Strategic Management Ch09

9-1© 2006 by Nelson, a division of Thomson Canada Limited.

International Strategy

Chapter Nine

© 2006 by Nelson, a division of Thomson Canada Limited.


The Strategic Management Process

Chapter 8:Acquisition & Restructuring

Chapter 9:International

Strategy

Chapter 10:Cooperative

Strategy

Strategy Formulation

Chapter 11:Corporate

Governance

Ch. 12: Org. Structure & Controls

Chapter 13:Strategic

Leadership

Chapter 14:Org. Renewal & Innovation

Strategy Implementation

StrategicActions

Chapter 3:The External Environment

Strategic Competitiveness

Strategic Mission & Strategic Intent

Strategic Objectives & Inputs

Chapter 1: Strategic

ManagementStrategic

Competitiveness Ch. 2: Strat. Mgmt . &

Performance



Chapter 4:The Internal Environment

Chapter 5: Bus.-Level Strategy

Chapter 6:Competitive Dynamics

Chapter 7:Corp.-Level

Strategy


Strategy


International StrategyKnowledge Objectives1. Explain the traditional and emerging motives for firms to

pursue international diversification

2. Explore the four factors that lead to a basis for international business-level strategies

3. Define the three international corporate-level strategies: multidomestic, global, and transnational

4. Discuss the environmental trends affecting international strat., especially liability of foreignness & regionalization

5. Name & describe the five alternative modes for entering international markets

6. Note impact of international divers. on return & innovation

7. Name & describe 2 major risks of international divers.

8. Explain why positive outcomes from international expansion are limited


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


Opportunities


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.



Outcomes

Higher Performance

Returns

Innovation

Use Core Competence

Modes of Entry

Exporting


Licensing

StrategicAlliances

Acquisition





GlobalStrategy



Opportunities




Location Advantage


and First Steps


and First Steps

International Strategy Opportunities & OutcomesIdentify

International Opportunities




GlobalStrategy





Location Advantage



• International Business Level Strategies

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


Home country of origin is crucial to International success

Factors of ProductionBasic Factors - Land, laborAdvanced Factors - Education / CommunicationGeneralized Factors - Capital, infrastructureSpecialized Factors - Skilled personnel

Demand Conditions

The nature & size of the buyers

needs in the home market of goods

& services

Determinants of National Advantage

Related & Supporting IndustriesIndustries in which the target country is considered the leader - Japan - cameras & copiers- Denmark - diary & food enzymes

Firm Strategy, Structure & Rivalry

Germany’s focus on methodical product

& process improvements

Italy’s designers spawned fashion apparel,

furniture industries.

Factors of ProductionBasic Factors - Land, laborAdvanced Factors - Education / CommunicationGeneralized Factors - Capital, infrastructureSpecialized Factors - Skilled personnel

Demand Conditions

The nature & size of the buyers

needs in the home market of goods

& services

Related & Supporting IndustriesIndustries in which the target country is considered the leader - Japan - cameras & copiers- Denmark - diary & food enzymes

Firm Strategy, Structure & Rivalry

Germany’s focus on methodical product

& process improvements

Italy’s designers spawned fashion apparel,

furniture industries.


Type of Corp. Strategy selected will have an impact on the selection & implementation of business-level strategies

Some Corp. strategies provide individual country units with flexibility to choose their own strategies

Others dictate bus.-level strategies from the home office & coordinate resource sharing across units

Three Corporate Strategies

Global Strategy


Multi-Domestic Strategy

Corp.-Level International Strategies


Focus on competition in each market

Prominent strategy among European firms due to broad variety of cultures & markets in Europe

Assumes markets differ by country or regions

Business units in each country are independent of each other

Products & services are tailored to local markets


Strategy & operating decisions are decentralized to strategic business units (SBU) in each country

Multi-Domestic Strategy


Firm often lacks responsiveness to local markets

Requires resource sharing & coordination across borders (which also makes it difficult to manage)


Emphasizes economies of scale

Strategic business units (SBUs) are assumed to be interdependent

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

Products are standardized across national markets

Global Strategy


Seeks to achieve both global efficiency and local responsiveness

Difficult to achieve because of simultaneous need: • for strong central control and • coordination to achieve efficiency as well as • local flexibility & decentralization to achieve local market responsiveness

Must pursue organizational learning to achieve competitive advantage




When is each strategy appropriate?

