Copyright Guy Harley 2004 Introductory & Contract Law Week 3.
Copyright Guy Harley 2004 International Strategy Hansen et al Chapter 7.
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Transcript of Copyright Guy Harley 2004 International Strategy Hansen et al Chapter 7.
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify International Opportunities
ExploreResources and
Capabilities
Use Core Competence
StrategicCompetitiveness
Outcomes
International Strategies
Modes of Entry
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
InternationalBusiness-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Exporting
Establishment of New Subsidiary
Exporting
StrategicAlliances
Acquisition
Management Problems and Risk
Management Problems and Risk
Higher Performance
Returns
Innovation
Selling products or services outside a firm’s domestic market
4Firm Begins Firm Begins
Production AbroadProduction AbroadFirm Begins Firm Begins
Production AbroadProduction Abroad
International Strategy LifecycleInternational Strategy Lifecycle
Foreign Foreign Competition Begins Competition Begins
ProductionProduction
Foreign Foreign Competition Begins Competition Begins
ProductionProduction
3
Product Demand Product Demand Develops and Develops and Firm Exports Firm Exports
ProductsProducts
Product Demand Product Demand Develops and Develops and Firm Exports Firm Exports
ProductsProducts
2
Firm Introduces Firm Introduces Innovation into Innovation into
Domestic MarketDomestic Market
Firm Introduces Firm Introduces Innovation into Innovation into
Domestic MarketDomestic Market
1
Production Becomes Standardised and is
Relocated to Low-Cost Countries
Production Becomes Standardised and is
Relocated to Low-Cost Countries
5
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Regional Trade Agreements and AssociationsRegional Trade Agreements and Associations
The European Union (EU) North American Free Trade
Agreement (NAFTA) Asia-Pacific Economic Co-operation
(APEC) Association of Southeast Asian
Nations (ASEAN)
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International Selling with the InternetInternational Selling with the Internet
An indicator of the potential to sell products internationally using computer technology is the number of Internet hosts per 1000 people: 122.8 Finland 60.8 Australia 2.1 Mexico
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Motivations for
International Expansion
Return on Investment
Economies of Scale
Increased Market Share
Corporate-Level International StrategiesCorporate-Level International Strategies
Location Advantages
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Domestic market may be too small to support efficient-scale manufacturing facilities
Increased Market Share
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Large investment projects may require global markets to justify the capital outlays required
Weak patent protection in some countries implies that firms should expand overseas rapidly in order to pre-empt imitators
Return on Investment
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Economies of Scale or LearningExpanding the size or scope of markets helps achieve economies of scale in manufacturing as well as marketing, R&D and/or distribution, and: Can spread costs over a larger sales base Can increase profit per unit
Economies of Scale
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Low-cost markets may aid in developing competitive advantage through achieving better access to: Raw materials Lower-cost labour Key suppliers Key customers Energy Natural Resources
Location Advantages
Home country Home country of origin is crucial to international successof origin is crucial to international success
Demand Conditions
Home country may support scale-efficient operations by itself
Demand Conditions
Home country may support scale-efficient operations by itself
Related and Supporting Industries
Porter’s Determinants of National AdvantagePorter’s Determinants of National AdvantagePorter’s Determinants of National AdvantagePorter’s Determinants of National Advantage
Factor Conditions• Basic Factors:
• Land, labour• Advanced Factors:
• Highly educated workers
• Digital communications
• Generalised Factors:
• Capital, infrastructure
• Specialised Factors: Skilled personnel
Firm Strategy, Rivalry & Structure
Intense rivalry fosters industry competition
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify International Opportunities
ExploreResources and
Capabilities
Use Core Competence
StrategicCompetitiveness
Outcomes
International Strategies
Modes of Entry
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
InternationalBusiness-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Exporting
Establishment of New Subsidiary
Exporting
StrategicAlliances
Acquisition
Management Problems and Risk
Management Problems and Risk
Higher Performance
Returns
Innovation
Copyright Guy Harley 2004
Business Level
International Strategies
International Differentiation
International Focus
International Low Cost
Corporate-Level International StrategiesCorporate-Level International Strategies
Low Cost\Differentiation
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Usually located in home country Export to international markets Low value-added operations in foreign countries High value-added operations in home country
International Low Cost
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Countries with advanced or specialised factor conditions are most likely to use this strategy
International Differentiation
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International Focus Strategies Technologically advanced firms follow
focused low-cost strategy Focused differentiation firms compete on the
basis of image and design Third group competes on low price by
imitating
International Focus
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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
Low Cost\Differentiation
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Type of corporate strategy selected will have an impact on the selection and implementation of business-level strategies
