Strategic Management Ch09

The Strategic Management Process Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Strategic  Actions  Chapter 3: The External Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 9: International Strategy Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic Competitiveness

International Strategy Knowledge Objectives Explain the traditional and emerging motives for firms to pursue international diversification Explore the four factors that lead to a basis for international business-level strategies Define the three international corporate-level strategies: multidomestic, global, and transnational Discuss the environmental trends affecting international strat., especially liability of foreignness & regionalization Name & describe the five alternative modes for entering international markets Note impact of international divers. on return & innovation Name & describe 2 major risks of international divers. Explain why positive outcomes from international expansion are limited

International Strategy Opportunities & Outcomes Identify International Opportunities Strategic Competitiveness Outcomes Higher Performance Returns Innovation Use Core Competence Modes of Entry Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Explore Resources & Capabilities International Strategies International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Identify International Opportunities Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage Management Problems, Risk, and First Steps Management Problems, Risk, and First Steps Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage

Benefits of International Strategies Increased market size. Greater returns on major capital investments or new products or processes. Greater economies of scale, scope or learning. A competitive advantage through location.

International Strategy Opportunities & Outcomes Identify International Opportunities Strategic Competitiveness Outcomes Higher Performance Returns Innovation Use Core Competence Modes of Entry Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Explore Resources & Capabilities International Strategies International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Identify International Opportunities Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage Management Problems, Risk, and First Steps Management Problems, Risk, and First Steps Explore Resources & Capabilities International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage

International Strategies International Business Level Strategies International Corporate Level Strategies Multi-domestic Strategy Global Strategy Transnational Strategy

Determinants of National Advantage Home country of origin is crucial to International success Factors of Production Italy’s designers spawned fashion apparel, furniture industries. Basic Factors - Land, labor Advanced Factors - Education / Communication Generalized Factors - Capital, infrastructure Specialized Factors - Skilled personnel Demand Conditions The nature & size of the buyers needs in the home market of goods & services Related & Supporting Industries Industries in which the target country is considered the leader - Japan - cameras & copiers - Denmark - diary & food enzymes Firm Strategy, Structure & Rivalry Germany’s focus on methodical product & process improvements Factors of Production Basic Factors - Land, labor Advanced Factors - Education / Communication Generalized Factors - Capital, infrastructure Specialized Factors - Skilled personnel Demand Conditions The nature & size of the buyers needs in the home market of goods & services Related & Supporting Industries Industries in which the target country is considered the leader - Japan - cameras & copiers - Denmark - diary & food enzymes Firm Strategy, Structure & Rivalry Germany’s focus on methodical product & process improvements Italy’s designers spawned fashion apparel, furniture industries.

Corp.-Level International Strategies Type of Corp. Strategy selected will have an impact on the selection & implementation of business-level strategies Some Corp. strategies provide individual country units with flexibility to choose their own strategies Others dictate bus.-level strategies from the home office & coordinate resource sharing across units Three Corporate Strategies Global Strategy Transnational Strategy Multi-Domestic Strategy

Multi-Domestic Strategy Focus on competition in each market Prominent strategy among European firms due to broad variety of cultures & markets in Europe Assumes markets differ by country or regions Business units in each country are independent of each other Products & services are tailored to local markets Corp.-Level International Strategies Strategy & operating decisions are decentralized to strategic business units (SBU) in each country

Global Strategy Firm often lacks responsiveness to local markets Requires resource sharing & coordination across borders (which also makes it difficult to manage) Corp.-Level International Strategies Emphasizes economies of scale Strategic business units (SBUs) are assumed to be interdependent Decisions regarding business-level strategies are centralized in the home office Products are standardized across national markets

Transnational Strategy Seeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous need: for strong central control and coordination to achieve efficiency as well as local flexibility & decentralization to achieve local market responsiveness Must pursue organizational learning to achieve competitive advantage Corp.-Level International Strategies

International Corporate Strategy When is each strategy appropriate? Need for Global Integration Low High Need for Local Market Responsiveness Low High

International Corporate-Level Strategy Multi-domestic Strategy Strategic & operating decisions are decentralized to the strategic business unit in each country to tailor products to the local market. Global Strategy Assumes more standardization of products across country markets Transnational Strategy The firm seeks to achieve both global efficiency and local responsiveness

International Strategy Opportunities & Outcomes Identify International Opportunities International Strategies Strategic Competitiveness Outcomes Higher Performance Returns Innovation Use Core Competence Modes of Entry Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Explore Resources & Capabilities International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Management Problems, Risk, and First Steps Management Problems, Risk, and First Steps Explore Resources & Capabilities International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Explore Resources & Capabilities International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage Use Core Competence Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition

Choice of International Entry Mode Exporting No need to establish operations in other nations. 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 customize product. Common way to enter new international markets.

