Ch08 Hitt Lecture

7/30/2019 Ch08 Hitt Lecture

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PowerPoint slides by:

R. Dennis MiddlemistColorado State University

Copyright 2004 South-Western

All rights reserved.

Chapter 8

InternationalStrategy


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Copyright 2004 South-Western. All rights reserved. 82

Knowledge Objectives

Studying this chapter should provide you with thestrategic management knowledge needed to:

Explain traditional and emerging motives for firms topursue international diversification.

Explore the four factors that lead to a basis forinternational business-level strategies.

Define the three international corporate-level strategies:multidomestic, global, and transnational.

Discuss the environmental trends affecting internationalstrategy, especially liability of foreignness andregionalization.


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Knowledge Objectives (contd)

Studying this chapter should provide you with thestrategic management knowledge needed to:

Name and describe the five alternative modes for enteringinternational markets.

Explain the effects of international diversification on firmreturns and innovation.

Name and describe two major risks of internationaldiversification.

Explain why the positive outcomes from internationalexpansion are limited.


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Figure 1.1

Copyright 2004 South-Western. All rights reserved.

The StrategicManagement

Process


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Opportunities and Outcomes of International Strategy

Figure 8.1


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Identifying International Opportunities

International strategyA strategy through which the firm sells its goods

or services outside its domestic market

Reasons to having an international strategy International markets yield potential new

opportunities

New market expansion extends product life cycle

Needed resources can be secured

Greater potential product demand


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Classic Rationale for InternationalDiversification: Extend Products Life Cycle

Production is standardized andrelocated to low cost countries.

Product DemandDevelops and FirmExports Products

Firm IntroducesInnovation in

Domestic Market

ForeignCompetition

Begins Production

Firm BeginsProduction Abroad


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International Strategy Benefits

Increase market share

Domestic market may lack the size to supportefficient scale manufacturing facilities

Return on investmentLarge investment projects may require global

markets to justify the capital outlays

Weak patent protection in some countriesimplies that firms should expand overseasrapidly in order to preempt imitators


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International Strategy Benefits (contd)

Economies of scale or learningExpanding size or scope of markets helps to

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

Can spread costs over a larger sales base

Can increase profit per unit


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International Strategy Benefits (contd)

Competitive advantage through location

Low cost markets aid in developing competitiveadvantage by providing access to:

Raw materialsLower cost labor

Key customers

Energy


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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 8.2


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Determinants of National Advantage

Factors of production: the inputs necessaryto compete in any industry

Labor Land Natural resources

Capital Infrastructure

Basic factors include natural and laborresources

Advanced factors include digital

communication systems and an educatedworkforce


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Determinants of National Advantage (contd)

Demand conditions: characterized by thenature and size of buyers needs in the

home market for the industrys goods or

services

Size of the market segment can lead to scale-efficient facilities

Efficiency can lead to domination of the industryin other countries

Specialized demand may create opportunitiesbeyond national boundaries


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Related and supporting industries:supporting services, facilities, suppliers andso on

Support in designSupport in distribution

Related industries as suppliers and buyers


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Firm strategy, structure and rivalry: thepattern of strategy, structure, and rivalryamong firms

Common technical trainingMethodological product and process

improvement

Cooperative and competitive systems


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Selecting an International Corporate-LevelStrategy

The type of corporate strategy selected willhave an impact on the selection andimplementation of the business-levelstrategies

Some strategies provide individual country unitswith the flexibility to choose their own strategies

Others dictate business-level strategies from thehome office and coordinate resource sharingacross units


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International Corporate-Level Strategy

Focuses on the scope of operations:Product diversification

Geographic diversification

Required when the firm operates in:

Multiple industries, and

Multiple countries or regions

Headquarters unit guides the strategy

But business or country-level managers canhave substantial strategic input


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InternationalCorporate-

LevelStrategies

Figure 8.3


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Multidomestic Strategy

Strategy and operating decisions aredecentralized to strategic business units(SBU) in each country

