Chapter 10
International Strategy
Copyright © 2012 Pearson Canada Inc.
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LEARNING OBJECTIVES
1. Define international strategy and identify its implications for the strategy
diamond.
2. Understand why a company would want to expand internationally and
explain the relationship between international strategy and competitive
advantage.
3. Use the CAGE framework to identify desirable international arenas.
4. Describe different vehicles for international expansion.
5. Apply different international strategy configurations.
6. Outline the international strategy implications of the static and dynamic
perspectives.
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International Strategy - THE FIVE ELEMENTS IN INTERNATIONAL STRATEGY
Staging & Pacing
Arenas
• When will we go international?
• How quickly will we expand into
• Which geographic areas will we enter?
• Which channels will we use in those
international markets?
arenas?
Arenas
• In what sequence will we
• Which value chain activities?
implement our entry tactics?
Staging
Economic
logic
Vehicles
Vehicles
• Which international market
entry tactics will we use?
Alliances? Acquisitions?
Greenfield investments?
Differentiators
Economic Logic
Differentiators
• How does our international
• How does being international make our
strategy contribute to the economic
logic of our business and corporate
strategies?
products more attractive to our customers?
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Why an International Strategy? - GLOBAL ECONOMIES OF SCALE AND SCOPE
Key factors
 Global economies of scale

and scope
Global expansion may be attractive if it allows
you to leverage fixed assets over new markets
• Pharmaceutical firms such as Pfizer can
leverage large R&D budgets
• Coca-Cola, McDonald’s, and RIM can
leverage brands
• LSG Skychefs has operations around the
world providing catering for airlines including
Alitalia, Alaska, American, Lufthansa,
Malaysia, Northwest, SAS, US Airways,
United, and Qantas
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Why an International Strategy? – LOCATION
Key factors
 Global economies

 Location

Choosing the right location can
provide advantages in terms of
•
•
•
•
•
Input costs
Competitors
Demand conditions
Regulatory environment
Presence of complements
A five-forces analysis can help reveal
the attractiveness of a location
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Why an International Strategy? – MULTIPOINT COMPETITION
Key factors
 Global economies

 Location

 Multipoint competition

Expanding into a new market may provide
an opportunity for a “stronghold assault”
For example, French tire maker Michelin had
negligible presence in the U.S. in the 1970s.
It learned of Goodyear’s plans to expand into
Europe, so it launched a counter attack. It
started selling tires in the U.S. at or below
cost, and thereby forced Goodyear to drop
prices and cut profits in its core market.
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Why an International Strategy? – LEARNING AND KNOWLEDGE SHARING
Key factors
 Global economies

