International Strategy Chapter 7 Built by Stambaugh/2009 Jeff Stambaugh jeff.stambaugh@mwsu.edu .

International StrategyChapter 7

Built by Stambaugh/2009

Jeff Stambaughjeff.stambaugh@mwsu.edu

http://faculty.mwsu.edu/business/jeff.stambaugh

In what country is Nokia headquartered?

25%

25%

25%

25% 1. U.S.

2. France

3. Finland

4. Italy

What percentage of Coca Cola’s 2006 sales came outside the U.S.

25%

25%

25%

25% 1. 25%

2. 35%

3. 50%

4. 66%

A few years ago Lenovo bought IBM’s laptop business. Where is

Lenovo headquartered?

25%

25%

25%

25%1. U.S.

2. Italy

3. Japan

4. China

Boeing has orders for ~900 787s. How many have U.S. airlines

ordered?

25%

25%

25%

25% 1. ~ 100

2. ~ 250

3. ~ 400

4. ~ 600

Today’s Objectives

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■ Know why firms expand across borders■ Understand the basic international strategies■ Know the basic entry modes and the pros / cons of

each

Why Go Global

■ Spread of Capitalism■ Decreasing

transportation costs■ Decreasing

communication costs■ Internet■ Regionalization vs

Globalization

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Area Population

USA 300M

S. America 375M

Europe 710M

Russia 110M

Asia 3.9B

China 1.4B

India 1.1B

Africa 930M

Porter’s National Competitiveness Diamond

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Motives

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■ Grow markets (economy of scale)■ Tap world-wide talent■ Extend product life cycle■ Optimize location for each element of value chain

■ Enhance performance through locations■ Cost reductions■ Risk reductions

Risks

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■ Political / economic■ Currency flux■ Cultural buffoonery / misunderstandings

■ Distance is more than physical

Business Considerations Beyond the Market Size

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■ What is their time horizon?■ How is power distributed in organizations?

■ The “great English-speaking, western-talking” executive may be powerless!

■ How does the culture negotiate?■ What types of representations are binding?

■ Are foreigners disadvantaged?

■ Key governmental / legal considerations?■ Other players: unions, professional associations,

institutional norms?

Strategies for International Ops

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X

Pro/Cons of Strategies

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Strategy Strengths Limitations

Global Strong integration across businesses.

Standardization leads to higher economies of scale.

Uniform quality standards world-wide.

Limited ability to adapt to local markets (less demand for products).

Concentration of activities may increase dependence on a single facility.

Single locations may lead to higher tariffs and transportation costs.

Pro/Cons of Strategies

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Multidomestic

Strategy Strengths Limitations

Adapt to local market conditions (increased demand).

Detect potential niche markets

Less cost savings through scale economies.

Greater difficulty in transferring knowledge

May lead to “overadaptation”

Transnational Economies of scale.

Adapt to local markets.

Locate activities in optimal locations.

Increased knowledge flows

Unique challenges in determining optimal locations.

Unique managerial challenges in fostering knowledge transfer.

Entry Strategies

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Low HighDegree of Ownership and Control

ExportingExporting

LicensingLicensing

FranchisingFranchising

Strategic AllianceStrategic Alliance

Joint VentureJoint Venture

Wholly OwnedWholly OwnedSubsidiarySubsidiary

Ext

ent

of I

nves

tmen

t R

isk

High

Low

(Toyota in San Antonio)

Toyota in MS

Summary

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■ Several reasons to cross borders: markets, tap talent, optimize value chain

■ Three major strategies: global, transnational, multi-domestic

■ Several ways to enter foreign markets: exporting, licensing, franchising, alliances, JVs, wholly-owned subsidiaries (greenfield, acquisitions)

Next Class

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■ Risk and Restructuring