9-1© 2006 by Nelson, a division of Thomson Canada Limited.

International StrategyChapter Nine

9-2© 2006 by Nelson, a division of Thomson Canada Limited.

Chapter 5Bus. - Level

Strategy

Chapter 6Competitive

Dynamics

Chapter 9International

Strategy

Chapter 10CooperativeStrategies

Chapter 8Acquisitions &Restructuring

Chapter 11Corporate

Governance

Chapter 12Structure& Control

Chapter 13Strategic

Leadership

Chapter 14Entrepreneurship & Innovation

Str

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Str

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ns

Str

ateg

ic O

utc

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esChapter 4Internal

Environment

Chapter 3External

Environment Strat. Intent

Strat. Mission

The Strategic Management .

Process

Strategy Formulation Strategy Implementation

Strategic Competitiveness

Chapter 1

Above Average Returns

Chapter 2 Feedback

Strategic Competitiveness

Chapter 1

Chapter 7Corp. - Level

Strategy

Chapter 5Bus. - Level

Strategy

Chapter 9International

Strategy

9-3© 2006 by Nelson, a division of Thomson Canada Limited.

International Strategy

Knowledge Objectives

1. Explain the traditional and emerging motives for firms to pursue international diversification.

2. Explore the four factors that lead to a basis for international business-level strategies.

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

4. Discuss the environmental trends affecting international strategy, especially liability of foreignness and regionalization.

9-4© 2006 by Nelson, a division of Thomson Canada Limited.

International Strategy

Knowledge Objectives cont’d…

5. Name & describe the five alternative modes for entering international markets.

6. Explain the effects of international diversification on firm return and innovation.

7. Name and describe two major risks of international diversification.

8. Explain why the positive outcomes from international expansion are limited.

9-5© 2006 by Nelson, a division of Thomson Canada Limited.

StrategicCompetitiveness

Outcomes

Higher Performance

Returns

Innovation

Use Core Competence

Modes of Entry

Exporting

Establishment of New Sub.

Licensing

StrategicAlliances

Acquisition

ExploreResources & Capabilities

International Strategies

InternationalBus.-LevelStrategy

Multidomestic Strategy

GlobalStrategy

Transnational Strategy

Identify International

Opportunities

IncreasedMarket Size

Return on Investment

Economies of Scale and Learning

Location Advantage

Management Problems, Risk,

and First Steps

Management Problems, Risk,

and First Steps

International Strategy Opportunities & Outcomes

IncreasedMarket Size

Return on Investment

Economies of Scale and Learning

Location Advantage

9-6© 2006 by Nelson, a division of Thomson Canada Limited.

Benefits of International Strategies

• Increased market size.

• Greater returns on major capital investments or new products or processes.

• Greater economies of scale, scope or learning.

• A competitive advantage through location.

9-7© 2006 by Nelson, a division of Thomson Canada Limited.

Identify International

Opportunities

ExploreResources & Capabilities

Use Core Competence

StrategicCompetitiveness

Outcomes

International Strategies

Modes of Entry

IncreasedMarket Size

Return on Investment

Economies of Scale and Learning

Location Advantage

InternationalBus.-LevelStrategy

Multidomestic Strategy

GlobalStrategy

Transnational Strategy

Exporting

Establishment of New Sub.

Licensing

StrategicAlliances

Acquisition

Higher Performance

Returns

Innovation

International Strategy Opportunities & Outcomes

Management Problems, Risk,

and First Steps

Management Problems, Risk,

and First Steps

9-8© 2006 by Nelson, a division of Thomson Canada Limited.

International Strategies

• International Business Level Strategies

• International Corporate Level Strategies– Multi-domestic Strategy– Global Strategy– Transnational Strategy

9-9© 2006 by Nelson, a division of Thomson Canada Limited.

Determinants of National Advantage

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Determinants of National Advantage• Factors of Production

– Inputs – Labour, land, natural resources, capital & infrastructure• Demand Conditions

– The nature and size of he buyers needs in the home market of goods & services

• Related & Supporting Industries– Industries in which the target country is considered the leader

eg. Italy - shoes with a supporting leather industry,

Japan - cameras & photocopiers,

Denmark - diary & an industry focused on food enzymes. • Firm Strategy, Structure & Rivalry make up

– Germany focused on methodical product & process improvements, – Italy’s national pride of designers helped spawn fashion apparel,

furniture & sports car industries.

9-11© 2006 by Nelson, a division of Thomson Canada Limited.

