International Strategy
Motives for Globalization
Changes in the External Environment
Multidomestic/Global Competition
Types of International Strategy
Entry Strategies
Globalization of Production
The sourcing of goods and services from locations around the globe to take advantage of national differences in the cost and quality of factors of production (Hill, 2006).
Human ResourcesCapital (Technology)
Capital(Facilities)
Natural ResourcesEntrepreneur
Globalization of Markets
Moving away from an economic system in which national markets are distinct entities, isolated by trade barriers and barriers of distance, time, and culture (Hill, 2006).
Consumer Products
StarbucksCiticorp
McDonalds Industrial Products
OilWheat
Commercial Aircraft
Who here has been involved in International Operations?
Who has traveled internationally?
Who is from another country?
Economic Factors: Monetary and Fiscal policies, ,exchange rates, economic development, type of economic system. Etc.
Technological Factors: Regulations on technology transfer, information flow, infrastructure, patent and trademark protection, etc.
Political/Legal Factors: Form of government, tariffs, protectionist sentiment, terrorist activity, legal system, government’s attitude toward foreign firms, employment laws, etc.
Social/Cultural Factors: beliefs, values, attitudes, opinions, lifestyles, human rights, literacy levels, language, social institutions, skill level of the workforce, etc.
Balancing Macro Factors is Key
Do low wages in developing countries translate into lower manufacturing costs?
Multidomestic Competition
Competition is essentially segmented from country to country.
Competition in one country is independent of competition inother countries.
Think in terms of the competitive forces (Porter’s 5 Forces)
Examples: Grocery, healthcare
****In a multidomestic industry, a global corporation’ssubsidiaries should be managed as distinct entities.
Global Competition
Global competition occurs when competition crosses national borders.
A firm’s strategic moves in one country can be significantly affected by it’s competitive position in another country.
Once again think about the competitive forces.
Examples: Automobiles, Consumer electronics, Petroleum
Competing Pressures
Pressure for Local Responsiveness
Consumer’s Tastes and Preferences
Differences in Infrastructure or Traditional Practices
Differences in Distribution Channels
Demands of Host Governments
Pressure for Cost Reductions
Commodity-type product
Universal needs of customers
Competitors use a low cost position
Multidomestic Strategy
Focus: Local Responsiveness
Customize the strategy to fit the circumstances of each host country
Little to no coordination of strategy across countries
Form subsidiary companies to handle operations in each host country; each subsidiary operates more or less autonomously
Impact on value chain?
Focus: Cost Reduction
Same basic strategy worldwide (minor variations where essential) (e.g., Intel)
Takes advantage of location economiesLocate subunits near high-quality raw materialLocate subunits near sources of high-quality or low cost laborSeek low cost financing anywhere in the world
Much more worldwide coordination
All major strategic decisions are closely coordinated at globalheadquarters. Structure is designed to unify subsidiaries.
Impact on value chain?
Global Strategy
GlobalStrategy
InternationalStrategy
MultidomesticStrategy
TransnationalStrategy
Low Pressures for Local Responsiveness High
High
Low
Pressuresfor Cost
Reduction
International Strategy
Low Pressures for Local Responsiveness and Cost Reduction
Skills and products are transferred to foreign markets werelocal competitors lack those skills
Parts of the value chain remain in the home country (e.g., R&D)
Parts of the value chain are duplicated throughout the world (e.g., manufacturing)
Works best when: industry cost pressures are low and local capabilitiesare underdeveloped or non existent.
Boeing: Production and marketing (local), sales force (global)Televisa (Mexico’s largest media firm): Spanish soap operas
Transnational Strategies
High pressures for both local responsiveness and cost reduction
A type “Best cost” strategy wherein companies try to simultaneously achieve advantages from low cost and differentiation.
Competencies are developed world-wide and transferred as appropriate
Experience Curve Effects
Location Economies
Local Responsiveness
Amount of Commitment, Control, Risk and Profit Potential
Licensing Exporting Franchising ContractManufacturing
JVand
StrategicAlliances
ForeignDirect
Investment
Least Most
Entry Strategies
A BA B
C
Strategic Alliance Joint Venture
Can be leveraged internationally by linking
value chain activities
Motivations for Partnerships
1. Generate scale economies: Toyota/GM joint venture (Toyota couldspread fixed investment over more units)
2. Gain access to strategic markets: Japanese firm, JVC, provided designtechnology to partner in exchange for access to European market.
3. Overcoming trade barriers: Inland Steel and Nippon Steel built coldsteel plant in Indiana (Nippon supplied technology, capital andaccess to Japanese firms in the US).
4. Use excess capacity: Toyota/GM joint venture used an idle GM plant
5. Gain access to low-cost manufacturing capabilities: GE sourcingmicrowaves from Korea.