Competing for Advantage Chapter 10 International Strategy PART III CREATING COMPETITIVE ADVANTAGE
International Strategy • Key Terms • International diversification Strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets
International Strategy • Key Terms • International strategy Strategy through which the firm sells its goods or services outside the domestic market
Incentives for Using an International Strategy • Increased market size • Greater returns on major capital investments or on investments in new products and processes • Greater economies of scale, scope, or learning • Potential for competitive advantage(s) based on location
Market Size • Limited domestic economies or growth opportunities • Both opportunities and challenges in emerging markets • Impact of local cultures and customs • Impact of international market size • Extended product life cycle
Return on Investment • Large investment projects may require global markets to justify the capital outlays. • Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators.
Economies of Scale, Scope, and Learning • Expand size or scope of markets to achieve economies of scale • Spread costs over a larger sales base • Increase profit per unit
Location Advantages • Competitive advantages are available in low cost markets • Access to critical resources: • Raw materials • Low-cost factors of production • Low-cost labor • Key customers • Energy • Other natural resources
Expanding Internationally • Type of expansion approach • How to use distinctive competencies to create advantages • Mode of entry into new markets
International Corporate-Level Strategies • Key Terms • International corporate-level strategy Strategy which focuses on the scope of a firm’s operations through both product and geographic diversification
International Scope Worldwide Presence or Regionalization
Regionalization • Trade agreements and institutions • Ability to understand the cultures, legal and social norms, and other factors that are important for effective competition in specific markets • Sequential market entry
Liability of Foreignness Liabilities associated with being a foreign business in a highly different business environment can make competing on a worldwide scale risky and expensive. • Employment contracts and labor forces differ. • Host governments make different demands and requirements to compete in their markets. • Understanding customers may be difficult.
Multidomestic Strategy • Key Terms • Multidomesticstrategy International strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country to allow that unit to tailor products to the local market • Worldwide geographic area structure Organizational structure which emphasizes national interests and facilitates the firms' efforts to satisfy local or cultural differences (used to implement the multidomestic strategy)
Maximizing Local Responsiveness • Focus on variations of competition within each country • Customize products to meet specific needs and preferences of local customers • Decentralize decisions to business units in each country • Compete in industry segments most affected by differences among local countries
Effects of a MultidomesticStrategy • Expands the firm’s local market share • Maximizes competitive responsiveness to local conditions • Establishes protected market positions • Isolates the firm from global competitive forces • Lowers efficiency levels • Increases uncertainty
Global Strategy • Key Terms • Global strategy International strategy through which the firm offers standardized products across country markets, with the competitive strategy being dictated by the home office • Worldwide product divisional structure Organizational structure in which decision-making authority is centralized in the worldwide division headquarters to coordinate and integrate decisions and actions among divisional business units (used to implement the global strategy)
Maximizing Global Integration • Integrate interdependent strategic business units operating in each country • Emphasize economies of scale • Share resources across country boundaries • Centralize decisions at the home office • Utilize innovations developed at the corporate level or in one country in other markets
Effects of a Global Strategy • Maximizes integration across business units • Produces standardization • Lowers risk • Fosters a shared vision of the firm’s strategy • Lowers responsiveness to local needs and preferences • Permits missed opportunities in local markets • Reduces effectiveness of learning processes • Adds management complexity
Transnational Strategy • Key Terms • Transnational strategy International strategy through which the firm seeks to achieve both global efficiency and local responsiveness • Flexible coordination Building a shared vision and individual commitment through an integrated network • Worldwide combination structure Organizational structure in which characteristics and mechanisms are drawn from both the worldwide geographic area structure and the worldwide product divisional structure (used to implement the transnational strategy)
Worldwide Combination Structure • Assets and operations may be centralized/decentralized • Functions may be integrated/nonintegrated • Relationships may be formal/informal • Coordination mechanisms may leverage efficiency/flexibility • Mandates to subsidiaries may be global/specialized-contribution/localized-implementation
Role of Subsidiaries • Global Mandate • Specialized Contribution • Local Implementation
Requirements of a Combination Structure • Strong educational component to support the culture • Adaptation of core competencies in local economies to gain competitive benefits • Effective corporate headquarters to foster leadership, shared vision, and strong corporate identity • Centers of excellence to foster multiple and dispersed capabilities
Developments for Multinational Firms • Emphasis on global efficiency is increasing as more industries begin to experience global competition • Emphasis on local requirements is also increasing • Multinational firms desire coordination and sharing of resources across country markets to hold down costs • Some products and industries are more suited than others for standardization across country borders
Exporting • Low cost way to establish operations in host country • Often through contractual agreements • High transportation costs • Potential for tariffs • Low control over marketing and distribution
Licensing • Low cost way to expand internationally • Risks absorbed by licensee • Low control over manufacturing and marketing • Lower potential returns (shared with licensee) • Risk of imitation by licensee • Ownership arrangements often inflexible
Strategic Alliances • Fewer entry resources and costs required • Shared risks and resources • Potential core competency development • Possible partner incompatibility, conflict, or lack of trust • Management difficulties
Acquisitions • Quick access to market • Costly • Possible integration difficulties • Complex negotiations and transaction requirements
New Wholly Owned Subsidiary • Costly mode of entry • High process complexity • Maximum control • Highest potential returns • High risk
Strategic Outcomes • International Diversification and Returns • International Diversification and Innovation International Diversification and Risk
International Diversification and Returns • Economies of scale and experience • Location advantages • Greater market size • Stability of returns • Lower overall firm risk • Exploitation of core competencies • Knowledge resource sharing • Global scanning for opportunities • Structural flexibility
International Diversification and Innovation • Access to larger and more markets • Lower R&D investment risk • Exposure to new products and processes • Opportunity to integrate new knowledge into operations • Generation of resources to sustain innovation efforts
Risks in an International Environment • Political risks • Economic risks • Other formal institutional risks
Political Risks • Government instability • Conflict/war • Government regulations • Conflicting and diverse legal authorities • Potential nationalization of private assets • Government corruption* • Changes in national leadership • Changes in government policies
Economic Risks • Differences and fluctuations in currency values • Investment losses due to political risks • Potential infrastructure or financial system damage from major disasters
Complexity of Managing Multinational Firms • Geographic dispersion • Costs of coordination • Logistical costs • Trade barriers • Cultural diversity • Barriers to competitive advantage transfer • Host governments
Ethical Question As firms internationalize, they may be tempted to locate facilities where product liability laws are lax in testing new products. Is this an acceptable practice? Why or why not?
Ethical Question Regulation and laws regarding the sale and distribution of tobacco products are stringent in the U.S. market. What are the ethical implications of U.S. firms pursuing marketing strategies for tobacco products in other countries that would be illegal in the United States?
Ethical Question Some companies outsource production to firms in foreign countries to save money. To what extent is a company morally responsible for the way workers are treated by the firms in those countries to which they outsource production?
Ethical Question Global and multidomestic strategies call for different competitive approaches. What ethical concerns might surface when firms try to market standardized products globally? When should firms develop different products or approaches for each local market?
Ethical Question Are companies morally responsible to support the U.S. government as it imposes trade sanctions on other countries, such as China, because of human rights violations? What if a significant amount of its international business is in one of those countries?