Return on InvestmentReturn on Investment
large investment projects may require global markets to large investment projects may require global markets to justify the capital outlaysjustify the capital outlays
weak patent protection in some countries implies that firms weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt should expand overseas rapidly in order to preempt imitatorsimitators
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Motivations for International Expansion Economies of Scale or LearningEconomies of Scale or Learning
expanding size or scope of markets helps to achieve expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as economies of scale in manufacturing as well as marketing, R & D or distributionmarketing, R & D or distribution
can spread costs over a larger sales’ basecan spread costs over a larger sales’ base increase profit per unitincrease profit per unit
Location AdvantagesLocation Advantages low cost markets may aid in developing competitive low cost markets may aid in developing competitive
advantageadvantage may achieve better access to:may achieve better access to:
• Raw materialsRaw materials• Lower cost laborLower cost labor
• Key customersKey customers• EnergyEnergy
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International Business-Level Strategy: Determinants of National Advantage
Factors ofFactors ofproductionproduction
Related andRelated andsupportingsupportingindustriesindustries
DemandDemandconditionsconditions
Firm strategy,Firm strategy,structure, andstructure, and
rivalryrivalry
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International Business-Level Strategy: Determinants of National Advantage Factors of production:Factors of production: the inputs necessary to the inputs necessary to
compete in any industrycompete in any industry laborlabor landland natural resourcesnatural resources capitalcapital infrastructureinfrastructure basic factors include natural and labor resourcesbasic factors include natural and labor resources advanced factors include digital communication systems advanced factors include digital communication systems
and educated workforceand educated workforce
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International Business-Level Strategy: Determinants of National Advantage Demand conditions:Demand conditions: characterized by the nature and characterized by the nature and size of buyers’ needs in the home market for the size of buyers’ needs in the home market for the industry’s goods or servicesindustry’s goods or services size of market segment can lead to scale-efficient facilitiessize of market segment can lead to scale-efficient facilities efficiency can lead to domination of the industry in other efficiency can lead to domination of the industry in other
countriescountries specialized demand may create opportunities beyond specialized demand may create opportunities beyond
national boundariesnational boundaries
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International Business-Level Strategy: Determinants of National Advantage Related and supporting industries:Related and supporting industries: supporting supporting services, facilities, suppliers and so onservices, facilities, suppliers and so on support in designsupport in design support in distributionsupport in distribution related industries as suppliers and buyersrelated industries as suppliers and buyers
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International Business-Level Strategy: Determinants of National Advantage Firm strategy, structure, and rivalry:Firm strategy, structure, and rivalry: the pattern of the pattern of strategy, structure, and rivalry among firmsstrategy, structure, and rivalry among firms common technical trainingcommon technical training methodological product and process improvementmethodological product and process improvement cooperative and competitive systemscooperative and competitive systems
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International Corporate-Level Strategy
Type of corporate strategy selected will have an Type of corporate strategy selected will have an impact on the selection and implementation of the impact on the selection and implementation of the business-level strategiesbusiness-level strategies
Some corporate strategies provide individual Some corporate strategies provide individual country units with flexibility to choose their own country units with flexibility to choose their own strategiesstrategies
Others dictate business-level strategies from the Others dictate business-level strategies from the home office and coordinate resource sharing across home office and coordinate resource sharing across unitsunits
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MultidomesticMultidomesticstrategystrategy
International Corporate-Level Strategy: Multidomestic Strategy• Strategy and operating decisions are Strategy and operating decisions are
decentralized to strategic business units (SBU) decentralized to strategic business units (SBU) in each countryin each country
• Products and services are tailored to local Products and services are tailored to local marketsmarkets
• Business units in one country are independent Business units in one country are independent of each other of each other
• Assumes markets differ by country or regionsAssumes markets differ by country or regions• Focus on competition in each marketFocus on competition in each market• Prominent strategy among European firms Prominent strategy among European firms
due to broad variety of cultures and markets due to broad variety of cultures and markets in Europein Europe
