Strategic Management/ Business Policy

Power Point Set #11:International Strategy

COMPETITIVE ADVANTAGE

THE INDUSTRY ENVIRONMENT

Key Success Factors

FIRM RESOURCES & CAPABILITIES

-- Financial resources-- Physical resources-- Technology-- Reputation-- Functional capabilities-- General management

capabilities

THE NATIONAL ENVIRONMENT-- National resources and capabilities (raw materials;

national culture; human resources; transportation,communication, legal infrastructure

-- Domestic market conditions

-- Government policies

-- Exchange rates

-- Related and supporting industries

Competitive Advantage within an InternationalContext: The Basic Framework

Competitive Advantage within an InternationalContext: The Basic Framework

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 ProductionFor example, achieving global economies of scale such as can be observed in the automobile industry.

Leverage Core CompetenciesE.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 RiskAs global capital markets become more efficient over time, the benefit provided by this corporate strategy diminishes.

“Stretching” to Develop New Core CompetenciesE.g., Learning new skills in international markets

Gain Access to New Customers for Current Products or Services

Disneyland Tokyo, and Euro Disney

Copyright 1998 by Houghton Mifflin Company. All rights reserved.

3-34

The Determinants of National The Determinants of National Competitive AdvantageCompetitive Advantage

Factor Conditions

Competitivenessof Related and

Supporting Industries

Competitivenessof Related and

Supporting Industries

LocalDemand

Conditions

LocalDemand

Conditions

Intensity of

Rivalry

Intensity of

Rivalry

National CompetitiveAdvantage

Copyright 1998 by Houghton Mifflin Company. All rights reserved.

8-15

Four Basic StrategiesFour Basic Strategies

Pressures for Local ResponsivenessPressures for Local Responsiveness

Co

st P

ress

ure

sC

ost

Pre

ssu

res

High

LowLow High

GlobalGlobalStrategyStrategy

TransTrans--nationalnationalStrategyStrategy

InternationalInternationalStrategyStrategy

MultiMulti--domesticdomesticStrategyStrategy

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.

Copyright 1998 by Houghton Mifflin Company. All rights reserved.

8-16Cost Pressures and Pressures for Local Cost Pressures and Pressures for Local Responsiveness Facing CaterpillarResponsiveness Facing Caterpillar

Pressures for Local ResponsivenessPressures for Local Responsiveness

Co

st P

ress

ure

sC

ost

Pre

ssu

res

High

LowLow High

Caterpillar,Caterpillar,Inc.Inc.

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 developments with many small firms

Franchising

e.g., Century 21 or McDonald’s

7-31Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

Entry Modes of International ExpansionE

xte

nt o

f In

vest

men

t R

isk

High

LowLow High

Degree of Ownership and ControlAdapted from Exhibit 7.7 Entry Modes for International Expansion

Exporting

Licensing

Franchising

Strategic Alliance

Joint Venture

Wholly OwnedSubsidiary

How Should We Enter A Foreign Country?

Entry Mode Advantages DisadvantagesExporting High Experience &

Location Economies

Transport CostsTrade BarriersAgency

Licensing Low entry costs Low controlLow learningLow coordination

Franchising Low entry costs Low controlLow coordination

Joint Ventures Sharing of costs &knowledge

Political Risk

Low controlDiffusion of

knowledgeWholly OwnedSubsidiaries

High LearningProtection of Tech.High coordination

High costs & risks