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Chapter 9. International Strategy. Robert E. Hoskisson Michael A. Hitt R. Duane Ireland. The Strategic Management Process. Chapter 1 Introduction to Strategic Management. Chapter 2 Strategic Leadership. Strategic Thinking. Chapter 3 The External Environment. Chapter 4 The Internal

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international strategy

Chapter 9

International Strategy

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

©2004 by South-Western/Thomson Learning

slide2

The Strategic Management Process

Chapter 1

Introduction to

Strategic Management

Chapter 2

Strategic Leadership

Strategic

Thinking

Chapter 3

The External

Environment

Chapter 4

The Internal

Organization

Strategic Intent

Strategic Mission

Strategic

Analysis

Chapter 5

Business-Level

Strategy

Chapter 6

Competitive Rivalry and

Competitive Dynamics

Chapter 7

Corporate-Level Strategy

Creating

Competitive

Advantage

Chapter 8

Acquisitions and

Restructuring Strategies

Chapter 8

Acquisition and

Restructuring Strategies

Chapter 9

International Strategy

Chapter 9

International Strategy

Chapter 10

Cooperative Strategy

Monitoring

And Creating

Entrepreneurial

Opportunities

Chapter 11

Corporate Governance

Chapter 12

Strategic Entrepreneurship

opportunities and outcomes of international strategy
Opportunities and Outcomes of International Strategy

Identify International Opportunities

Explore Resources and Capabilities

Use Core Competence

International Strategies

Modes of Entry

Increased market size

Return on investment

Economies of scale and learning

Advantage in location

International business-level strategy

Multidomestic strategy

Global strategy

Transnational strategy

Exporting

Licensing

Strategic alliances

Acquisitions

Establishment of a new subsidiary

opportunities and outcomes of international strategy continued

Management

problems and

risk

Management

problems and

risk

Opportunities and Outcomes of International Strategy: Continued

Use Core Competence

Strategic Competitiveness Outcomes

Modes of Entry

Better performance

Exporting

Licensing

Strategic alliances

Acquisitions

Establishment of a new subsidiary

Innovation

Return to Discussion Questions

Click Here

motivations for international expansion
Motivations for International Expansion
  • Increase Market Share
    • domestic market may lack the size to support efficient scale manufacturing facilities
  • 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
motivations for international expansion6
Motivations for International Expansion
  • Economies of Scale or Learning
    • expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distribution
    • can spread costs over a larger sales’ base
    • increase profit per unit
  • Location Advantages
    • low cost markets may aid in developing competitive advantage
    • may achieve better access to:
  • Raw materials
  • Lower cost labor
  • Key customers
  • Energy
international business level strategy determinants of national advantage

Factors of

production

Firm strategy,

structure, and

rivalry

Demand

conditions

Related and

supporting

industries

International Business-Level Strategy: Determinants of National Advantage
international business level strategy determinants of national advantage8
International Business-Level Strategy: Determinants of National Advantage
  • Factors of production: the inputs necessary to compete in any industry
    • labor
    • land
    • natural resources
    • capital
    • infrastructure
    • basic factors include natural and labor resources
    • advanced factors include digital communication systems and educated workforce
international business level strategy determinants of national advantage9
International Business-Level Strategy: Determinants of National Advantage
  • Demand conditions:characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services
    • size of market segment can lead to scale-efficient facilities
    • efficiency can lead to domination of the industry in other countries
    • specialized demand may create opportunities beyond national boundaries
international business level strategy determinants of national advantage10
International Business-Level Strategy: Determinants of National Advantage
  • Related and supporting industries: supporting services, facilities, suppliers and so on
    • support in design
    • support in distribution
    • related industries as suppliers and buyers
international business level strategy determinants of national advantage11
International Business-Level Strategy: Determinants of National Advantage
  • Firm strategy, structure, and rivalry: the pattern of strategy, structure, and rivalry among firms
    • common technical training
    • methodological product and process improvement
    • cooperative and competitive systems
international corporate level strategy

Global

strategy

Transnational

strategy

Multidomestic

strategy

International Corporate-Level Strategy

High

Need for Global Integration

Low

Low

High

Need for Local Responsiveness

international corporate level strategy13
International Corporate-Level Strategy
  • Type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies
  • Some corporate strategies provide individual country units with flexibility to choose their own strategies
  • Others dictate business-level strategies from the home office and coordinate resource sharing across units
international corporate level strategy multidomestic strategy

