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trategic Manage!ent

Part II: Strategic Actions:

Strategy Formulation

Chapter 8: International Strategy

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"he trategic Manage!ent #rocess

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Chapter $% &nternational trategy '&(

) *verview% +ight content areas

"raditional vs. e!erging !otives

-our !aor bene/its o/ &nternational trategies '&(

-our /actors as basis /or international business strategy

"hree international corporatelevel strategies

+nviron!ental trends a//ecting &

-ive alternative !odes /or entering international!arets

+//ects o/ international diversi/ication on returns innovation

"wo !aor riss o/ international diversi/ication

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-oreign -ir!s +ntering China and Chinese-ir!s 3oing 3lobal

) Chinese !aret is large and lucrative

-oreign /ir!s !anu/acture in China /or cost savings

Auto industry !anu/acturing e4a!ples%

) 3M venture with hanghai Auto!otive &ndustry Corporation

) 5olswagen venture also with hanghai Auto!otive) 3M venture with Liu6hous 7uling Motors Co.

Auto industry !aret area e4a!ples%

) #orsche e4pects 2008 sales in China to e4ceed sales in 9..

) 3oogle partnership with !usic labels to co!pete with :aidu

) Chinese /ir!s co!peting abroad;uawei "echnologies Co. Ltd. 'teleco!(

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&ntroduction

) Many /ir!s choose direct invest!ent in assetsover indirect invest!ent

#rovides better protection /or assets

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*pportunities and *utco!es o/ &nternationaltrategy

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&denti/ying &nternational *pportunities%&ncentives to 9se an &nternational trategy'&(

) &nternational trategy '&(% /ir! sells its goods orservices outside the do!estic !aret

) Reasons /or an &

&nternational !arets yield potential new opportunities

&nternational diversi/ication% innovation occurs in ho!ecountry !aret, especially in an advanced econo!y,and de!and /or product develops in other countries, soe4ports provided by do!estic organi6ation

Multinational strategy% ecure need resources

*ther !otives e4ist 'i.e., pressure /or globalintegration, borderless de!and /or globally brandedproducts(

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&denti/ying &nternational *pportunities%&ncentives to 9se an &nternational trategy'&( 'Cont=d(

) -our pri!ary reasons

1. &ncreased !aret si6e

) >o!estic !aret !ay lac the si6e to support e//icient scale!anu/acturing /acilities

2. Return on &nvest!ent 'R*&() Large invest!ent proects !ay re?uire global !arets tousti/y the capital outlays

) 7ea patent protection in so!e countries i!plies that /ir!sshould e4pand overseas rapidly in order to pree!pt i!itators

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&denti/ying &nternational *pportunities%&ncentives to 9se an &nternational trategy'&( 'Cont=d(

) -our pri!ary reasons 'Cont=d(

@. +cono!ies o/ cale and Learning

) +4panding si6e or scope o/ !arets helps to achieveecono!ies o/ scale in !anu/acturing as well as !areting,R>, or distribution

) Costs are spread over a larger sales base

) #ro/it per unit is increased

. Location advantages% Low cost !arets !ayB

) B aid in developing co!petitive advantage

) B achieve better access to critical resources%

i.e., raw !aterials, lower cost labor, ey custo!ers, energy

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&nternational trategies '&(

) -ir!s choose one or both o/ two basic type o/ &%:usiness level andor corporate level

) &nternational businesslevel strategy

-ollows generic strategies o/ costleadership,

di//erentiation, /ocused or broad

) &nternational corporatelevel strategy 'DE@(

;o!e country usually !ost i!portant source o/co!petitive advantage

) Resources and capabilities /re?uently allow /ir! to pursue!arets in other countries

) "he deter!inants o/ national advantage includes /actors

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>eter!inants o/ Dational Advantage

Factor conditions- (i.e. position in skilled labor)Demand conditions- (home vs foreign)

Related and supporting industries- presence/absence of intlcompetitive ones

Firm Strateg! structure and rivalr-(re" conditions of

government and creation! organi#ation! mgmt and nature ofdomestic rivalr )

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&nternational CorporateLevel trategies

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&nternational trategies '&( 'Cont=d(

) &nternational corporatelevel strategies 'Cont=d(

) 1. Multido!estic

>ecentrali6ed strategic operating decisions by strategicbusinessunit ':9( in each country allows units to tailorproducts to local !arets

-ocuses on variations o/ co!petition within each country

Custo!i6ed products to !eet local custo!ers= speci/icneeds and pre/erences

"aes steps to isolate the /ir! /ro! global co!petitive/orces.

