Chapter 9 International Strategy Robert E Hoskisson Michael

The Strategic Management Process Strategic Thinking Chapter 1 Introduction to Strategic Management Chapter 2 Strategic Leadership Strategic Analysis Chapter 3 The External Environment Chapter 4 The Internal Organization Strategic Intent Strategic Mission Chapter 5 Business-Level Strategy Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 7 Corporate-Level Strategy Chapter 8 Acquisitions Acquisition and Restructuring Strategies Chapter 9 International Strategy Chapter 10 Cooperative Strategy Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities Chapter 11 Corporate Governance Chapter 12 Strategic Entrepreneurship 2

Discussion Questions Click Here 1. What are the issues that need to be addressed when considering international diversification decisions? Click Here 2. What opportunities create incentives to pursue international diversification strategies? Click Here 3. How do domestic industry attributes shape international business levelstrategy formulation? Click Here More discussion questions 3

Discussion Questions (cont. ) Click Here 4. Click Here 5. Click Here What two strategic emphases have created opportunities for different international corporate-level strategies and structures? What other significant trends have been influencing the strategies? More discussion questions 4

Discussion Questions (cont. ) Click Here 6. Which international entry modes are least risky and why? Which international entry modes provide the best control over operations? Under what situations do you use one mode versus another? Click Here 7. What are the potential overall benefits and risks of international diversification? Click Here 8. Are there managerial limits to international diversification? 5

Discussion Question 1 What are the issues that need to be addressed when considering international diversification decisions? 6

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 7

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 Click Here Return to Discussion 8 Questions

Discussion Question 2 What opportunities create incentives to pursue international diversification strategies? 9

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 10

Motivations for International Return to Discussion Questions Expansion Click Here 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 11

Discussion Question 3 How do domestic industry attributes shape international business levelstrategy formulation? 12

International Business-Level Strategy: Determinants of National Advantage Factors of production Firm strategy, structure, and rivalry Demand conditions Related and supporting industries 13

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 14

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 15

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 16

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 Click Here Return to Discussion Questions 17

Discussion Question 4 What two strategic emphases have created opportunities for the three different international corporatelevel strategies and structures? 18

Need for Global Integration International Corporate-Level Strategy High Global strategy Transnational strategy Multidomestic strategy Low High Need for Local Responsiveness 19

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 20

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 21

Worldwide Geographic Area Structure: Multidomestic Strategy Asia Latin America United States Multinational Headquarters Australia Middle East/ Africa Europe • product characteristics tailored to local preferences • isolation from global competition – establish protected market positions –compete in industry segments most affected by differences among local countries 22

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) • Historically prominent among Japanese firms 23

Worldwide Product Divisional Structure: Global Strategy • standardized products across countries • economies of scope and scale • outsource some Global Worldwide primary or support Products Corporate activities to the world’s Division Headquarters best providers • decision-making authority centralized in Worldwide Products worldwide division Division headquarters Worldwide Products Division 24

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 25

Using the Combination Structure: Transnational Strategy l The combination structure has characteristics and mechanisms that result in an emphasis on both geographic and product structures – local responsiveness (multidomestic strategy) – global efficiency (global strategy) Click Here Return to Discussion Questions 26

Discussion Question 5 What other significant trends have been influencing the strategies? 27

Environmental Trends l Liability of Foreignness – security risks – tighter immigration policies l Regionalization – location can affect value creation – may wish to narrow focus to a particular region of the world – enter regional markets sequentially, beginning with the most familiar market Click Here Return to Discussion Questions 28

Discussion Question 6 Which international entry modes are least risky and why? Which international entry modes provide the best control over operations? Under what situations do you use one mode versus another? 29

Global Market Entry: Choice of Return to Discussion Questions Entry Mode Click Here 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 30 above-average returns

Discussion Question 7 What are the potential overall benefits and risks of international diversification? 31

Value Creation 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 32

Value Creation 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 33

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 34

Risks in an International Return to Discussion Questions Environment Click Here 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 35

Discussion Question 8 Are there managerial limits to international diversification? 36

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 37