Strategic management chapter 8 identifying international opportunities

Figure 8.1

Opportunities and Outcomes of International Strategy

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website for classroom use.

8–1


Identifying International Opportunities

•

International Strategy

–

•

A strategy through which the firm sells its goods or services outside its domestic market.

Incentives to use international strategy

–

New market expansion extends product life cycle.

–

Gain access to materials and resources.

–

Integration of operations on a global scale

–

Better use of rapidly developing technologies

–

International markets yield potential new opportunities.

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website for classroom use.

8–2


Classic Rationale for International Diversification: Extend a Product’s Life Cycle

Firm introduces

Product demand

Foreign

innovation in

develops and firm

competition

domestic market

exports products

begins production

Production is standardized and relocated to low cost

Firm begins

countries

production abroad

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website for classroom use.

8–3


International Strategy Benefits

•

Increased Market Size

–

•

Domestic market may lack the size to support efficient scale manufacturing facilities.

Economies of Scale (or Learning)

–

Expanding size or scope of markets helps to achieve economies of scale in manufacturing as
well as marketing, R&D or distribution.

–

Can spread costs over a larger sales base.

–

Can increase profit per unit.

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website for classroom use.

8–4


International Strategy Benefits (cont’d)

•

Location Advantages

–

Low cost markets aid in developing competitive advantage by providing access to:

•

Raw materials

•

Transportation

•

Lower costs for labor

•

Key customers

•

Energy

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8–5

Figure 8.2

Incentives and Basic Benefits of International Strategy

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website for classroom use.

8–6


Determinants of National Advantage

•

Factors of production

–

•

 Labor

Land Natural resources

 Capital

Infrastructure

Basic factors

–

•

The inputs necessary to compete in any industry

Natural and labor resources

Advanced factors

–

Digital communication systems and an educated workforce

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website for classroom use.

8–7


Determinants of National Advantage (cont’d)

• Demand Conditions
–

Characterized by the nature and size of buyers’ needs in the home market for the industry’s
goods or services.

•

Size of the market segment can lead to scale-efficient facilities.

•

Efficiency can lead to domination of the industry in other countries.

•

Specialized demand may create opportunities beyond national boundaries.

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website for classroom use.

8–8


Determinants of National Advantage (cont’d)

• Related and Supporting Industries
–

Supporting services, facilities, suppliers and so on.

•
•
•

Support in design

Support in distribution
Related industries as suppliers and buyers

• Firm Strategy, Structure and Rivalry
–

The pattern of strategy, structure, and rivalry among firms.

•
•
•

Common technical training
Methodological product and process improvement
Cooperative and competitive systems

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website for classroom use.

8–9


Selecting an International
Corporate-Level Strategy

•

The type of corporate strategy selected will have an impact on the selection and
implementation of the business-level strategies.

–

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

–

Other strategies dictate business-level strategies from the home office and coordinate
resource sharing across units.

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website for classroom use.

8–10


International Corporate-Level Strategy

•

•

•

Focuses on the scope of operations:

–

Product diversification

–

Geographic diversification

Required when the firm operates in:

–

Multiple industries, and

–

Multiple countries or regions

Headquarters unit guides the strategy

–

But business or country-level managers can have substantial strategic input.

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website for classroom use.

8–11


Multidomestic Strategy

•

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

•
•
•
•
•

Products and services are tailored to local markets.
Business units in one country are independent of each other.
Assumes markets differ by country or regions.
Focus on competition in each market.
Prominent strategy among European firms due to broad variety of cultures and markets in Europe.

Multidomestic
strategy

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website for classroom use.

8–12


Global Strategy

•
•
•
•

•
•

Products are standardized across national markets.
Business-level strategic decisions are centralized in the home office.
Strategic business units (SBU) are assumed to be interdependent.
Emphasizes economies of scale.
Often lacks responsiveness to local markets.
Requires resource sharing and coordination across borders (hard to manage).

Global
strategy

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website for classroom use.

8–13


Transnational Strategy

•
•

Seeks to achieve both global efficiency and local responsiveness.
Difficult to achieve because of simultaneous requirements for:

–
–
–

Strong central control and coordination to achieve efficiency
Decentralization to achieve local market responsiveness
Pursuit of organizational learning to achieve competitive advantage.

Transnational
strategy

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website for classroom use.

8–14


Risks in an International Environment

•

•

Political Risks

–
–
–

Economic Risks

–

Instability in national governments

different currencies

War, both civil and international
Potential nationalization of a firm’s resources

?

Differences and fluctuations in the value of

–
–
–

Differences in prevailing wage rates
Difficulties in enforcing property rights
Unemployment

?
?

?

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8–15

Figure 8.6

Risks in the International Environment

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website for classroom use.

8–16


International Diversification and Returns

•

Expanding sales of goods or services across global regions and countries and into
different geographic locations or markets:

–

May increase a firm’s returns (such firms usually achieve the most positive stock returns).

–

May achieve economies of scale and experience, location advantages, increased market
size and opportunity to stabilize returns.

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8–17

International Diversification
and Innovation

•

Expansion sales of goods or services across global regions and countries and into
different geographic locations or markets:

–
–
–

May yield potentially greater returns on innovations (a larger market).
Can generate additional resources for investment in innovation.
Provides exposure to new products and processes in international markets; generates
additional knowledge leading to innovations.

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8–18


Complexity of Managing
Multinational Firms

•

Expansion into global operations in different geographic locations or markets:

–
–
–
–
–

Makes implementing international strategy increasingly complex.
Can produce greater uncertainty and risk.
May result in the firm becoming unmanageable
May cause the cost of managing the firm to exceed the benefits of expansion.
Exposes the firm to possible instability of some national governments.

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8–19


Limits to International Expansion

•

Management Problems

–

Cost of coordination across diverse geographical business units

–

Institutional and cultural barriers

–

Understanding strategic intent of competitors

–

The overall complexity of competition

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8–20