Strategy Final Chapter 8 International Strategy

International Diversification & 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

National Advantage: Determinants

- Factors of production - Firm strategy, structure, and rivalry - Related and supporting industries - Demand conditions

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 - Emphasizes economies of scale - Often lacks responsiveness to local markets - Requires resource sharing and coordination across borders (hard to manage)

Transnational Strategy

- Seeks to achieve both global efficiency and local responsiveness - Difficult to achieve because of simultaneous requirements: Strong central control and coordination to achieve efficiency Decentralization to achieve local market responsiveness - Must pursue organizational learning to achieve competitive advantage

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

Environmental Trends

- Traditional "global strategy" is treating different countries as one worldwide or "global" market World car: VW Golf, Ford Mondeo World drink: Coke Classic World advertising commercial: Polar bear ads - But that "one-size-fits-all" strategy has backfired There is no world car, no world drink, no world MTV Toyota Camry: Best-selling car in the US, but not even top-5 best-selling car in Japan (Honda Fit is #1 in Japan) - A more balanced view—covering both global and local (non-global) aspects—is necessary - Liability of foreignness Legitimate concerns about the relative attractiveness of global strategies Global strategies not as prevalent as once thought Difficulty in implementing global strategies - Regionalization Focusing on particular region(s) rather than on global markets Better understanding of the cultures, legal, and social norms

Risks in international environment

- political like instability, war, potential nationalization of a firm's resources - economic like differences and fluctuations in the value of different currencies, differences in prevailing wage rates, differences in enforcing property rights, unemployment

Classic Rationale: Extend Product's Life Cycle

1. Firm Introduces Innovation in Domestic market 2. Product Demand Develops and Firm Exports Products 3. Foreign Competition Begins Production 4. Firm Begins Production Abroad 5. Production is standardized and relocated to low cost countries.

International Diversification & 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

Complexity of Managing Global 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

Choice of International Entry Mode

Exporting - high cost, low control Licensing - low cost, low risk, little control, low returns Strategic Alliances - shared costs, shared resources, shared risks, problems of integration Acquisitions - quick access to new market, high cost, complex negotiations, problems of merging with domestic operations New wholly owned subsidiary - complex, often costly, time consuming, high risk, maximum control, potential above average returns

A global strategy is an international strategy through which the firm offers standardized products across country markets, with competitive strategy being dictated by offices within the host markets served.

False

Because there are still several industrial and consumer markets in which only domestic firms compete, many firms do not have to be able to compete internationally.

False

Having substantial supplies of critical basic natural resources is a necessary condition for a country to support businesses that can successfully compete in international markets.

False

The "liability of foreignness" will have a greater negative impact on a firm using a multidomestic strategy than on a firm using a global strategy.

False

International Strategy Benefits

Increase market size - Increased revenues due to access to new customers Return on investment - Large investment projects may require global markets to justify the capital outlays - Weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators 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 Competitive advantage through location - Low cost markets aid in developing competitive advantage by providing access to: raw materials, lower cost labor, key customers, energy

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

A company that chooses a truly global corporate-level strategy assumes that the liability of foreignness will be minimal.

True

An increase in the value of the U.S. dollar is an example of an economic risk in that it can reduce the value of U.S. multinational firms' international assets and earnings in other countries.

True

Four types of distances are associated with the liability of foreignness: cultural, administrative, geographic, and economic

True

International diversification can help to reduce a firm's overall risk through the stabilization of returns.

True

International diversification is a strategy through which a firm expands the sale of its goods and services across borders of global regions and countries into a potentially large number of geographic locations of markets. Instead of entering one or a few markets, international diversification means that the firm enters multiple markets.

True

One reason why firms pursue international opportunities is to extend the product's life cycle.

True

The "liability of foreignness" means that many firms need to focus more on local adaptation or risk problems such as the Walt Disney Company faced opening its theme park in France.

True

The "regionalization" environmental trend means that firms can focus on a region (customization) but also have some standardization or sharing within the region.

True

International strategy

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

A licensing agreement

allows a foreign firm to purchase the rights to manufacture and sell a firm's products within a host country.

Which of the following is NOT a factor pressuring companies for local responsiveness?

availability of low labor costs

Internationally diversified firms

earn greater returns on their innovations through larger or more numerous markets.

An international diversification strategy is one in which a firm

expands into a potentially large number of geographic locations and markets.

A U.S. manufacturer of adaptive devices for persons with disabilities is considering expanding internationally. It is a fairly small company, but it is looking for growth opportunities. This company should primarily consider the option of

exporting

A nation's competitiveness depends on the capacity of its industries to ___________ and thereby maintain its competitive advantage

innovate

A fundamental reason for a country's development of advanced and specialized factors of production is often its

lack of basic resources

A global strategy

lacks responsiveness to local markets.

The positive results associated with increasing international diversification have been shown to

level off and become negative as diversification increases past some point

The two important environmental trends that influence a firm's choice and use of international corporate-level strategies are _________ and _________.

liability of foreignness; regionalization

A global corporate-level strategy assumes

more standardization of products across country markets

A firm may narrow its focus to a specific region of the world

so that it can better understand the cultures, legal and social norms, and other factors that are important for effective competition in those markets.

All of the following are reasons why firms use international strategic alliances EXCEPT

strategic alliances are easy to manage.

A multidomestic corporate-level strategy is one in which

the firm customizes the product for each country in which it competes.

One of the primary reasons for failure of cross-border strategic alliances is

the incompatibility of the partners

International corporate-level strategy focuses on

the scope of operations through both product and geographic diversification.

In Porter's model, a specialized factor of production would include

workers with advanced engineering skills