 Location

 Multipoint competition

 Learning and knowledge

sharing
Expanding into a new market can create
opportunities to innovate, improve existing
products in existing markets, or develop
ideas for new markets
SC Johnson, for example, used technology
developed in its European operation (a
product for repelling mosquitoes in homes)
to create the “ Glade Plug-ins” air freshener
in the U.S.
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Why an International Strategy? - CONS OF INTERNATIONAL EXPANSION
Many international expansions fail
Why?
• Pepsi’s ambitious expansion in the
 Newness can be a disadvantage
1990s resulted in a decreased
international market share
• Wal-Marts international businesses
perform poorly relative to its U.S.
business
(e.g., your firm must move
up the learning curve)
 Foreignness can be a liability
(e.g., your managers may not
understand local culture)
 Governance and coordination
costs increase as you manage
from a distance
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Where to Grow Internationally - THE CAGE DISTANCE FRAMEWORK
Cultural distance
Administrative distance
Geography distance
Economic distance
Different languages
Absence of colonial ties
Physical remoteness
Differences in consumer incomes
Different ethnicities; lack
of connective ethnic or
social networks
Absence of shared monetary
or political association
Lack of a common border
Differences in costs and
quality of
Political hostility
Different religions
Size of country
Government policies
Different social norms
Institutional weakness
Weak transportation
or communication links
Attributes creating distance
Lack of sea or river access
Differences in climates
•
•
•
•
•
•
Natural resources
Financial resources
Human resources
Infrastructure
Intermediate inputs
Information or knowledge
Industries or products affected by distance
Products have high
linguistic content (TV)
Products affected by
cultural or national identity
of consumers (foods)
Product features vary in
terms of size (cars),
standards (electrical
appliances), or packaging
Products carry countryspecific quality
associations (wines)
Government involvement is high
Products have a low value-ofNature of demand varies with
in industries that are
weight or bulk ratio (cement)
income level (cars)
• Producers of staple goods
Products are fragile or
Economies of standardization or
(electricity)
perishable (glass, fruit)
scale are important (mobile
• Producers of other
phones)
Communications and
“entitlements” (drugs)
connectivity are important
Labour and other factor cost
• Large employers (framing)
(financial services)
differences are salient
• Large suppliers to government
(garments)
Local supervision and
(mass transportation)
Distribution or business systems
• National champions (aerospace) operational requirements are
high (many services)
are different (insurance)
• Vital to national security
(telecom)
Companies need to be
• Exploiters of natural resources
responsive and agile (home
(oil, mining)
appliances )
• Subject to high sunk costs
Source: Recreated from www.business-standard.com/general/pdf/113004_01.pdf.
(infrastructure)
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Where to Grow Internationally – CULTURAL DISTANCE
■ power
distance: the extent to which individuals accept the existence of
inequalities between subordinates and superiors within a hierarchical structure
■ uncertainty avoidance: individuals’ willingness to coexist with uncertainty about
the future
■ individualism: how the individuals in a society value individualistic behaviours
as opposed to collective ones
■ predominant values: regarding quantity or quality of life, that is, whether
more importance is given to material aspects or a stronger emphasis is laid on
interpersonal relationships
■ long-term or short-term orientation: the focus on future rewards or the concern
about the maintenance of the stability related to the past and the present
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Where to Grow Internationally - ADMINISTRATIVE DISTANCE
Free Trade
Agreements
• FTA’s
• Open foreign markets to Canadian exports
• Antidumping
Import Laws
Legal
concerns for
Canadian
firms
Foreign Corrupt
Practices
Accounting
Standards
Intellectual
Property
Protection
• Anti-bribery provisions
• International standards
• Patent Cooperation Treaty
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Where to Grow Internationally - ADMINISTRATIVE DISTANCE
Decreased distance between
U.S., Mexico, and Canada
Historical
Political
Hostilities
NAFTA
Increased distance between Cuba and U.S.
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Where to Grow Internationally – GEOGRAPHIC DISTANCE
• Geographic distance deals with how far apart trading
partners are in physical terms: the size of the
country, differences in climates, and nature of
transportation and information networks.
• You can think of geographic distance as absolute, in
terms of the miles or kilometres that separate a
company from another market or supplier.
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Where to Grow Internationally - ECONOMIC DISTANCE
• Economic distance captures fundamental differences
relating to income, the distribution of wealth, and the
relative purchasing power of segments of a
geographic market.
• Economic distance has been a major barrier to
companies that have been successful selling
products in developed markets that then want to
sell in emerging markets.
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How to Enter Foreign Markets - CHOICE OF ENTRY VEHICLES
Choice of entry
vehicles
Equity (FDI)
vehicles
Nonequity
vehicles
Exports
Contractual
Agreements
Alliances and
Joint Ventures (JVs)
Wholly Owned
Subsidiaries
Direct exports
Licensing/
franchising
Minority JVs
Greenfield
investments
Indirect exports
Turnkey projects
50/50 JVs
Acquisition
Others
Contracted R&D
Majority JVs
Others
Comarketing
Strategic alliances
(within dotted areas)
Source: Adapted from Pan, Y. and D. Tse,
“The Hierarchical Model of Market Entry Modes,”
Journal of International Business Studies, 31
(2000), 535-545
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How to Enter Foreign Markets - VEHICLES FOR ENTERING FOREIGN MARKETS
100%
Honda’s initial
entry into the
U.S. market
Bridgestone’s
acquisition of
U.S.-based
Firestone
FDI through
acquisition
FDI
Degree of
ownership
control over
activities performed in the
foreign market
Ford-Mazda
Genentech-Hoffman
LaRoche
Alliance
Exports
Champion
International’s paper
exports through
independent brokers
KFC’s
franchisees
in India
