International Strategic Management Motives of Globalization Strategic Objectives & Sources of Competitive Advantages Strategic Orientation of International Firms Strategies for International Firms Conclusion

1. International Strategic
Business Management
Hasan Furqan
Hochschule Furtwangen University,
Furtwangen Germany
SS 2012

2. Agenda
 Strategic Management
 Strategic Formulation
 Porter Five Forces
 International Strategic Management
 Motives of Globalization
 Strategic Objectives & Sources of
Competitive Advantages
 Strategic Orientation of International
Firms
 Strategies for International Firms
 Conclusion

3. International Strategic Business
Management
Charles W.L.Hill
“An international business is; any firm that engages in
international trade and investment….export or import products
from other countries.”
Other definitions suggests
• “a business whose activities involve the crossing of national
boundaries”
• “any commercial, industrial or professional endeavor involving
two or more nations”
• “any business transaction that involve two or more countries”

5. International Strategic Business
Management
• Why Firms Globalize:

6. Why Firms Globalize:
• Market Seeking Motives:
o Increase Market Share: e.g. McDonalds, Pizza Hut expanded…
• Cost Reduction Motives:
o Labor Cost e.g. China, India,…
o Transportation Cost
o Tax Exemptions e.g. Intel in Costa Rica & Mercedes in Albana.
o Environment Protection Laws e.g. Africa, Asia, Latin America.

7. Why Firms Globalize:
• Strategic Motives:
o Risk Diversion e.g. Auto parts are produced in USA, Mexico, India, Indonesia etc.
o Vertical Integration e.g. Oil exploration companies into Oil refinery…
o Exporting Facility e.g. Textile Manufacturers in Bangladesh
• Other Motives
o Power & Prestige
o Exploitation of specific advantages
o Synergy
o International Competition

8. Strategic Objective & Source of Competitive
Advantage
• Sumantra Ghoshal presented strategic objectives of an international
firm and the sources of developing competitive advantage.
Global Strategic Objectives:
1. Achieving Efficiency
o carrying out all value chain activities to a required quality at lowest cost
2. Managing Risk
o like exchange rate risks, political risks, raw material sourcing risks etc.
3. Innovating, learning and adapting
o learn from the different societies, culture and markets.

9. Strategic Objective & Source of Competitive
Advantage
Global Competitive Advantages:
1. National Differences
o e.g. low wage rate in different countries, relative cost of capital, tax regimes
2. Scale Economies
o to operate at the optimal economic scale for minimum unit cost
3. Scope Economies
o use of global brands names like Coca Cola or McDonald’s.

10. India Dell Coca Cola
Toyota India Japan
Hewlett Lilly &
U.S.A
Packard Ranbaxy

11. Strategic Orientation of International
Firms
High Global Orientation Transnational
Orientation
(Chemicals, Heavy (Pharmaceuticals,
Metals) Telecommunications)
Global
Integration &
Coordination
Pressure
International
Multi-domestic
Orientation (Cement,
Orientation
Fabric Mills)
Low
Low High
Local Responsiveness Pressure

12. Strategic Orientation of International
Firms
1-International Orientation:
• no pressure to be globally integrated,
• cost effective or locally responsive
• Domestic customers are its backbone
• sell outside when
o approached by an international customer
o in times of recession,
o when overcapacity looms
• metal industries, cement, machinery, paper, textile, printing
and publishing
.

13. Strategic Orientation of International
Firms
2-Global Orientation:
• Companies search for
o commonality of consumer tastes and preferences,
o market segments
o life style among different countries.
• Companies with global strategy
o have standardized products
o strong brand names.
o have same strategies with little regional and cultural modifications.
• e.g. Gillette, Coca-Cola or Johnson and Johnson’s

14. Strategic Orientation of International
Firms
3-Multi-domestic Orientation
• Strategic approach that attacks
each market individually
• Companies adopt
o Decentralize approach
o products, strategies and
o management practices country by country.
• Commonly used by the European multinational firms like
Unilever
• Industries like beverages, food, rubber, household appliances
and tobacco.

