Ch09 Discussion Light

©2004 by South-Western/Thomson Learning 1

International StrategyInternational Strategy

Robert E. Hoskisson

Michael A. Hitt

R. Duane Ireland

Chapter 9Chapter 9

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Chapter 2Chapter 2Strategic LeadershipStrategic Leadership

Chapter 4Chapter 4The InternalThe InternalOrganizationOrganization

Chapter 6Chapter 6Competitive Rivalry andCompetitive Rivalry andCompetitive DynamicsCompetitive Dynamics

Chapter 9Chapter 9International StrategyInternational Strategy

Chapter 1Chapter 1Introduction toIntroduction to

Strategic ManagementStrategic Management

Chapter 3Chapter 3The ExternalThe ExternalEnvironmentEnvironment

Chapter 5Chapter 5Business-LevelBusiness-Level

StrategyStrategy

Chapter 8Chapter 8Acquisitions andAcquisitions and

Restructuring StrategiesRestructuring Strategies

Chapter 11Chapter 11Corporate GovernanceCorporate Governance

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 7Chapter 7Corporate-Level StrategyCorporate-Level Strategy

Chapter 10Chapter 10Cooperative StrategyCooperative Strategy

Chapter 12Chapter 12Strategic EntrepreneurshipStrategic Entrepreneurship

StrategicAnalysis

StrategicThinking

CreatingCompetitiveAdvantage

MonitoringAnd CreatingEntrepreneurialOpportunities

The Strategic Management ProcessThe Strategic Management Process

Chapter 8Chapter 8Acquisition andAcquisition and

Restructuring StrategiesRestructuring Strategies

Chapter 9Chapter 9International StrategyInternational Strategy

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Discussion QuestionsDiscussion QuestionsClick Here

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

2. What opportunities create incentives to pursue international diversification strategies?

3. How do domestic industry attributes shape international business level-strategy formulation?

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Discussion Questions (cont.)Discussion Questions (cont.)Click Here

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4. What two strategic emphases have created opportunities for different international corporate-level strategies and structures?

5. What other significant trends have been influencing the strategies?

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Discussion Questions (cont.)Discussion Questions (cont.)Click Here

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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?

7. What are the potential overall benefits and risks of international diversification?

8. Are there managerial limits to international diversification?

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Discussion Question 1Discussion Question 1

What are the issues that need to be addressed when considering international diversification decisions?

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ExportingExporting

LicensingLicensing

Strategic Strategic alliancesalliances

AcquisitionsAcquisitions

Establishment of Establishment of a new subsidiarya new subsidiary

International International business-level business-level strategystrategy

Multidomestic Multidomestic strategystrategy

Global strategyGlobal strategy

Transnational Transnational strategystrategy

Opportunities and Outcomes of Opportunities and Outcomes of International StrategyInternational Strategy

Increased market Increased market sizesize

Return on Return on investmentinvestment

Economies of Economies of scale and learningscale and learning

Advantage in Advantage in locationlocation

Identify International Identify International OpportunitiesOpportunities

Explore Resources Explore Resources and Capabilitiesand Capabilities

Use Core Use Core CompetenceCompetence

International International StrategiesStrategies Modes of EntryModes of Entry

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Better Better performanceperformance

InnovationInnovation

Opportunities and Outcomes of Opportunities and Outcomes of International Strategy: International Strategy: ContinuedContinued

ExportingExporting

LicensingLicensing

Strategic Strategic alliancesalliances

AcquisitionsAcquisitions

Establishment of Establishment of a new subsidiarya new subsidiary

Use Core Use Core CompetenceCompetence

Modes of EntryModes of Entry Managementproblems andrisk

Managementproblems andrisk

Strategic Strategic Competitiveness Competitiveness OutcomesOutcomes

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Discussion Questions

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Discussion Question 2Discussion Question 2

What opportunities create incentives to pursue international diversification strategies?

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Motivations for International Motivations for International ExpansionExpansion Increase Market ShareIncrease Market Share

– domestic market may lack the size to support domestic market may lack the size to support efficient scale manufacturing facilitiesefficient scale manufacturing facilities

Return on InvestmentReturn on Investment– large investment projects may require global large investment projects may require global

markets to justify the capital outlaysmarkets to justify the capital outlays– weak patent protection in some countries weak patent protection in some countries

implies that firms should expand overseas implies that firms should expand overseas rapidly in order to preempt imitatorsrapidly in order to preempt imitators

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Motivations for International Motivations for International ExpansionExpansion Economies of Scale or LearningEconomies of Scale or Learning

– expanding size or scope of markets helps to expanding size or scope of markets helps to achieve economies of scale in manufacturing achieve economies of scale in manufacturing as well as marketing, R & D or distributionas well 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 developing low 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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Discussion Question 3Discussion Question 3

How do domestic industry attributes shape international business level-strategy formulation?