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• product characteristics product characteristics tailored to local tailored to local preferencespreferences
• isolation from global isolation from global competitioncompetition
– establish protected establish protected market positionsmarket positions–compete in industry compete in industry segments most segments most affected by affected by differences among differences among local countrieslocal countries
Worldwide Geographic Area Structure:
MultinationalMultinationalHeadquartersHeadquarters
EuropeEurope
UnitedUnitedStatesStates
MiddleMiddleEast/East/
AfricaAfrica
AsiaAsia
AustraliaAustralia
LatinLatinAmericaAmerica
Multidomestic StrategyMultidomestic Strategy
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International Corporate-Level Strategy: Global Strategy
GlobalGlobalstrategystrategy
• Products are standardized across national Products are standardized across national marketsmarkets
• Decisions regarding business-level strategies are Decisions regarding business-level strategies are centralized in the home officecentralized in the home office
• Strategic business units (SBU) are assumed to be Strategic business units (SBU) are assumed to be interdependentinterdependent
• Emphasizes economies of scaleEmphasizes economies of scale• Often lacks responsiveness to local marketsOften lacks responsiveness to local markets• Requires resource sharing and coordination Requires resource sharing and coordination
across borders (which also makes it difficult to across borders (which also makes it difficult to manage)manage)
• Historically prominent among Japanese firmsHistorically prominent among Japanese firms
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• standardized products standardized products across countriesacross countries
• economies of scope economies of scope and scaleand scale
• outsource some outsource some primary or support primary or support activities to the activities to the world’s best providersworld’s best providers
• decision-making decision-making authority centralized authority centralized in worldwide division in worldwide division headquartersheadquarters
Worldwide Product Divisional Structure:
GlobalGlobalCorporateCorporate
HeadquartersHeadquarters
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
WorldwideWorldwideProductsProductsDivisionDivision
Global StrategyGlobal Strategy
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TransnationalTransnationalstrategystrategy
International Corporate-Level Strategy: Transnational Strategy• Seeks to achieve both global efficiency and local Seeks to achieve both global efficiency and local
responsivenessresponsiveness• Difficult to achieve because of simultaneous Difficult to achieve because of simultaneous
requirementsrequirements strong central control and coordination to strong central control and coordination to
achieve efficiency achieve efficiency decentralization to achieve local market decentralization to achieve local market
responsivenessresponsiveness• Must pursue organizational learning to achieve Must pursue organizational learning to achieve
competitive advantagecompetitive advantage
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Using the Combination Structure:
The combination structure has characteristics and The combination structure has characteristics and mechanisms that result in an emphasis on both mechanisms that result in an emphasis on both geographic and product structuresgeographic and product structures local responsiveness (multidomestic strategy) local responsiveness (multidomestic strategy) global efficiency (global strategy)global efficiency (global strategy)
Transnational StrategyTransnational Strategy
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Environmental Trends
Liability of Foreignness security risks tighter immigration policies
Regionalization location can affect value creation may wish to narrow focus to a particular region of
the world enter regional markets sequentially, beginning
with the most familiar market
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Type of EntryType of Entry CharacteristicsCharacteristics
Exporting High cost, low control
Licensing Low cost, low risk, little control, low returns
Strategic alliances Shared costs, shared resources, shared risks, problems of integration
Acquisition Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations
New wholly owned subsidiary
Complex, often costly, time consuming, high risk, maximum control, potential above-average returns
Global Market Entry: Choice of Entry Mode
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Value Creation Outcomes: Returns
International diversification and returnsInternational diversification and returns:: firm expands firm expands the sales of its goods or services across the borders of global the sales of its goods or services across the borders of global regions and countries into different geographic locations or regions and countries into different geographic locations or marketsmarkets may increase a firm’s returnsmay increase a firm’s returns such firms usually achieve the most positive stock such firms usually achieve the most positive stock
returnsreturns firm may achieve economies of scale and experience, firm may achieve economies of scale and experience,
location advantages, increased market size and location advantages, increased market size and opportunity to stabilize returnsopportunity to stabilize returns
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Value Creation Outcomes: Innovation
