ch8-1 chapter 8 international strategy michael a. hitt r. duane ireland robert e. hoskisson michael...

Ch8-1

Chapter 8Chapter 8

International StrategyInternational Strategy

Michael A. HittR. Duane Ireland

Robert E. Hoskisson

Michael A. HittR. Duane Ireland

Robert E. Hoskisson

©2000 South-Western College Publishing©2000 South-Western College Publishing

Ch8-2

CompetitivenessCompetitiveness

Chapter 3Chapter 3InternalInternal

EnvironmentEnvironment

Chapter 2Chapter 2ExternalExternal

EnvironmentEnvironmentThe StrategicThe StrategicManagementManagement

ProcessProcess

The StrategicThe StrategicManagementManagement

ProcessProcess

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average

ReturnsReturnsFeedback

Strategy FormulationStrategy Formulation

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics

Chapter 6Chapter 6Corporate-LevelCorporate-Level

StrategyStrategy

Chapter 8Chapter 8InternationalInternational

StrategyStrategy

Chapter 9Chapter 9CooperativeCooperative

StrategiesStrategies

Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring

Strategy ImplementationStrategy Implementation

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 11Chapter 11StructureStructure& Control& Control

Chapter 12Chapter 12StrategicStrategic

LeadershipLeadership

Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation

Str

ateg

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puts

Str

ateg

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ctio

ns

Str

ateg

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es

Ch8-3

International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes

Identify Identify International International OpportunitiesOpportunities

ExploreExploreResources and Resources and

CapabilitiesCapabilities

Use Core Use Core CompetenceCompetence

StrategicStrategicCompetitivenessCompetitiveness

OutcomesOutcomes

International International StrategiesStrategies

Modes of Modes of EntryEntry

IncreasedIncreasedMarket SizeMarket Size

Return on Return on InvestmentInvestment

Economies of Economies of Scale and Scale and LearningLearning

Location Location AdvantageAdvantage

InternationalInternationalBusiness-LevelBusiness-LevelStrategyStrategy

Multidomestic Multidomestic StrategyStrategy

GlobalGlobalStrategyStrategy

Transnational Transnational StrategyStrategy

ExportingExporting

Establishment of Establishment of New SubsidiaryNew Subsidiary

ExportingExporting

StrategicStrategicAlliancesAlliances

AcquisitionAcquisition

Management Management Problems Problems and Riskand Risk


Higher Higher Performance Performance

ReturnsReturns

InnovationInnovation





Ch8-4

Selling Products or Services Outside a Firm’s Domestic MarketSelling Products or Services Outside a Firm’s Domestic MarketInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy Lifecycle

Firm Introduces Firm Introduces Innovation in Innovation in

Domestic MarketDomestic Market

11

Product Demand Product Demand Develops and Develops and Firm Exports Firm Exports

ProductsProducts

22

Foreign Foreign CompetitionCompetition

Begins ProductionBegins Production

33

Firm Begins Firm Begins Production AbroadProduction Abroad

44Production Becomes Production Becomes Standardized and is Standardized and is

Relocated to Low Cost Relocated to Low Cost CountriesCountries

55

Ch8-5

Example: Example: Aircraft manufacturers Boeing or AirbusAircraft manufacturers Boeing or Airbus

Example: Example: Japanese electronics or Japanese electronics or automobile manufacturersautomobile manufacturers

Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion

Increase Market ShareIncrease Market ShareDomestic market may lack the size to support efficient Domestic market may lack the size to support efficient scale manufacturing facilitiesscale manufacturing facilities

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 imitatorsshould expand overseas rapidly in order to preempt imitators

Return on InvestmentReturn on InvestmentReturn on InvestmentReturn on Investment

Ch8-6

Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion

Economies of Scale or LearningEconomies of Scale or LearningExpanding 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 marketing, economies of scale in manufacturing as well as marketing, R & D or distributionR & D or distribution

- Can spread costs over a larger sales base- Can spread costs over a larger sales base

- Increase profit per unit- Increase profit per unit

May achieve better access to:May achieve better access to:- Raw materials- Raw materials- Lower cost labor- Lower cost labor

- Key suppliers- Key suppliers

- Key customers- Key customers- Energy- Energy

- Natural resources- Natural resources

Location AdvantagesLocation AdvantagesLow cost markets may aid in developing Low cost markets may aid in developing competitive advantagecompetitive advantage

Ch8-7

Factor ConditionsFactor Conditions

Basic FactorsBasic Factors- Land, labor- Land, labor

Advanced FactorsAdvanced Factors- Highly educated workers- Highly educated workers- Digital communications- Digital communications

Generalized FactorsGeneralized Factors- Capital, infrastructure- Capital, infrastructure

