Chapter 8 Looking at International Strategies OBJECTIVES 1 Define international strategy and identify its implications for the strategy diamond 2 Understand why a firm would want to expand internationally and explain the relationship between international strategy and competitive advantage 3 Describe different vehicles for international expansion 4 Apply different international strategy configurations 5 Outline the international strategy implications of the static and dynamic perspectives 2 DELL GOES TO CHINA Strategic decisions If we re not in what will soon be the second biggest PC market in the world then how can Dell possibly be a global player U S China Vehicles Assemble and distribute itself Partner Staging Consumers first then corporations Corporations first Dell became China s largest computer system provider in just 5 years 3 INTERNATIONAL PRESENCE OF SELECTED MULTINATIONAL CORPORATIONS MNCs What is international strategy Planning for future cross border activities Sales in domestic Total sales Millions Sales in foreign markets Company Domestic market Products Nokia Finland Cell phones 37 031 Audi Germany Automobiles 29 378 32 68 Clarion Japan Audio equipment 1 540 52 48 Apple U S Computers electronics 8 279 59 41 eBay U S Online auctions 2 165 65 35 Papa John s U S Pizza 917 96 4 market Percent 1 99 Percent International presence varies widely 4 INTERNATIONAL STRATEGY AND THE STRATEGY DIAMOND Staging Arenas When will we go international How quickly will we expand into Which geographic areas will we enter Which channels will we use in those areas international markets Arenas In what sequence will we implement our entry tactics Vehicles Which international Staging Economic logic Vehicles market entry strategies will we use Alliances Acquisitions Greenfield investments Differentiators Economic logic Differentiators How does our international How does being international make our strategy lower our costs raise the prices we can charge or create synergies between our business products more attractive to our customers 5 WHY EXPAND INTERNATIONALLY Domestic markets in developed countries have slow growth while capital markets expect high growth The pressure for cost reductions and efficiency continues to grow Necessitates examining cost savings by sourcing across borders Chicken and egg problem Knowledge is not uniformly distributed around the world Creates opportunities for knowledge rich countries Customers are becoming global both consumers and corporations Competitors are globalizing 6 PROS VS CONS OF INTERNATIONAL EXPANSION Many international expansions fail Why Pepsi s ambitious expansion in the Newness can be a disadvantage 1990s resulted in a decreased international market share Wal Mart s international businesses perform poorly relative to its U S business e g your firm must move up the learning curve Foreignness can be a liability e g your managers may not understand local culture Governance and coordination costs increase as you manage from a distance 7 KEY FACTORS GLOBAL ECONOMIES OF SCALE Key factors Global economies of scale Global expansion may be attractive if it allows you to leverage fixed assets over new markets Pharmaceutical firms such as Pfizer can leverage large R D budgets CitiGroup McDonald s and Coca Cola can leverage brands MITY can leverage its excess capacity to produce chairs and thereby reduce average costs 8 KEY FACTORS LOCATION Key factors Global economies of scale Location Choosing the right location can provide advantages in terms of Input costs Competitors Demand conditions Regulatory environment Presence of complements 9 THE CAGE DISTANCE FRAMEWORK Cultural distance Administrative distance Geography distance Economic distance Different languages Absence of colonial ties Physical remoteness Differences in consumer incomes Different ethnicities lack of connective ethnic or social networks Absence of shared monetary or political association Lack of a common border Differences in costs and quality of Political hostility Different religions Size of country Government policies Different social norms Institutional weakness Weak transportation or communication links Attributes creating distance Lack of sea or river access Differences in climates Natural resources Financial resources Human resources Infrastructure Intermediate inputs Information or knowledge Industries or products affected by distance Products have high linguistic content TV Government involvement is high in industries that are Producers of staple goods Products affect cultural or electricity national identity of Producers of other consumers foods entitlements drugs Product features vary in Large employers framing terms of size cars Large suppliers to government standards electrical mass transportation appliances or packaging National champions Products carry country aerospace specific quality Vital to national security associations wines telecom Exploiters of natural resources oil mining Subject to high sunk costs infrastructure Source Recreated from www business standard com general pdf 113004 01 pdf Products have a low value ofweight or bulk ratio cement Nature of demand varies with income level cars Products are fragile or perishable glass fruit Economies of standardization or scale are important mobile phones Communications and connectivity are important financial services Local supervision and operational requirements are high many services Labor and other factor cost differences are salient garments Distribution or business systems are different insurance Companies need to be responsive and agile home appliances 10 KEY FACTORS MULTIPOINT COMPETITION Key factors Global economies of scale Location Multipoint competition Expanding into a new market may provide an opportunity for a stronghold assault For example French tire maker Michelin had negligible presence in the U S in the 1970s It learned of Goodyear s plans to expand into Europe so it launched a counter attack It started selling tires in the U S at or below cost and thereby forced Goodyear to drop prices and cut profits in its core market 11 KEY FACTORS LEARNING AND KNOWLEDGE SHARING Key factors Global economies of scale Location Multipoint competition Learning and knowledge sharing Expanding into a new market can create opportunities to innovate improve existing products in existing markets or develop ideas for new markets SC Johnson for example used technology developed in its European operation a product for