©2004 by South-Western/Thomson Learning 1

International StrategyInternational Strategy

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 9Chapter 9

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Chapter 2Chapter 2Strategic LeadershipStrategic Leadership

Chapter 4Chapter 4The InternalThe InternalOrganizationOrganization

Chapter 6Chapter 6Competitive Rivalry andCompetitive Rivalry andCompetitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9International StrategyInternational Strategy

Chapter 1Chapter 1Introduction toIntroduction to

Strategic ManagementStrategic Management

Chapter 3Chapter 3The ExternalThe ExternalEnvironmentEnvironment

Chapter 5Chapter 5Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisitions andAcquisitions and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11Corporate GovernanceCorporate Governance

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 7Chapter 7Corporate-Level StrategyCorporate-Level Strategy

Chapter 10Chapter 10Cooperative StrategyCooperative Strategy

Chapter 12Chapter 12Strategic EntrepreneurshipStrategic Entrepreneurship

StrategicAnalysis

StrategicThinking

CreatingCompetitiveAdvantage

MonitoringAnd CreatingEntrepreneurialOpportunities

The Strategic Management ProcessThe Strategic Management Process

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 9Chapter 9International StrategyInternational Strategy

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Four Basic Benefits of Four Basic Benefits of International DiversificationInternational Diversification Increase Market SizeIncrease Market Size

– create additional sources of revenuecreate additional sources of revenue– focus on international growth opportunities focus on international growth opportunities

instead of domestic rivalryinstead of domestic rivalry

Economies of Scale or LearningEconomies of Scale or Learning– expanding size or scope of markets helps to expanding size or scope of markets helps to

achieve economies of scale in manufacturing achieve economies of scale in manufacturing as well as marketing, R & D or distributionas well as marketing, R & D or distribution

– more prevalent when products are more prevalent when products are standardized or relatedstandardized or related

– new learning opportunities in distant marketsnew learning opportunities in distant markets

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Four Basic Benefits of Four Basic Benefits of International DiversificationInternational Diversification Return on InvestmentReturn on Investment

– large investment projects may require global large investment projects may require global markets to justify the capital outlaysmarkets to justify the capital outlays

– preempt imitation of products by foreign firms preempt imitation of products by foreign firms (especially when patent laws in foreign (especially when patent laws in foreign countries are less developed)countries are less developed)

Location AdvantagesLocation Advantages– gain better access to raw materials, lower gain better access to raw materials, lower

labor cost, and other critical resourceslabor cost, and other critical resources– better access to global customersbetter access to global customers

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants 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: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Factors of production:Factors of production: the resources the resources

necessary to compete in any industrynecessary to compete in any industry– basic versus advancedbasic versus advanced– generalized versus specializedgeneralized versus specialized

Demand conditions:Demand conditions: characterized by the characterized by the nature and size of buyers’ needs in the nature and size of buyers’ needs in the home market for the industry’s goods or home market for the industry’s goods or servicesservices

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Related and supporting industries:Related and supporting industries:

supporting services, facilities, suppliers supporting services, facilities, suppliers and so onand so on

Firm strategy, structure, and rivalry:Firm strategy, structure, and rivalry: the the pattern of strategy, structure, and rivalry pattern of strategy, structure, and rivalry among firmsamong firms

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International Corporate-Level International Corporate-Level StrategyStrategy

Need for Local ResponsivenessNeed for Local Responsiveness

Nee

d f

or G

lob

al I

nte

grat

ion

Nee

d f

or G

lob

al I

nte

grat

ion

LowLow

HighHigh

LowLow HighHigh

GlobalGlobalstrategystrategy

TransnationalTransnationalstrategystrategy

MultidomesticMultidomesticstrategystrategy

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MultidomesticMultidomesticstrategystrategy

International Corporate-Level International Corporate-Level Strategy: Strategy: Multidomestic StrategyMultidomestic 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 Worldwide Geographic Area Structure:Structure:

