8/3/2019 International Strategy Final
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By: Akbar-The Great
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The term “International Strategy” can bedefined as,
“Trying to create value by transferring corecompetencies to foreign markets whereindigenous competitors lack thosecompetencies.”
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Mainly for three reasons firms go international
› Lower Production cost
E.g. :- Clothing, Electronics, watch making.
› To secure needed resources
E.g.:- Gems & Jewellery (Europe:- Roseyblu, Eurostar),Minerals and Energy
› To extend a product`s life cycle
E.g.:- Coca-Cola (Japan)
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Following are the benefits of internationalstrategies:
Increased market size
Return on Investment
Economies of Scale
Location advantage
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Expand the size of potential market
Ex. General motors- Asia, Pharmaceutical- China
International strategy is particularly an attractive option tofirms competing in domestic markets that have limitedgrowth opportunities.
Ex. Pepsi & coca-cola entering Japanese market.
Larger markets usually offer higher potential returns thusinvestments can be made in R&D.
Ex. Ranbaxy in Africa
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Large markets can help a firm to earn proper return oninvestments such as plant & machinery or R&D.
Ex. Electronics
Due to Reverse Engineering, products are imitated easily sointernational expansion provide large market to get proper return on investments.
Ex. Pharmaceuticals
Above average return on Investments
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Economies of scale:- Refers to reduction in unit cost byproducing a large volume of a product
Firm can standardize products across country Borders
Ex. Auto industry-China
Allow price their product competitively to gain market share
Exploit core competencies in international markets
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Easier access to Lower cost- labor, energy and naturalresources
Access to critical suppliers and to customers
Ex.: GM- Asia ,China
Once positioned favorably with an attractive location, firms
must manage their facilities effectively to gain the full benefitof a location advantage.
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International Business Level Strategies
› International low cost
›
International differentiation› International focused
› International integration low cost/Differentiation
International Corporate Level Strategies
› Multi-domestic Strategy
› Global Strategy
› Transnational Strategy
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International Low Cost › Usually located in home country
› Export to international markets
› Low value added operations in foreign
countries› High value added operations in home
country
› E.g.: Mc Donald's.
International Differentiation › Countries with advanced or specialized
factor conditions most likely to use thisstrategy
› E.g.: Mercedes.
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International Focus Strategies
› Technologically advanced firms follow
focused low cost strategy› Focused differentiation firms compete on
the basis of image & design
› Third group competes on low price byimitating
› E.g..: Johnsons & Johnsons.
International Integrated LowCost/Differentiation
› Can be most effective in dealing withdiverse markets
› Often relies upon flexible manufacturing,total quality management or rapidcommunication networks
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Type of Corporate Strategy selected will have an impact onthe selection and implementation of the business-levelstrategies
Some Corporate strategies provide individual country unitswith flexibility to choose their own strategies
Others dictate business-level strategies from the home office
and coordinate resource sharing across units
› Multi-Domestic Strategy
› Global Strategy
› Transnational Strategy
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Strategy and operating decisions
are decentralized to strategicbusiness units (SBU) in eachcountry.
Products and services are tailored
to local markets
Business units in each country areindependent of each other
Assumes markets differ by countryor regions
Focus on competition in eachmarket
E.g. Coca-Cola
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Products are standardized across
national markets
Decisions regarding business-levelstrategies are centralized in thehome office
Strategic business units (SBU) areassumed to be interdependent
Often lacks responsiveness to local
markets
Requires resource sharing andcoordination across borders (whichalso makes it difficult to manage)
E.g. Apple Inc.
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Seeks to achieve both global
efficiency and localresponsiveness
Difficult to achieve becauseof simultaneous requirementsfor strong central control and
coordination to achieveefficiency and local flexibilityand decentralization toachieve local marketresponsiveness
E.g. Nokia
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Exporting
Licensing Strategic Alliance
Acquisition
New wholly owned subsidiary
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Common way to enter newinternational markets.
No need to establish operationsin other nations
Establish distribution channels
through contractualrelationships.
May have high transportationcosts
May encounter high import
tariffs. May have less control on
marketing and distribution.
Difficult to customize product.
E.g. ZealotPharmaceuticals
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Firm authorizes another firm tomanufacture & sell its products
Licensing firm is paid a royaltyon each unit produced and
sold. Licensee takes risks in
manufacturing investments.
Least risky way to enter aforeign market
Licensing firm loses control over product quality & distribution.
Relatively low profit potential.
E.g. Domino’s pizza
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Mode Enable firms to shares risks
and resources to expand intointernational ventures
Most joint ventures (JVs) involve a
foreign corp. with a new productor technology & a host companywith access to distribution or knowledge of local customs,norms or politics
May experience difficulties inmerging disparate cultures.
May not understand the strategicintent o. f partners or experiencedivergent goals.
E.g. Bharti AXA
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Enable firms to makemost rapid internationalexpansion
Can be very costly.
Legal and regulatoryrequirements may presentbarriers to foreignownership. Usually require
complex and costlynegotiations.
Potentially disparatecorporate culture.
E.g. Vodafone-Hutch Essar
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Most costly & complex of entryalternatives
Achieves greatest degree of
control.
Potentially most profitable, ifsuccessful.
Maintain control over
technology, marketing anddistribution.
May need to acquire expertise& knowledge that is relevant tohost country.
E.g. Dabur international have ansubsidiary in Sri Lankanamed Dabur Lanka.
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International diversification and returns
International diversification and
innovation Complexity of managing multinational
firms
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Expanding sales of goods or services across globalregions and countries and into differentgeographic locations or markets:
› May increase a firm’s returns (such firms usuallyachieve the most positive stock returns)
› May achieve economies of scale andexperience, location advantages, increasedmarket size and opportunity to stabilize returns
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Expansion sales of goods or services across globalregions and countries and into differentgeographic locations or markets:
› May yield potentially greater returns oninnovations (a larger market)
› Can generate additional resources for investment in innovation
› Provides exposure to new products andprocesses in international markets; generatesadditional knowledge leading to innovations
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Expansion into global operations in differentgeographic 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 toexceed the benefits of expansion
› Exposes the firm to possible instability of somenational governments
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1. POLITICAL RISK
›
National government instability may create potentialproblems for internationally diversified firms.
› Potential changes in attitudes or regulations regardingforeign ownership.
› Legal authority obtained from previous administration maybecome invalid.
› Potential for nationalization of firms’ assets.
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› Economical risks are interdependent with political risks.
› Differences and fluctuations in international currenciesmay affect value of assets & liabilities.
› This affects prices & thus ability to compete.
› Differences in inflation rates may affect inter-nationallydiversified firms’ ability to compete.
› Enforcing intellectual property rights on CDs, software,etc.
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