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Knowledge Objectives

Understand the 4 strategies forforeign expansion

Understand the benefits fromforeign expansion

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ExportingExporting

LicensingLicensing

StrategicStrategic

alliancesalliances

AcquisitionsAcquisitions

Establishment ofEstablishment of

a new subsidiarya new subsidiary

InternationalInternationalbusiness-levelbusiness-level

strategystrategy

MultidomesticMultidomestic

strategystrategy

Global strategyGlobal strategy

TransnationalTransnational

strategystrategy

Outcomes of International

Strategy

Increased marketIncreased marketsizesize

Return onReturn on

investmentinvestment

Economies ofEconomies of

scale and learningscale and learning

Advantage inAdvantage in

locationlocation

Identify InternationalIdentify International

OpportunitiesOpportunitiesExplore ResourcesExplore Resources

and Capabilitiesand CapabilitiesUse CoreUse Core

CompetenceCompetenceInternationalInternational

StrategiesStrategies Modes of EntryModes of Entry

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BetterBetterperformancperformanc

ee

InnovationInnovation

Outcomes of International

Strategy

ExportingExporting

LicensingLicensing

StrategicStrategic

alliancesalliancesAcquisitionsAcquisitions

EstablishmenEstablishmen

t of a newt of a new

subsidiarysubsidiary

Use CoreUse Core

CompetenceCompetence

Modes of EntryModes of Entry Managementproblems andrisk

Managementproblems and

risk

StrategicStrategic

CompetitivenesCompetitivenes

s Outcomess Outcomes

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Motivations forInternational Expansion

Increase Market ShareIncrease Market Share domestic market may lack the size todomestic market may lack the size to

support efficient scale manufacturingsupport efficient scale manufacturingfacilitiesfacilities

Return on InvestmentReturn on Investment large investment projects may requirelarge investment projects may require

global markets to justify the capital outlaysglobal markets to justify the capital outlays

weak patent protection in some countriesweak patent protection in some countriesimplies that firms should expand overseasimplies that firms should expand overseasrapidly in order to preempt imitatorsrapidly in order to preempt imitators

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Motivations forInternational Expansion

Economies of Scale or LearningEconomies of Scale or Learning expanding size or scope of markets helps toexpanding size or scope of markets helps to

achieve economies of scale in manufacturing asachieve economies of scale in manufacturing aswell as marketing, R & D or distributionwell as marketing, R & D or distribution

can spread costs over a larger sales basecan spread costs over a larger sales base

increase profit per unitincrease profit per unit

Location AdvantagesLocation Advantages

low cost markets may aid in developinglow cost markets may aid in developing

competitive advantagecompetitive advantage

may achieve better access to:may achieve better access to:

Raw materialsRaw materials

Lower cost laborLower cost labor

Key customersKey customers

EnergyEnergy

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International Business-LevelStrategy: Determinants of

National Advantage Factors of production:Factors of production: the inputs necessarythe inputs necessary

to compete in any industryto compete in any industry

laborlabor

landland

natural resourcesnatural resources

capitalcapital

infrastructureinfrastructure

basic factors include natural and labor resourcesbasic factors include natural and labor resources

advanced factors include digital communicationadvanced factors include digital communication

systems and educated workforcesystems and educated workforce

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Average Total R&D Expenditure: Top 20 Econom

1997 - 2000 (Bil of International $)

Brazil $9.8

China $34.4

Italy $13.7b

Spain $6.5

Austria

$3.7b

Belguim

$4.6b

Netherland

$7.7bIsrael $3.6b

United Kingdom $23.9

South Kore

$16.2b

France $29.6Germany $47.2

United State

$230.8b

Japan

$90.5b

Finland

$3.6b

Switzerlan

$5.3b

Sweden

$7.2b

Russia

$9.3bAustralia $6.7

Canada $13.8

0

1000

2000

3000

4000

5000

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0

Average R&D Expenditure (% of GD

Average Scientists &

Engineers in R&D (per m

persons)