Products and services are tailored tolocal markets

Business units in one country areindependent of each other

Assumes markets differ by country orregions

Focus on competition in each market

Prominent strategy among Europeanfirms due to broad variety of cultures andmarkets in Europe


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Global Strategy

Products are standardized acrossnational markets

Decisions regarding business-levelstrategies are centralized in the homeoffice

Strategic business units (SBU) are

assumed to be interdependent

Emphasizes economies of scale

Often lacks responsiveness to local

markets

Requires resource sharing andcoordination across borders (hard tomanage)


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Transnational Strategy

Seeks to achieve both globalefficiency and localresponsiveness

Difficult to achieve because of

simultaneous requirements: Strong central control and

coordination to achieve efficiency

Decentralization to achieve localmarket responsiveness

Must pursue organizationallearning to achieve competitiveadvantage


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Environmental Trends

Liability of foreignnessLegitimate concerns about the relative

attractiveness of global strategies

Global strategies not as prevalent as once

thoughtDifficulty in implementing global strategies

Regionalization

Focusing on particular region(s) rather than onglobal markets

Better understanding of the cultures, legal andsocial norms


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Choice of International Entry Mode

Type of Entry CharacteristicsExporting High cost, low control

Licensing Low cost, low risk, little control, lowreturns

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 ownedsubsidiary

Complex, often costly, time consuming,high risk, maximum control, potentialabove-average returns

Table 8.1


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Dynamics of Mode of Entry

The firm has no foreignmanufacturingexpertise and requiresinvestment only indistribution.

Export

Whats the best solution?Situation Optimal Solution


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The firm needs tofacilitate the productimprovementsnecessary to enterforeign markets.

Licensing



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The firm needs toconnect with anexperienced partneralready in the targetedmarket.

Strategic Alliance



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The firm needs toreduce its risk throughthe sharing of costs.

Strategic Alliance



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The firm is facinguncertain situationssuch as an emergingeconomy in its targetedmarket.

Strategic Alliance



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The firms intellectual

property rights in anemerging economy arenot well protected, thenumber of firms in the

industry is growing fast,and the need for globalintegration is high.

Wholly-ownedSubsidiary



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International Diversification and Returns

Expanding sales of goods or servicesacross global regions and countries andinto different geographic locations ormarkets:

May increase a firms returns (such firms usually

achieve the most positive stock returns)

May achieve economies of scale and experience,

location advantages, increased market size andopportunity to stabilize returns


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International Diversification and Innovation

Expansion sales of goods or servicesacross global regions and countries andinto different geographic locations ormarkets:

May yield potentially greater returns oninnovations (a larger market)

Can generate additional resources for investmentin innovation

Provides exposure to new products andprocesses in international markets; generatesadditional knowledge leading to innovations


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Complexity of Managing Multinational Firms

Expansion into global operations in differentgeographic locations or markets:

Makes implementing international strategyincreasingly complex

Can produce greater uncertainty and risk

May result in the firm becoming unmanageable

May cause the cost of managing the firm to

exceed the benefits of expansion

Exposes the firm to possible instability of somenational governments


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Risk in the International Environment

Political risks include:

Instability in national governments

War, both civil and international

Potential nationalization of a firms resources

Political Risks Economic Risks


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Economic risks are interdependent with politicalrisks and include:

Differences and fluctuations in the value of

different currencies Differences in prevailing wage rates

Difficulties in enforcing property rights

Unemployment

Political Risks Economic Risks


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Figure 8.4a


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Risk in the International Environment (contd)

Figure 8.4b


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Copyright 2004 South Western All rights reserved 8 37

Limits to International Expansion

Management ProblemsCost of coordination across diverse geographical

business units

Institutional and cultural barriers

Understanding strategic intent of competitors

The overall complexity of competition

Ch08 Hitt Lecture

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