International Strategy
Identifying International Opportunities
International Strategy
- A strategy through which the firms 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
Classic Rationale for International Diversification
- Firm introduces innovation in domestic markets
- Product demand develops and firm exports products
- Foreign competition begins production
- Firms begins production abroad
- Production is standardised and relocated to low cost countries
International Strategy Benefits
a) Increased Market Size
- Domestic market may lack the size to support efficient scale manufacturing
b) Economies of Scale
- 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
c) Location Advantages
- Low cost aid in developing competitive advantage by providing access ot:
- Raw materials
- transportation
- lower costs for labour
- key customers
- energy
International Corporate Level Strategy
Focuses on the scope of operations
- Product diversification
- Geographic diversification
Required when the firms operates in:
- multiple industries
- multiple countries or regions
Headquarters unit guides the strategy
- business or country level managers can have substantial strategic input
Types of International Corporate Level Strategies
Multi-domestic Strategy
- Strategy and operating decisions are decentralised 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
Global Strategy
- Products are standardised 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 sclae
- Often lacks responsiveness to local markets
- Requires resource sharing and coordination across borders
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
- decentralisation to achieve local market responsiveness
- pursuit of organizational learning to achieve competitive advantage
Modes of 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)
Acquisitions
Quick access to new markets, high costs, 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
Risks in an International Environment
Political Risks
- Instability in national governments
- War, both civil and international
- Potential nationalization of a firms resources
Economic Risks
- Differences and fluctuations in the vlaue of different currencies
- Differences in prevailing wage rates
- Difficulties in enforcing property rights
- Unemployment
Limits to International Environment
Management Problems
- Cost of coordination across diverse geographical business units
- Institutional and cultural barriers
- Understanding strategic intent of competitors
- The overall complexity of competition