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage

Factors ofFactors ofproductionproduction

Related andRelated andsupportingsupportingindustriesindustries

DemandDemandconditionsconditions

Firm strategy,Firm strategy,structure, andstructure, and

rivalryrivalry

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Factors of production:Factors of production: the inputs necessary the inputs necessary

to compete in any industryto compete in any industry– laborlabor– landland– natural resourcesnatural resources– capitalcapital– infrastructureinfrastructure– basic factors include natural and labor basic factors include natural and labor

resourcesresources– advanced factors include digital communication advanced factors include digital communication

systems and educated workforcesystems and educated workforce

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Demand conditions:Demand conditions: characterized by the characterized by the

nature and size of buyers’ needs in the nature and size of buyers’ needs in the home market for the industry’s goods or home market for the industry’s goods or servicesservices– 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 the efficiency can lead to domination of the

industry in other countriesindustry in other countries– specialized demand may create opportunities specialized demand may create opportunities

beyond national boundariesbeyond national boundaries

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Related and supporting industries:Related and supporting industries:

supporting services, facilities, suppliers supporting services, facilities, suppliers and so onand so on– support in designsupport in design– support in distributionsupport in distribution– related industries as suppliers and buyersrelated industries as suppliers and buyers

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International Business-Level Strategy: International Business-Level Strategy: Determinants of National AdvantageDeterminants of National Advantage Firm strategy, structure, and rivalry:Firm strategy, structure, and rivalry: the the

pattern of strategy, structure, and rivalry pattern of strategy, structure, and rivalry among firmsamong firms– common technical trainingcommon technical training– methodological product and process methodological product and process

improvementimprovement– cooperative and competitive systemscooperative and competitive systems

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Discussion Question 4Discussion Question 4

What two strategic emphases have created opportunities for the three different international corporate-level strategies and structures?

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International Corporate-Level International Corporate-Level StrategyStrategy

Need for Local ResponsivenessNeed for Local Responsiveness

Nee

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or G

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Nee

d f

or G

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LowLow

HighHigh

LowLow HighHigh

GlobalGlobalstrategystrategy

TransnationalTransnationalstrategystrategy

MultidomesticMultidomesticstrategystrategy

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International Corporate-Level International Corporate-Level StrategyStrategy Type of corporate strategy selected will Type of corporate strategy selected will

have an impact on the selection and have an impact on the selection and implementation of the business-level implementation of the business-level strategiesstrategies

Some corporate strategies provide Some corporate strategies provide individual country units with flexibility to individual country units with flexibility to choose their own strategieschoose their own strategies

Others dictate business-level strategies Others dictate business-level strategies from the home office and coordinate from the home office and coordinate resource sharing across unitsresource sharing across units

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MultidomesticMultidomesticstrategystrategy

International Corporate-Level International Corporate-Level Strategy: Strategy: Multidomestic StrategyMultidomestic Strategy

• Strategy and operating decisions are Strategy and operating decisions are decentralized to strategic business units (SBU) decentralized to strategic business units (SBU) in each countryin each country

• Products and services are tailored to local Products and services are tailored to local marketsmarkets

• Business units in one country are independent Business units in one country are independent of each other of each other

• Assumes markets differ by country or regionsAssumes markets differ by country or regions• Focus on competition in each marketFocus on competition in each market• Prominent strategy among European firms Prominent strategy among European firms

due to broad variety of cultures and markets due to broad variety of cultures and markets in Europein Europe

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• product characteristics product characteristics tailored to local tailored to local preferencespreferences

• isolation from global isolation from global competitioncompetition

– establish protected establish protected market positionsmarket positions–compete in industry compete in industry segments most segments most affected by affected by differences among differences among local countrieslocal countries

Worldwide Geographic Area Worldwide Geographic Area Structure:Structure:

MultinationalMultinationalHeadquartersHeadquarters

EuropeEurope

UnitedUnitedStatesStates

MiddleMiddleEast/East/

AfricaAfrica

AsiaAsia

AustraliaAustralia

LatinLatinAmericaAmerica

Multidomestic StrategyMultidomestic Strategy

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International Corporate-Level International Corporate-Level Strategy: Strategy: Global StrategyGlobal Strategy

GlobalGlobalstrategystrategy

• Products are standardized across national Products are standardized across national marketsmarkets

• Decisions regarding business-level strategies Decisions regarding business-level strategies are centralized in the home officeare centralized in the home office

• Strategic business units (SBU) are assumed to Strategic business units (SBU) are assumed to be interdependentbe interdependent

• Emphasizes economies of scaleEmphasizes economies of scale• Often lacks responsiveness to local marketsOften lacks responsiveness to local markets• Requires resource sharing and coordination Requires resource sharing and coordination

across borders (which also makes it difficult across borders (which also makes it difficult to manage)to manage)

