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                                          CHAPTER 8

 STRATEGIC                                International Strategy
 ACTIONS:
 STRATEGY
 FORMULATION
                                           Strategic Management
                                           Competitiveness and Globalization:
PowerPoint Presentation by Charlie Cook
                                           Concepts and Cases           Seventh edition
The University of West Alabama
© 2007 Thomson/South-Western.
All rights reserved.                       Michael A. Hitt • R. Duane Ireland • Robert E. Hoskisson
Identifying International Opportunities
• International Strategy
      A strategy through which the firm sells its goods or
       services outside its domestic market.
• Reasons to having an international strategy
      International markets yield potential new
       opportunities.
      New market expansion extends product life cycle.
      Needed resources can be secured.
      Greater potential product demand.


© 2007 Thomson/South-Western. All rights reserved.   8–2
Classic Rationale for International Diversification:
Extend a Product’s Life Cycle


    Product Demand                                         Foreign
   Develops and Firm                                    Competition
   Exports Products                                   Begins Production




    Firm Introduces
                                                         Firm Begins
     Innovation in
                                                      Production Abroad
    Domestic Market


                   Production is standardized and
                   relocated to low cost countries.


© 2007 Thomson/South-Western. All rights reserved.             8–3
International Strategy Benefits
• Increased Market Size
     Domestic market may lack the size to support efficient
      scale manufacturing facilities.

• 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.


© 2007 Thomson/South-Western. All rights reserved.   8–4
International Strategy Benefits (cont’d)
• 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.




© 2007 Thomson/South-Western. All rights reserved.   8–5
International Strategy Benefits (cont’d)
• Location Advantages
     Low cost markets aid in developing competitive
      advantage by providing access to:
        • Raw materials
        • Transportation
        • Lower costs for labor
        • Key customers
        • Energy



© 2007 Thomson/South-Western. All rights reserved.   8–6
Determinants of National Advantage
• Factors of production
     The inputs necessary to compete in any industry
        • Labor    Land          Natural resources
        • Capital Infrastructure

• Basic factors
     Natural and labor resources
• Advanced factors
     Digital communication systems and an educated
      workforce


© 2007 Thomson/South-Western. All rights reserved.     8–7
Determinants of National Advantage (cont’d)
• Demand Conditions
    Characterized by the nature and size of buyers’ needs
     in the home market for the industry’s goods or
     services.
       • Size of the market segment can lead to scale-efficient
         facilities.
       • Efficiency can lead to domination of the industry in other
         countries.
       • Specialized demand may create opportunities beyond national
         boundaries.




© 2007 Thomson/South-Western. All rights reserved.            8–8
Determinants of National Advantage (cont’d)
• Related and Supporting Industries
    Supporting services, facilities, suppliers and so on.
       • Support in design
       • Support in distribution
       • Related industries as suppliers and buyers

• Firm Strategy, Structure and Rivalry
    The pattern of strategy, structure, and rivalry among
     firms.
       • Common technical training
       • Methodological product and process improvement
       • Cooperative and competitive systems


© 2007 Thomson/South-Western. All rights reserved.        8–9
Selecting an International Corporate-Level
Strategy
• The type of corporate strategy selected will have
  an impact on the selection and implementation of
  the business-level strategies.
     Some strategies provide individual country units with
      the flexibility to choose their own strategies.
     Other strategies dictate business-level strategies from
      the home office and coordinate resource sharing
      across units.



© 2007 Thomson/South-Western. All rights reserved.   8–10
International Corporate-Level Strategy
• Focuses on the scope of operations:
     Product diversification
     Geographic diversification
• Required when the firm operates in:
     Multiple industries, and
     Multiple countries or regions
• Headquarters unit guides the strategy
     But business or country-level managers can have
      substantial strategic input.

© 2007 Thomson/South-Western. All rights reserved.   8–11
Multidomestic Strategy
                      • Strategy and operating decisions are
                        decentralized to strategic business units
 Multidomestic          (SBU) in each country.
   strategy           • 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.


© 2007 Thomson/South-Western. All rights reserved.          8–12
Global Strategy
                       • Products are standardized across
     Global              national markets.
    strategy           • Business-level strategic decisions 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).
© 2007 Thomson/South-Western. All rights reserved.    8–13
Transnational Strategy
                      • Seeks to achieve both global
                        efficiency and local responsiveness.
 Transnational
    strategy          • Difficult to achieve because of
                        simultaneous requirements:
                            Strong central control and coordination to
                             achieve efficiency
                            Decentralization to achieve local market
                             responsiveness
                      • Firm must pursue organizational
                        learning to achieve competitive
                        advantage.


© 2007 Thomson/South-Western. All rights reserved.           8–14
Environmental Trends
• 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

© 2007 Thomson/South-Western. All rights reserved.   8–15
International Diversification and 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.




© 2007 Thomson/South-Western. All rights reserved.   8–16
International Diversification and 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.



© 2007 Thomson/South-Western. All rights reserved.   8–17
Complexity of Managing Multinational 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.
     Exposes the firm to possible instability of some
      national governments.

