Agenda for November 2

1
Agenda for November 2

• Review of Chapter 8
• International Strategy
• Video discussion

2
International Strategy Opportunities and Outcomes
REASONS for international expansion
STRATEGIES for international expansion
MODES of ENTRY
OUTCOMES of international expansion
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
International Corporate-Level Strategy
multidomestic global transnational
Strategic Alliances
Economies of Scale and Learning
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Management Problems and Risk
3
REASONS for International Expansion
Increase Market Size or Global Market Share
Japanese electronics or automobile manufacturers
Return on Investment
Large investment projects may require global
markets to justify the capital outlays
Aircraft manufacturers Boeing or McDonnell Douglas
4
REASONS 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
Location Advantages
Low cost markets may aid in developing
competitive advantage
May achieve better access to
- Raw materials
- Key customers
- Lower cost labor
- Energy
- Key suppliers
- Natural resources
5
International Strategy Opportunities and Outcomes
REASONS for international expansion
STRATEGIES for international expansion
MODES of ENTRY
OUTCOMES of international expansion
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
International Corporate-Level Strategy
multidomestic global transnational
Strategic Alliances
Economies of Scale and Learning
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Management Problems and Risk
6
International Business-Level Strategies
International Low Cost
Usually involves locating in home country and
exporting internationally
International Differentiation
Common among firms in countries with advanced
factor conditions
International Focus
International Integrated Low Cost /
Differentiation
Can be most effective in dealing with diverse
markets
7
International Corporate Strategy
International Corporate-Level Strategies
Type of Corporate Strategy selected will have an
impact on the selection and implementation of the
business-level strategies
Multi-Domestic Strategy
Three Corporate Strategies
Global Strategy
Transnational Strategy
8
International Corporate Strategy
International Corporate-Level Strategies
Multi-Domestic Strategy
Strategy operating decisions are decentralized
to independent strategic business units in
each country
Products and services are tailored to local
markets
Prominent strategy among European firms due to
variety of cultures markets in Europe
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International Corporate Strategy
International Corporate-Level Strategies
Global Strategy
Decisions regarding business-level strategies are
centralized in the home office SBUs are
interdependent
Products are standardized across national markets
Requires resource sharing and coordination across
borders
10
International Corporate Strategy
International Corporate-Level Strategies
Transnational Strategy
Seeks to achieve both global efficiency and local
responsiveness
Organizational learning knowledge transfer is
critical
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International Corporate Strategy
International Corporate-Level Strategies
When is each strategy appropriate?
High
GLOBAL
TRANS- NATIONAL
Need for Global Integration
MULTI- DOMESTIC
Low
Low
High
Need for Local Market Responsiveness
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International Strategy Opportunities and Outcomes
REASONS for international expansion
STRATEGIES for international expansion
MODES of ENTRY
OUTCOMES of international expansion
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
International Corporate-Level Strategy
multidomestic global transnational
Strategic Alliances
Economies of Scale and Learning
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Management Problems and Risk
13
International Corporate Strategy
Choice of International Entry Mode
Exporting
No need to establish operations in other countries
Establish distribution channels through
contractual relationships
Common way to enter new international markets
May have high transportation costs
14
International Corporate Strategy
Choice of International Entry Mode
Exporting
RISKS
May have high transportation costs
May encounter high import tariffs
May have less control on marketing and
distribution
Difficult to customize products
15
International Corporate Strategy
Choice of International Entry Mode
Licensing
Firm authorizes another firm to manufacture and
sell its products
Licensor is paid a royalty on each unit produced
and sold
Least risky way to enter a foreign market
Licensee takes risks in mfg investments
16
International Corporate Strategy
Choice of International Entry Mode
Licensing
RISKS
Licensor loses control over product quality and
distribution
Relatively low profit potential
Licensee may learn technology and compete on its
own when license expires
17
International Corporate Strategy
Choice of International Entry Mode
Strategic Alliances
Enable firms to shares risks and resources.
Commonly called joint ventures.
Most international joint ventures involve
foreign company with a new product or
technology host company with access to
distribution or knowledge of local customs,
norms or politics
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International Corporate Strategy
Choice of International Entry Mode
Strategic Alliances
RISKS
May experience difficulties in merging disparate
cultures
Partners may not understand each others
strategic intent or may experience divergent
goals
19
International Corporate Strategy
Choice of International Entry Mode
Acquisitions
Largest most rapid form of international
expansion Can be cheap if exchange rates are
favorable
20
International Corporate Strategy
Choice of International Entry Mode
Acquisitions
RISKS
May be costly due to size
Legal and regulatory requirements may present
barriers to foreign ownership
Usually require complex and costly negotiations
Potentially disparate corporate cultures
21
International Corporate Strategy
Choice of International Entry Mode
New Wholly-Owned Subsidiary
Achieves greatest degree of control e.g., over
technology, marketing distribution
Potentially most profitable, if successful
22
International Corporate Strategy
Choice of International Entry Mode
New Wholly-Owned Subsidiary
RISKS
Most costly and complex of entry alternatives
May need to acquire expertise and knowledge that
is relevant to host country
Could require hiring host country nationals or
consultants at high cost
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International Strategy Opportunities and Outcomes
REASONS for international expansion
STRATEGIES for international expansion
MODES of ENTRY
OUTCOMES of international expansion
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
International Corporate-Level Strategy
multidomestic global transnational
Strategic Alliances
Economies of Scale and Learning
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Management Problems and Risk
24
International Corporate Strategy
Strategic Competitiveness OUTCOMES
May fulfill the reasons for expansion
increased market size provides sufficient ROI
to support extensive RD facilitates
economies of scale organizational
learning Leads to greater returns when
implemented and managed effectively
25
International Strategy Opportunities and Outcomes
REASONS for international expansion
STRATEGIES for international expansion
MODES of ENTRY
OUTCOMES of international expansion
Increased Market Size
International Business-Level Strategy
Exporting
Higher Performance Returns
Exporting
Return on Investment
International Corporate-Level Strategy
multidomestic global transnational
Strategic Alliances
Economies of Scale and Learning
Acquisition
Innovation
Establishment of New Subsidiary
Location Advantage
Management Problems and Risk
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Major RISKS of International Diversification
Political Risk
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Major RISKS of International Diversification
Political Risk
Economic Risk