International Strategy

“ INTERNATIONAL STRATEGY ” SUBMITTED BY ARVIND GUPTA (8123)

KNOWLEDGE OBJECTIVES 1. Identifying International Opportunities: Incentives to use an International strategy 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. Choices of International Entry Mode 5. Strategic Competitive outcomes 6. Risks in an International Environments 

International Strategy Opportunities & Outcomes

nternational Opportunities Explore Resources & Capabilitie s

Internatio nal Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage

Strategies Internation al Bus .- Level Strategy Multidomest ic Strategy Global Strategy Transnation al Strategy

Use Core Competence

Modes of Entry Exporting

Strategic

Competitiven ess

Outcomes Management Problems , Risk , and First Steps

Higher Performance Returns

Licensing Strategic Alliances Acquisitio n Establishmen t of New Sub .

Innovation

Management Problems , Risk , and First Steps

IDENTIFY INTERNATIONAL OPPORTUNITIES Mainly for three reasons firms go international

1.Lower Production cost  E.g. :- Clothing, Electronics, watch making

2.To secure needed resources  E.g.:- Gems & Jwellery (Europe:- Roseyblu, Eurostar),

Minerals and Energy

3.To extend a product`s life cycle  E.g.:- Bajaj Auto (Sri Lanka, Bangladesh & China)

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. 

1. INCREASED MARKET SIZE Expand the size of potential market Ex. General motors- Asia, Pharmaceutical

Firms (85% Firms)- FDI- China



Firms competing in Domestic markets have

limited growth opportunities Ex. Pepsi and Coca-cola 

Invest in R&D to build competitive

advantaages Ex. Ranbaxy in Africa

 

2. RETURN ON INVESTMENT Large markets needs heavy investment Ex.: R&D, Plant and capital 

Reverse Engineering  Above average return on Investments      

3. ECONOMIES OF SCALE AND LEARNING Economies of scale:- Refers to reduction in

unit cost by producing a large volume of a product

 Firm can standardize products across

country Borders

Ex. Production and R&D across country---

Pepsi & coke

 Allow price their product competitively to

gain market share

Ex. Automobile Industry such as Toyota, GM

 Exploit core competencies in international

4. LOCATION ADVANTAGES Lower the basic costs of the goods and

services Lower labour cost, energy and natural resources Access to critical suppliers and to customers Help to earn positive returns. Ex.: GM- Asia  Help in differentiation of products from

competitors   

International Strategy Opportunities & Outcomes Identify Internationa l Opportunitie s

Explore Resources & Capabilitie s

Use Core Competence

Modes of Entry

Increased Market Size Return on Investment

Internatio nal Strategies

Internation al Bus .- Level Strategy Multidomest ic Strategy

Economies of Scale and Learning Location Advantage

Global Strategy Transnation al Strategy

Exporting

Strategic

Competitiven ess

Outcomes Management Problems , Risk , and First Steps

Higher Performance Returns

Licensing Strategic Alliances Acquisitio n Establishmen t of New Sub .

Innovation

Management Problems , Risk , and First Steps

International Strategies International Business Level Strategies International Corporate Level Strategies

§ Multi-domestic Strategy § Global Strategy § Transnational Strategy 

International Business Level Strategies International Low Cost  Usually

located in home country  Export to international markets  Low value added operations in foreign countries  High value added operations in home country

International Differentiation  Countries

with advanced or specialized factor conditions most likely to use this strategy

   

Example: Japan, Germany, U.S.

International Business Level Strategies International Focus Strategies  Technologically advanced firms follow focused

low cost strategy  Focused differentiation firms compete on the basis of image & design  Third group competes on low price by imitating

International Integrated Low

Cost/Differentiation  Can be most effective in dealing with diverse

markets  Often relies upon flexible manufacturing, total quality management or rapid communication networks  

D e te rm in a n ts o f N a tio n a l A d v a n ta g e FACTOR OF PRODUCTION

TRATEGY , STRUCTURE AND RIVALRY

DEMAND CONDITIONS

Related & Supporting Industries

Determinants of National Advantage  Factors of Production  Inputs – Labour, land, natural resources, capital &

infrastructure  Demand Conditions  The nature and size of he buyers needs in the home market of goods & services  Related & Supporting Industries  Industries in which the target country is considered the leader  e.g. Italy - shoes with a supporting leather industry,  Japan- cameras & photocopiers,  Denmark - diary & an industry focused on food enzymes.  Firm Strategy, Structure & Rivalry make up  Germany focused on methodical product & process improvements,

Corporate-Level International Strategies Type of Corporate Strategy selected will

have an impact on the selection and implementation of the business-level strategies Some Corporate strategies provide individual country units with flexibility to choose their own strategies Others dictate business-level strategies from the home office andMulti coordinate resource - Domestic T h re e Strategy sharing across units

C o rp o ra te S tra te g i 

Global Strategy Transnational Strategy

Multi-domestic 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 each country are independent of each other Assumes markets differ by country or

regions Focus on competition in each market 



Global Strategy Products are standardized across national

markets Decisions regarding business-level strategies are centralized in the home office Strategic business units (SBU) are assumed to be interdependent Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (which also makes it difficult to manage) 

Tra n sn a tio n a lS tra te g y 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 and local flexibility and decentralization to achieve local market responsiveness

 Eg.FORD 

International Corporate-Level Strategy HIGH

When is each strategy appropriate?