© 2007 Thomson/South-Western. All rights reserved.   8–18
Risks in an International Environment
• Political Risks                      • Economic Risks
     Instability in national               Differences and
      governments                            fluctuations in the value of
     War, both civil and                    different currencies
      international                         Differences in prevailing
     Potential nationalization of           wage rates
      a firm’s resources                    Difficulties in enforcing
                                             property rights
                                            Unemployment

          ?                  ?
                      ?
              ?
© 2007 Thomson/South-Western. All rights reserved.            8–19
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




© 2007 Thomson/South-Western. All rights reserved.   8–20

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strategy formulation

  • 1. Student Version CHAPTER 8 STRATEGIC International Strategy ACTIONS: STRATEGY FORMULATION Strategic Management Competitiveness and Globalization: PowerPoint Presentation by Charlie Cook Concepts and Cases Seventh edition The University of West Alabama © 2007 Thomson/South-Western. All rights reserved. Michael A. Hitt • R. Duane Ireland • Robert E. Hoskisson
  • 2. Identifying International Opportunities • International Strategy  A strategy through which the firm sells its goods or services outside its domestic market. • Reasons to having an international strategy  International markets yield potential new opportunities.  New market expansion extends product life cycle.  Needed resources can be secured.  Greater potential product demand. © 2007 Thomson/South-Western. All rights reserved. 8–2
  • 3. Classic Rationale for International Diversification: Extend a Product’s Life Cycle Product Demand Foreign Develops and Firm Competition Exports Products Begins Production Firm Introduces Firm Begins Innovation in Production Abroad Domestic Market Production is standardized and relocated to low cost countries. © 2007 Thomson/South-Western. All rights reserved. 8–3
  • 4. International Strategy Benefits • Increased Market Size  Domestic market may lack the size to support efficient scale manufacturing facilities. • 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. © 2007 Thomson/South-Western. All rights reserved. 8–4
  • 5. International Strategy Benefits (cont’d) • 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. © 2007 Thomson/South-Western. All rights reserved. 8–5
  • 6. International Strategy Benefits (cont’d) • Location Advantages  Low cost markets aid in developing competitive advantage by providing access to: • Raw materials • Transportation • Lower costs for labor • Key customers • Energy © 2007 Thomson/South-Western. All rights reserved. 8–6
  • 7. Determinants of National Advantage • Factors of production  The inputs necessary to compete in any industry • Labor Land Natural resources • Capital Infrastructure • Basic factors  Natural and labor resources • Advanced factors  Digital communication systems and an educated workforce © 2007 Thomson/South-Western. All rights reserved. 8–7
  • 8. Determinants of National Advantage (cont’d) • Demand Conditions  Characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services. • Size of the market segment can lead to scale-efficient facilities. • Efficiency can lead to domination of the industry in other countries. • Specialized demand may create opportunities beyond national boundaries. © 2007 Thomson/South-Western. All rights reserved. 8–8
  • 9. Determinants of National Advantage (cont’d) • Related and Supporting Industries  Supporting services, facilities, suppliers and so on. • Support in design • Support in distribution • Related industries as suppliers and buyers • Firm Strategy, Structure and Rivalry  The pattern of strategy, structure, and rivalry among firms. • Common technical training • Methodological product and process improvement • Cooperative and competitive systems © 2007 Thomson/South-Western. All rights reserved. 8–9
  • 10. Selecting an International Corporate-Level Strategy • The type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies.  Some strategies provide individual country units with the flexibility to choose their own strategies.  Other strategies dictate business-level strategies from the home office and coordinate resource sharing across units. © 2007 Thomson/South-Western. All rights reserved. 8–10
  • 11. International Corporate-Level Strategy • Focuses on the scope of operations:  Product diversification  Geographic diversification • Required when the firm operates in:  Multiple industries, and  Multiple countries or regions • Headquarters unit guides the strategy  But business or country-level managers can have substantial strategic input. © 2007 Thomson/South-Western. All rights reserved. 8–11
  • 12. Multidomestic Strategy • Strategy and operating decisions are decentralized to strategic business units Multidomestic (SBU) in each country. strategy • 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. © 2007 Thomson/South-Western. All rights reserved. 8–12
  • 13. Global Strategy • Products are standardized across Global national markets. strategy • Business-level strategic decisions 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). © 2007 Thomson/South-Western. All rights reserved. 8–13
  • 14. Transnational Strategy • Seeks to achieve both global efficiency and local responsiveness. Transnational strategy • Difficult to achieve because of simultaneous requirements:  Strong central control and coordination to achieve efficiency  Decentralization to achieve local market responsiveness • Firm must pursue organizational learning to achieve competitive advantage. © 2007 Thomson/South-Western. All rights reserved. 8–14
  • 15. Environmental Trends • 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 © 2007 Thomson/South-Western. All rights reserved. 8–15
  • 16. International Diversification and 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. © 2007 Thomson/South-Western. All rights reserved. 8–16
  • 17. International Diversification and 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. © 2007 Thomson/South-Western. All rights reserved. 8–17
  • 18. Complexity of Managing Multinational 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.  Exposes the firm to possible instability of some national governments. © 2007 Thomson/South-Western. All rights reserved. 8–18
  • 19. Risks in an International Environment • Political Risks • Economic Risks  Instability in national  Differences and governments fluctuations in the value of  War, both civil and different currencies international  Differences in prevailing  Potential nationalization of wage rates a firm’s resources  Difficulties in enforcing property rights  Unemployment ? ? ? ? © 2007 Thomson/South-Western. All rights reserved. 8–19
  • 20. 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 © 2007 Thomson/South-Western. All rights reserved. 8–20