PART III CREATING COMPETITIVE ADVANTAGE Chapter 10 International Strategy 1 Key Terms International diversification 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 Key Terms International strategy Strategy through which the firm sells its goods or services outside the domestic market Increased market size Greater returns on major capital investments or on investments in new products and processes Greater economies of scale, scope, or learning Potential for competitive advantage(s) based on location Limited domestic economies or growth opportunities Both opportunities and challenges in emerging markets Impact of local cultures and customs Impact of international market size Extended product life cycle 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. Expand size or scope of markets to achieve economies of scale Spread costs over a larger sales base Increase profit per unit Competitive advantages are available in low cost markets Access to critical resources: Raw materials Low-cost factors of production Low-cost labor Key customers Energy Other natural resources Type of expansion approach How to use distinctive competencies to create advantages Mode of entry into new markets Key Terms International corporate-level strategy Strategy which focuses on the scope of a firm’s operations through both product and geographic diversification Worldwide Presence or Regionalization Trade agreements and institutions Ability to understand the cultures, legal and social norms, and other factors that are important for effective competition in specific markets Sequential market entry Liabilities associated with being a foreign business in a highly different business environment can make competing on a worldwide scale risky and expensive. Employment contracts and labor forces differ. Host governments make different demands and requirements to compete in their markets. Understanding customers may be difficult. Key Terms Multidomestic strategy International strategy in which strategic and operating decisions are decentralized to the strategic business unit in each country to allow that unit to tailor products to the local market Worldwide geographic area structure Organizational structure which emphasizes national interests and facilitates the firms' efforts to satisfy local or cultural differences (used to implement the multidomestic strategy) Focus on variations of competition within each country Customize products to meet specific needs and preferences of local customers Decentralize decisions to business units in each country Compete in industry segments most affected by differences among local countries Expands the firm’s local market share Maximizes competitive responsiveness to local conditions Establishes protected market positions Isolates the firm from global competitive forces Lowers efficiency levels Increases uncertainty Key Terms Global strategy International strategy through which the firm offers standardized products across country markets, with the competitive strategy being dictated by the home office Worldwide product divisional structure Organizational structure in which decision-making authority is centralized in the worldwide division headquarters to coordinate and integrate decisions and actions among divisional business units (used to implement the global strategy) Integrate interdependent strategic business units operating in each country Emphasize economies of scale Share resources across country boundaries Centralize decisions at the home office Utilize innovations developed at the corporate level or in one country in other markets Maximizes integration across business units Produces standardization Lowers risk Fosters a shared vision of the firm’s strategy Lowers responsiveness to local needs and preferences Permits missed opportunities in local markets Reduces effectiveness of learning processes Adds management complexity Key Terms Transnational strategy International strategy through which the firm seeks to achieve both global efficiency and local responsiveness Flexible coordination Building a shared vision and individual commitment through an integrated network Worldwide combination structure Organizational structure in which characteristics and mechanisms are drawn from both the worldwide geographic area structure and the worldwide product divisional structure (used to implement the transnational strategy) Assets and operations may be centralized/decentralized Functions may be integrated/nonintegrated Relationships may be formal/informal Coordination mechanisms may leverage efficiency/flexibility Mandates to subsidiaries may be global/specialized-contribution/localizedimplementation Global Mandate Specialized Contribution Local Implementation Strong educational component to support the culture Adaptation of core competencies in local economies to gain competitive benefits Effective corporate headquarters to foster leadership, shared vision, and strong corporate identity Centers of excellence to foster multiple and dispersed capabilities Emphasis on global efficiency is increasing as more industries begin to experience global competition Emphasis on local requirements is also increasing Multinational firms desire coordination and sharing of resources across country markets to hold down costs Some products and industries are more suited than others for standardization across country borders Global Corporate-Level Strategy Multidomestic Corporate-Level Strategy Subsidiaries play the role of local implementer Subsidiaries have more control over approaches used in their own domestic markets Usually associated with a cost leadership strategy Generic strategy depends on local conditions and capabilities Low cost way to establish operations in host country Often through contractual agreements High transportation costs Potential for tariffs Low control over marketing and distribution Low cost way to expand internationally Risks absorbed by licensee Low control over manufacturing and marketing Lower potential returns (shared with licensee) Risk of imitation by licensee Ownership arrangements often inflexible Fewer entry resources and costs required Shared risks and resources Potential core competency development Possible partner incompatibility, conflict, or lack of trust Management difficulties Quick access to market Costly Possible integration difficulties Complex negotiations and transaction requirements Costly mode of entry High process complexity Maximum control Highest potential returns High risk Strategy Use Early stages of international Export expansion Licensing Facing uncertainty Strategic Alliances To secure a stronger Acquisitions presence Greenfield Ventures Later stages of international expansion Valuable, transferrable core competencies are present Emerging economies Acquisitions Greenfield Ventures Acquisitions Greenfield Ventures Large Diversified Businesses Korean Chaebols International Diversification and Returns International Diversification and Innovation International Diversification and Risk Economies of scale and experience Location advantages Greater market size Stability of returns Lower overall firm risk Exploitation of core competencies Knowledge resource sharing Global scanning for opportunities Structural flexibility Access to larger and more markets Lower R&D investment risk Exposure to new products and processes Opportunity to integrate new knowledge into operations Generation of resources to sustain innovation efforts Political risks Economic risks Other formal institutional risks Government instability Conflict/war Government regulations Conflicting and diverse legal authorities Potential nationalization of private assets Government corruption* Changes in national leadership Changes in government policies Differences and fluctuations in currency values Investment losses due to political risks Potential infrastructure or financial system damage from major disasters Geographic dispersion Costs of coordination Logistical costs Trade barriers Cultural diversity Barriers to competitive advantage transfer Host governments As firms internationalize, they may be tempted to locate facilities where product liability laws are lax in testing new products. Is this an acceptable practice? Why or why not? Regulation and laws regarding the sale and distribution of tobacco products are stringent in the U.S. market. What are the ethical implications of U.S. firms pursuing marketing strategies for tobacco products in other countries that would be illegal in the United States? Some companies outsource production to firms in foreign countries to save money. To what extent is a company morally responsible for the way workers are treated by the firms in those countries to which they outsource production? Global and multidomestic strategies call for different competitive approaches. What ethical concerns might surface when firms try to market standardized products globally? When should firms develop different products or approaches for each local market? Are companies morally responsible to support the U.S. government as it imposes trade sanctions on other countries, such as China, because of human rights violations? What if a significant amount of its international business is in one of those countries? Latin America has been experiencing significant changes in both political orientation and economic development. What strategies should foreign international businesses implement, if any, to influence government policy in these countries? Can businesses realistically expect to influence political changes?