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Ch8-1
Chapter 8Chapter 8
International StrategyInternational Strategy
Michael A. HittR. Duane Ireland
Robert E. Hoskisson
Michael A. HittR. Duane Ireland
Robert E. Hoskisson
©2000 South-Western College Publishing©2000 South-Western College Publishing
Ch8-2
CompetitivenessCompetitiveness
Chapter 3Chapter 3InternalInternal
EnvironmentEnvironment
Chapter 2Chapter 2ExternalExternal
EnvironmentEnvironmentThe StrategicThe StrategicManagementManagement
ProcessProcess
The StrategicThe StrategicManagementManagement
ProcessProcess
Strategic IntentStrategic Intent
Strategic MissionStrategic Mission
StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average
ReturnsReturnsFeedback
Strategy FormulationStrategy Formulation
Chapter 4Chapter 4Business-LevelBusiness-Level
StrategyStrategy
Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics
Chapter 6Chapter 6Corporate-LevelCorporate-Level
StrategyStrategy
Chapter 8Chapter 8InternationalInternational
StrategyStrategy
Chapter 9Chapter 9CooperativeCooperative
StrategiesStrategies
Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring
Strategy ImplementationStrategy Implementation
Chapter 10Chapter 10CorporateCorporate
GovernanceGovernance
Chapter 11Chapter 11StructureStructure& Control& Control
Chapter 12Chapter 12StrategicStrategic
LeadershipLeadership
Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation
Str
ateg
icIn
puts
Str
ateg
icA
ctio
ns
Str
ateg
ic
Ou
tcom
es
Ch8-3
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify Identify International International OpportunitiesOpportunities
ExploreExploreResources and Resources and
CapabilitiesCapabilities
Use Core Use Core CompetenceCompetence
StrategicStrategicCompetitivenessCompetitiveness
OutcomesOutcomes
International International StrategiesStrategies
Modes of Modes of EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies of Economies of Scale and Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-LevelBusiness-LevelStrategyStrategy
Multidomestic Multidomestic StrategyStrategy
GlobalGlobalStrategyStrategy
Transnational Transnational StrategyStrategy
ExportingExporting
Establishment of Establishment of New SubsidiaryNew Subsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovationInnovation
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies of Economies of Scale and Scale and LearningLearning
Location Location AdvantageAdvantage
Ch8-4
Selling Products or Services Outside a Firm’s Domestic MarketSelling Products or Services Outside a Firm’s Domestic MarketInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy LifecycleInternational Strategy Lifecycle
Firm Introduces Firm Introduces Innovation in Innovation in
Domestic MarketDomestic Market
11
Product Demand Product Demand Develops and Develops and Firm Exports Firm Exports
ProductsProducts
22
Foreign Foreign CompetitionCompetition
Begins ProductionBegins Production
33
Firm Begins Firm Begins Production AbroadProduction Abroad
44Production Becomes Production Becomes Standardized and is Standardized and is
Relocated to Low Cost Relocated to Low Cost CountriesCountries
55
Ch8-5
Example: Example: Aircraft manufacturers Boeing or AirbusAircraft manufacturers Boeing or Airbus
Example: Example: Japanese electronics or Japanese electronics or automobile manufacturersautomobile manufacturers
Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion
Increase Market ShareIncrease Market ShareDomestic market may lack the size to support efficient Domestic market may lack the size to support efficient scale manufacturing facilitiesscale manufacturing facilities
Large investment projects may require global markets to Large investment projects may require global markets to justify the capital outlaysjustify the capital outlays
Weak patent protection in some countries implies that firms Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitatorsshould expand overseas rapidly in order to preempt imitators
Return on InvestmentReturn on InvestmentReturn on InvestmentReturn on Investment
Ch8-6
Motivations for International ExpansionMotivations for International ExpansionMotivations for International ExpansionMotivations for International Expansion
Economies of Scale or LearningEconomies of Scale or LearningExpanding size or scope of markets helps to achieve Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, economies of scale in manufacturing as well as marketing, R & D or distributionR & D or distribution
- Can spread costs over a larger sales base- Can spread costs over a larger sales base
- Increase profit per unit- Increase profit per unit
May achieve better access to:May achieve better access to:- Raw materials- Raw materials- Lower cost labor- Lower cost labor
- Key suppliers- Key suppliers
- Key customers- Key customers- Energy- Energy
- Natural resources- Natural resources
Location AdvantagesLocation AdvantagesLow cost markets may aid in developing Low cost markets may aid in developing competitive advantagecompetitive advantage
Ch8-7
Factor ConditionsFactor Conditions
Basic FactorsBasic Factors- Land, labor- Land, labor
Advanced FactorsAdvanced Factors- Highly educated workers- Highly educated workers- Digital communications- Digital communications
Generalized FactorsGeneralized Factors- Capital, infrastructure- Capital, infrastructure
Specialized FactorsSpecialized Factors- Skilled personnel- Skilled personnel
Demand Demand ConditionsConditions
Home country may Home country may support scale efficient support scale efficient operations by itselfoperations by itself
Related & Supporting Related & Supporting IndustriesIndustries
- Japanese cameras & copiers- Japanese cameras & copiers- Italian shoes & leather- Italian shoes & leather
Firm Strategy, Structure & Firm Strategy, Structure & RivalryRivalry
Firm Strategy, Structure & Firm Strategy, Structure & RivalryRivalry
Intense rivalry fosters Intense rivalry fosters industry competitionindustry competitionIntense rivalry fosters Intense rivalry fosters industry competitionindustry competition