Need for Global

Integration

Low

High

Need for Local Market ResponsivenessLow High

International Corporate Strategy


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.

• Global Strategy– Assumes more standardization of products across

country markets

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

local responsiveness



Outcomes

Higher Performance

Returns

Innovation

Use Core Competence

Modes of Entry

Exporting


Licensing

StrategicAlliances

Acquisition




GlobalStrategy



and First Steps


and First Steps



Opportunities




GlobalStrategy





GlobalStrategy





Location Advantage

Use Core Competence

Exporting


Licensing

StrategicAlliances

Acquisition



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


Higher Performance

Returns

Innovation


and First Steps


and First Steps

Use Core Competence

Exporting


Licensing

StrategicAlliances

Acquisition


Opportunities


Use Core Competence

CompetitivenessOutcomes


Modes of Entry




Location Advantage



GlobalStrategy


Exporting


Licensing

StrategicAlliances

Acquisition

Higher Performance

Returns

Innovation



and First Steps


and First Steps

CompetitivenessOutcomes


National government instability may create 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.

Risks in the 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 copyrights; CDs, software, etc.

Risks in the International Diversification

Economic Risk


Risks in the International Environment

Economic Risks

Political Risks

Political instability in Indonesia brought about by continuing ethnic strife

Uncertain future of peace in the Middle East because of changes of national leaders

Failure of the European Community’s quest for economic superpower status because of inter-country disagreements

China’s difficulty in enforcing intellectual property rights on CDs, software, etc.

Russia’s struggle with low productivity, currency problems & high unemployment.

Exchange rate exposure due to the U.S. - Canadian dollar fluctuations.


Taking the 1st International Step: Pitfalls of going to the U.S.

Failure to:

E.D. Smith’s product goals required a corp. culture of company dedication that was lacking in its U.S. facilities

U.S. retailers customers put more importance great front-line sales staff (Canadian Tire’s U.S. experience)

Expectations for better service:

The Paper-thin margins in the U.S. Electronics Retailing Industry that hurt Future Shop

Recognize Different Customer Expectations

Take into account differing worker attitudes

Take into account firmly established competitors


Taking the 1st International Step: Basic Advice about going to the U.S.

Jean Coutu U.S. stores are called “MaxiDrug”Know you may need to change basic business attributes

“If you think it necessary to have a sales rep in Montreal, you should find it just as necessary to have one in Chicago.” Winpak’s

President, Bob Lavery

Keg Restaurants give larger portions in the U.S. because customers want to be sure they get value

Open Text acquired U.S. operations and is listed on the NASDAQ to give the firm a U.S. appearance

Subtle cultural differences need attention

Set up as a North American company

Acquire U.S. attributes


what local competitors are doing.

and what does not work.What customers expect, and

Jean Coutu

hands-on what works,

Open Text CEO Tom

Jenkins

“If Canadians make any mistake in the U.S., it would be the same mistake they might make in Vancouver or Calgary,

[And,] you have to provide a good product at a fair price and keep your customers happy.”

& discoverGet very involved quickly in day-to-day details

Be close to your customers:

what local competitors are doing.

and what does not work.What customers expect, and

Jean Coutu

hands-on what works,& discoverGet very involved quickly in day-to-day details

which is not locating salespeople close to your customers…

Taking the 1st International Step: Final Advice about going to the U.S.


The Strategic Management

Process

Chapter 8:Acquisition & Restructuring


Strategy

Chapter 10:Cooperative

Strategy

Strategy Formulation

Chapter 11:Corporate

Governance

Ch. 12: Org. Structure & Controls

Chapter 13:Strategic

Leadership

Chapter 14:Org. Renewal & Innovation

Strategy Implementation

StrategicActions


Strategic Competitiveness

Strategic Mission & Strategic Intent

Strategic Objectives & Inputs

Chapter 1: Strategic

ManagementStrategic

Competitiveness Ch. 2: Strat. Mgmt . &

Performance



Chapter 4:The Internal Environment

Chapter 5: Bus.-Level Strategy

Chapter 6:Competitive Dynamics

Chapter 7:Corp.-Level

Strategy


Strategy

Strategic Management Ch09

Education

Transcript of Strategic Management Ch09