competing for advantage
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Competing For Advantage. Part III – Creating Competitive Advantage Chapter 10 – International Strategy. The Strategic Management Process. International Strategy. Key Terms - PowerPoint PPT PresentationTRANSCRIPT
Competing For Advantage
Part III – Creating Competitive AdvantageChapter 10 – International Strategy
The Strategic Management Process
International Strategy
Key Terms International Diversification – strategy
through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets
International Strategy
International Strategy
Key Terms International Strategy – strategy through
which the firm sells its goods or services outside the domestic market
Incentives for Using an International Strategy
Increased market size
Greater returns on major capital investments or on investments in new products and processes
Greater economies of scale, scope, or learning
A competitive advantage through location
Increased Market Size
Domestic market may lack the size to support efficient scale manufacturing facilities
Return on Investment
Large investment projects may require global markets to justify the capital outlays
Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators
Economies of Scale, Scope, and Learning
Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R&D, or distribution
Costs are spread over a larger sales base
Profit per unit is increased
Location Advantages
Low-cost markets may aid in developing competitive advantage
Low-cost markets may achieve better access to critical resources:
Raw materials Lower cost labor Key customers Energy
Expanding Internationally
Decide whether the firm will follow an international corporate-level strategy (one that emphasizes a different approach to each international market), a standardized approach, or something in between
Determine how to use the firm's distinctive competencies to create advantages in international markets through a business-level strategy
Choose a mode for entering new markets
International Corporate-Level Strategies
Type of corporate strategy selected will have an impact on the selection and implementation of business-level strategies
Some corporate strategies provide each individual country unit with the flexibility to choose its own strategies
Others dictate business-level strategies from the home office and coordinate resource sharing across units
Advantages of Regionalization
Firms are better able to understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets
Entering regional markets sequentially (beginning in markets that are most familiar and have the largest and strongest product lines) can be an effective way of launching an international strategy
Liability of Foreignness
Liabilities associated with foreign businesses in a highly different business environment can make competing on a worldwide scale risky and expensive
Several factors make operating a business in a foreign country difficult:
Employment contracts and labor forces differ Host governments make different demands and
requirements to compete in their markets Customers are not always understood
Given these conditions, regional adaptation may be favored over a broad, global market approach
International Corporate-Level Strategies
Multidomestic Strategy Key Terms
Multidomestic Strategy – international strategy in which strategic and operating decisions are decentralized to the strategic business-unit (SBU) in each country to allow the units to tailor products to local markets
Worldwide Geographic Area Structure – organizational structure that emphasizes national interests and facilitates efforts to satisfy local or cultural differences (used to implement the multidomestic strategy)
Multidomestic Strategy – Features Focuses on variations of competition within each
country Customizes products to meet specific needs and
preferences of local customers Decentralizes the firm's strategic and operating
decisions to business units in each country Takes steps to isolate the firm from global competitive
forces Establish protected market positions Compete in industry segments most affected by
differences among local countries Deals with uncertainty due to differences across
markets
Worldwide Geographic Area Structure
Global Strategy
Key Terms Global Strategy – international strategy through
which the firm offers standardized products across country markets, with the competitive strategy being dictated by the home office
Worldwide Product Divisional Structure – organizational structure in which decision-making authority is centralized in the worldwide division headquarters to coordinate and integrate decisions and actions among divisional business units (used to implement the global strategy)
Global Strategy – Features
Emphasizes economies of scale
Is facilitated by improved global accounting and financial reporting standards
Centralizes the firm's strategic and operating decisions at the home office
Involves SBUs operating in each country that are interdependent
Global Strategy – Features (cont.)
Home office attempts to achieve integration across SBUs, adding management complexity
Produces lower risk
Is less responsive to local market opportunities
Offers less effective learning processes due to the pressure to conform and standardize
Worldwide Product Divisional Structure
Transnational Strategy Key Terms
Transnational Strategy – international strategy through which the firm seeks to achieve both global efficiency and local responsiveness
Flexible Coordination – building a shared vision and individual commitment through an integrated network
Worldwide Combination Structure – organizational structure in which characteristics and mechanisms are drawn from both the worldwide geographic area structure and the worldwide product divisional structure (used to implement the transnational strategy)
Worldwide Combination Structure – Competing Objectives
Assets and operations may be centralized/decentralized
Functions may be integrated/nonintegrated Relationships may be formal/informal Coordination mechanisms may leverage
efficiency/flexibility Mandates to subsidiaries may be
global/specialized-contribution/localized-implementation
Worldwide Combination Structure – Developments Strong educational component to support the
culture
Adaptation of core competencies in local economies to gain competitive benefits
Effective corporate headquarters to foster leadership, shared vision, and strong corporate identity
Centers of excellence to foster multiple and dispersed capabilities
Determinants of National Advantage
Choice of International Entry Mode
Exporting
Involves low expense to establish operations in host country
Often involves contractual agreements
Involves high transportation costs
May have some tariffs imposed
Offers low control over marketing and distribution
Licensing Involves low cost to expand internationally
Allows licensee to absorb risks
Has low control over manufacturing and marketing
Offers lower potential returns (shared with licensee)
Involves risk of licensee imitating technology and product for own use
May have inflexible ownership arrangements
Strategic Alliances
Involve shared risks and resources
Facilitate development of core competencies
Involve fewer resources and costs required for entry
May involve possible incompatibility, conflict, or lack of trust with partner
Are difficult to manage
Acquisitions
Allow for quick access to market
Involve possible integration difficulties
Are costly
Have complex negotiations and transaction requirements
New Wholly Owned Subsidiary
Is costly
Involves complex processes
Allows for maximum control
Has the highest potential returns Carries high risk
International Diversification and Returns
Key TermsOffshoring – offshore outsourcing
Multinational Firms – Potential Advantages
Economies of scale and experience
Location advantages Increased market size Stabilized returns Reduce overall firm risk
International Diversification and Innovation
Exposure to new products and markets
Opportunity to integrate new knowledge into operations
Generation of resources to sustain innovation efforts
International Expansion Risks
Political risks
Economic risks
Political Risks of International Expansion
Government instability Conflict or war Government regulations Conflicting and diverse legal authorities Potential nationalization of private assets Government corruption Changes in government policies
Economic Risks
Differences and fluctuations in currency values
Investment losses due to political risks
Complexity of Managing Multinational Firms
Geographic dispersion
Costs of coordination
Logistical costs
Trade barriers
Cultural diversity
Host government
Ethical Questions
As firms internationalize, they may be tempted to locate facilities where product liability laws are lax in testing new products. Is this an acceptable practice? Why or why not?
Ethical Questions
Regulation and laws regarding the sale and distribution of tobacco products are stringent in the U.S. market. What are the ethical implications for U.S. pursuing marketing strategies for tobacco products in other countries that would be illegal in the U.S.?
Ethical Questions
Some companies outsource production to firms in foreign countries to save money. To what extent is a company morally responsible for the ways that workers are treated by the firms in those countries?
Ethical Questions
Global and multidomestic strategies call for different competitive approaches. What ethical concerns might surface when firms try to market standardized products globally? When should firms develop different products or approaches for each local market?
Ethical Questions
Is a company morally responsible to support the U.S. government as it imposes trade sanctions on other countries, such as China, because of human rights violations? What if a significant amount of its international business involves one of those countries?
Ethical Questions
Latin America has been experiencing significant changes in both political orientation and economic development. What strategies should foreign international businesses implement, if any, to influence government policy in these countries? Can businesses realistically expect to influence political changes?