Strategic Management/ Business Policy
Power Point Set #11:International Strategy
COMPETITIVE ADVANTAGE
THE INDUSTRY ENVIRONMENT
Key Success Factors
FIRM RESOURCES & CAPABILITIES
-- Financial resources-- Physical resources-- Technology-- Reputation-- Functional capabilities-- General management
capabilities
THE NATIONAL ENVIRONMENT-- National resources and capabilities (raw materials;
national culture; human resources; transportation,communication, legal infrastructure
-- Domestic market conditions
-- Government policies
-- Exchange rates
-- Related and supporting industries
Competitive Advantage within an InternationalContext: The Basic Framework
Competitive Advantage within an InternationalContext: The Basic Framework
Questions Concerning International Strategy
What is the economic value of international strategies, according to Richard Caves of Harvard University?
Why are some countries more competitive than others in international competition?
How do companies diversify internationally?
How do you organize an international company?
Value of International Strategies
Gain Access to Low-Cost Factors of ProductionFor example, achieving global economies of scale such as can be observed in the automobile industry.
Leverage Core CompetenciesE.g., We saw earlier in the semester Honda developing and leveraging its competencies in producing motors for motorcycles, automobiles, snow blowers and lawn mowers
Value of International Strategies
Managing Corporate RiskAs global capital markets become more efficient over time, the benefit provided by this corporate strategy diminishes.
“Stretching” to Develop New Core CompetenciesE.g., Learning new skills in international markets
Gain Access to New Customers for Current Products or Services
Disneyland Tokyo, and Euro Disney
Copyright 1998 by Houghton Mifflin Company. All rights reserved.
3-34
The Determinants of National The Determinants of National Competitive AdvantageCompetitive Advantage
Factor Conditions
Competitivenessof Related and
Supporting Industries
Competitivenessof Related and
Supporting Industries
LocalDemand
Conditions
LocalDemand
Conditions
Intensity of
Rivalry
Intensity of
Rivalry
National CompetitiveAdvantage
Copyright 1998 by Houghton Mifflin Company. All rights reserved.
8-15
Four Basic StrategiesFour Basic Strategies
Pressures for Local ResponsivenessPressures for Local Responsiveness
Co
st P
ress
ure
sC
ost
Pre
ssu
res
High
LowLow High
GlobalGlobalStrategyStrategy
TransTrans--nationalnationalStrategyStrategy
InternationalInternationalStrategyStrategy
MultiMulti--domesticdomesticStrategyStrategy
Corporate-level International Strategies
Global Strategy (cost leadership strategy)
Products are standardized across national markets;
Emphasizes economies of scale;
Lacks responsiveness to local markets; and
Requires resource sharing and coordination across borders
Corporate-level International Strategies
Multi-Domestic Strategy (product differentiation strategy)
Decentralized strategy;Products and services tailored to local markets;Focus on competition in each market; and is a:Prominent strategy among European firms due to broad variety of cultures and markets in Europe
Corporate-level International Strategies
Transnational Strategy
Seeks to achieve both global efficiency (cost leadership) and local responsiveness (product differentiation)
Difficult to achieve because of simultaneous requirements for strong central control and coordination to achieve efficiency and local flexibility and decentralization to achieve local market responsiveness.
Copyright 1998 by Houghton Mifflin Company. All rights reserved.
8-16Cost Pressures and Pressures for Local Cost Pressures and Pressures for Local Responsiveness Facing CaterpillarResponsiveness Facing Caterpillar
Pressures for Local ResponsivenessPressures for Local Responsiveness
Co
st P
ress
ure
sC
ost
Pre
ssu
res
High
LowLow High
Caterpillar,Caterpillar,Inc.Inc.
Types of Corporate-Level Strategic Alliances
Diversifying Alliances
e.g., Samsung Group joins with Nissan to build new automobiles
Synergistic Alliances
e.g., Sony shares developments with many small firms
Franchising
e.g., Century 21 or McDonald’s
7-31Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
Entry Modes of International ExpansionE
xte
nt o
f In
vest
men
t R
isk
High
LowLow High
Degree of Ownership and ControlAdapted from Exhibit 7.7 Entry Modes for International Expansion
Exporting
Licensing
Franchising
Strategic Alliance
Joint Venture
Wholly OwnedSubsidiary
How Should We Enter A Foreign Country?
Entry Mode Advantages DisadvantagesExporting High Experience &
Location Economies
Transport CostsTrade BarriersAgency
Licensing Low entry costs Low controlLow learningLow coordination
Franchising Low entry costs Low controlLow coordination
Joint Ventures Sharing of costs &knowledge
Political Risk
Low controlDiffusion of
knowledgeWholly OwnedSubsidiaries
High LearningProtection of Tech.High coordination
High costs & risks