Exploring Strategy

11th edition
Text and Cases

Chapter 9
International
strategy
Learning outcomes
 Assess the internationalisation drivers and potential of
different markets.
 Identify sources of competitive advantage in international
strategy, through both exploitation of local factors and
global sourcing.
 Understand the difference between global integration
and local responsiveness and four main types of
international strategy.
 Rank markets for entry or expansion, taking into account
attractiveness, cultural and other forms of distance and
competitor retaliation threats.
 Assess the relative merits of different market entry
modes, including joint ventures, licensing and and
franchising and wholly owned subsidiaries.
International strategy: main themes
International and global strategy
• International strategy refers to a range of options for operating outside an
organisation’s country of origin.
• Global strategy involves high coordination of extensive activities dispersed
geographically in many countries around the world.

N.B. Global strategy is just one kind of

international strategy.
Internationalisation drivers (1 of 2)

Market drivers

− Similar customer needs (e.g. credit cards).

− Global customers (e.g. car components).

− Transferable marketing (e.g. Coca-Cola).

Cost drivers

− Scale economies (e.g. R&D in aircraft manufacturing).

− Country-specific differences (e.g. clothing: manufacturing in Bangladesh/design in

Paris).

− Favourable logistics (e.g. low cost of transporting microchips).

Internationalisation drivers (2 of 2)
Government drivers
− Trade policies (e.g. reduction of trade barriers in the EU; WTO policies).
− The liberalisation and adoption of free markets.
− Technical standardisation (e.g. in electronics).
Competitive drivers
− Interdependence (e.g. global coordination between subsidiaries in different
countries).
− Global competitors (e.g. rivals may use profits to cross subsidise aggressive
moves).
Locational advantage:
Porter’s Diamond
Porter’s Diamond – explains why some locations tend to produce firms with
competitive advantages in some industries more than others.

The four drivers in Porter’s Diamond arise from:

 local factor conditions;
 local demand conditions;
 local related and supporting industries;
 local firm strategy, industry structure and
rivalry.
 Porter’s Diamond – the determinants of national
advantages

Source: Adapted with permission of The Free Press, a Division of Simon & Schuster, Inc., from The Competitive Advantage of Nations by Michael E. Porter.
Copyright © 1990, 1998 by Michael E. Porter. All rights reserved.
Global sourcing

Global sourcing refers to purchasing services and components from the most
appropriate suppliers around the world, regardless of their location.

The advantages include:

 Cost advantages: e.g. labour costs,
transportation and communications costs, taxation
and investment incentives.
 Unique local capabilities: e.g. centres of
excellence in R&D clusters globally.
 National market characteristics and national
reputation for a particular product.
Locational advantages

Locational advantages can be due to:

• Cost advantages including labour costs,
transportation and communications costs and
taxation and investment incentives e.g.
employing software engineers in India.
• Unique local capabilities. European pharma
firms locating in Boston and California to tap
into local research expertise.
• National market characteristics.
Differentiated product offerings aimed at
different market segments e.g. Gibson guitars.
The global–local dilemma

The global–local dilemma relates to the

extent to which products and services may
be standardised across national boundaries
or need to be adapted to meet the
requirements of specific national markets.
International strategies
Four international strategies (1 of 4)
Export strategy:
• Leverages home country capabilities, innovations and products in foreign
markets.
• Used when pressure for both global integration and local responsiveness is
low.
• Suitable for companies with strong brands (e.g. Google).
• The key risk is a home country-centred view in contrast to skilled local
rivals.
Four international strategies (2 of 4)

Multi-domestic strategy:

• Maximises local responsiveness – different product offerings for different

countries.

• A low level of international coordination.

• Organisation is like a collection of relatively independent units.

• Commonly found in marketing-orientated companies (e.g. food

companies).

• Risks include manufacturing inefficiencies and brand dilution.

Four international strategies (3 of 4)

Global strategy:

• Maximises global integration with little or no local adaptation of

products/services.

• Standardised products are deemed to suit all markets and efficient

production is emphasised through economies of scale.

• Geographically dispersed activities are centrally controlled from

headquarters.

• Common for commodity products (e.g. cement) but also might include
IKEA.
Four international strategies (4 of 4)
Transnational strategy:
• Complex strategy that maximises local responsiveness and global
coordination.
• Aims to maximise learning and knowledge exchange between dispersed
units.
• Efficient operations but products/services adapted to local conditions.
• Hard to achieve but General Electric is a possible example.
Market selection and entry

Market characteristics

Four elements of the PESTEL framework are

particularly important in comparing countries for
entry:
 Political – political environments vary widely
between countries and can alter rapidly.
 Economic – key comparators are gross domestic
product and disposable income indicating the
potential size of the market.
 Social – factors like population characteristics
and lifestyle and cultural differences.
 Legal – countries vary widely in their legal
The CAGE framework (1 of 2)

Cultural Administrative and

distance political distance

Geographic Economic/wealth
distance distance
The CAGE framework (2 of 2)

• Cultural distance – differences in language, ethnicity, religion and social

norms.
• Administrative and political distance – compatibility of administrative,
political or legal traditions.
• Geographic distance – not just miles but also aspects such as size, sea-
access and the quality of communications.
• Economic/wealth distance – wealth and income differences.
International cross-cultural comparison

Note: Based on a survey of managers on standard dimensions (selection presented here).