Specialized FactorsSpecialized Factors- Skilled personnel- Skilled personnel

Demand Demand ConditionsConditions

Home country may Home country may support scale efficient support scale efficient operations by itselfoperations by itself

Related & Supporting Related & Supporting IndustriesIndustries

- Japanese cameras & copiers- Japanese cameras & copiers- Italian shoes & leather- Italian shoes & leather

Firm Strategy, Structure & Firm Strategy, Structure & RivalryRivalry

Firm Strategy, Structure & Firm Strategy, Structure & RivalryRivalry

Intense rivalry fosters Intense rivalry fosters industry competitionindustry competitionIntense rivalry fosters Intense rivalry fosters industry competitionindustry competition

Porter’s Determinants of National AdvantagePorter’s Determinants of National AdvantageHome Country Home Country of Origin Is Crucial to International Successof Origin Is Crucial to International Success

Ch8-8







OutcomesOutcomes











ExportingExporting


ExportingExporting






ReturnsReturns


Ch8-9

International DifferentiationInternational DifferentiationCountries with advanced or specialized factor Countries with advanced or specialized factor conditions most likely to use this strategyconditions most likely to use this strategy

Example:Example: Japan, Germany, U.S. Japan, Germany, U.S.

International Low CostInternational Low CostUsually located in home countryUsually located in home country

Export to international marketsExport to international markets

Low value added operations in foreign countriesLow value added operations in foreign countries

High value added operations in home countryHigh value added operations in home country

Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies

Ch8-10

International Focus StrategiesInternational Focus Strategies

International Integrated Low Cost/DifferentiationInternational Integrated Low Cost/DifferentiationCan be most effective in dealing with diverse marketsCan be most effective in dealing with diverse markets

Often relies upon flexible manufacturing, total quality Often relies upon flexible manufacturing, total quality management or rapid communication networksmanagement or rapid communication networks

Technologically advanced firms follow focused Technologically advanced firms follow focused low cost strategylow cost strategy

Focused differentiation firms compete on the Focused differentiation firms compete on the basis of image & designbasis of image & design

Third group competes on low price by imitatingThird group competes on low price by imitating

Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies

Ch8-11

Three Three Corporate Corporate StrategiesStrategies

Global StrategyGlobal Strategy

Transnational StrategyTransnational Strategy

Multi-Domestic StrategyMulti-Domestic Strategy

Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies

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 country Some Corporate strategies provide individual country units with flexibility to choose their own strategiesunits with flexibility to choose their own strategies

Others dictate business-level strategies from the home Others dictate business-level strategies from the home office and coordinate resource sharing across unitsoffice and coordinate resource sharing across units

Ch8-12

Multi-Domestic StrategyMulti-Domestic Strategy

Business units in each country are independent Business units in each 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 due to Prominent strategy among European firms due to broad variety of cultures and markets in Europebroad variety of cultures and markets in Europe

Strategy and operating decisions are decentralized Strategy and operating decisions are decentralized to strategic business units (SBU) in each countryto strategic business units (SBU) in each country

Products and services are tailored to local marketsProducts and services are tailored to local markets


Ch8-13

Products are standardized across national marketsProducts are standardized across national markets

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 across Requires resource sharing and coordination across borders (which also makes it difficult to manage)borders (which also makes it difficult to manage)

Global StrategyGlobal Strategy


Ch8-14

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 requirements for strong central control and requirements for strong central control and coordination to achieve efficiency and local coordination to achieve efficiency and local flexibility and decentralization to achieve local flexibility and decentralization to achieve local market responsivenessmarket responsiveness

Must pursue organizational learning to achieve Must pursue organizational learning to achieve competitive advantagecompetitive advantage

Transnational StrategyTransnational Strategy


Ch8-15

International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?

Need for Need for Global Global

IntegrationIntegration

Need for Local Market ResponsivenessNeed for Local Market Responsiveness

Low

High

Low High

Multi-Multi-DomesticDomestic

Ch8-16





Low

High

Low High



Ch8-17





Low

High

Low High



Trans-Trans-nationalnational

Ch8-18







OutcomesOutcomes











ExportingExporting


ExportingExporting






ReturnsReturns


Ch8-19

Common way to enter new international marketsCommon way to enter new international markets

No need to establish operations in other countriesNo need to establish operations in other countries

May have high transportation costsMay have high transportation costs

May have less control on marketing and distributionMay have less control on marketing and distribution

May encounter high import tariffsMay encounter high import tariffs

Difficult to customize productsDifficult to customize products

Establish distribution channels through contractual Establish distribution channels through contractual relationshipsrelationships

Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode

ExportingExportingExportingExporting

Ch8-20


LicensingLicensingLicensingLicensing

Firm authorizes another firm to manufacture and Firm authorizes another firm to manufacture and sell its productssell its products

