CHAPTER 8 International Strategy One of the primary reasons for implementing an international strategy (as opposed to a s trategy focused on the domestic market) is that international markets yield potential new opportunities. An international strategy is a strategy through which the firm sells its goods or services outside its domestic market. An international international strategy is commonly designed designed primarily to capitalize on four benefits: benefits: (1) increased market size; (2) earning a return on large investments; (3) greater economies of scale, scope and learning; and competitive advantages of location (e.g., access to low-cost labor, critical resources, or customers). International business-level strategies are usually grounded in one or more home-country advantages, as Porter’s model suggests. Porter’s model emphasizes four determinants: describes the factors contributing to the advantage of firms in a dominant global industry and associated with a specific home country or regional environment: 1. Factor of productions 2. Demand conditions 3. Related and supporting industries 4. Firm strategy, structure and rivalry International Corporate-Level Strategy Corporate strategies give individual country units the authority to develop their own business-level strategies; other corporate strategies dictate the business-level strategies in order to standardize the firm’s products and sharing of resources across countries. The three international corporatelevel strategies are multidomestic, global, and transnational. Multidomestic Strategy. A Strategy. A multidomestic multidomestic strategy is an international strategy in which strategic and operating decisions are decentralized to the strategic business and operating decisions to the business units operating in each country, so that each unit can tailor its goods and services to the local. A multidomestic strategy focuses on competition within each country in which the firm competes. Global Strategy. A global strategy assumes more standardization standardization of products across country boundaries; therefore, a competitive strategy is centralized and controlled by the home office. The strategic business units operating in each country are assumed to be interdependent, and the home office attempts to achieve integration across these businesses. The firm uses a global strategy to offer standardized products across country markets, with competitive strategy being dictated by the home office. Transnational Strategy. A Strategy. A transnational strategy strategy is an international strategy through which the firm seeks to achieve both global efficiency and local responsiveness. Realizing these goals is difficult: One requires close global coordination while the other requires local flexibility. “Flexible coordination”—building coordination”—building a shared vision and individual commitment through an integrated network —is required to implement the transnational strategy Environmental Trends Two important trends are Liability of Foreignness. A regional focus allows firms to marshal their resources to compete effectively in regional markets rather than spreading their limited resources across many international markets. Regionalization. Deciding whether to compete in all or many global markets, or to focus on a particular region or regions. Competing in all markets provides economies that can be achieved
because of the combined market size. Research suggests that firms that compete in risky emerging markets can also have higher performance. Choice of International Entry Mode Firms may enter international markets in one of several ways, including exporting, licensing, forming strategic alliances, making acquisitions, and establishing new wholly owned subsidiaries, often referred to as greenfield ventures. Most firms begin with exporting or licensing, because of their lower costs and risks, but later they might use strategic alliances and acquisitions to expand internationally. The most expensive and risky means of entering a new international market is through the establishment of a new wholly owned subsidiary. Each means of market entry has its advantages and disadvantages.
Strategic Competitive Outcomes International diversifi cation is a strategy through which a firm expands the sales of its goods or services across the borders of global regions and countries into different geographic locations or markets. International diversification facilitates innovation in a firm, because it provides a larger market to gain more and faster returns from investments in innovation. In addition, international diversification may generate the resources necessary to sustain a large-scale R&D program. Risks in an International Environment Several risks are involved with managing multinational operations. Among these are political risks (e.g., instability of national governments) and economic risks (e.g., fluctuations in the value of a country’s currency).