• Historically prominent among Japanese firmsHistorically prominent among Japanese firms

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• standardized products standardized products across countriesacross countries

• economies of scope economies of scope and scaleand scale

• outsource some outsource some primary or support primary or support activities to the activities to the world’s best providersworld’s best providers

• decision-making decision-making authority centralized authority centralized in worldwide division in worldwide division headquartersheadquarters

Worldwide Product Divisional Worldwide Product Divisional Structure:Structure:

GlobalGlobalCorporateCorporate

HeadquartersHeadquarters

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

WorldwideWorldwideProductsProductsDivisionDivision

Global StrategyGlobal Strategy

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TransnationalTransnationalstrategystrategy

International Corporate-Level International Corporate-Level Strategy: Strategy: Transnational StrategyTransnational Strategy

• Seeks to achieve both global efficiency and Seeks to achieve both global efficiency and local responsivenesslocal responsiveness

• Difficult to achieve because of simultaneous Difficult to achieve because of simultaneous requirementsrequirements strong central control and coordination to strong central control and coordination to

achieve efficiency achieve efficiency decentralization to achieve local market decentralization to achieve local market

responsivenessresponsiveness• Must pursue organizational learning to Must pursue organizational learning to

achieve competitive advantageachieve competitive advantage

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Using the Combination Structure:Using the Combination Structure:

The combination structure has The combination structure has characteristics and mechanisms that characteristics and mechanisms that result in an emphasis on both geographic result in an emphasis on both geographic and product structuresand product structures– local responsiveness (multidomestic strategy) local responsiveness (multidomestic strategy) – global efficiency (global strategy)global efficiency (global strategy)

Transnational StrategyTransnational Strategy

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Discussion Question 5Discussion Question 5

What other significant trends have been influencing the strategies?

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Environmental TrendsEnvironmental TrendsLiability of Foreignness

– security risks– tighter immigration policies

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

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Discussion Question 6Discussion 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?

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Type of EntryType of Entry CharacteristicsCharacteristics

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

Acquisition Quick access to new market, high cost, 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

Global Market Entry: Choice of Global Market Entry: Choice of Entry ModeEntry Mode

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Discussion Question 7Discussion Question 7

What are the potential overall benefits and risks of international diversification?

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Value Creation Outcomes: Value Creation Outcomes: ReturnsReturns

International diversification and returnsInternational diversification and returns:: firm expands the sales of its goods or services firm expands the sales of its goods or services across the borders of global regions and countries across the borders of global regions and countries into different geographic locations or marketsinto different geographic locations or markets– may increase a firm’s returnsmay increase a firm’s returns– such firms usually achieve the most positive such firms usually achieve the most positive

stock returnsstock returns– firm may achieve economies of scale and firm may achieve economies of scale and

experience, location advantages, increased experience, location advantages, increased market size and opportunity to stabilize returnsmarket size and opportunity to stabilize returns

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Value Creation Outcomes: Value Creation Outcomes: InnovationInnovation

International diversification and innovationInternational diversification and innovation:: firm expands the sales of its goods or services firm expands the sales of its goods or services across the borders of global regions and countries across the borders of global regions and countries into different geographic locations or marketsinto different geographic locations or markets– potentially greater returns on innovations potentially greater returns on innovations

(larger markets)(larger markets)– generate additional resources for investment in generate additional resources for investment in

innovationinnovation– exposed to new products and processes in exposed to new products and processes in

international markets, generates additional international markets, generates additional knowledge leading to innovationsknowledge leading to innovations

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Risks in an International Risks in an International EnvironmentEnvironment

Political RisksPolitical Risks Economic RisksEconomic Risks

Political risks includePolitical risks include• instability in national governmentsinstability in national governments• war, both civil and internationalwar, both civil and international• potential nationalization of a firm’s resourcespotential nationalization of a firm’s resources

Political RisksPolitical Risks

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Risks in an International Risks in an International EnvironmentEnvironment

Economic risks are interdependent with political Economic risks are interdependent with political risks and includerisks and include

• differences and fluctuations in the value of different differences and fluctuations in the value of different currenciescurrencies

• differences in prevailing wage ratesdifferences in prevailing wage rates• difficulties in enforcing property rightsdifficulties in enforcing property rights• unemploymentunemployment

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Political RisksPolitical Risks Economic RisksEconomic RisksPolitical RisksPolitical Risks

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Discussion Question 8Discussion Question 8

Are there managerial limits to international diversification?

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Limits to International Expansion: Limits to International Expansion: Management ProblemsManagement Problems Cost of coordination across diverse Cost of coordination across diverse

geographical business unitsgeographical business units Institutional and cultural barriersInstitutional and cultural barriers Understanding strategic intent of Understanding strategic intent of

competitorscompetitors The overall complexity of competitionThe overall complexity of competition