Licensing Choice of International Entry Mode 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 & distribution. Relatively low profit potential. Firm authorizes another firm to manufacture & sell its products -

Strategic Alliances Choice of International Entry Mode Most joint ventures (JVs) involve a foreign corp. with a new product or technology & a host company with access to distribution or knowledge of local customs, norms or politics. May experience difficulties in merging disparate cultures. May not understand the strategic intent of partners or experience divergent goals. Enable firms to shares risks and resources to expand into international ventures.

Acquisitions Choice of International Entry Mode Can be very costly. Legal and regulatory requirements may present barriers to foreign ownership. Usually require complex and costly negotiations. Potentially disparate corporate culture. Enable firms to make most rapid international expansion.

New Wholly-Owned Subsidiary – Greenfield Venture Choice of International Entry Mode Most costly & complex of entry alternatives. Achieves greatest degree of control. Potentially most profitable, if successful. Maintain control over technology, marketing and distribution. May need to acquire expertise & knowledge that is relevant to host country. Could require hiring host country nationals or consultants at high cost.

Strategic Competitiveness Outcomes International diversification facilitates innovation in the firm. 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. Provides larger market to gain more and faster returns form investments in innovation. International diversification provides greater economies of scope and learning.

International Strategy Opportunities & Outcomes Higher Performance Returns Innovation Identify International Opportunities Explore Resources & Capabilities Use Core Competence Competitiveness Outcomes International Strategies Modes of Entry Increased Market Size Return on Investment Economies of Scale and Learning Location Advantage International Bus.-Level Strategy Multidomestic Strategy Global Strategy Transnational Strategy Higher Performance Returns Innovation Competitiveness Outcomes Management Problems, Risk, and First Steps Management Problems, Risk, and First Steps Use Core Competence Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Exporting Establishment of New Sub. Licensing Strategic Alliances Acquisition Management Problems, Risk, and First Steps Management Problems, Risk, and First Steps

Risks in the International Diversification Political Risk National government instability may create problems for internationally diversified firms. Legal authority obtained from previous administration may become invalid. Potential changes in attitudes or regulations regarding foreign ownership. Potential for nationalization of firms’ assets.

Economic Risk Econ. risks are interdependent with political risks. Differences in inflation rates may affect inter-nationally diversified firms’ ability to compete. Differences and fluctuations in international currencies may affect value of assets & liabilities. This affects prices & thus ability to compete. Enforcing intellectual property rights on copyrights; CDs, software, etc. Risks in the International Diversification

Risks in the International Environment Economic Risks Political Risks Political instability in Indonesia brought about by continuing ethnic strife Uncertain future of peace in the Middle East because of changes of national leaders Failure of the European Community’s quest for economic superpower status because of inter-country disagreements China’s difficulty in enforcing intellectual property rights on CDs, software, etc. Russia’s struggle with low productivity, currency problems & high unemployment. Exchange rate exposure due to the U.S. - Canadian dollar fluctuations.

Taking the 1 st International Step: Pitfalls of going to the U.S. Failure to: E.D. Smith ’s product goals required a corp. culture of company dedication that was lacking in its U.S. facilities U.S. retailers customers put more importance great front-line sales staff ( Canadian Tire ’s U.S. experience) Expectations for better service: The Paper-thin margins in the U.S. Electronics Retailing Industry that hurt Future Shop Recognize Different Customer Expectations  Take into account differing worker attitudes  Take into account firmly established competitors 

Taking the 1 st International Step: Basic Advice about going to the U.S. “ If you think it necessary to have a sales rep in Montreal, you should find it just as necessary to have one in Chicago.” Winpak’s President, Bob Lavery Keg Restaurants give larger portions in the U.S. because customers want to be sure they get value Open Text acquired U.S. operations and is listed on the NASDAQ to give the firm a U.S. appearance Jean Coutu U.S. stores are called “ MaxiDrug ” Know you may need to change basic business attributes Subtle cultural differences need attention Set up as a North American company Acquire U.S. attributes

Taking the 1 st International Step: Final Advice about going to the U.S. what local competitors are doing. and what does not work. What customers expect, and Jean Coutu hands-on what works, Open Text CEO Tom Jenkins “ If Canadians make any mistake in the U.S., it would be the same mistake they might make in Vancouver or Calgary, [And,] you have to provide a good product at a fair price and keep your customers happy. ” & discover which is not locating salespeople close to your customers… Get very involved quickly in day-to-day details Be close to your customers: what local competitors are doing. and what does not work. What customers expect, and Jean Coutu hands-on what works, & discover Get very involved quickly in day-to-day details

Strategic Management Ch09

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Strategic Management Ch09

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