15. Strategic Orientation of International
Firms
4-Transnational Orientation:
• Firm achieve both global
efficiency and local responsiveness.
• Companies attempt to be responsive
o to host country markets through
o adaption of products, marketing strategies and
o management practices to suit local conditions.
• Pharmaceutical, telecommunication, financial services,
computers and automobiles companies

16. Competitive Strategies for Firms in Foreign
Markets
High
Wholly Owned
Joint Venture Foreign Branch
Foreign Subsidiary
Product Diversity
Licensing,
Contract
Joint Venture Foreign Branch
Manufacturing,
Franchising
Licensing,
Contract
Export Joint Venture
Manufacturing,
Low Franchising
Low High
Market Complexity

17. Competitive Strategies for Firms in Foreign
Markets
1-Exporting:
• sending a firm’s product or services to international
destinations.
• company low in market complexity and product
diversity…
• Usually require minimal capital investment
• Two methods of export management
1. Indirect Exporting
2. Direct Exporting

18. Competitive Strategies for Firms in Foreign
Markets
Indirect Exporting:
• Products are sent overseas without the firm’s ultimate
involvement.
• Small and medium size companies
Direct Exporting:
• company internationalizes the export function
• takes responsibility of selling its products
• without an intermediary, to
• an importer located in a market abroad.
• Large size companies
Example: A Taiwanese company, Gigabyte…..

19. Competitive Strategies for Firms in Foreign
Markets
2-Licensing/Contract Manufacturing:
• Licensing involve the transfer of some industrial property
right from the licensor to a licensee.
• Most tend to be patents, trademarks, e.g. beer
manufacturers
• Another licensee strategy is
o to contract the manufacturing of a product line to a foreign company e.g. Nike,
• There are two main problems in licensing
o foreign partner can become a competitor
o little control over the manufacturer and marketing

20. Competitive Strategies for Firms in Foreign
Markets
3-Franchising
• It requires the transfer of
o technology, business systems, brand name, trademark, marketing strategies and other
property rights
• Around 50% of all major retail businesses are franchisee.
• Coca-Cola and Pepsi Co send the syrup,
• e.g. Marriot, Holiday Inn, Hilton, McDonald’s, Burger King,
Hertz
• Disadvantage is that a franchisee may spoil the franchisor’s
image…

21. Competitive Strategies for Firms in Foreign
Markets
4-Joint Ventures:
• an arrangement in which firms from different nations
o pool a portion of their respective resources
o within a common, legal organization.
• Established to jointly develop a new technology or to obtain
resources like exploration of oil and gas.
• More permanent cooperative relationships than export or
contract manufacturing
• it begins with a mutually agreeable pooling of
o capital, production or marketing equipment,
o patents, trademarks, or management expertise.

22. Competitive Strategies for Firms in Foreign
Markets
5-Foreign Branches:
• An extension of the company in its foreign market.
• Directly responsible for
o sales, customer service, physical distribution
o any other operational duties assigned to it.
• It has some local managers in middle and upper level
positions.
• most likely be outside the legal jurisdiction of the firm
• License for operations may be of short duration.

23. Competitive Strategies for Firms in Foreign
Markets
6-Wholly Owned Subsidiaries:
• Companies that are willing and able to
o make highest investment committed to the foreign market.
• Complex, potentially costly, but above average return.
• Firm maintains control over
o technology, marketing and distribution of the product.
• The firm must build new
o manufacturing plants,
o distribution networks
o marketing strategies to compete in the new markets.

24. Conclusion
To enter in a foreign market a company must
1. Identify its objectives
2. Preliminary country screening,
3. Identify the opportunities and constraints
4. Identify key success factors
5. Analyze strengths and weakness
6. Optimal way to enter, How?
7. Compare and rank the target countries.

25. Q&A