International Strategy: Creating Value in Global Markets

1. International Strategy: Creating Value in Global Markets chapter 7

2. International Strategy • Globalization has to do with the rise of market capitalization around the world: • International exchanges have increased • Trade in goods & services • Exchange of money, information, & ideas • Laws, rules, norms, values, and ideas are growing more similar across countries • Challenges include balancing between emerging markets & developed markets • How to meet the needs of customers at very different income levels

3. Factors Affecting a Nation’s Competitiveness • Michael Porter’s diamond of national advantage explains why some nations and their industries outperform others: • Factor endowments • Demand conditions • Related and supporting industries • Firm strategy, structure, & rivalry

4. International Expansion: Motivations • A company decides to become a multinational firm in order to: • Increase market size • Attain economies of scale • Take advantage of arbitrage opportunities • In every stage of the value chain • Enhance a product’s growth potential • Reinvigorating the product life cycle

5. International Expansion: Motivations • A company decides to become a multinational firm in order to: • Optimize the location of value chain activity • To enhance performance • To reduce cost • To reduce risk • Explore reverse innovation • Design & manufacture products locally • Export no-frills products to developed markets

6. International Expansion: Risks • Multinational firms also encounter risks: • Political risk due to social unrest, military turmoil, demonstrations, terrorism, absence of the rule of law can lead to • Destruction of property • Disruption of operations • Non-payment for goods and services • Arbitrary government decisions • Economic risk due to piracy and counterfeiting

7. International Expansion: Risks • Multinational firms also encounter risks: • Currency risk due to fluctuations in the local currency’s exchange rate • Affects cost of production or net profit • Management risk due to culture, customs, language, income level, customer preferences, distribution systems • Could lead to the need for local adaptation of apparently standard products

8. International Expansion: ManagingRisks • Managing political risk through • Market diversification • Developing stakeholder coalitions • Wooing key influencers • Putting key stakeholders on their boards • Managing economic risk through global dispersion of value chains • Outsourcing • Offshoring

9. International Strategies: Opposing Pressures Exhibit 7.4 Opposing Pressures and Four Strategies

10. International Strategy • An international strategy requires diffusion & adaptation of the parent company’s knowledge & expertise to foreign markets. • The primary goal is worldwide exploitation of the parent firm’s knowledge & capabilities. • All sources of core competencies are centralized. • Pressure for both local adaptation & low costs are rather low

11. Global Strategy • A global strategy implies a firm is interested in lowering costs: • Competitive strategy is centralized & controlled by the corporate office • Products are standardized, operations centralized, producing economies of scale • Worldwide volume supports R&D • There’s a standard level of quality worldwide • Pressure for reducing cost is high; pressure for adaptation to local markets is weak

12. Multidomestic Strategy • A multidomestic strategy puts emphasis on differentiating products & services to adapt to local markets • Decisions are decentralized • Products & services are tailored to local use • Consider language, culture, income levels, customer preferences, distribution systems • Markets can expand rapidly • Prices are differentiated by market • Pressure for local adaptation is high; pressure for lowering costs is low

13. Transnational Strategy • A transnational strategy seeks global competitiveness via trade-offs: • Efficiency versus local adaptation versus organizational learning • Assets & capabilities are disbursed according to the most beneficial location for a specific activity; some value chain activities are centralized, some are decentralized. • Economies of scale, increased knowledge flows • Pressures for both local adaptation and lowering costs are high

14. International Strategies:Global or Regional? • It may be unwise for companies to rush into full-scale globalization • Regionalizationmay be more reasonable • Distance still matters • Commonalities of language, culture, economics, legal & political systems, and infrastructure all make a difference • Trading blocs and free trade zones ease trade restrictions, taxes, & tariffs

15. International Strategies:Entry Modes Exhibit 7.9 Entry Modes for International Expansion