International strategies opp and out

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Knowledge Objectives

• Understand the 4 strategies for foreign expansion

• Understand the benefits from foreign expansion

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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 International

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 performancperformancee

InnovationInnovation

Opportunities and Outcomes of International

Strategy

ExportingExporting

LicensingLicensing

Strategic Strategic alliancesalliances

AcquisitionsAcquisitions

EstablishmenEstablishment of a new t of a new subsidiarysubsidiary

Use Core Use Core CompetenceCompetence

Modes of EntryModes of Entry Managementproblems andrisk

Managementproblems andrisk

Strategic Strategic CompetitivenesCompetitiveness Outcomess Outcomes

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Motivations for International Expansion

• Increase Market ShareIncrease Market Share– domestic market may lack the size to domestic market may lack the size to

support efficient scale manufacturing support efficient scale manufacturing facilitiesfacilities

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

global markets to justify the capital outlaysglobal markets 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 Expansion

• 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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International Business-Level Strategy: Determinants 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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Average Total R&D Expenditure: Top 20 Economies1997 - 2000 (Bil of International $)

Brazil $9.8b

China $34.4b

Italy $13.7b

Spain $6.5b

Austria$3.7b

Belguim$4.6b

Netherlands$7.7b

Israel $3.6b

United Kingdom $23.9b

South Korea$16.2b

France $29.6b

Germany $47.2b

United States$230.8b

Japan$90.5b

Finland$3.6b

Switzerland$5.3b

Sweden$7.2b

Russia$9.3b

Australia $6.7b

Canada $13.8b

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 GDP)

Average Scientists & Engineers in R&D (per mil

persons)

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National Advantage

• Demand conditions:Demand conditions: characterized by 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 the home market for the industry’s goods or servicesgoods or services– 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 specialized demand may create

opportunities beyond national boundariesopportunities beyond national boundaries

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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 related industries as suppliers and

buyersbuyers

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National Advantage

• Firm strategy, structure, and rivalry:Firm strategy, structure, and rivalry: the the pattern of strategy, structure, and pattern of strategy, structure, and rivalry among firmsrivalry among 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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Source: MIT Sloan

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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

Need

for

Glo

bal In

teg

rati

on

Need

for

Glo

bal In

teg

rati

on

LowLow

HighHigh

LowLow HighHigh

GlobalGlobalstrategystrategy

TransnationalTransnationalstrategystrategy

MultidomesticMultidomesticstrategystrategy

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MultidomesticMultidomesticstrategystrategy

International Corporate-Level Strategy:

Multidomestic Strategy

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

• Products and services are tailored to Products and services are tailored to local marketslocal markets

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

• Assumes markets differ by country or Assumes markets differ by country or regionsregions

• Focus on competition in each marketFocus on competition in each market• Prominent strategy among European Prominent strategy among European

firms due to broad variety of cultures firms due to broad variety of cultures and markets in Europeand markets in Europe

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International Corporate-Level Strategy: Global

Strategy

GlobalGlobalstrategystrategy

•Products are standardized across Products are standardized across national marketsnational markets

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

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

•Emphasizes economies of scaleEmphasizes economies of scale•Often lacks responsiveness to local Often lacks responsiveness to local

marketsmarkets•Requires resource sharing and Requires resource sharing and

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

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TransnationalTransnationalstrategystrategy

International Corporate-Level Strategy: Transnational

Strategy

•Seeks to achieve both global Seeks to achieve both global efficiency and local efficiency and local responsivenessresponsiveness

•Difficult to achieve because of Difficult to achieve because of simultaneous requirementssimultaneous requirements strong central control and strong central control and

coordination to achieve coordination to achieve efficiency efficiency

decentralization to achieve decentralization to achieve local market responsivenesslocal market responsiveness

•Must pursue organizational Must pursue organizational learning to achieve competitive learning to achieve competitive advantageadvantage

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Strategic Competitiveness Outcomes: Returns

• 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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Strategic Competitiveness Outcomes: Innovation

• 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

International strategies opp and out

Education

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