Porter’s Determinants of National AdvantagePorter’s Determinants of National AdvantageHome Country Home Country of Origin Is Crucial to International Successof Origin Is Crucial to International Success
Ch8-8
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify Identify International International OpportunitiesOpportunities
ExploreExploreResources and Resources and
CapabilitiesCapabilities
Use Core Use Core CompetenceCompetence
StrategicStrategicCompetitivenessCompetitiveness
OutcomesOutcomes
International International StrategiesStrategies
Modes of Modes of EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies of Economies of Scale and Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-LevelBusiness-LevelStrategyStrategy
Multidomestic Multidomestic StrategyStrategy
GlobalGlobalStrategyStrategy
Transnational Transnational StrategyStrategy
ExportingExporting
Establishment of Establishment of New SubsidiaryNew Subsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovationInnovation
Ch8-9
International DifferentiationInternational DifferentiationCountries with advanced or specialized factor Countries with advanced or specialized factor conditions most likely to use this strategyconditions most likely to use this strategy
Example:Example: Japan, Germany, U.S. Japan, Germany, U.S.
International Low CostInternational Low CostUsually located in home countryUsually located in home country
Export to international marketsExport to international markets
Low value added operations in foreign countriesLow value added operations in foreign countries
High value added operations in home countryHigh value added operations in home country
Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies
Ch8-10
International Focus StrategiesInternational Focus Strategies
International Integrated Low Cost/DifferentiationInternational Integrated Low Cost/DifferentiationCan be most effective in dealing with diverse marketsCan be most effective in dealing with diverse markets
Often relies upon flexible manufacturing, total quality Often relies upon flexible manufacturing, total quality management or rapid communication networksmanagement or rapid communication networks
Technologically advanced firms follow focused Technologically advanced firms follow focused low cost strategylow cost strategy
Focused differentiation firms compete on the Focused differentiation firms compete on the basis of image & designbasis of image & design
Third group competes on low price by imitatingThird group competes on low price by imitating
Business-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International StrategiesBusiness-Level International Strategies
Ch8-11
Three Three Corporate Corporate StrategiesStrategies
Global StrategyGlobal Strategy
Transnational StrategyTransnational Strategy
Multi-Domestic StrategyMulti-Domestic Strategy
Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies
Type of Corporate Strategy selected will have an Type of Corporate Strategy selected will have an impact on the selection and implementation of the impact on the selection and implementation of the business-level strategiesbusiness-level strategies
Some Corporate strategies provide individual country Some Corporate strategies provide individual country units with flexibility to choose their own strategiesunits with flexibility to choose their own strategies
Others dictate business-level strategies from the home Others dictate business-level strategies from the home office and coordinate resource sharing across unitsoffice and coordinate resource sharing across units
Ch8-12
Multi-Domestic StrategyMulti-Domestic Strategy
Business units in each country are independent Business units in each country are independent of each other of each other
Assumes markets differ by country or regionsAssumes markets differ by country or regions
Focus on competition in each marketFocus on competition in each market
Prominent strategy among European firms due to Prominent strategy among European firms due to broad variety of cultures and markets in Europebroad variety of cultures and markets in Europe
Strategy and operating decisions are decentralized Strategy and operating decisions are decentralized to strategic business units (SBU) in each countryto strategic business units (SBU) in each country
Products and services are tailored to local marketsProducts and services are tailored to local markets
Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies
Ch8-13
Products are standardized across national marketsProducts are standardized across national markets
Decisions regarding business-level strategies are Decisions regarding business-level strategies are centralized in the home officecentralized in the home office
Strategic business units (SBU) are assumed to be Strategic business units (SBU) are assumed to be interdependentinterdependent
Emphasizes economies of scaleEmphasizes economies of scale
Often lacks responsiveness to local marketsOften lacks responsiveness to local markets
Requires resource sharing and coordination across Requires resource sharing and coordination across borders (which also makes it difficult to manage)borders (which also makes it difficult to manage)
Global StrategyGlobal Strategy
Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies
Ch8-14
Seeks to achieve both global efficiency and local Seeks to achieve both global efficiency and local responsivenessresponsiveness
Difficult to achieve because of simultaneous Difficult to achieve because of simultaneous requirements for strong central control and requirements for strong central control and coordination to achieve efficiency and local coordination to achieve efficiency and local flexibility and decentralization to achieve local flexibility and decentralization to achieve local market responsivenessmarket responsiveness
Must pursue organizational learning to achieve Must pursue organizational learning to achieve competitive advantagecompetitive advantage
Transnational StrategyTransnational Strategy
Corporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International StrategiesCorporate-Level International Strategies
Ch8-15
International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?
