Chapter 8 International Strategy Hitt Ireland and Hoskisson

Chapter 8 International Strategy Hitt, Ireland, and Hoskisson

Increase in international strategies n Use of international strategies is increasing q Traditional motives n n n q extending the product life cycle securing key resources having access to low-cost labor Emerging motives n n integration of the Internet and mobile telecommunications, which facilitates global transactions. demand for commodities becomes borderless Copyright © 2008 Cengage

Benefits of international strategy n n Increased market size Earning a return on large investments Economies of scale and learning Advantages of location Copyright © 2008 Cengage

Porter’s model n International business-level strategies are usually grounded in one or more home-country advantages, as Porter’s model suggests. Source: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright © 1990, 1998 by Michael E. Porter. Copyright © 2008 Cengage

International corporate-level strategies n Multidomestic strategy q n Global strategy q n Focuses on competition within each country in which the firm competes. Decentralizes strategic and operating decisions to the business units operating in each country so each unit can tailor its goods and services to the local market. Assumes more standardization of products across country boundaries – so competitive strategy is centralized and controlled by the home office. Transnational strategy q Integrates characteristics of multi-domestic and global strategies to emphasize both local responsiveness and global integration and coordination. This strategy is difficult to implement, requiring an integrated network and a culture of individual commitment. Copyright © 2008 Cengage

Influence of environmental trends n n Although the transnational strategy’s implementation is a challenge, environmental trends are causing many multinational firms to consider the need for both global efficiency and local responsiveness. Many large multinational firms, particularly those with many diverse products, use a multidomestic strategy with some product lines and a global strategy with others. Copyright © 2008 Cengage

International risks n Liability of foreignness q q n The threat of wars and terrorist attacks increase the risks and costs of international strategies. Furthermore, research suggests that the liability of foreignness is more difficult to overcome than once thought. Regionalization q Some firms decide to compete only in certain regions of the world. This allows them to focus their learning on specific markets, cultures, locations, resources, and other factors. Copyright © 2008 Cengage

Market entry n Forms of international expansion q q q Exporting Licensing Strategic alliances Acquisitions New wholly-owned subsidiaries Copyright © 2008 Cengage

Modes of market entry 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 (e. g. , two corporate cultures) 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 Copyright © 2008 Cengage

Diversification facilitates innovation n International diversification facilitates innovation in a firm because q q it provides a larger market to gain more and faster returns from investments in innovation. Copyright © 2008 Cengage

Risks of multinational operations n Political risks q q q n Instability in national governments War, both civil and international Potential nationalization of a firm’s resources Economic risks q q Differences and fluctuations in the value of different currencies Differences in prevailing wage rates Difficulties in enforcing property rights Unemployment Copyright © 2008 Cengage

Limits to International Expansion n n Some limits constrain the ability to effectively manage international expansion. International diversification increases coordination and distribution costs, and management problems are exacerbated by trade barriers, logistical costs, and cultural diversity, among other factors. Copyright © 2008 Cengage