International diversification and innovationInternational diversification and innovation:: firm firm expands the sales of its goods or services across the borders expands the sales of its goods or services across the borders of global regions and countries into different geographic of global regions and countries into different geographic locations or marketslocations or markets potentially greater returns on innovations (larger markets)potentially greater returns on innovations (larger markets) generate additional resources for investment in generate additional resources for investment in
innovationinnovation exposed to new products and processes in international exposed to new products and processes in international
markets, generates additional knowledge leading to markets, generates additional knowledge leading to innovationsinnovations
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Risks in an International Environment
Political RisksPolitical Risks Economic RisksEconomic Risks
Political risks includePolitical 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 RisksPolitical Risks
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Risks in an International Environment
Economic risks are interdependent with political risks Economic risks are interdependent with political risks and includeand include
• differences and fluctuations in the value of different differences and fluctuations in the value of different currenciescurrencies
• differences in prevailing wage ratesdifferences in prevailing wage rates• difficulties in enforcing property rightsdifficulties in enforcing property rights• unemploymentunemployment
Political RisksPolitical Risks Economic RisksEconomic RisksPolitical RisksPolitical Risks
26
Risk Rankings
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
1 Luxembourg 99.51 25.00 24.51 20.00 30.002 Switzerland 98.84 23.84 25.00 20.00 30.003 United States 98.37 23.96 24.41 20.00 30.00
40 China 71.27 18.93 16.87 19.73 15.7455 Poland 57.12 18.56 13.97 9.36 15.2363 Vietnam 52.04 14.80 11.91 18.51 6.8286 Russia 42.62 11.47 8.33 17.99 4.83
114 Albania 34.23 8.48 5.04 19.62 1.09161 Mozambique 21.71 3.28 2.75 13.85 1.83178 Afghanistan 3.92 0.00 3.04 0.00 0.88
Total of Credit
Total and AccessTotal Risk Economic Political Debt to Finance
Rank Country Assessment Performance Risk Indicators Indicators
Exhibit 7.3 A Sample of International Country Risk RankingsSource: Adapted from worldbank.org/html/prddr/trans/so96/art7.htm.
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National Differences in Political Economy
Economic Systems Market economy: what is produced in what quantity
is determined by supply/demand and signaled to producers through a price system
Command economy: planned by government Mixed economy: a balance of both of the above State-Directed economy: the state directly influences
the investment activities of private enterprise through “industrial policy.”
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National Differences in Political Economy A Legal System is:
rules - laws - that regulate behavior
process through which laws are enforced grievances are redressed
Businesses must observe Home country laws Host country laws International Laws and
Treaties
Different Legal Systems Common Law Civil Law Theocratic Law Bureaucratic Law
Dispute resolution Where to arbitrate? Validity of contracts and
decisions
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Legal Systems and International Business
Legal Systems and International Business property rights
use of a resource use made of income from resource enforcement issues Public vs private action violations
protection of Intellectual Property patent: inventors’ exclusive rights to manufacture, use, sale an
invention copyright: same for authors, composers, artists, publishers trademarks: unique designs and names, often officially
registered Paris Convention for the Protection of Industrial Property (96
countries) WTO/GATT
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Legal Systems and International Business
product safety and product liability
criminal / civil liability
contract law document that specifies
conditions under which an exchange will happen rights/obligations of parties
differences based on legal tradition common law system civil law system
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Language and Culture Language, spoken
“private” does not exist as a word in many languages Eskimos: 24 words for snow Words which describe moral concepts unique to countries
or areas: “face” in Asian cultures, “filotimo” in Greece Spoken language precision important in low-context
cultures
Language, unspoken Context... more important than spoken word in low context
cultures
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Relative Ranking of Four Countries on Cultural Values
Adapted from Figure 3.2
Ranking
out
of
50
countries
50
40
30
20
10
Cultural Value Dimension
PowerDistance
UncertaintyAvoidance
Individualism Masculinity ConfucianDynamics
Rank Numbers: 1 = Highest; 50 = Lowest
Source: Adapted from G. Hofstede and M. H. Bond. The Confucius connection:From cultural roots to economic growth. Organization Dynamics, Spring 1988, pp. 12-13
Canada
Canada
USA
USATaiwan
Taiwan
Japan
Japan
3.7
33
Limits to International Expansion: Management Problems Cost of coordination across diverse geographical Cost of coordination across diverse geographical business unitsbusiness units
Institutional and cultural barriersInstitutional and cultural barriers Understanding strategic intent of competitorsUnderstanding strategic intent of competitors The overall complexity of competitionThe overall complexity of competition