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National Advantage Demand conditions:Demand conditions:characterized by thecharacterized by the

nature and size of buyers needs in thenature and size of buyers needs in the

home market for the industrys goods orhome market for the industrys goods orservicesservices

size of market segment can lead to scale-size of market segment can lead to scale-

efficient facilitiesefficient facilities

efficiency can lead to domination of theefficiency can lead to domination of theindustry in other countriesindustry in other countries

specialized demand may create opportunitiesspecialized demand may create opportunities

beyond national boundariesbeyond national boundaries

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National Advantage

Related and supporting industries:Related and supporting industries:

supporting services, facilities, supplierssupporting services, facilities, suppliers

and so onand so on

support in designsupport in design

support in distributionsupport in distribution related industries as suppliers andrelated industries as suppliers and

buyersbuyers

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National Advantage

Firm strategy, structure, and rivalry:Firm strategy, structure, and rivalry: thethe

pattern of strategy, structure, andpattern of strategy, structure, andrivalry among firmsrivalry among firms

common technical trainingcommon technical training

methodological product and processmethodological product and process

improvementimprovement cooperative and competitive systemscooperative and competitive systems

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Source:

MIT

Sloan

S

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Source:

MIT

Sloan

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Source:

MIT

Sloan

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International Corporate-Level Strategy

Need for Local ResponsivenessNeed for Local Responsiveness

Needfor

Glob

al

Integ

ratio

n

Need

forGlob

al

Integ

ratio

n

LowLow

HighHigh

LowLow HighHigh

GlobalGlobal

strategystrategyTransnationalTransnational

strategystrategy


strategystrategy

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strategystrategy

Level Strategy:

Multidomestic Strategy

Strategy and operating decisions areStrategy and operating decisions aredecentralized to strategic businessdecentralized to strategic businessunits (SBU) in each countryunits (SBU) in each country

Products and services are tailored toProducts and services are tailored tolocal marketslocal markets Business units in one country areBusiness units in one country are

independent of each otherindependent of each other Assumes markets differ by country orAssumes markets differ by country or

regionsregions Focus on competition in each marketFocus on competition in each market Prominent strategy among EuropeanProminent strategy among European

firms due to broad variety of culturesfirms due to broad variety of culturesand markets in Europeand markets in Europe

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Level Strategy: Global

Strategy

GlobalGlobal

strategystrategy

Products are standardized acrossProducts are standardized acrossnational marketsnational markets

Decisions regarding business-levelDecisions regarding business-level

strategies are centralized in thestrategies are centralized in thehome officehome officeStrategic business units (SBU) areStrategic business units (SBU) are

assumed to be interdependentassumed to be interdependent

Emphasizes economies of scaleEmphasizes economies of scaleOften lacks responsiveness to localOften lacks responsiveness to localmarketsmarkets

Requires resource sharing andRequires resource sharing andcoordination across borders (whichcoordination across borders (whichalso makes it difficult to manage)also makes it difficult to manage)

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TransnationalTransnational

strategystrategy

Level Strategy: Transnational

Strategy

Seeks to achieve both globalSeeks to achieve both globalefficiency and localefficiency and localresponsivenessresponsiveness

Difficult to achieve because ofDifficult to achieve because ofsimultaneous requirementssimultaneous requirementsstrong central control andstrong central control and

coordination to achievecoordination to achieve

efficiencyefficiencydecentralization to achievedecentralization to achieve

local market responsivenesslocal market responsivenessMust pursue organizationalMust pursue organizational

learning to achieve competitivelearning to achieve competitive

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Strategic CompetitivenessOutcomes: Returns

International diversification and returnsInternational diversification and returns::firmfirmexpands the sales of its goods or services across theexpands the sales of its goods or services across the

borders of global regions and countries into differentborders of global regions and countries into different

geographic locations or marketsgeographic locations or markets

may increase a firms returnsmay increase a firms returns

such firms usually achieve the most positive stocksuch firms usually achieve the most positive stock

returnsreturns

firm may achieve economies of scale andfirm may achieve economies of scale and

experience, location advantages, increased marketexperience, location advantages, increased marketsize and opportunity to stabilize returnssize and opportunity to stabilize returns

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Strategic CompetitivenessOutcomes: Innovation

International diversification and innovationInternational diversification and innovation::firmfirmexpands the sales of its goods or services across theexpands the sales of its goods or services across the

borders of global regions and countries into differentborders of global regions and countries into different

geographic locations or marketsgeographic locations or markets

potentially greater returns on innovations (largerpotentially greater returns on innovations (larger

markets)markets)

generate additional resources for investment ingenerate additional resources for investment in

innovationinnovation

exposed to new products and processes inexposed to new products and processes ininternational markets, generates additionalinternational markets, generates additional

knowledge leading to innovationsknowledge leading to innovations

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BPS8

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