Source: M. Javidan, P. Dorman, M. de Luque and R. House, ‘In the eye of the beholder: cross-cultural lessons in leadership from Project GLOBE’, Academy of Management
Perspectives (February 2006), pp. 67–90 (Figure 4: USA vs China, p. 82). (GLOBE stands for ‘Global Leadership and Organisational Behaviour Effectiveness’.)
Competitive characteristics

Country markets can be assessed according to three criteria:

Market attractiveness to the new

entrant.
The likelihood and extent of defender’s
reaction.
Defenders’ clout – the relative power of
defenders to fight back.
International competitor retaliation

Note: Each bubble represents a country and its size indicates defender’s relative clout
Source: Reprinted by permission of Harvard Business Review. Exhibit adapted from ‘Global gamesmanship’ by I. MacMillan, S. van Putter and R. McGrath, May 2003.
Copyright © 2003 by the Harvard Business School Publishing Corporation. All rights reserved.
The staged international
expansion model
The staged international expansion model proposes a
sequential process whereby companies gradually increase
their commitment to newly entered markets, as they build
market knowledge and capabilities.
This is challenged by two phenomena:
•‘Born-global firms’ – new, small firms that
internationalise rapidly (usually in new technology
industries).
•Emerging-country multinationals – building unique
capabilities in the home market but exploiting them in
international markets very quickly.
Modes of entry

Export

Licensing or franchising

Joint ventures

Wholly owned subsidiaries

Table 9.1 Comparison of entry mode strategies
Export
Advantages
 No need for operational
facilities in host country
 Economies of scale in the
home country
 Internet can facilitate export
marketing opportunities.
Disadvantages
 Lose any location advantages
in the host country
 Dependence on export
intermediaries
 Exposure to trade barriers
 Transportation costs.
Licensing and franchising
Advantages Disadvantages
 Contractual source of income  Difficult to identify good
 partner
Limited economic and
financial exposure.  Loss of competitive
advantage
 Limited benefits from host
nation.
Joint ventures
Advantages
 Shared investment risk
 partners
Complementary resources
 Maybe a requirement for
market entry.
Disadvantages
 Difficult to find good
 Relationship management
issues
 Loss of competitive
advantage
 Difficult to integrate and
coordinate.
Wholly owned subsidiaries
Advantages Disadvantages
 Full control  Substantial investment and
 commitment
Integration and co-ordination
possible  Acquisitions may create
 integration/ coordination issues
Rapid market entry through
acquisitions  Greenfield investments are
 time consuming and
Greenfield investments are
unpredictable.
possible and may be
subsidised.
Subsidiary roles in multinational firms

Source: Reprinted by permission of Harvard Business School Press. From Managing across Borders: The Transnational Solution by C.A. Bartlett and S. Ghoshal. Boston, MA 1989,
pp. 105–11 . Copyright © 1989 by the Harvard Business School Publishing Corporation. All rights reserved.
Internationalisation and performance

Inverted U-curve – complexity may erode

the advantages of internationalisation

Service-sector disadvantages –
internationalisation may only work
well for manufacturing firms

Internationalisation and product diversity

Summary (1 of 2)
 Internationalisation potential in any particular market
is determined by Yip’s four drivers of
internationalisation: market, cost, government and
competitors’ strategies.
 Besides firm-specific advantages (see Chapter 3), there
are geographic sources of advantage in international
strategy that can be drawn from both national sources
of advantage, as captured in Porter’s Diamond, and
global sourcing through the international value system.
 There are four main types of international strategy,
varying according to extent of coordination and
geographical configuration: export strategy, multi-
domestic strategy, global strategy and
transnational strategy.
Summary (2 of 2)
 Market selection for international entry or expansion
should be based on attractiveness, institutional voids
multi-dimensional measures of distance and
expectations of competitor retaliation.
 Entry mode strategies into new markets include
export, licensing and franchising, joint ventures and
overseas wholly owned subsidiaries.
 Subsidiaries in an international firm can be managed
by portfolio methods just like businesses in a
diversified firm.
 Internationalisationhas an uncertain relationship to
financial performance, with an inverted U-curve
warning against over-internationalisation.