slide 14

1. Chapter
Seven
International Strategy:
Creating Value in Global
Markets

2. CHAPTER 7
McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin
After studying this chapter, you will have
a good understanding of:
• The importance of international expansion as a viable
diversification strategy
• The sources of national advantage, that is, why an industry in a
given country is more (or less) successful than the same industry
in another country(Analysis NA sources)
• The motivations and the risks associated with international
expansion
• The two opposing forces—cost reduction and adaptation to local
markets—that firms face when entering international markets
• The advantages and disadvantages associated with each of the
three basic international strategies—global, multidomestic, and
transnational
• The four basic types of entry strategies and their relative
benefits and risks that are associated with each of them
Learning
Objectives
TRANSPARENCY-60

3. International diversification as strategy
• International diversification presents
opportunities for performance enhancement:
Trade across nations to exceed trade within
nations by 2015-2020(e.g., ASEAN block with EU&
anthers blocks_ Cambodian rice, or China’s milk)
Investment in developing nations(e.g. ,LDCs
environmental climate_ STEP , see in to slide #5 )
Markets often dispersed across the globe(e.g.,
geographically dispersed that firms face when entering
international markets: cost reduction and adaptation to local
markets (e.g., Economic inequities, next slides)
PHEA V. 2010

4. Economic inequities present
opportunities
• Such populations also have unsatisfied needs(e.g.,
medical care in Cambodia,…)
• 2006 Nobel peace prize awarded to Grameen Bank
(The concept of micro credit: the helping thousands of struggling micro-
entrepreneurs who have no collateral to offer and changing the live of
thousands of people while making a profit as well.
 Offers micro loans as low as $25 (By 2006, Grameen Bank branches numbered over
2,100.Its success has inspired similar projects in more than 40 countries around the world
had loaned over USD 4.7 billion and by the end of 2008, USD 7.6 billion to the poor. )
 E.g. India Hospital that specializes in cataract surgeries(eye care)_200,000
surgeries per year: cost only about $25 and comparable the West cost
_$3,000. ,as one village one product in Cambodia(Support by Rural
development Bank and any microfinances...).
 So, this concept supports investment in such capital expenditures for performance
enhancement (BCG: Cash Cows_ low growth potential, but high market share )
• Why do economies develop at different rates?_ Sources of NA
PHEA V. 2012

5. Factors affecting national
competitiveness
• Four attributes affect a nation’s
competitiveness in a particular industry
Factor conditions
Demand conditions
Related and supporting industries
Firm strategy, structure, and rivalry
PHEA V. 2010
National Advantage(NA)

6. Factor conditions
• Factors of production that are industry and firm
specific(around firm’s core competency).
Labour (HR)
– Skill levels, education(Specific Knowledge and skills created within a
country : Rare , Valuable, difficult to imitate, and rapidly & efficiently deployed(adopt) are
the factors of production that led to nation’s competitive advantage).eg.,China& VN….
Infrastructure(I)
– Transportation systems (by air , land &boats?)
– Telecommunications systems (IT systems..)
– Banking system{e.g., interest rates _ Loan & deposit % in Cambodia}
– Energy system network(importance for eco-development)
 e.g., Japanese Companies manage to create a resource(HR & I ) from which
they gained advantage over companies in other nations that spent large sums to
warehouse inventory(in the world).
PHEA V. 2012
National Advantage(NA)

7. Demand conditions
• Customer expectations set performance standards for local
firms ..How firm?. e.g., China’s products
• Customer who Higher local demand leads local firms to
develop national advantage(high standards, upgrade and create
innovation products & services. e.g., IPhone & Samsung ).Who
is the firm's customer? e.g., China
Strong, trend-setting local market helps local
firms anticipate global trends.(How firms view a market
power?)
PHEA V. 2012
National Advantage(NA)

8. Related and supporting industries
• Supplying industries
– Enables efficient management of production inputs _
diversification strategies through join R&D and the ongoing exchange of knowledge lead to
reduce manufacturing costs _opportunity cost)
– Strong supplier base adds downstream efficiency ( e.g,
Financial support from Parenting to BUsParenting to BUs)
 e.g., Italy, shoe manufacturing(P) are geographically located near their suppliers(leather
suppliers(BU) and learn about new textures , colors and manufacturing techniques (R&D)
{BU} )
• Related industries (Mutual advantage : offer similar opportunities through jointjoint
efforts among firmsefforts among firms (( alliancesalliances :):)_ Lead to cost control, product innovation, and novel
approaches to distribution technologies _NA)
– Enables coordination within industry_ Potential advantages:
 Entering new markets, Reducing costs in the value chain ,and Development and
distribution or share of new technologies to either (e.g., Equity alliances that lead to
full acquisitions: e.g.,e.g., Hello & Smart phone ,asHello & Smart phone ,as International joint ventures and
strategic alliances Sonny & 3M,see into Ch.6.slide#36)
– High probability of new entrants forces (threats)existing firms to become
more strong competitive backup( with other firms).
PHEA V. 2012 National Advantage(NA)