Need for Need for Global Global
IntegrationIntegration
Need for Local Market ResponsivenessNeed for Local Market Responsiveness
Low
High
Low High
Multi-Multi-DomesticDomestic
Ch8-16
International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?
Need for Need for Global Global
IntegrationIntegration
Need for Local Market ResponsivenessNeed for Local Market Responsiveness
Low
High
Low High
Multi-Multi-DomesticDomestic
GlobalGlobalStrategyStrategy
Ch8-17
International Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyInternational Corporate StrategyWhen is each strategy appropriate?When is each strategy appropriate?
Need for Need for Global Global
IntegrationIntegration
Need for Local Market ResponsivenessNeed for Local Market Responsiveness
Low
High
Low High
Multi-Multi-DomesticDomestic
GlobalGlobalStrategyStrategy
Trans-Trans-nationalnational
Ch8-18
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify Identify International International OpportunitiesOpportunities
ExploreExploreResources and Resources and
CapabilitiesCapabilities
Use Core Use Core CompetenceCompetence
StrategicStrategicCompetitivenessCompetitiveness
OutcomesOutcomes
International International StrategiesStrategies
Modes of Modes of EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies of Economies of Scale and Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-LevelBusiness-LevelStrategyStrategy
Multidomestic Multidomestic StrategyStrategy
GlobalGlobalStrategyStrategy
Transnational Transnational StrategyStrategy
ExportingExporting
Establishment of Establishment of New SubsidiaryNew Subsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovationInnovation
Ch8-19
Common way to enter new international marketsCommon way to enter new international markets
No need to establish operations in other countriesNo need to establish operations in other countries
May have high transportation costsMay have high transportation costs
May have less control on marketing and distributionMay have less control on marketing and distribution
May encounter high import tariffsMay encounter high import tariffs
Difficult to customize productsDifficult to customize products
Establish distribution channels through contractual Establish distribution channels through contractual relationshipsrelationships
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode
ExportingExportingExportingExporting
Ch8-20
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode
LicensingLicensingLicensingLicensing
Firm authorizes another firm to manufacture and Firm authorizes another firm to manufacture and sell its productssell its products
Licensing firm is paid a royalty on each unit Licensing firm is paid a royalty on each unit produced and soldproduced and sold
Licensee takes risks in manufacturing investmentsLicensee takes risks in manufacturing investments
Least risky way to enter a foreign marketLeast risky way to enter a foreign market
Licensing firm loses control over product quality Licensing firm loses control over product quality and distributionand distribution
Relatively low profit potentialRelatively low profit potential
A significant risk is that licensor learns technology A significant risk is that licensor learns technology and competes when license expiresand competes when license expires
Ch8-21
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode
Strategic AlliancesStrategic AlliancesStrategic AlliancesStrategic Alliances
Enable firms to shares risks and resources to expand into Enable firms to shares risks and resources to expand into international venturesinternational ventures
Most joint ventures (JVs) involve a foreign company Most joint ventures (JVs) involve a foreign company with a new product or technology and a host company with a new product or technology and a host company with access to distribution or knowledge of local with access to distribution or knowledge of local customs, norms or politics customs, norms or politics
May experience difficulties in merging disparate May experience difficulties in merging disparate culturescultures
May not understand the strategic intent of partners or May not understand the strategic intent of partners or experience divergent goalsexperience divergent goals
Ch8-22
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode
AcquisitionsAcquisitionsAcquisitionsAcquisitions
Enable firms to make most rapid international Enable firms to make most rapid international expansionexpansion
Can be very costlyCan be very costly
Legal and regulatory requirements may present Legal and regulatory requirements may present barriers to foreign ownershipbarriers to foreign ownership
Usually require complex and costly negotiationsUsually require complex and costly negotiations
Potentially disparate corporate culturesPotentially disparate corporate cultures
Ch8-23
New Wholly-Owned SubsidiaryNew Wholly-Owned Subsidiary
Choice of International Entry ModeChoice of International Entry ModeChoice of International Entry ModeChoice of International Entry Mode
Most costly and complex of entry alternativesMost costly and complex of entry alternatives
Achieves greatest degree of controlAchieves greatest degree of control
Potentially most profitable, if successfulPotentially most profitable, if successful
