Strategic management chapter 8 identifying international opportunities

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Figure 8.1 Opportunities and Outcomes of International Strategy

Identifying International Opportunities

• International Strategy

– A strategy through which the firm sells its goods or services outside its domestic market.

• Incentives to use international strategy

– New market expansion extends product life cycle.

– Gain access to materials and resources.

– Integration of operations on a global scale

– Better use of rapidly developing technologies

– International markets yield potential new opportunities.

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Classic Rationale for International Diversification: Extend a Product’s Life Cycle

Production is standardized and relocated to low cost

countries

Product demand develops and firm exports products

Firm introduces

innovation in

domestic market

Foreign competition begins production

Firm begins production abroad

International Strategy Benefits

• Increased Market Size

– Domestic market may lack the size to support efficient scale manufacturing facilities.

• 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.

– Can increase profit per unit.

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International Strategy Benefits (cont’d)

– Low cost markets aid in developing competitive advantage by providing access to:

• Raw materials

• Transportation

• Lower costs for labor

• Key customers

• Energy

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Figure 8.2 Incentives and Basic Benefits of International Strategy

Determinants of National Advantage

• Factors of production

– The inputs necessary to compete in any industry

• Basic factors

– Natural and labor resources

– Digital communication systems and an educated workforce

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Determinants of National Advantage (cont’d)

– Characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services.

• Size of the 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.

Determinants of National Advantage (cont’d)

• Related and Supporting Industries

– Supporting services, facilities, suppliers and so on.

• Support in design

• Support in distribution

• Related industries as suppliers and buyers

• 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

Selecting an International Corporate-Level Strategy

• The type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies.

– Some strategies provide individual country units with the flexibility to choose their own

strategies.

– Other strategies dictate business-level strategies from the home office and coordinate

resource sharing across units.

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International Corporate-Level Strategy

• Focuses on the scope of operations:

– Product diversification

– Geographic diversification

• Required when the firm operates in:

– Multiple industries, and

– Multiple countries or regions

• Headquarters unit guides the 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.

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Multidomestic strategy

Global Strategy

• Products are standardized across national markets.

• Business-level strategic decisions 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 (hard to manage).

Transnational Strategy

• Seeks to achieve both global efficiency and local responsiveness.

• Difficult to achieve because of simultaneous requirements for:

– Strong central control and coordination to achieve efficiency

– Decentralization to achieve local market responsiveness

– Pursuit of organizational learning to achieve competitive advantage.

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Transnational strategy

• Political Risks

– Instability in national governments

– War, both civil and international

– Potential nationalization of a firm’s resources

• Economic Risks

– Differences and fluctuations in the value of different currencies

– Differences in prevailing wage rates – Difficulties in enforcing property rights – Unemployment

Risks in an International Environment

?

?

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Figure 8.6 Risks in the International Environment

International Diversification and Returns

• Expanding sales of goods or services across global regions and countries and into different geographic locations or markets:

– May increase a firm’s returns (such firms usually achieve the most positive stock returns) – May achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns.

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International Diversification and Innovation

• Expansion sales of goods or services across global regions and countries and into different geographic locations or markets:

– May yield potentially greater returns on innovations (a larger market).

– Can generate additional resources for investment in innovation.

– Provides exposure to new products and processes in international markets; generates

additional knowledge leading to innovations.

Complexity of Managing Multinational Firms

• Expansion into global operations in different geographic locations or markets:

– Makes implementing international strategy increasingly complex.

– Can produce greater uncertainty and risk.

– May result in the firm becoming unmanageable

– May cause the cost of managing the firm to exceed the benefits of expansion.

– Exposes the firm to possible instability of some national governments.

Limits to International Expansion

– Cost of coordination across diverse geographical business units

– Institutional and cultural barriers

– Understanding strategic intent of competitors

– The overall complexity of competition

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