9. Firm strategy, structure, and rivalry
• Rivalry puts pressure on local firms to find innovative ways
to produce and improve performance standard, distribute its
products & services. (e.g., Dell computer has successful result of
competition from IBM & Hewlett-Packard in USA,2006 ,as India’s
software rivalry)
• Local conditions(source: Demand condition ,socio-cultural disperse
) affect firm strategy(e.g., German & Italian Co.)
– German companies tend to be hierarchical(Str-re as USA model)
– Italian companies tend to be smaller and run more like
extended families(Strategy as Japan & china model)
 so, strategy and structure help firms successful in global markets
competition usually first succeeded in intensely competitive home
markets & second into determine(redesignedredesigned strategies and structures) in which
types of industries a nation's firms will excel.
Dr.PHEA V. 2012
National Advantage(NA)

10. CHAPTER 7
McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin
India’s Virtual Diamond in Software
Domestic rivalry
No regulatory barriers to entry or startup(self regulation_800 firms), mostly small & intensive rivalry
(develop competitive strategies & structure due to market instruments) ; growing number of MNC
software-development centers in India : This intense rivalry is one of the primary factors driving Indian
software firms to develop oversea distribution channels(compete with China in global market)
Related and
supporting
industries
Factor
conditions
Domestic
demand
conditions
U.S. demand conditions
Customer expectation focus on standard(lead to
investment opportunities for Germany, Denmark, parts of
ASEAN & USA.) & higher local demand _Large, growing
market, but sophisticated customers (1.2B,India).
Strong, trend-setting local market(how firms view a
market power?) helps local firms anticipate global
trends(the second place of Indian scientific products
behind USA,2006)
HR_ Large pool of skilled labour
(2.2mln,2006) ; low salaries;
English-language capability, and
Infrastructure Support.
So,Companies manage to
create a resource(HR & I ) from
which they gained advantage over
companies in other nations(FN)
Large network of public and private educational institutions_weak but rapidly improving & communications
infrastructure_ duty-free access to imported computers and software(Microsoft alliance), following economic
liberalization (снятие импортных ограничений.e.g., Cambodian government’s deregulation policies to
Agriculture, Tourism & HR development…… )
So, Entering new markets, Reducing costs in the value chain ,and Development and distribution or share of new
technologies
Exhibit 7.2
TRANSPARENCY-62

11. Factors to consider in going abroad
ExistingExisting
producersproducers
ExistingExisting
producersproducers
Foreign competition
Overseas expansion
PHEA V. 2012
Economies ofEconomies of
scalescale
Reduced homeReduced home
marketmarket
dependencedependence
CustomersCustomers
expanding abroadexpanding abroad

12. Promote Competition
Moving ProductValue Pricing
Production Costs
13
Factors of pricing strategies to consider in going abroad
-The prices of competitors are
a key factor that influences
pricing strategy
-advertising battle(refinancing
bond)
- Diversity of competitors (generic
of business strategy)
• Bargaining power of suppliers
•Low margins of supplier-low cost
passed to customers
•Bargaining power of buyers
- Eliminating threat to competitors
creating monopolistic &opportunity.
•Threat of new entrants:
- Customer loyalty and product
uniqueness present entry barriers.
•Product substitutes: Enhances
customer loyalty and unique features
- Products quickly move out of shelf to get value
space for new produce.
- Products might sell below cost products simply to
get rid of them are better than to take a loss and free
up space for profitable products than to try to break
even or make profit on old product that is not longer
in demand by the consumer.(e.,g. Thai product to …)
-The value a product provides to
consumers relative to alternatives
can influence pricing strategy
-High quality of product to make
customers are valuable.
- Service to make customers’
satisfaction & confidence.