Coca-Cola, Wal-Mart, Honda and Nestle) +stablish protected !aret positions

) Co!pete in industry seg!ents !ost a//ected by di//erencesa!ong local countries

>eals with uncertainty /ro! di//erences across !arets

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&nternational trategies '&( 'Cont=d(

) 2. 3lobal

A global companyalso has locations in !ultiplecountries, but they=ve /igured out to create 1co!pany culture with 1 set o/ processes that

/acilitate a !ore e//icient and e//ective single globalorgani6ation

-ir! o//ers standardi6ed products across country!arets, with the co!petitive strategy being dictated bythe ho!e o//ice

+!phasi6es econo!ies o/ scale-acilitated by i!proved global reporting standards 'i.e.,

accounting and /inancial(

trategic operating decisions centrali6ed at ho!e o//ice

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&nternational trategies '&( 'Cont=d(

) 2. 3lobal 'Cont=d(

&nvolves interdependent :9s operating in eachcountry

;o!e o//ice atte!pts to achieve integration across

:9s, adding !anage!ent co!ple4ity#roduces lower ris

&s less responsive to local !aret opportunities

*//ers less e//ective learning processes 'pressure tocon/or! and standardi6e(

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&nternational trategies '&( 'Cont=d(

) @. "ransnational

-ir! sees to achieve both global e//iciency and localresponsiveness these are co!peting goalsF

Re?uires both global coordination and local /le4ibility withthis strategystructure co!bination

) -le4ible Coordination% :uilding a shared vision and individualco!!it!ent through an integrated networ

Challenging, but beco!ing increasingly necessary toco!pete in international !arets

3rowing nu!ber o/ global co!petitors heightens need to

eep costs down while greater in/or!ation /low and desire/or speciali6ed products pressures /ir!s to di//erentiate andeven custo!i6e products nonetheless,

&ncreasingly used as a strategy.

+4 Coco cola

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+nviron!ental "rends

) "ransnational strategy hard to i!ple!ent

) "wo new trends

) 1. Liability o/ /oreignness

&ncreased a/ter terrorists= attacs and &ra? 7ar

3lobal strategies not as prevalent today, still di//icult to

i!ple!ent even with &nternetbased strategies

Regional /ocus allows /ir!s to !arshal resources toco!pete e//ectively in regional !arets

) 2. Regionali6ation

-ocus to a particular region o/ the world) &ncreases understanding o/ !aret

) Achieve so!e econo!ies

) "rade agree!ents 'i.e., +9, *A, DA-"A( pro!ote /low o/trade across country boundaries with their respective regions

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&nternational +ntry Modes

) -ollows the selection o/ an &

) -ive !ain entry !odes

) 1. +4porting

) 2. Licensing

) @. trategic Alliances

) . Ac?uisitions

) G. Dew 7holly*wned ubsidiary

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&nternational +ntry Modes 'Cont=d(

) 1. +4porting

&nvolves low e4pense to establish operations in host country

*/ten involves contractual agree!ents

&nvolves high transportation costs

May have so!e tari//s i!posed *//ers low control over !areting and distribution

*ne option is selling the product or service directly to a/oreign /ir! by the ho!ecountry /ir!. Costs and prices arelowest i/ production occurs in only a /ew locations aroundthe world and e//iciently produced goods are e4ported to

!ost !arets. "his approach wors best where there isli!ited sales potential in the target !aretH little productapplication is re?uiredH and distribution channels are close toplants.

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&nternational +ntry Modes 'Cont=d(

) 2. Licensing

&nvolves low cost to e4pand internationally

Allows licensee to absorb riss

;as low control over !anu/acturing and !areting

*//ers lower potential returns 'shared with licensee(

&nvolves ris o/ licensee i!itating technology and product /or own use

May have in/le4ible ownership arrange!ent

) Licensing is a contractual arrange!ent whereby a co!pany trans/ers 'via alicense( the right to distribute or !anu/acture a product or service to a /oreigncountry, or the right to use any type o/ e4pertise that !ay include patents,trade!ars, co!pany na!e, technology and technological nowhow, designandor business !ethods. "he licensee pays a /ee andor percentage o/ sales ine4change /or the rights.

