Week 7 international strategy

3BM020: Organisational Strategy
and Decision Making
Lecture: Week 7


Learning outcomes
 Assess

the internationalisation
potential of different markets,
sensitive to variations over time
 Identify sources of competitive
advantage in international strategy
 Distinguish between four main types
of international strategy
 Rank markets for entry or expansion,
taking into account attractiveness,
cultural, and other forms of distance
and competitor retaliation threats


In the news –This time last year


In the news Oct - 2016

Apple iPhone sales fall, but beat estimates
Apple has reported its third quarter
in a row of falling iPhone sales and
revenue, but sales beat analyst
expectations.

The tech giant sold 45.51 million
iPhones in the three months to 24
September, beating an average
estimate of 44.8 million.
The company also forecast higherthan-expected holiday season
revenue of between $76bn and
$78bn.
But revenue in the fourth quarter fell
9% to $46.85bn.
That meant annual revenue fell for
the first time since 2001, highlighting
a slowdown in the smartphone
market as well as intensifying
competition, particularly from


In the news Oct - 2016
Apple raises computer prices in UK
One analyst said consumers
should expect further price
increases.
"Apple has to recalibrate prices
after significant currency
fluctuations, and since the EU
referendum, UK prices are out of
sync with the dollar," said Patrick
O'Brien, analyst at the Verdict
Retail consultancy.
"Apple has taken the hit up until
now. While price increases won't

look good to the consumer, it's
difficult to blame Apple.
"Once you strip out UK sales tax
(VAT) and the currency
conversion, the new UK prices
could still be viewed as fair."


Stimuli to Internationalise
In business activities, a variety of stimuli push and

pull firms along the international path.
The major motivations for firms to go international
have been differentiated into proactive and reactive.
Proactive motivations represent stimuli to attempt

strategic change.
Reactive motivations influence firms that respond to
environmental shifts by changing their activities over
time.
Proactive firms internationalise because they want
to…reactive firms internationalise because they
have to.


Strategy Framework
Internationalisation
drivers

Sources of

competitive advantage

International
strategy

Market
selection

Mode of entry

8-7


Drivers of Internationalisation
Market drivers
•
•
•

Similar customer needs
Global customers
Transferable marketing

Government drivers
•
•
•

Cost drivers

Trade policies
Technical standards
Host government policies

International
strategies

•
•
•

Scale economies
Country-specific
differences
Favourable logistics

Competitive drivers
•
•

Interdependence between
countries
Competitors’ global strategies

8-8


Why firms internationalise









PROACTIVE Motivators
Profit
Unique products
Technological advantages
Exclusive information
Managerial urge
Tax Benefit
Economies of scale

•
•
•
•
•
•

REACTIVE Motivators
Competitive pressures
Overproduction
Declining domestic
sales
Excess capacity
Saturated domestic
markets

Proximity to customers
and ports


Change agents in the
internationalisation process
Internal
Enlightened
management
New management
Significant internal event

External
Foreign demand
Competition
Domestic distributors
Service firms
Business associations
Governmental activities
Export intermediaries Export management
companies and Trading
companies


Porter’s Diamond
 Porter’s

Diamond suggests
that there are inherent
reasons why some nations are

more competitive than others,
and why some industries
within nations are more
competitive than others.


Porter’s Diamond
Firm strategy,
structure
and rivalry
Factor
conditions

Demand
conditions

Related and
supporting
industries

8-12


Global sourcing

Global

sourcing refers
to purchasing services
and components from

the most appropriate
suppliers around the
world regardless of their
location.


Locational Advantages
of Global Sourcing

Cost advantages
Unique capabilities
National characteristics

8-14


Global R&D Network

8-15


Market Characteristics and the
PESTEL Framework

Political

Economic

Social

Legal

8-16


The CAGE Framework

Cultural
distance

Geographic
distance

Administrative and
political distance

Economic/ wealth
distance

8-17


Exporting
Advantages
 No need for
operational facilities
in host country
 Economies of scale
 Internet facilitates
exporting

opportunities

Disadvantages
 Lost location
advantages
 Dependence on
export
intermediaries
 Exposure to trade
barriers
 Transportation costs

8-18


Joint Ventures and Alliances
Advantages
 Shared investment
risk
 Complementary
resources
 May be required for
market entry

Disadvantages
 Difficult to find good
partner
 Relationship
management
 Loss of competitive

advantage
 Difficult to integrate
and coordinate

8-19


Licensing
Advantages
 Contractual
source of income
 Limited economic
and financial
exposure

Disadvantages
 Difficult to identify
good partner
 Loss of
competitive
advantage
 Limited benefits
from host nation

8-20


Foreign Direct Investment
Advantages
 Full control

 Integration and
coordination
possible
 Rapid market entry
through acquisitions
 Greenfield
investments

Disadvantages
 Substantial
investment and
commitment
 Acquisitions may
create integration/
coordination issues
 Greenfield
investments are
time consuming and
unpredictable
8-21


Foreign market entry, risk, resources &
control
High
Amount of
resources
required

Risk

Resourc
es
Foreign
Direct
Investment

Strategic alliance
Exporting
Low
Low

High

Control


Summary (1)






Internationalisation potential in any
particular market is determined by four
drivers: market, cost, government, and
competitors’ strategies.
Sources of advantage can come from global
sourcing through the international value

network and national sources of advantage
The main types of international strategy
vary according to extent of coordination and
geographical configuration: simple export,
complex export, multidomestic, and global

8-24


Summary (2)
Market selection for international
entry should be based on
attractiveness, multidimensional
measures of distance and
expectations of competitor retaliation
 Modes of entry into new markets
include export, licensing, joint
ventures, and foreign direct
investment


8-25


Key questions: Global, Local, or Regional?
Which products and services are
becoming more ‘global’ over time?
 Which products and services are
becoming less ‘global’?
 Does this understanding impact upon

your organisation?
 Which national sources of competitive
advantage, if any, might your
organisation draw from its national base?


8-26