Some corporate strategies provide individual country units with the flexibility to choose their own strategies
Others dictate business-level strategies from the home office and coordinate resource sharing across units
Corporate-Level International StrategiesCorporate-Level International Strategies
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Three Corporate Strategies
Global Strategy
Transnational Strategy
Multi-Domestic Strategy
Corporate-Level International StrategiesCorporate-Level International Strategies
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Multi-Domestic Strategy
Strategy and operating decisions are decentralised to strategic business units (SBUs) 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 region Focus is on competition in each market A prominent strategy among European firms, due to the
broad variety of cultures and markets in Europe
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Global Strategy
Products are standardised across national markets Decisions regarding business-level strategies are
centralised in the home office Strategic business units (SBU) are assumed to be
interdependent Emphasises economies of scale Often lacks responsiveness to local markets Requires resource sharing and coordination across
borders (which also makes it difficult to manage)
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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 and local flexibility, and decentralisation to achieve local market responsiveness
Must pursue organisational learning to achieve competitive advantage
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Need for Global
Integration
Need for Local Market Responsiveness
Low
High
Low High
International Corporate Strategy
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify International Opportunities
ExploreResources and
Capabilities
Use Core Competence
StrategicCompetitiveness
Outcomes
International Strategies
Modes of Entry
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
InternationalBusiness-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Exporting
Establishment of New Subsidiary
Exporting
StrategicAlliances
Acquisition
Management Problems and Risk
Management Problems and Risk
Higher Performance
Returns
Innovation
Copyright Guy Harley 2004
Exporting
Licensing
Strategic Alliances
Acquisitions
New Wholly-Owned Subsidiary
Choice of International Entry Mode
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Exporting
Common way to enter new international markets No need to establish operations in other countries 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 customise products
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Licensing
Firm authorises another firm to manufacture and 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 and
distribution Relatively low profit potential May not understand the strategic intent of partners, or may
experience divergence of goals
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Strategic Alliances
Enable firms to shares risks and resources to expand into international ventures
Most joint ventures (JVs) involve a foreign company with a new product or technology and a host company with access to distribution or knowledge of local customs, norms and/or politics
May experience difficulties in merging disparate cultures May not understand the strategic intent of partners, or
may experience divergence of goals
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Acquisitions
Enable firms to achieve 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 cultures
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New Wholly-Owned Subsidiary
Most costly and complex of entry alternatives Achieves greatest degree of control Potentially most profitable, if successful Maintains control over technology, marketing
and distribution May need to acquire expertise and knowledge
that is relevant to host country, that is, may require hiring host-country nationals or consultants at high cost
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify International Opportunities
ExploreResources and
Capabilities
Use Core Competence
StrategicCompetitiveness
Outcomes
International Strategies
Modes of Entry
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
InternationalBusiness-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Exporting
Establishment of New Subsidiary
Exporting
StrategicAlliances
Acquisition
Management Problems and Risk
Management Problems and Risk
Higher Performance
Returns
Innovation
Copyright Guy Harley 2004
Political Risk
National government instability may create problems for internationally diversified firms
Potential for changes in attitudes or regulations regarding foreign ownership
Legal authority obtained from previous administrations may become invalid
Potential for nationalisation of private firms’ assets
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Economic Risk Economic risks are interdependent with political
risks Differences and fluctuations in international
currencies may affect prices, the value of assets & liabilities, and ultimately the ability to compete
Differences in inflation rates may affect an internationally diversified firm’s ability to compete
Potential for nationalisation of private firms’ assets
International Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and OutcomesInternational Strategy Opportunities and Outcomes
Identify International Opportunities
ExploreResources and
Capabilities
Use Core Competence
StrategicCompetitiveness
Outcomes
International Strategies
Modes of Entry
IncreasedMarket Size
Return on Investment
Economies of Scale and Learning
Location Advantage
InternationalBusiness-LevelStrategy
Multidomestic Strategy
GlobalStrategy
Transnational Strategy
Exporting
Establishment of New Subsidiary
Exporting
StrategicAlliances
Acquisition
Management Problems and Risk
Management Problems and Risk
Higher Performance
Returns
Innovation
Copyright Guy Harley 2004
Strategic Competitiveness Outcomes International diversification facilitates innovation in the
firm Provides larger market to gain more and faster returns
from 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 greater economies of scope and learning