Chapter 8 International Strategy Hitt, Ireland, and Hoskisson.

Chapter 8

International Strategy

Hitt, Ireland, and Hoskisson

Copyright © 2008 Cengage

Increase in international strategies Use of international strategies is increasing

Traditional motives extending the product life cycle securing key resources having access to low-cost labor

Emerging motives integration of the Internet and mobile

telecommunications, which facilitates global transactions.

demand for commodities becomes borderless


Benefits of international strategy Increased market size Earning a return on large investments Economies of scale and learning Advantages of location


Porter’s model

International business-level strategies are usually grounded in one or morehome-country advantages, as Porter’s model suggests.

Source: Adapted with the permission of The Free Press, an imprint of Simon & Schuster Adult Publishing Group, from Competitive Advantage of Nations, by Michael E. Porter, p. 72. Copyright ©1990, 1998 by Michael E. Porter.


International corporate-level strategies Multidomestic strategy

Focuses on competition within each country in which the firm competes. Decentralizes strategic and operating decisions to the business units operating in each country so each unit can tailor its goods and services to the local market.

Global strategy Assumes more standardization of products across country

boundaries – so competitive strategy is centralized and controlled by the home office.

Transnational strategy Integrates characteristics of multi-domestic and global strategies

to emphasize both local responsiveness and global integration and coordination. This strategy is difficult to implement, requiring an integrated network and a culture of individual commitment.


Influence of environmental trends Although the transnational strategy’s

implementation is a challenge, environmental trends are causing many multinational firms to consider the need for both global efficiency and local responsiveness.

Many large multinational firms, particularly those with many diverse products, use a multidomestic strategy with some product lines and a global strategy with others.


International risks

Liability of foreignness The threat of wars and terrorist attacks increase

the risks and costs of international strategies. Furthermore, research suggests that the liability of

foreignness is more difficult to overcome than once thought.

Regionalization Some firms decide to compete only in certain

regions of the world. This allows them to focus their learning on specific markets, cultures, locations, resources, and other factors.


Market entry

Forms of international expansion Exporting Licensing Strategic alliances Acquisitions New wholly-owned subsidiaries


Modes of market entry

Type of Entry Characteristics

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 (e.g., two corporate cultures)

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


Diversification facilitates innovation International diversification facilitates

innovation in a firm because it provides a larger market to gain more and faster returns from investments in innovation.


Risks of multinational operations Political risks

Instability in national governments

War, both civil and international

Potential nationalization of a firm’s resources

Economic risks Differences and

fluctuations in the value of different currencies

Differences in prevailing wage rates

Difficulties in enforcing property rights

Unemployment


Limits to International Expansion Some limits constrain the ability to effectively

manage international expansion. International diversification increases

coordination and distribution costs, and management problems are exacerbated by trade barriers, logistical costs, and cultural diversity, among other factors.

Chapter 8 International Strategy Hitt, Ireland, and Hoskisson.

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