Alliance and
exports
0%
100% Exports
100% Local
Exports versus local production
Source: Examples drawn from in Gupta, A., and V. Govindarajan, “Managing Global Expansion: A Conceptual Framework,”
Business Horizons, March/April 2002, 45-54
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How to Enter Foreign Markets - EXPORTING OPTIONS
Direct Export
Most common option in relatively close markets and for products
with lower shipping costs
Licensing and
franchising
A firm may form an alliance or franchise giving a local partner the
right and responsibility to operate the firm’s business in their home
market (e.g., Burger King’s expansion in Europe)
Special
agreements
A firm may enter Turnkey project agreements, R&D contracts, or
co-marketing initiatives (e.g., a German firm Bayer AG contracts
large R&D projects to a U.S. firm)
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How to Enter Foreign Markets - ALLIANCES AND JOINT VENTURES
Until recently, China did not allow
non-Chinese companies in China …
U.S. firm
Chinese Firm
… so U.S. companies formed
alliances to gain access
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How to Enter Foreign Markets - FOREIGN DIRECT INVESTMENT
Foreign
company
Acquires
Local
company
Home country/
market
• DaimlerChrysler and BMW each invested $250
million to start local factories in Brazil
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How to Enter Foreign Markets - IMPORTING
Importing is often a
“stealth” form of
internationalization
because a firm will claim
to have no international
operations and yet
directly or indirectly
base production or
service delivery abroad
Country A
Production
Country B
Customer
service
“Domestic”
company
Home country
Country C
Logistics
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How to Manage International Strategy Configurations - INTERNATIONAL
STRATEGY CONFIGURATIONS AND LOCAL/GLOBAL TRADEOFFS
Relatively few
opportunities to gain
global efficiencies
Relatively high
local
responsiveness
Multinational vision
Build flexibility to respond to national differences
through strong, resourceful, entrepreneurial, and
somewhat independent national or regional
operations. Requires decentralized and relatively
self-sufficient units
Example: MTV initially adopted an international
configuration (using only American programming in
foreign markets) but then changed its strategy to a
multinational one. It now tailors its Western
European programming to each market, offering
eight channels, each in a different language
Relative low
local
responsiveness
International vision
Exploit parent-company knowledge and capabilities
through worldwide diffusion, local marketing, and
adaptation. The most valuable resources and
capabilities are centralized; others, such as local
marketing and distribution, are decentralized
Example: When Wal-Mart initially set up its
operations in Brazil, it used its U.S. stores as a
model for international expansion
Many opportunities to
gain global efficiencies
Transnational vision
Develop global efficiency, flexibility, and worldwide
learning. Requires dispersed, interdependent, and
specialized capabilities simultaneously
Example: Nestle has taken steps to move in this
direction, starting first with what might be described as
a multinational configuration
Today, Nestle aims to evolve from a decentralized,
profit-centre configuration to one that operates as a
single, global company. Firms like Nestle have taken
lessons from leading consulting firms such as
McKinsey and Company, which are globally dispersed
but have a hard-driving, one-firm culture at their core
Global vision
Build cost advantages through centralized, globalscale operations. Requires centralized and globally
scaled resources and capabilities
Example: Companies such as Merck and HewlettPackard give particular subsidiaries a worldwide
mandate to leverage and disseminate their unique
capabilities and specialized knowledge worldwide
Source: Bartlett, C., S. Ghoshal, & J. Birkenshaw, Transnational Management (New York: Irwin, 2004)
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Born – Global Companies
More and more firms, even young, small ones, have operations
that bridge national borders.
Logitech
Founded by
R&D
Production
• 2 Italians
• California
• Ireland
• 1 Swiss
• Switzerland
• Taiwan
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30% of
global PC
mouse business by
1989
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Born – Global Companies - HOW TO SUCCEED AS A GLOBAL START-UP
If yes,
Put together tools you will
need to move into global market
Consider if you should be a
global start-up
• Do you need human resources from
other countries to succeed?
 Strong management team with international experience
• Do you need financial capital from
 Broad and deep international network
other countries to succeed?
among suppliers, customers,
and complements
• If you go global, will target customers
prefer your services over competitor's?
• Can you put an international system in
 Preemptive marketing or technology to
provide first-mover advantage
 Strong intangible assets
place more quickly than domestic
competitors?
• Do you need global scale and
 Ability to keep customers locked in by
scope to justify the financial and human
capital investment?
• Will a purely domestic focus now make it
harder for you to go global
in the future?
linking new products and services to core
business while you innovate
 Close worldwide coordination and communication among business units,
suppliers, complements and customers
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International Strategy in Stable and Dynamic Contexts – GLOBAL CONTEXT AND
INDUSTRY LIFE CYCLE
• First-Mover Advantage
• Staging and Geographic Markets
• Role of Arenas in Global Strategies
• Resources and Global Strategy
• Capabilities and Global Strategy
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International Strategy in Stable and Dynamic Contexts - DEVELOPING A GLOBAL
MINDSET
Global skills
Having an
appreciation for the
differences between
countries and
people and seeing
these differences as
opportunities
Global perspective
Global mindset
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Having developed
skills for
managing diverse
teams in a worldwide workforce
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International Strategy in Stable and Dynamic Contexts - EXPATRIATES AND
INPATRIATES
Expatriates
From the home
country
Inpatriates
From the local
or host country
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