Global Strategy

9-1Paul Katuse CSB-USIU-A


GLOBAL STRATEGY

Types and Advantages


StrategicCompetitiveness

Outcomes

Higher Performance

Returns

Innovation

Use Core Competence

Modes of Entry

Exporting

Establishment of New Sub.

Licensing

StrategicAlliances

Acquisition

ExploreResources & Capabilities

International Strategies

InternationalBus.-LevelStrategy

Multidomestic Strategy

GlobalStrategy

Transnational Strategy

Identify International

Opportunities

IncreasedMarket Size

Return on Investment

Economies of Scale and Learning

Location Advantage

Management Problems, Risk,

and First Steps


and First Steps

International Strategy Opportunities & Outcomes




Location Advantage


Benefits of International Strategies

• Increased market size.

• Greater returns on major capital investments or new products or processes.

• Greater economies of scale, scope or learning.

• A competitive advantage through location.



Opportunities


Use Core Competence


Outcomes


Modes of Entry




Location Advantage



GlobalStrategy


Exporting


Licensing

StrategicAlliances

Acquisition

Higher Performance

Returns

Innovation



and First Steps


and First Steps



• International Business Level Strategies

• International Corporate Level Strategies– Multi-domestic Strategy– Global Strategy– Transnational Strategy


Determinants of National Advantage


Determinants of National Advantage• Factors of Production

– Inputs – Labour, land, natural resources, capital & infrastructure• Demand Conditions

– The nature and size of he buyers needs in the home market of goods & services

• Related & Supporting Industries– Industries in which the target country is considered the leader

eg. Italy - shoes with a supporting leather industry,

Japan - cameras & photocopiers,

Denmark - diary & an industry focused on food enzymes. • Firm Strategy, Structure & Rivalry make up

– Germany focused on methodical product & process improvements, – Italy’s national pride of designers helped spawn fashion apparel,

furniture & sports car industries.


International Corporate-Level Strategy



• Multi-domestic Strategy– Strategic & operating decisions are decentralized

to the strategic business unit in each country to tailor products to the local market.



• Multi-domestic Strategy– Strategic & operating decisions are decentralized to

the strategic business unit in each country to tailor products to the local market.

• Global Strategy– Assumes more standardization of products across

country markets

• Transnational Strategy– The firm seeks to achieve both global efficiency and

local responsiveness



Opportunities


Use Core Competence


Outcomes


Modes of Entry




Location Advantage



GlobalStrategy


Exporting


Licensing

StrategicAlliances

Acquisition

Higher Performance

Returns

Innovation



and First Steps


and First Steps


ExportingExporting

Choice of International Entry Mode

No need to establish operations in other nations.

Establish distribution channels through contractual relationships.

May have high transportation costs.

May encounter high import tariffs.

May have less control on marketing and distribution.

Difficult to customize product.

Common way to enter new international markets.


Licensing


Licensing firm is paid a royalty on each unit produced and sold.

Licensee takes risks in manufacturing investments.

Least risky way to enter a foreign market.

Licensing firm loses control over product quality & distribution.

Relatively low profit potential.

Firm authorizes another firm to manufacture & sell its products -



Strategic Alliances

Most joint ventures (JVs) involve a foreign corp. with a new product or technology & a host company with access to distribution or knowledge of local customs, norms or politics.

May experience difficulties in merging disparate cultures.

May not understand the strategic intent of partners or experience divergent goals.

Enable firms to shares risks and resources to expand into international ventures.



Can be very costly.

Legal and regulatory requirements may present barriers to foreign ownership.

Usually require complex and costly negotiations.

Potentially disparate corporate culture.

Enable firms to make most rapid international expansion.

Acquisitions


Greenfield VentureGreenfield Venture

Choice of International Entry ModeNew Wholly-Owned Subsidiary –

Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing and

distribution.May need to acquire expertise & knowledge that is relevant to host country.

Could require hiring host country nationals or consultants at high cost.


International diversification facilitates innovation in the firm.

May generate resources necessary to sustain a large-scale R&D program.

Generally related to above-average returns, assuming effective implementation and management of international operations.

Provides larger market to gain more and faster returns form investments in innovation.

International diversification provides greater economies of scope and learning.

Strategic Competitiveness Outcomes



Opportunities


Use Core Competence


Outcomes


Modes of Entry




Location Advantage



GlobalStrategy


Exporting


Licensing

StrategicAlliances

Acquisition

Higher Performance

Returns

Innovation



and First Steps


and First Steps


Risks in the International Environment


National government instability may create potential problems for internationally diversified firms.

Legal authority obtained from previous administration may become invalid.

Potential changes in attitudes or regulations regarding foreign ownership.

Potential for nationalization of firms’ assets.

Major Risks of International Diversification

Political Risk


Econ. risks are interdependent with political risks.

Differences in inflation rates may affect inter-nationally diversified firms’ ability to compete.

Differences and fluctuations in international currencies may affect value of assets & liabilities.This affects prices & thus ability to compete.

Enforcing intellectual property rights on CDs, software, etc.

Major Risks of International Diversification

Economic Risk

Global Strategy

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