13. International expansion: motivations
Increased market scope through enhances
economies of scale_ the fixed costs base on over
larger volume of production (e.g. the sale of Microsoft’s operating
systems in many foreign countries)
Increased revenue and assetrevenue and asset base on reduced
the costs as well as operating costs (e.g.,
Microsoft’s software development operations with other firms
e.g., talent-rich India _ $400 million to invest in new research
partnerships in India ) and final power of suppliers
(Own assetasset) likely McDonald’s number of outlets
(19 countries).
PHEA V. 2010

14. International expansion: motivations
Extending life cycle of product when home
market cycle in maturity(1.slowing demand growth,
2.saturate markets, 3.direct competition, 4. price competition ,
and 5.strategic emphasis on efficient operation_ firms strive
to reduce costs, build brand loyalty& industry consolidation):
e.g. Coke & Pepsi have aggressively
pursued international market to attainto attain
levels of growth (market share)that
simply not available in USA.
PHEA V. 2010

15. International expansion: motivation
 Optimizing physical location of value chain activities _
three strategic advantages:
1. Performance enhancement through location
resources
 e.g., Microsoft’s decision to establish a corporate
research laboratory in Cambridge & India. This Strategic
provide Microsoft with access to outstanding technical
and professional talent (can effect the quality of external
& internal coordination or cooperation forward to :
 Entering new markets,
Reducing costs in the value chain ,
 Development and distribution of new technologies to
BUs)
PHEA V. 2010

16. International expansion: motivation
2. Cost reductionsCost reductions (operating costs)through lower labor
salaries(decision of many multinational companies to set
up production operations such as Nike’s decision to source
the manufacturing such as China($200) , VN($120),
Cambodia($80,2008) and Indonesia……)
Downside: risks of exploitation(effect the cost structure
of local manpower, transportation and logistics ,
government incentives and the local tax structure_ lead to
keep out the Quality, but operating cost reduction)
3. Risk reduction: management of currency fluctuations
 e.g., the exchange ratios (PPP)between the U.S. dollar
and the Japanese yen_ important basis for cost
competition between Ford and Toyota _contribution of
Macro-economic policies to protected its national
interests.
PHEA V. 2012

17. International Strategic choices
PHEA V. 2010
CompetitivepressuresdrivefirmsCompetitivepressuresdrivefirms
towardincreasedefficiencytowardincreasedefficiency
National and cultural differences drive firms to tailorNational and cultural differences drive firms to tailor
products to local preferencesproducts to local preferences
Go next slides

18. CHAPTER 7
McGraw-Hill/Irwin Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
STRATEGIC MANAGEMENT  Gregory G. Dess and G. T. Lumpkin
Strengths and Limitations of Various
International Strategies
Exhibit 7.6
• Less ability to realize cost savings through
scale economies
• Greater difficulty in transferring knowledge
across countries
• May lead to “over adaptation” as conditions
change
• Ability to adapt products and services
to local market conditions
• Ability to detect potential opportunities
(find significances) for attractive
niches in a given market, enhancing
revenue
MultidomesticMultidomestic
• Limited ability to adapt to local markets
• Concentration of activities may increase
dependence on a single facility
• Single locations may lead to higher tariffs
and transportation costs
• Strong integration(provide &support ) across
various businesses
• Standardization leads to higher economies of
scale, which lowers costs
• Helps to create uniform standards of quality
throughout the world (firm's reputation)
GlobalGlobal
Limitations(risks)Limitations(risks)StrengthsStrengths
TransnationalTransnational
• Unique challenges in determining optimal
locations of activities to ensure cost and
quality(e.g., different offer to Cambodia&
Singapore markets )
• Unique managerial challenges in fostering
knowledge transfer
• Ability to attain economies of scale
• Ability to adapt to local markets
• Ability to locate activities in optimal
locations
• Ability to increase knowledge flows
and learning
TRANSPARENCY-66

19. ExtentofInvestmentRiskExtentofInvestmentRisk HighHigh
Low
Low HighHigh
Degree of Ownership and ControlDegree of Ownership and Control
ExportingExporting
LicensingLicensing
FranchisingFranchising
Strategic AllianceStrategic Alliance
Joint VentureJoint Venture
Wholly Owned
Subsidiary
PHEA V. 2012
Modes of entry into international markets
Entering new
markets
Reducing costs in
the value chain
Development and
diffusion (distribution)
of new technologies
Standardized product extending into foreign markets
Advantage: avoids expense of establishing operations in host
country & Disadvantages:
High costs of transportation and possible tariffs
Low control over handling of products in foreign market
Special case of licensing
and longer term of license
Advantage: licensee assumes risks (fixed and variable
costs of mfg., and mktg.)
Disadvantages: little control, limited returns, risk that
licensee will learn how to develop product on its own
 Direct investments in other countries
 Foreign direct investment (FDI/DFI)
 Home firm puts up 100% of equity

20. International strategy:
summary
• International business another form of
diversification
• National advantage in specific
industries a product of four factors:
diamond of national advantage (Exhibit
7.1, p. 244)
• Motivations and risks
PHEA V. 2010

21. International strategy:
summary
• Four basic strategies
– International
– Global
– Multidomestic
– Transnational
• Four basic modes of entry
– Exporting, licensing and franchising,
strategic alliances and joint ventures,
wholly owned subsidiaries
PHEA V. 2010