Chapter 8 International Strategy Michael A Hitt R

Chapter 8 International Strategy Michael A. Hitt R. Duane Ireland Robert E. Hoskisson © 2003 Southwestern Publishing Company 1

Strategic Inputs The Strategic Management Process Chapter 2 The External Environment Strategic Intent Strategic Mission Chapter 3 The Internal Environment Strategy Implementation Strategic Outcomes Strategic Actions Strategy Formulation Chapter 5 Chapter 4 Competitive Rivalry Business-Level and Competitive Strategy Dynamics Chapter 7 Acquisition and Restructuring Strategies Chapter 6 Corporate. Level Strategy Chapter 10 Corporate Governance Chapter 11 Organizational Structure and Controls Chapter 12 Strategic Leadership Chapter 13 Strategic Entrepreneurship Chapter 8 International Strategy Strategic Competitiveness Above-Average Returns Feedback 2

Opportunities and Outcomes of International Strategy Identify International Opportunities Increased market size Return on investment Economies of scale and learning Advantage in location Explore Resources and Capabilities International Strategies Use Core Competence Modes of Entry International business-level strategy Exporting Multidomestic strategy Strategic alliances Global strategy Acquisitions Transnational strategy Establishment of a new subsidiary Licensing 3

Opportunities and Outcomes of International Strategy: Continued Use Core Competence Modes of Entry Exporting Management problems and risk Strategic Competitiveness Outcomes Better performance Licensing Strategic alliances Acquisitions Establishment of a new subsidiary Innovation Management problems and risk 4

International Strategy Life Cycle Product Demand Develops and Firm Exports Products Firm Introduces Innovation in Domestic Market Foreign Competition Begins Production Selling Products or Services Outside a Firm’s Domestic Market Production Becomes Standardized and is Relocated to Low Cost Countries Firm Begins Production Abroad 5

Motivations for International Expansion l Increase Market Share – domestic market may lack the size to support efficient scale manufacturing facilities l 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 6

Motivations for International Expansion l 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 – increase profit per unit l Location Advantages – low cost markets may aid in developing competitive advantage – may achieve better access to: • Raw materials • Key customers • Lower cost labor • Energy 7

International Business-Level Strategy: Determinants of National Advantage Factors of production Firm strategy, structure, and rivalry Demand conditions Related and supporting industries 8

International Business-Level Strategy: Determinants of National Advantage l Factors of production: the inputs necessary to compete in any industry – – – – labor land natural resources capital infrastructure basic factors include natural and labor resources advanced factors include digital communication systems and educated workforce 9

International Business-Level Strategy: Determinants of National Advantage l Demand conditions: characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services – size of market segment can lead to scaleefficient facilities – efficiency can lead to domination of the industry in other countries – specialized demand may create opportunities beyond national boundaries 10

International Business-Level Strategy: Determinants of National Advantage l Related and supporting industries: supporting services, facilities, suppliers and so on – support in design – support in distribution – related industries as suppliers and buyers 11

International Business-Level Strategy: Determinants of National Advantage l 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 12

Need for Global Integration International Corporate-Level Strategy High Global strategy Transnational strategy Multidomestic strategy Low High Need for Local Responsiveness 13

International Corporate-Level Strategy Type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies l Some corporate strategies provide individual country units with flexibility to choose their own strategies l Others dictate business-level strategies from the home office and coordinate resource sharing across units l 14

International Corporate-Level Strategy: Multidomestic Strategy • Strategy and operating decisions are decentralized to strategic business units (SBU) Multidomestic strategy 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 15

International Corporate-Level Strategy: Global Strategy Global strategy • Products are standardized across national markets • Decisions regarding business-level strategies 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 (which also makes it difficult to manage) 16

International Corporate-Level Strategy: Transnational Strategy • Seeks to achieve both global efficiency and local responsiveness Transnational strategy • Difficult to achieve because of simultaneous requirements - strong central control and coordination to achieve efficiency - decentralization to achieve local market responsiveness • Must pursue organizational learning to achieve competitive advantage 17

Global Market Entry: Choice of Entry Mode Type of Entry Exporting Licensing Strategic alliances Acquisition New wholly owned subsidiary Characteristics High cost, low control Low cost, low risk, little control, low returns Shared costs, shared resources, shared risks, problems of integration Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations Complex, often costly, time consuming, high risk, maximum control, potential 18 above-average returns

Strategic Competitiveness Outcomes: Returns l International diversification and returns: firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets – may increase a firm’s returns – such firms usually achieve the most positive stock returns – firm may achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns 19

Strategic Competitiveness Outcomes: Innovation l International diversification and innovation: firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets – potentially greater returns on innovations (larger markets) – generate additional resources for investment in innovation – exposed to new products and processes in international markets, generates additional knowledge leading to innovations 20

Risks in an International Environment Political Risks Economic Risks Political risks include • • • instability in national governments war, both civil and international potential nationalization of a firm’s resources 21

Risks in an International Environment Political Risks Economic risks are interdependent with political risks and include • differences and fluctuations in the value of different currencies • differences in prevailing wage rates • difficulties in enforcing property rights • unemployment 22

Limits to International Expansion: Management Problems Cost of coordination across diverse geographical business units l Institutional and cultural barriers l Understanding strategic intent of competitors l The overall complexity of competition l 23