Multidomestic

strategy

International Corporate-Level Strategy: Multidomestic Strategy
  • Strategy and operating decisions are decentralized to strategic business units (SBU) in each country
  • Products and services are tailored to local markets
  • Business units in one country are independent of each other
  • Assumes markets differ by country or regions
  • Focus on competition in each market
  • Prominent strategy among European firms due to broad variety of cultures and markets in Europe
worldwide geographic area structure

Europe

United

States

Middle

East/

Africa

Asia

Australia

Latin

America

Multinational

Headquarters

Worldwide Geographic Area Structure:

Multidomestic Strategy

  • product characteristics tailored to local preferences
  • isolation from global competition
    • establish protected market positions
    • compete in industry segments most affected by differences among local countries
international corporate level strategy global strategy

Global

strategy

International Corporate-Level Strategy: Global Strategy
  • Products are standardized across national markets
  • Decisions regarding business-level strategies are centralized in the home office
  • Strategic business units (SBU) are assumed to be interdependent
  • Emphasizes economies of scale
  • Often lacks responsiveness to local markets
  • Requires resource sharing and coordination across borders (which also makes it difficult to manage)
  • Historically prominent among Japanese firms
worldwide product divisional structure

Worldwide

Products

Division

Worldwide

Products

Division

Worldwide

Products

Division

Worldwide

Products

Division

Worldwide

Products

Division

Worldwide

Products

Division

Global

Corporate

Headquarters

Worldwide Product Divisional Structure:

Global Strategy

  • standardized products across countries
  • economies of scope and scale
  • outsource some primary or support activities to the world’s best providers
  • decision-making authority centralized in worldwide division headquarters
international corporate level strategy transnational strategy

Transnational

strategy

International Corporate-Level Strategy: Transnational Strategy
  • Seeks to achieve both global efficiency and local responsiveness
  • Difficult to achieve because of simultaneous requirements
    • strong central control and coordination to achieve efficiency
    • decentralization to achieve local market responsiveness
  • Must pursue organizational learning to achieve competitive advantage
using the combination structure
Using the Combination Structure:

Transnational Strategy

  • The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures
    • local responsiveness (multidomestic strategy)
    • global efficiency (global strategy)
environmental trends
Environmental Trends
  • Liability of Foreignness
    • security risks
    • tighter immigration policies
  • Regionalization
    • location can affect value creation
    • may wish to narrow focus to a particular region of the world
    • enter regional markets sequentially, beginning with the most familiar market
global market entry choice of entry mode
Global Market Entry: Choice of Entry Mode

Type of Entry

Characteristics

Exporting

High cost, low control

Licensing

Low cost, low risk, little control, low returns

Strategic alliances

Shared costs, shared resources, shared risks, problems of integration

Acquisition

Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations

New wholly owned subsidiary

Complex, often costly, time consuming, high risk, maximum control, potential above-average returns

value creation outcomes returns
Value Creation Outcomes: Returns
  • International diversification and returns:firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets
    • may increase a firm’s returns
    • such firms usually achieve the most positive stock returns
    • firm may achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns
value creation outcomes innovation
Value Creation Outcomes: Innovation
  • International diversification and innovation:firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets
    • potentially greater returns on innovations (larger markets)
    • generate additional resources for investment in innovation
    • exposed to new products and processes in international markets, generates additional knowledge leading to innovations
risks in an international environment
Risks in an International Environment

Political Risks

Political Risks

Economic Risks

  • Political risks include
    • instability in national governments
    • war, both civil and international
    • potential nationalization of a firm’s resources
risks in an international environment25
Risks in an International Environment

Political Risks

Political Risks

Economic Risks

  • Economic risks are interdependent with political risks and include
    • differences and fluctuations in the value of different currencies
    • differences in prevailing wage rates
    • difficulties in enforcing property rights
    • unemployment
limits to international expansion management problems
Limits to International Expansion: Management Problems
  • Cost of coordination across diverse geographical business units
  • Institutional and cultural barriers
  • Understanding strategic intent of competitors
  • The overall complexity of competition