MultinationalMultinationalHeadquartersHeadquarters

EuropeEurope

UnitedUnitedStatesStates

MiddleMiddleEast/East/

AfricaAfrica

AsiaAsia

AustraliaAustralia

LatinLatinAmericaAmerica

Multidomestic StrategyMultidomestic Strategy

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International Corporate-Level International Corporate-Level Strategy: Strategy: Global StrategyGlobal Strategy

GlobalGlobalstrategystrategy

• Products are standardized across national Products are standardized across national marketsmarkets

• Decisions regarding business-level strategies Decisions regarding business-level strategies are centralized in the home officeare centralized in the home office

• Strategic business units (SBU) are assumed to Strategic business units (SBU) are assumed to be interdependentbe interdependent

• 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 across borders (which also makes it difficult to manage)to 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 Worldwide Product Divisional Structure:Structure:

GlobalGlobalCorporateCorporate

HeadquartersHeadquarters

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

Global StrategyGlobal Strategy

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TransnationalTransnationalstrategystrategy

International Corporate-Level International Corporate-Level Strategy: Strategy: Transnational StrategyTransnational Strategy

• Seeks to achieve both global efficiency and Seeks to achieve both global efficiency and local responsivenesslocal responsiveness

• 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 Must pursue organizational learning to

achieve competitive advantageachieve competitive advantage

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Using the Combination Structure:Using the Combination Structure:

The combination structure has The combination structure has characteristics and mechanisms that characteristics and mechanisms that result in an emphasis on both geographic result in an emphasis on both geographic and product structuresand product structures

Transnational StrategyTransnational Strategy

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International Corporate-Level International Corporate-Level StrategyStrategy Type of corporate strategy has an impact Type of corporate strategy has an impact

on the selection and implementation of the on the selection and implementation of the business-level strategiesbusiness-level strategies– QuestionQuestion: Which corporate strategy provides : Which corporate strategy provides

individual country units more flexibility to individual country units more flexibility to choose their own business-level strategies?choose their own business-level strategies?

– QuestionQuestion: Which corporate strategy dictate : Which corporate strategy dictate business-level strategies from the home office business-level strategies from the home office and coordinate resource sharing across units?and coordinate resource sharing across units?

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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 Global Market Entry: Choice of Entry ModeEntry Mode

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Value Creation Outcomes: Value Creation Outcomes: ReturnsReturns

International diversification and International diversification and returnsreturns:: firm expands the sales of its firm expands the sales of its goods or services across the borders of goods or services across the borders of global regions and countries into different global regions and countries into different geographic locations or marketsgeographic locations or markets– firm may achieve economies of scale and firm may achieve economies of scale and

experience, location advantages, increased experience, location advantages, increased market size and opportunity to stabilize returnsmarket size and opportunity to stabilize returns

QuestionQuestion: What is the relationship between : What is the relationship between international diversification and returns?international diversification and returns?

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Limits to International Expansion: Limits to International Expansion: Management ProblemsManagement Problems Cost of coordination across diverse Cost of coordination across diverse

geographical business unitsgeographical business units Institutional and cultural barriersInstitutional and cultural barriers Understanding strategic intent of Understanding strategic intent of

competitorscompetitors The overall complexity of competitionThe overall complexity of competition

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Value Creation Outcomes: Value Creation Outcomes: InnovationInnovation

International diversification and innovationInternational diversification and innovation:: firm expands the sales of its goods or services firm expands the sales of its goods or services across the borders of global regions and countries across the borders of global regions and countries into different geographic locations or marketsinto different geographic locations or markets– potentially greater returns on innovations potentially greater returns on innovations

(larger markets)(larger markets)– generate additional resources for investment in generate additional resources for investment in

innovationinnovation– exposed to new products and processes in exposed to new products and processes in

international markets, generates additional international markets, generates additional knowledge leading to innovationsknowledge leading to innovations

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Risks in an International Risks in an International EnvironmentEnvironment

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 Risks in an International EnvironmentEnvironment

Economic risks are interdependent with political Economic risks are interdependent with political risks and includerisks and 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

Political RisksPolitical Risks Economic RisksEconomic RisksPolitical RisksPolitical Risks