) "his approach wors best where there are barriers to i!port and invest!ent,where legal protection is possible in the target environ!ent, and where there isa low sales potential in the target country.

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&nternational +ntry Modes 'Cont=d(

) @. trategic Alliances

&nvolve shared riss and resources

-acilitate develop!ent o/ core co!petencies

&nvolve /ewer resources and costs re?uired /or entry

May involve possible inco!patibility, con/lict, or lac o/trust with partner

Are di//icult to !anage

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&nternational +ntry Modes 'Cont=d(

) . Ac?uisitions

Allow /or ?uic access to !aret

&nvolve possible integration di//iculties

Are costly

;ave co!ple4 negotiations and transactionre?uire!ents

A !erger !ay !ean shortter! cash, but notnecessarily /uture stability. ;al/ o/ !erged entitiesnever achieve their proected /inancial and !aret

goals. Ac?uiring a co!pany also !eans ac?uiringe4isting business, synergy and sta// proble!s.

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&nternational +ntry Modes 'Cont=d(

) G. Dew 7holly*wned ubsidiary

&s costly

&nvolves co!ple4 processes

Allows /or !a4i!u! control

;as the highest potential returns

Carries high ris3reen/ield venture% +stablish entirely new subsidiary

A Igreen/ield invest!entJ starts with bare ground and builds up/ro! there. CocaCola, Mc>onald=s and tarbucs are greate4a!ples o/ 9.. /ir!s that have invested in green/ield proectsaround the world.

"his approach is especially advantageous when the riss o/ investingin a particular /oreign !aret are low, !a4i!u! operational controlis desired and host govern!ents have open trade and invest!entpolicies.

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&nternational +ntry Modes 'Cont=d(

) >yna!ics o/ Mode o/ +ntry% 9se the best suited tothe situation at handH a//ected by several /actors

+4port, licensing and strategic alliance% good tactics /orearly !aret develop!ent

trategic alliance% used in !ore uncertain situations7hollyowned subsidiary !ay be pre/erred i/

) rights in e!erging econo!y not well protected

) Du!ber o/ /ir!s in industry is growing /ast

) Deed /or global integration is high

Ac?uisitions or green/ield ventures% secure a strongerpresence in international !arets

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trategic Co!petitive *utco!es

) &nternational diversi/ication% /ir! e4pands sales o/its goods or services across the borders o/ globalregions and countries into di//erent geographiclocations or !arets

) &!ple!entation /ollows selection o/ internationalstrategy and !ode o/ entry

) 1. &nternational diversi/ication and returns

) 2. &nternational diversi/ication and innovation

) @. Co!ple4ity o/ !anaging !ultinational /ir!s

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trategic Co!petitive *utco!es 'Cont=d(

) 1. &nternational diversi/ication and returns

As international diversi/ication increases, /ir!s= returnsinitially decrease, but then increase ?uicly as the /ir!learns to !anage international e4pansion

) 2. &nternational diversi/ication and innovation+4posure to new products and !arets

*pportunity to integrate new nowledge into operations

3eneration o/ resources to sustain innovation e//orts

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trategic Co!petitive *utco!es 'Cont=d(

) @. Co!ple4ity o/ !anaging !ultinational /ir!s

3eographic dispersion

Costs o/ coordination

Logistical costs

"rade barriersCultural diversity

;ost govern!ent

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Riss in &nternational +nviron!ent

) "wo !aor riss

1. #olitical

2. +cono!ic

) Li!its to international e4pansions% !anage!ent

proble!s

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Ris in the &nternational +nviron!ent

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Riss in &nternational +nviron!ent 'Cont=d(

) 1. #olitical riss

3overn!ent instability

Con/lict or war

3overn!ent regulations

Con/licting and diverse legal authorities#otential nationali6ation o/ private assets

3overn!ent corruption

Changes in govern!ent policies

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Riss in &nternational +nviron!ent 'Cont=d(

) 2. +cono!ic riss

>i//erences and /luctuations in currency values

&nvest!ent losses due to political riss

) Li!its to international e4pansions% !anage!ent

proble!s3eographic dispersion

"rade barriers

Logistical costs

Cultural diversity*ther di//erences by country

Relationship between organi6ation and host country