Maintain control over technology, marketing Maintain control over technology, marketing and distributionand distribution
May need to acquire expertise and knowledge May need to acquire expertise and knowledge that is relevant to host countrythat is relevant to host country
Could require hiring host country Could require hiring host country nationals or consultants at high costnationals or consultants at high cost
Ch8-24
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify Identify International International OpportunitiesOpportunities
ExploreExploreResources and Resources and
CapabilitiesCapabilities
Use Core Use Core CompetenceCompetence
StrategicStrategicCompetitivenessCompetitiveness
OutcomesOutcomes
International International StrategiesStrategies
Modes of Modes of EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies of Economies of Scale and Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-LevelBusiness-LevelStrategyStrategy
Multidomestic Multidomestic StrategyStrategy
GlobalGlobalStrategyStrategy
Transnational Transnational StrategyStrategy
ExportingExporting
Establishment of Establishment of New SubsidiaryNew Subsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovationInnovation
Ch8-25
Strategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness OutcomesStrategic Competitiveness Outcomes
International diversification facilitates innovation in International diversification facilitates innovation in the firmthe firm
Provides larger market to gain more and faster returns Provides larger market to gain more and faster returns form investments in innovationform investments in innovation
May generate resources necessary to sustain a large-May generate resources necessary to sustain a large-scale R&D programscale R&D program
Generally related to above-average returns, assuming Generally related to above-average returns, assuming effective implementation and management of effective implementation and management of international operationsinternational operations
International diversification provides greater International diversification provides greater economies of scope and learningeconomies of scope and learning
Ch8-26
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify Identify International International OpportunitiesOpportunities
ExploreExploreResources and Resources and
CapabilitiesCapabilities
Use Core Use Core CompetenceCompetence
StrategicStrategicCompetitivenessCompetitiveness
OutcomesOutcomes
International International StrategiesStrategies
Modes of Modes of EntryEntry
IncreasedIncreasedMarket SizeMarket Size
Return on Return on InvestmentInvestment
Economies of Economies of Scale and Scale and LearningLearning
Location Location AdvantageAdvantage
InternationalInternationalBusiness-LevelBusiness-LevelStrategyStrategy
Multidomestic Multidomestic StrategyStrategy
GlobalGlobalStrategyStrategy
Transnational Transnational StrategyStrategy
ExportingExporting
Establishment of Establishment of New SubsidiaryNew Subsidiary
ExportingExporting
StrategicStrategicAlliancesAlliances
AcquisitionAcquisition
Management Management Problems Problems and Riskand Risk
Management Management Problems Problems and Riskand Risk
Higher Higher Performance Performance
ReturnsReturns
InnovationInnovation
Ch8-27
Political RiskPolitical Risk
Major Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification
Rebel fighting in Chechnya (Russia) and Rebel fighting in Chechnya (Russia) and Liberia (Africa)Liberia (Africa)
Continual warfare among Middle Eastern nationsContinual warfare among Middle Eastern nations
Potential renationalization of privatized enterprises Potential renationalization of privatized enterprises in Russiain Russia
Failure of European Community in quest for Failure of European Community in quest for economic superpower status because of intercountry economic superpower status because of intercountry disagreementsdisagreements
Ch8-28
Economic RiskEconomic Risk
Major Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International DiversificationMajor Risks of International Diversification
Mexico’s effect on world trade with low wages and high Mexico’s effect on world trade with low wages and high quality but strong currency risksquality but strong currency risks
China’s difficulty in enforcing intellectual property rights China’s difficulty in enforcing intellectual property rights on CDs, software, etc. on CDs, software, etc.
Germany’s struggle with high unemployment, high Germany’s struggle with high unemployment, high interest rates, sagging competitiveness, and cuts in social interest rates, sagging competitiveness, and cuts in social programsprograms
China’s trade policies. $44 billion trade surplus with China’s trade policies. $44 billion trade surplus with United States in 1977. China’s overall trade surplus United States in 1977. China’s overall trade surplus increased twentyfold in first half of 1997.increased twentyfold in first half of 1997.
Ch8-29
Management ProblemsManagement Problems
Limits To International ExpansionLimits To International ExpansionLimits To International ExpansionLimits To International Expansion
Cost of Coordination across diverse geographical business units
Institutional and cultural barriers
Understanding strategic intent of competitors
The overall complexity of competition