OR GLOBAL INTEGRATION

MULTIDOM-ESTIC STRATEGY LOW LOW

HIGH NEED FOR LOCAL RESPONSIVENESS

International Corporate-Level Strategy HIGH

When is each strategy appropriate? GLOBAL STRATEGY

OR GLOBAL INTEGRATION

MULTIDOM-ESTIC STRATEGY LOW LOW

HIGH NEED FOR LOCAL RESPONSIVENESS

International Corporate-Level Strategy HIGH

When is each strategy appropriate? GLOBAL STRATEGY

TRANSNATI-ONAL STRATEGY

OR GLOBAL INTEGRATION

MULTIDOM-ESTIC STRATEGY LOW LOW

HIGH NEED FOR LOCAL RESPONSIVENESS

International International Strategy Strategy Opportunities Opportunities & & Outcomes Outcomes Identify Internationa l Opportunitie s

Explore Resources & Capabilitie s

Use Core Competence

Internatio nal

Increased Market Size Return on Investment

Strategies Internation al Bus .- Level Strategy Multidomest ic Strategy

Modes of Entry

Economies of Scale and Learning Location Advantage

Global Strategy Transnation al Strategy

Exporting

Strategic

Competitive ness

Outcomes Management Problems , Risk , and First Steps

Higher Performance Returns

Licensing Strategic Alliances Acquisitio n Establishmen t of New Sub .

Innovation

Management Problems , Risk , and First Steps

Choice of International Entry Mode Exporting Common way to enter new international

markets. 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. 

Choice of International Entry Mode Licensing Firm authorizes another firm to manufacture

& sell its products 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. 



Choice of International Entry Mode Strategic Alliances  Enable firms to shares risks and

resources to expand into international ventures.  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. Eg. Maruti udyog and suzuki.  Dow Jones and Bennett and Coleman & co. Ltd.

Choice of International Entry Mode Acquisitions Enable firms to make most rapid

international expansion. Can be very costly. Legal and regulatory requirements may present barriers to foreign ownership. Usually require complex and costly negotiations. Potentially disparate corporate culture. 

Choice of International Entry Mode

New 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. 

C o u ld re q u ire h irin g h o st co u n try n a tio n a ls o r co n su lta n ts a t h ig h co st.

Strategic Competitiveness Outcomes International diversification facilitates

innovation in the firm. Provides larger market to gain more and faster returns form investments in innovation 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. International diversification provides

International Strategy Opportunities & Outcomes Identify Internationa l Opportunitie s

Explore Resources & Capabilitie s

Use Core Competence

Internatio nal

Increased Market Size Return on Investment

Strategies Internation al Bus .- Level Strategy Multidomest ic Strategy

Modes of Entry

Economies of Scale and Learning Location Advantage

Global Strategy Transnation al Strategy

Exporting

Strategic

Competitive ness

Outcomes Management Problems , Risk , and First Steps

Higher Performance Returns

Licensing Strategic Alliances Acquisitio n Establishmen t of New Sub .

Innovation

Management Problems , Risk , and First Steps

Risks in the International Environment

ØPolitical instability in indonesia brought about by continuing ethnic strif

POLITICAL RISK ØUncertain future of peace in the middle east because of changes in national

ØFailure of the european union’s quest for economic superpower status because

ØChina’s difficulty in enforcing intellectual property rights on

POLITICAL RISK

ØRussia’s struggle with low productivity, currency problems and

ØExchange rate exposure due to the U.S.-conadian dollar fluctuati

Major Risks of International Diversification

Political Risk National government instability may

create potential problems for internationally diversified firms. Potential changes in attitudes or regulations regarding foreign ownership. Legal authority obtained from previous administration may become invalid. Potential for nationalization of firms’ assets. 

Major Risks of International Diversification

E co n o m ic R isk Econ. risks are interdependent with political

risks. Differences and fluctuations in international currencies may affect value of assets & liabilities.  This affects prices & thus ability to compete. Differences in inflation rates may affect inter-nationally diversified firms’ ability to compete. Enforcing intellectual property rights on CDs, software, etc. 

THANK YOU



