The document discusses international strategy and the rationale for pursuing international opportunities. It identifies several benefits of international strategy, including increased market size, return on investment, economies of scale, and access to location advantages. However, it also notes the complexity of managing multinational firms and risks in the international environment like political and economic risks. Managing the costs of coordination across diverse business units can also pose limits to international expansion.

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
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© 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