International Corporate-Level Strategy

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International Corporate-Level Strategy

• Multi-domestic Strategy– Strategic & operating decisions are decentralized

to the strategic business unit in each country to tailor products to the local market.

9-13© 2006 by Nelson, a division of Thomson Canada Limited.

International Corporate-Level Strategy

• Multi-domestic Strategy– Strategic & operating decisions are decentralized to

the strategic business unit in each country to tailor products to the local market.

• Global Strategy– Assumes more standardization of products across

country markets

• Transnational Strategy– The firm seeks to achieve both global efficiency and

local responsiveness

9-14© 2006 by Nelson, a division of Thomson Canada Limited.

Identify International

Opportunities

ExploreResources & Capabilities

Use Core Competence

StrategicCompetitiveness

Outcomes

International Strategies

Modes of Entry

IncreasedMarket Size

Return on Investment

Economies of Scale and Learning

Location Advantage

InternationalBus.-LevelStrategy

Multidomestic Strategy

GlobalStrategy

Transnational Strategy

Exporting

Establishment of New Sub.

Licensing

StrategicAlliances

Acquisition

Higher Performance

Returns

Innovation

International Strategy Opportunities & Outcomes

Management Problems, Risk,

and First Steps

Management Problems, Risk,

and First Steps

9-15© 2006 by Nelson, a division of Thomson Canada Limited.

ExportingExporting

Choice of International Entry Mode

No need to establish operations in other nations.

Establish distribution channels through contractual relationships.

May have high transportation costs.

May encounter high import tariffs.

May have less control on marketing and distribution.

Difficult to customize product.

Common way to enter new international markets.

9-16© 2006 by Nelson, a division of Thomson Canada Limited.

Licensing

Choice of International Entry Mode

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

Licensee takes risks in manufacturing investments.

Least risky way to enter a foreign market.

Licensing firm loses control over product quality & distribution.

Relatively low profit potential.

Firm authorizes another firm to manufacture & sell its products -

9-17© 2006 by Nelson, a division of Thomson Canada Limited.

Choice of International Entry Mode

Strategic Alliances

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

May experience difficulties in merging disparate cultures.

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

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

9-18© 2006 by Nelson, a division of Thomson Canada Limited.

Choice of International Entry Mode

Can be very costly.

Legal and regulatory requirements may present barriers to foreign ownership.

Usually require complex and costly negotiations.

Potentially disparate corporate culture.

Enable firms to make most rapid international expansion.

Acquisitions

9-19© 2006 by Nelson, a division of Thomson Canada Limited.

Greenfield VentureGreenfield Venture

Choice of International Entry ModeNew Wholly-Owned Subsidiary –

Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing and

distribution.May need to acquire expertise & knowledge that is relevant to host country.

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

9-20© 2006 by Nelson, a division of Thomson Canada Limited.

International diversification facilitates innovation in the firm.

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

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

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

International diversification provides greater economies of scope and learning.

Strategic Competitiveness Outcomes

9-21© 2006 by Nelson, a division of Thomson Canada Limited.

Identify International

Opportunities

ExploreResources & Capabilities

Use Core Competence

StrategicCompetitiveness

Outcomes

International Strategies

Modes of Entry

IncreasedMarket Size

Return on Investment

Economies of Scale and Learning

Location Advantage

InternationalBus.-LevelStrategy

Multidomestic Strategy

GlobalStrategy

Transnational Strategy

Exporting

Establishment of New Sub.

Licensing

StrategicAlliances

Acquisition

Higher Performance

Returns

Innovation

International Strategy Opportunities & Outcomes

Management Problems, Risk,

and First Steps

Management Problems, Risk,

and First Steps

9-22© 2006 by Nelson, a division of Thomson Canada Limited.

Risks in the International Environment

9-23© 2006 by Nelson, a division of Thomson Canada Limited.

National government instability may create potential problems for internationally diversified firms.

Legal authority obtained from previous administration may become invalid.

Potential changes in attitudes or regulations regarding foreign ownership.

Potential for nationalization of firms’ assets.

Major Risks of International Diversification

Political Risk

9-24© 2006 by Nelson, a division of Thomson Canada Limited.

Econ. risks are interdependent with political risks.

Differences in inflation rates may affect inter-nationally diversified firms’ ability to compete.

Differences and fluctuations in international currencies may affect value of assets & liabilities.This affects prices & thus ability to compete.

Enforcing intellectual property rights on CDs, software, etc.

Major Risks of International Diversification

Economic Risk