Knowledge Objectives
• Understand the 4 strategies for
foreign expansion
• Understand the benefits from
foreign expansion
1
Opportunities and
Outcomes of International
Strategy
Identify International Explore Resources Use Core
Opportunities and Capabilities Competence
International
Strategies Modes of Entry
Increased market International Exporting
size business-level
strategy Licensing
Return on
investment Multidomestic Strategic
strategy alliances
Economies of
scale and learning Global strategy Acquisitions
Advantage in Transnational Establishment of
location strategy a new subsidiary
2
Opportunities and
Outcomes of International
Strategy
Use Core Strategic
Competence Competitivenes
s Outcomes
Modes of Entry Management
problems and Better
Exporting risk performanc
Licensing e
Strategic
alliances
Innovation
Acquisitions
Management
Establishmen problems and
t of a new risk
subsidiary 3
Motivations for
International Expansion
• Increase Market Share
– 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
4
Motivations for
International Expansion
• 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
– increase profit per unit
• Location Advantages
– low cost markets may aid in developing
competitive advantage
– may achieve better access to:
• Raw materials • Key customers
• Lower cost labor • Energy
5
International Business-Level
Strategy: Determinants of
National Advantage
• Factors of production: the inputs necessary
to compete in any industry
– labor
– land
– natural resources
– capital
– infrastructure
– basic factors include natural and labor resources
– advanced factors include digital communication
systems and educated workforce
6
7
Average Scientists & Average Total R&D Expenditure: Top 20 Economies
Engineers in R&D (per mil
persons)
1997 - 2000 (Bil of International $)
Japan
5000 $90.5b
Finland Sw eden
$3.6b $7.2b
United States
4000 $230.8b
Russia Australia $6.7b
$9.3b Switzerland
Belguim $5.3b
$4.6b
3000
Canada $13.8b Germany $47.2b
France $29.6b
United Kingdom $23.9b
2000
Austria Netherlands
$3.7b $7.7b South Korea
Spain $6.5b $16.2b Israel $3.6b
Italy $13.7b
1000
China $34.4b
Brazil $9.8b
0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Average R&D Expenditure (% of GDP)
8
9
International Business-Level
Strategy: Determinants of
National Advantage
• Demand conditions: characterized by the
nature and size of buyers’ needs in the
home market for the industry’s goods or
services
– size of 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
10
International Business-Level
Strategy: Determinants of
National Advantage
• Related and supporting industries:
supporting services, facilities, suppliers
and so on
– support in design
– support in distribution
– related industries as suppliers and
buyers
11
International Business-Level
Strategy: Determinants of
National Advantage
• 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
12
13
Source:
MIT
Sloan
14
Source:
MIT
Sloan
15
Source:
MIT
Sloan
16
International Corporate-
Level Strategy
Need for Global Integration
High
Global Transnational
strategy strategy
Multidomestic
strategy
Low
Low High
Need for Local Responsiveness
17
18
International Corporate-
Level Strategy:
Multidomestic Strategy
• Strategy and operating decisions are
Multidomestic decentralized to strategic business
strategy 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
19
International Corporate-
Level Strategy: Global
Strategy
• Products are standardized across
Global national markets
strategy • 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 (which
also makes it difficult to manage)
20
International Corporate-
Level Strategy: Transnational
Strategy
• Seeks to achieve both global
Transnational efficiency and local
strategy
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 competitive21
Strategic Competitiveness
Outcomes: Returns
• International diversification and returns: firm
expands the sales of its goods or services across the
borders of global regions and countries into different
geographic locations or markets
– may increase a firm’s returns
– such firms usually achieve the most positive stock
returns
– firm may achieve economies of scale and
experience, location advantages, increased market
size and opportunity to stabilize returns
22
Strategic Competitiveness
Outcomes: Innovation
• International diversification and innovation: firm
expands the sales of its goods or services across the
borders of global regions and countries into different
geographic locations or markets
– potentially greater returns on innovations (larger
markets)
– generate additional resources for investment in
innovation
– exposed to new products and processes in
international markets, generates additional
knowledge leading to innovations
23
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