Chapter 8 International Strategy The Global and National Environments  The trend toward globalization has many implications:  Industries are becoming global in scope Industry boundaries no longer stop at national borders.  Shift from national to global markets This has intensified competition in industry after industry.  Steady decline in barriers to cross-border trade and investment This has opened up many once protected markets to companies based outside of them. International Strategy Benefits • Increased Market Size – Domestic market may lack the size to support efficient scale manufacturing facilities. • 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 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 Determinants of National Advantage National Competitive Advantage • Factors of Production – The cost and quality of factors of production – Basic factors: land, labor, capital, and raw material – Advanced factors: technological, managerial, infrastructure • Demand Conditions – Home demand plays an important role in the impetus for upgrading competitive advantage. – Companies are most sensitive to the needs of their closest customers. • Related and Supporting Industries – The spill-over benefits from investments by supporting industries • Firm Strategy, Structure and Rivalry – Different nations characterized by different management ideologies – Strong association between vigorous domestic rivalry and the creation and persistence of competitive advantage in an industry International Corporate-Level Strategy: The GI-LR Framework Cost Pressures of the GI-LR Framework Pressures for cost reductions are greatest in industries • producing commodity-type products where price is the main competitive weapon • where differentiation on non-price factors is difficult • where competitors are based in low-cost location • where consumers are powerful and face low switching costs • where there is persistent excess capacity Local Responsiveness Pressures of the GI-LR Framework The greatest pressures for local responsiveness arise from: • Differences in customer tastes and preferences • Differences in infrastructure and traditional practices • Differences in distribution channels • Host government demands Dealing with these contradictory pressures is a difficult strategic challenge, primarily because being locally responsive tends to raise costs. Two Pressures of the GI-LR Framework – Consumer demands for local customization are on the decline worldwide because modern communications and transportation technologies have led to a convergence of tastes and preferences. The result is the emergence of enormous global markets for standardized consumer products. Multidomestic Strategy • Strategy and operating decisions are decentralized to strategic business 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. Multi-domestic strategy Global Strategy • Products are standardized across national markets. • Business-level strategic decisions are centralized in the home office. • Strategic business units (SBUs) 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). Global Strategy Transnational Strategy • Seeks to achieve both global efficiency and local responsiveness. • Difficult to achieve because of simultaneous requirements for: – strong central control and coordination to achieve efficiency. – decentralization to achieve local market responsiveness. – pursuit of organizational learning to achieve competitive advantage. Transnational Strategy International Entry Modes (N = 5) • • • • • • • Follows the selection of an international strategy Five main entry modes 1. Exporting 2. Licensing/Franchising 3. Strategic Alliances 4. Acquisitions 5. New Wholly-Owned Subsidiary Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm has no foreign manufacturing expertise and requires investment only in distribution. Exporting Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm needs to facilitate the product improvements necessary to enter foreign markets. Licensing Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm needs to connect with an experienced partner already in the targeted market and to reduce its risk through the sharing of costs. Strategic Alliance Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm is facing uncertain situations such as an emerging economy in its targeted market. Strategic Alliance Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm needs rapid cross-border access to new international markets Acquisitions Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm’s intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high. Wholly-owned Subsidiary International Entry Modes Extent of Investment/Risk F E D C B A Degree of Ownership/Control Risks in an International Environment • Political Risks • Economic Risks – Instability in national governments – War, both civil and international – Potential nationalization of a firm’s resources ? ? ? ? – Differences and fluctuations in the value of different currencies – Differences in prevailing wage rates – Difficulties in enforcing property rights – Unemployment 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 Best Buy in China • Which type of pressures did Best Buy face in China? Why? • Which international business-level strategy did Best Buy use in China? In the U.S.? • Which international corporate-level strategy did Best Buy use? What is the problem in the strategy? • Which entry mode did Best Buy use when entering the China market? Explain the rationale. Article Summary The article I read from CNN Tech on Feb. 2, 2018 “What market swoon? Amazon jumps 3%” details Amazon's stock market success in the midst of many other companies taking plunges. Amazon's stock rose 3% while Apple dropped 4% and Google's parent company dropped 5%. Amazon reported profit close to $2 billion whis is the largest in its history. As of Thursday, it had the third highest percentage in the Nasdaq 100. The company's Holiday earnings played a major role in this success. The success was credited to the company's decisions to move beyond its traditional online business model and into other sections, including the whole Foods acquisition, the release of Alexa and through building a cloud computing business and automated retail stores. Relevance This article relates to the information covered in Chapter 2, because it shows a company prevailing in the midst of environmental threats in its industry. In the notable big moves that were made by the company, it is fair to assume that much industry analysis, including a SWOT was put into these decisions. By successfully accomplishing these business endeavors, Amazon is positioning itself to be a major player in these industries, giving them a strong competitive advantage in several different industries (online retail, cloud-based software and the natural, organic food market). Source: http://money.cnn.com/2018/02/02/technology/amazon-invincible/index.html?iid=SF LN 2.
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