Copyright © 2012 Pearson Canada Inc. 00 Chapter 10 International Strategy.

Copyright © 2012 Pearson Canada Inc. 11

Chapter 10 International Strategy


Why an International Strategy? - GLOBAL ECONOMIES OF SCALE AND SCOPE

Key factors

Global economies of scale and scope

• Pharmaceutical firms such as Pfizer can

leverage large R&D budgets

• Coca-Cola, McDonald’s, and RIM can leverage brands

• LSG Skychefs has operations around the world providing catering for airlines including Alitalia, Alaska, American, Lufthansa, Malaysia, Northwest, SAS, US Airways, United, and Qantas

Global expansion may be attractive if it allows you to leverage fixed assets over new markets


Why an International Strategy? – LOCATION

Key factors

Global economies

Location • Input costs

• Competitors

• Demand conditions

• Regulatory environment

• Presence of complements

Choosing the right location canprovide advantages in terms of

A five-forces analysis can help revealthe attractiveness of a location


Why an International Strategy? – MULTIPOINT COMPETITION

Key factors

Global economies

Location

Multipoint competition

Expanding into a new market may provide an opportunity for a “stronghold assault”

For example, French tire maker Michelin had negligible presence in the U.S. in the 1970s. It learned of Goodyear’s plans to expand into Europe, so it launched a counter attack. It started selling tires in the U.S. at or below cost, and thereby forced Goodyear to drop prices and cut profits in its core market.


Why an International Strategy? – LEARNING AND KNOWLEDGE SHARING

Key factors Expanding into a new market can create opportunities to innovate, improve existing products in existing markets, or develop ideas for new markets

SC Johnson, for example, used technology developed in its European operation (a product for repelling mosquitoes in homes) to create the “ Glade Plug-ins” air freshener in the U.S.

Global economies

Location

Multipoint competition

Learning and knowledge sharing


Why an International Strategy? - CONS OF INTERNATIONAL EXPANSION

• Pepsi’s ambitious expansion in the 1990s resulted in a decreased international market share

• Wal-Marts international businesses perform poorly relative to its U.S. business

Many international expansions fail

Newness can be a disadvantage (e.g., your firm must moveup the learning curve)

Foreignness can be a liability (e.g., your managers may notunderstand local culture)

Governance and coordination costs increase as you manage from a distance

Why?


Where to Grow Internationally - THE CAGE DISTANCE FRAMEWORK

Attributes creating distance

Industries or products affected by distance

Cultural distance Administrative distance Geography distance Economic distance

Different languages

Different ethnicities; lack of connective ethnic or social networks

Different religions

Different social norms

Products have high linguistic content (TV)

Products affected by cultural or national identity of consumers (foods)

Product features vary in terms of size (cars), standards (electrical appliances), or packaging

Products carry country-specific quality associations (wines)

Absence of colonial ties

Absence of shared monetary or political association

Political hostility

Government policies

Institutional weakness

Government involvement is highin industries that are• Producers of staple goods

(electricity)• Producers of other

“entitlements” (drugs)• Large employers (framing)• Large suppliers to government

(mass transportation)• National champions

(aerospace)• Vital to national security

(telecom)• Exploiters of natural resources

(oil, mining)• Subject to high sunk costs

(infrastructure)

Physical remoteness

Lack of a common border

Lack of sea or river access

Size of country

Weak transportation or communication links

Differences in climates

Products have a low value-of-weight or bulk ratio (cement)

Products are fragile or perishable (glass, fruit)

Communications and connectivity are important (financial services)

Local supervision and operational requirements are high (many services)

Differences in consumer incomes

Differences in costs andquality of

• Natural resources• Financial resources• Human resources• Infrastructure• Intermediate inputs• Information or knowledge

Nature of demand varies with income level (cars)

Economies of standardization or scale are important (mobile phones)

Labour and other factor cost differences are salient (garments)

Distribution or business systems are different (insurance)

Companies need to be responsive and agile (home appliances )

Source: Recreated from www.business-standard.com/general/pdf/113004_01.pdf.


Where to Grow Internationally – CULTURAL DISTANCE

■ power distance: the extent to which individuals accept the existence of inequalities between subordinates and superiors within a hierarchical structure

■ uncertainty avoidance: individuals’ willingness to coexist with uncertainty about the future

■ individualism: how the individuals in a society value individualistic behaviours as opposed to collective ones

■ predominant values: regarding quantity or quality of life, that is, whether more importance is given to material aspects or a stronger emphasis is laid on interpersonal relationships

■ long-term or short-term orientation: the focus on future rewards or the concern about the maintenance of the stability related to the past and the present


How to Enter Foreign Markets - CHOICE OF ENTRY VEHICLES

Choice of entry vehicles

Nonequity vehicles

Equity (FDI) vehicles

Greenfieldinvestments

Minority JVsDirect exportsLicensing/franchising

Acquisition50/50 JVsIndirect exports Turnkey projects

OthersMajority JVsOthers Contracted R&D

Wholly OwnedSubsidiaries

Alliances and Joint Ventures (JVs)

Exports Contractual Agreements

Comarketing Strategic alliances (within dotted areas)Strategic alliances

(within dotted areas)

Source: Adapted from Pan, Y. and D. Tse, “The Hierarchical Model of Market Entry Modes,” Journal of International Business Studies, 31 (2000), 535-545


How to Manage International Strategy Configurations - INTERNATIONAL STRATEGY CONFIGURATIONS AND LOCAL/GLOBAL TRADEOFFS

Relatively few opportunities to gainglobal efficiencies

Many opportunities togain global efficiencies

Relatively highlocalresponsiveness

Relative lowlocalresponsiveness

Multinational visionBuild flexibility to respond to national differences through strong, resourceful, entrepreneurial, and somewhat independent national or regional operations. Requires decentralized and relatively self-sufficient units

Example: MTV initially adopted an international configuration (using only American programming in foreign markets) but then changed its strategy to a multinational one. It now tailors its Western European programming to each market, offering eight channels, each in a different language

Transnational visionDevelop global efficiency, flexibility, and worldwide learning. Requires dispersed, interdependent, and specialized capabilities simultaneously

Example: Nestle has taken steps to move in this direction, starting first with what might be described as a multinational configuration

Today, Nestle aims to evolve from a decentralized, profit-centre configuration to one that operates as a single, global company. Firms like Nestle have taken lessons from leading consulting firms such as McKinsey and Company, which are globally dispersed but have a hard-driving, one-firm culture at their core

International visionExploit parent-company knowledge and capabilities through worldwide diffusion, local marketing, and adaptation. The most valuable resources and capabilities are centralized; others, such as local marketing and distribution, are decentralized

Example: When Wal-Mart initially set up its operations in Brazil, it used its U.S. stores as a model for international expansion

Global visionBuild cost advantages through centralized, global-scale operations. Requires centralized and globally scaled resources and capabilities

Example: Companies such as Merck and Hewlett-Packard give particular subsidiaries a worldwide mandate to leverage and disseminate their unique capabilities and specialized knowledge worldwide

Source: Bartlett, C., S. Ghoshal, & J. Birkenshaw, Transnational Management (New York: Irwin, 2004)


International Strategy in Stable and Dynamic Contexts - EXPATRIATES AND INPATRIATES

Expatriates

From the home country

Inpatriates

From the localor host country

Copyright © 2012 Pearson Canada Inc. 00 Chapter 10 International Strategy.

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