CHAPTER 7 STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin 7-1.

CHAPTER 7STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin

7-1

McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved.

International Strategy:

Creating Value in Global Markets

Chapter 7


7-3 After studying this chapter, you will have a good understanding of: • The importance of international expansion as a viable

diversification strategy

• The sources of national advantage

• The benefits and risks associated with international expansion

• The two opposing forces—cost reduction and adaptation to local markets—that firms face when entering international markets

• The advantages and disadvantages associated with each of the three basic international strategies—global, multidomestic, and transnational

• The four basic types of entry strategies and their relative benefits and risks

Learning Objectives


7-4 2001 Census Statistics

Country 2001 Census

China 1,273,111,290

India 1,029,991,145

Germany 83,030,000

United States 278,058,881

Japan 126,635,626

Sources: U.S. Bureau of the Census. World Population Profile; 2001. Washington: U.S. Government Printing Office, 2001.

Exhibit 7.3


7-5The Extremes of Global Capitalism

• Exports have surged for two decades• While foreign investment has expanded• . . . But growth has been highly uneven• . . . And poverty is still widespread

Over 40% in South Asia and Sub-Saharan Africa make less than $1 a day.


7-6 Porter’s Determinants of National Advantage

Factor ConditionsFactor Conditions

Demand ConditionsDemand Conditions

Related and Supporting IndustriesRelated and Supporting Industries

Firm Strategy, Structure and RivalryFirm Strategy, Structure and Rivalry

(Domestic Rivalry)(Domestic Rivalry)


7-7India’s Virtual Diamond in Software

Domestic rivalry

No regulatory barriers to entry or startup; 800 firms, mostly small, in fierce rivalry; growing number of MNC software-development centers in India

Related and supporting industries

Factor conditions

Domestic demand

conditions

U.S. demand conditions

Large, growing market; sophisticated customers; cutting-edge applications

Large pool of skilled labor; low salaries; English-language capability Large network of public and private educational

institutions; weak but rapidly improving communications infrastructure; duty-free access to imported computers and software, following

economic liberalization

Note: Dashed lines represent weaker interactions.

Source: Kapar, D. & Ramamurti, R. 2001. India’s emerging competitive advantage in services. Academy of Management Executive, 15(2): 20-31.

Exhibit 7.2


7-8 Types of Risks Within a Country

PoliticalPolitical

EconomicEconomic

SocialSocial

CurrencyCurrency

ManagementManagement


7-9 A Sample of International Country Risk Rankings

Rank COUNTRY

Total

Risk Assessment

Economic Performance

Political Risk

Total of Debt

Indicators

Total of Credit and Access to

Finance Indicators

1 Luxembourg 99.51 25.00 24.51 20.00 30.00

2 Switzerland 98.84 23.84 25.00 20.00 30.00

3 United States 98.37 23.96 24.41 20.00 30.00

40 China 71.27 18.93 16.87 19.73 15.74

55 Poland 57.12 18.56 13.97 9.36 15.23

63 Vietnam 52.04 14.80 11.91 18.51 6.82

86 Russia 42.62 11.47 8.33 17.99 4.83

114 Albania 34.23 8.48 5.04 19.62 1.09

161 Mozambique 21.71 3.28 2.75 13.85 1.83

178 Afghanistan 3.92 0.00 3.04 0.00 0.88

Source: Adapted from http://worldbank.org/html/prddr/trans/so96/art7.htm

Exhibit 7.4


7-10 Opposing Pressures and Three International Strategies

Globalstrategy Transnational

strategy

Multidomesticstrategy

High

Low

Low High

Pressures for Local Adaptation

Pre

ssur

es t

o L

ower

Cos

ts

Exhibit 7.5


7-11 Strengths and Limitations of Various International Strategies

Exhibit 7.6

• Less ability to realize cost savings • Difficulty in transferring knowledge• “Overadaptation” as conditions

change

• Ability to adapt • Ability to detect opportunities

Multidomestic

• Limited ability to adapt • Dependence on a single facility• Higher tariffs and transportation

costs

• Strong integration • Standardization, economies of

scale, lowers costs• Uniform standards of quality

Global

LimitationsStrengthsStrategy

Transnational • Unique challenges in determining

optimal locations of activities - cost and quality

• Unique managerial challenges in fostering knowledge transfer

• Economies of scale• Ability to adapt • Activities in optimal locations• Knowledge flows, learning


7-12Entry Modes for International Expansion

Low

Degree of Ownership and Control

High

Low High

Ext

ent

of I

nve

stm

ent

and

Ris

k

ExportingExporting

LicensingLicensing

FranchisingFranchising

Strategic AllianceStrategic Alliance

Joint VentureJoint Venture

Wholly Owned Subsidiary

Wholly Owned Subsidiary

Exhibit 7.7

CHAPTER 7 STRATEGIC MANAGEMENT Gregory G. Dess and G. T. Lumpkin 7-1.

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