Licensing firm is paid a royalty on each unit Licensing firm is paid a royalty on each unit produced and soldproduced and sold

Licensee takes risks in manufacturing investmentsLicensee takes risks in manufacturing investments

Least risky way to enter a foreign marketLeast risky way to enter a foreign market

Licensing firm loses control over product quality Licensing firm loses control over product quality and distributionand distribution

Relatively low profit potentialRelatively low profit potential

A significant risk is that licensor learns technology A significant risk is that licensor learns technology and competes when license expiresand competes when license expires

Ch8-21


Strategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances

Enable firms to shares risks and resources to expand into Enable firms to shares risks and resources to expand into international venturesinternational ventures

Most joint ventures (JVs) involve a foreign company Most joint ventures (JVs) involve a foreign company with a new product or technology and a host company with a new product or technology and a host company with access to distribution or knowledge of local with access to distribution or knowledge of local customs, norms or politics customs, norms or politics

May experience difficulties in merging disparate May experience difficulties in merging disparate culturescultures

May not understand the strategic intent of partners or May not understand the strategic intent of partners or experience divergent goalsexperience divergent goals

Ch8-22


AcquisitionsAcquisitionsAcquisitionsAcquisitions

Enable firms to make most rapid international Enable firms to make most rapid international expansionexpansion

Can be very costlyCan be very costly

Legal and regulatory requirements may present Legal and regulatory requirements may present barriers to foreign ownershipbarriers to foreign ownership

Usually require complex and costly negotiationsUsually require complex and costly negotiations

Potentially disparate corporate culturesPotentially disparate corporate cultures

Ch8-23

New Wholly-Owned SubsidiaryNew Wholly-Owned Subsidiary


Most costly and complex of entry alternativesMost costly and complex of entry alternatives

Achieves greatest degree of controlAchieves greatest degree of control

Potentially most profitable, if successfulPotentially most profitable, if successful

Maintain control over technology, marketing Maintain control over technology, marketing and distributionand distribution

May need to acquire expertise and knowledge May need to acquire expertise and knowledge that is relevant to host countrythat is relevant to host country

Could require hiring host country Could require hiring host country nationals or consultants at high costnationals or consultants at high cost

Ch8-24







OutcomesOutcomes











ExportingExporting


ExportingExporting






ReturnsReturns


Ch8-25

Strategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness Outcomes

International diversification facilitates innovation in International diversification facilitates innovation in the firmthe firm

Provides larger market to gain more and faster returns Provides larger market to gain more and faster returns form investments in innovationform investments in innovation

May generate resources necessary to sustain a large-May generate resources necessary to sustain a large-scale R&D programscale R&D program

Generally related to above-average returns, assuming Generally related to above-average returns, assuming effective implementation and management of effective implementation and management of international operationsinternational operations

International diversification provides greater International diversification provides greater economies of scope and learningeconomies of scope and learning

Ch8-26







OutcomesOutcomes











ExportingExporting


ExportingExporting






ReturnsReturns


Ch8-27

Political RiskPolitical Risk

Major Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification

Rebel fighting in Chechnya (Russia) and Rebel fighting in Chechnya (Russia) and Liberia (Africa)Liberia (Africa)

Continual warfare among Middle Eastern nationsContinual warfare among Middle Eastern nations

Potential renationalization of privatized enterprises Potential renationalization of privatized enterprises in Russiain Russia

Failure of European Community in quest for Failure of European Community in quest for economic superpower status because of intercountry economic superpower status because of intercountry disagreementsdisagreements

Ch8-28

Economic RiskEconomic Risk

Major Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification

Mexico’s effect on world trade with low wages and high Mexico’s effect on world trade with low wages and high quality but strong currency risksquality but strong currency risks

China’s difficulty in enforcing intellectual property rights China’s difficulty in enforcing intellectual property rights on CDs, software, etc. on CDs, software, etc.

Germany’s struggle with high unemployment, high Germany’s struggle with high unemployment, high interest rates, sagging competitiveness, and cuts in social interest rates, sagging competitiveness, and cuts in social programsprograms

China’s trade policies. $44 billion trade surplus with China’s trade policies. $44 billion trade surplus with United States in 1977. China’s overall trade surplus United States in 1977. China’s overall trade surplus increased twentyfold in first half of 1997.increased twentyfold in first half of 1997.

Ch8-29

Management ProblemsManagement Problems

Limits To International ExpansionLimits To International ExpansionLimits To International ExpansionLimits To International Expansion

Cost of Coordination across diverse geographical business units

Institutional and cultural barriers

Understanding strategic intent of competitors

The overall complexity of competition

ch8-1 chapter 8 international strategy michael a. hitt r. duane ireland robert e. hoskisson michael...

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