Competing For Advantage
Part III – Creating Competitive Advantage
Chapter 10 – International Strategy
The Strategic
Management
Process
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
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
 A competitive advantage through location
Increased Market Size
 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
Economies of Scale, Scope, and Learning
 Expanding size or scope of markets
helps to achieve economies of scale
in manufacturing as well as
marketing, R&D, or distribution
 Costs are spread over a larger sales
base
 Profit per unit is increased
Location Advantages
 Low-cost markets may aid in developing
competitive advantage
 Low-cost markets may achieve better access
to critical resources:

Raw materials

Lower cost labor

Key customers

Energy
Expanding Internationally
 Decide whether the firm will follow an
international corporate-level strategy (one
that emphasizes a different approach to each
international market), a standardized
approach, or something in between
 Determine how to use the firm's distinctive
competencies to create advantages in
international markets through a businesslevel strategy
 Choose a mode for entering new markets
International Corporate-Level Strategies
 Type of corporate strategy selected will have
an impact on the selection and
implementation of business-level strategies
 Some corporate strategies provide each
individual country unit with the flexibility to
choose its own strategies
 Others dictate business-level strategies from
the home office and coordinate resource
sharing across units
Advantages of Regionalization
 Firms are better able to understand the
cultures, legal and social norms, and other
factors that are important for effective
competition in those markets
 Entering regional markets sequentially
(beginning in markets that are most familiar
and have the largest and strongest product
lines) can be an effective way of launching
an international strategy
Liability of Foreignness

Liabilities associated with foreign businesses in a
highly different business environment can make
competing on a worldwide scale risky and
expensive

Several factors make operating a business in a
foreign country difficult:


Employment contracts and labor forces differ

Host governments make different demands and
requirements to compete in their markets

Customers are not always understood
Given these conditions, regional adaptation may be
favored over a broad, global market approach
International Corporate-Level Strategies
Multidomestic Strategy
 Key Terms

Multidomestic Strategy – international strategy in
which strategic and operating decisions are
decentralized to the strategic business-unit
(SBU) in each country to allow the units to tailor
products to local markets

Worldwide Geographic Area Structure –
organizational structure that emphasizes
national interests and facilitates efforts to satisfy
local or cultural differences (used to implement
the multidomestic strategy)
Multidomestic Strategy – Features

Focuses on variations of competition within each
country

Customizes products to meet specific needs and
preferences of local customers

Decentralizes the firm's strategic and operating
decisions to business units in each country

Takes steps to isolate the firm from global competitive
forces


Establish protected market positions

Compete in industry segments most affected by
differences among local countries
Deals with uncertainty due to differences across
markets
Worldwide Geographic Area Structure
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)
Global Strategy – Features
 Emphasizes economies of scale
 Is facilitated by improved global accounting
and financial reporting standards
 Centralizes the firm's strategic and operating
decisions at the home office
 Involves SBUs operating in each country
that are interdependent
Global Strategy – Features (cont.)
 Home office attempts to achieve integration
across SBUs, adding management
complexity
 Produces lower risk
 Is less responsive to local market
opportunities
 Offers less effective learning processes due
to the pressure to conform and standardize
Worldwide Product Divisional Structure
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 –
Competing Objectives
 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/localizedimplementation
Worldwide Combination Structure –
Developments
 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
Determinants of National Advantage
Choice of International Entry Mode
Exporting
 Involves low expense to establish operations
in host country
 Often involves contractual agreements
 Involves high transportation costs
 May have some tariffs imposed
 Offers low control over marketing and
distribution
Licensing
 Involves low cost to expand internationally
 Allows licensee to absorb risks
 Has low control over manufacturing and
marketing
 Offers lower potential returns (shared with
licensee)
 Involves risk of licensee imitating technology
and product for own use
 May have inflexible ownership arrangements
Strategic Alliances
 Involve shared risks and resources
 Facilitate development of core
competencies
 Involve fewer resources and costs required
for entry
 May involve possible incompatibility,
conflict, or lack of trust with partner
 Are difficult to manage
Acquisitions
 Allow for quick access to market
 Involve possible integration difficulties
 Are costly
 Have complex negotiations and transaction
requirements
New Wholly Owned Subsidiary

Is costly

Involves complex processes

Allows for maximum control

Has the highest potential returns

Carries high risk
International Diversification and Returns
 Key Terms
 Offshoring –
offshore outsourcing
Multinational Firms –
Potential Advantages
 Economies of scale and




experience
Location advantages
Increased market size
Stabilized returns
Reduce overall firm risk
International Diversification and Innovation
 Exposure to new products and markets
 Opportunity to integrate new knowledge
into operations
 Generation of resources to sustain
innovation efforts
International Expansion Risks

Political risks

Economic risks
Political Risks of International Expansion

Government instability

Conflict or war

Government regulations

Conflicting and diverse legal authorities

Potential nationalization of private assets

Government corruption

Changes in government policies
Economic Risks

Differences and fluctuations in currency
values

Investment losses due to political risks
Complexity of Managing Multinational Firms
 Geographic dispersion
 Costs of coordination
 Logistical costs
 Trade barriers
 Cultural diversity
 Host government
Ethical Questions
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 Questions
Regulation and laws regarding the sale and distribution
of tobacco products are stringent in the U.S. market.
What are the ethical implications for U.S. pursuing
marketing strategies for tobacco products in other
countries that would be illegal in the U.S.?
Ethical Questions
Some companies outsource production to firms
in foreign countries to save money. To what
extent is a company morally responsible for the
ways that workers are treated by the firms in
those countries?
Ethical Questions
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 Questions
Is a company 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 involves one of those countries?
Ethical Questions
Latin America has been experiencing significant
changes in both political orientation and economic
development. What strategies should foreign
international businesses implement, if any, to influence
government policy in these countries? Can businesses
realistically expect to influence political changes?
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