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

ateg

icIn

pu

ts

Str

ateg

icA

ctio

ns

Str

ateg

ic O

utc

om

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. Understand why firms pursue international diversification.

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

3. Understand risk of international expansion4. Name & describe the five alternative modes for

entering international markets5. Understand importance of factor, demand and related

and supporting industries of target Country

9-4© 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.

• Trade across nations will exceed trade within nations• Rise of market capitalism around the world

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

Population of Selected Nations

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

China 1,305,034,000India 1,077,886,000United States 295,280,000Japan 127,418,000Germany 82,438,000

World Total 6,379,157,000

Country May 2005 (estimated)

Exhibit 7.2 Populations of Selected NationsSource: www.geohive.com/global/pop_data2.php.

9-6© 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

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

Determinants of National Advantage

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

Porter’s Diamond of National Advantage: As Applied to India

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Adapted from Exhibit 7.1 India’s Virtual Diamond in Software

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

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.

9-10© 2006 by Nelson, a division of Thomson Canada Limited.

International Corporate-Level Strategy

9-11© 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– Strategic & operating decisions are centralized. Products

are standardized. There are only a few manufacturing locations with long production runs.

• Transnational Strategy– A combination of the multi-domestic and global strategies.

The most profitable of all of them.

9-12© 2006 by Nelson, a division of Thomson Canada Limited.

Strengths and Limitations of Various Strategies

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Strategy Strengths Limitations

Global Strong integration across various businesses.

Standardization leads to higher economies of scale which lowers costs.

Helps to create uniform standards of quality throughout the world.

Limited ability to adapt to local markets.

Concentration of activities may increase dependence on a single facility.

Single locations may lead to higher tariffs and transportation costs.

Exhibit 7.6 Strengths and Limitations of Various Strategies

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

Strengths and Limitations of Various Strategies

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Multidomestic

Strategy Strengths Limitations

Ability to adapt products and services to local market conditions.

Ability to detect potential opportunities for attractive niches in a given market, enhancing revenue.

Less ability to realize cost savings through scale economies.

Greater difficulty in transferring knowledge across countries.

May lead to “overadaptation” as conditions change.

Transnational Ability to attain economies of scale.

Ability to adapt to local markets.

Ability to locate activities in optimal locations.

Ability to increase knowledge flows and learning.

Unique challenges in determining optimal locations of activities to ensure cost and quality.

Unique managerial challenges in fostering knowledge transfer.

Exhibit 7.6 Strengths and Limitations of Various Strategies

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

Entry Modes of International Expansion

McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Ext

ent

of I

nves

tmen

t R

isk

High

LowLow High

Degree of Ownership and Control

ExportingExporting

LicensingLicensing

FranchisingFranchising

Strategic AllianceStrategic Alliance

Joint VentureJoint Venture

Wholly OwnedWholly OwnedSubsidiarySubsidiary

Adapted from Exhibit 7.7 Entry Modes for International Expansion

9-15© 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

9-16© 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

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

Risks in the International Environment

9-18© 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

9-19© 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