Ch.10 International Strategy Flashcards
Name some of the general pressures for increasing internationalisation.
Reduced barriers to international trade and investment.
Enhanced international legal frameworks.
Improved communications, including the internet and cheaper air travel.
Emergence of new global economic centers like China, India, and Brazil.
Name some of the challenges and counter-trends of internationalization.
Some industries still face trade barriers, especially defense-related ones.
Companies like Huawei and Facebook face restrictions in countries like the USA and China, respectively.
Market tastes differ significantly across regions, e.g., chocolates.
The COVID pandemic exposed vulnerabilities in global value chains.
The misconception of ‘global boloney’ and the increasing tendencies of de-globalisation.
Describe Yip’s Globalisation framework. What are the four different drivers?
Market Drivers: Based on standardized market characteristics, such as similar customer needs and tastes (like the need for credit cards), the presence of global customers, and transferable marketing (brands like Coca-Cola).
Cost Drivers: International operations can lead to cost reductions through scale economies, tapping into
advantage of country-specific differences, and favorable logistics.
Government Drivers: Factors include reduced trade and investment barriers, economic openness (with notable exceptions), the liberation and adoption of free markets and technology standardization.
Competitive Drivers: Interdependence between country operations increases the pressure for global coordination. The presence of globalised competitors increases the pressure to adopt global strategy in response beacause competitors may use one country’s profits to cross-subsidise the operations in another. the strategies adopted by competitors.
What are the key point of Liability of Foreignness?
Entering foreign markets poses challenges due to inherent advantages possessed by local competitors, such
as their deeper understanding of the local market and established relationships with customers, suppliers, authorities.
Successful internationalization necessitates leveraging both firm-specific competitive advantages and country-specific advantages. An example of failure due to limited competitive advantage in a foreign market is Tesco’s venture into the USA.
Internalisation requires building on the sources of sustainable competitive advantage (ch. 5, 8) including the
orgs unique strengths in resources and capabilities and business strategy. Competitive advantage in an international context also depends on country-specific or geographical advantages.
Describe Porter’s Diamond model. What are the four determinants of locational advantage?
Countries or regions often have unique competitive advantages, leading to them being renowned for specific
industries.
Porter’s diamond framework identifies four determinants of locational advantage:
Local Factor Conditions: Factors of production like raw materials, land, and labor. Factor condition advantages
at national level can translate into general competitive advantages for national firms in international markets.
Swiss language ability - banking industry.
Local Home Demand Conditions: The nature of domestic customers can become a source of competitive
advantage. Sophisticated and demanding customers at home → train a company to be effective overseas.
Italy fashion.
Local Related and Supporting Industries: Local clusters of industries that support and reinforce each other. often regional bases → easier personal interaction
Local Firm Strategy, Industry Structure, and Rivalry: Strategic approaches, industry dynamics, and
competition in a country.
International Value System: What are the two major locational advantages?
Cost Advantages: Factors like labour costs, transportation, communication, taxation, and investment incentives. The migration of software tasks from the US and Europe to India, and then to even cheaper markets like Thailand and Vietnam, exemplifies this.
Unique Local Capabilities: Leveraging unique skills or capabilities of a particular location to enhance
competitive advantage. For instance, Facebook’s decision to place server centres in northern Sweden was influenced by the region’s cold climate, local digital technology skills, and Sweden’s low CO2 emissions policy.
Describe the Global-Local dilemma. Global integration vs Local responsiveness.
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.
The central challenge in international strategy is balancing pressures for global integration against those for local responsiveness. = Contradictory demands on orgs international strategy.
Global integration aims for operational coordination across countries, whereas local responsiveness tailors
strategies to individual countries’ unique demands.
Processed food - highly national specific - companies decentralise operations and control as near as possible
to the local market.
Name the four basic International strategies.
Export strategy, Multi-domestic strategy, Global strategy and Transnational strategy
International strategies: Describe the Export strategy.
Focuses on leveraging domestic capabilities in foreign countries.
Advantageous when both pressures of global integration and local responsiveness are low.
Suited for companies with unique capabilities and strong brand reputations.
Downside (not for Rolex): limits of a home country centralised view of the business with risks of skilled
local competitors getting ahead.
Example: Rolex.
International strategies: Describe the Multi-domestic strategy.
Maximizes local responsiveness with unique product/service offerings for each country.
It treats each country distinctly and grants considerable autonomy to each country manager.
Org = collection of relatively independent units with value chain activities adapted to specific local conditions.
Example: Nestlé tailoring products to individual countries.
International strategies: Describe the Global strategy.
Sees the world as one marketplace and stresses the importance of standardized products/services.
Focuses on efficiency, with centralized control from headquarters.
Examples include Cemex and IKEA.
International strategies: Describe the Transnational strategy.
(Most complex strategy - tries to maximise both responsiveness and integration. Goal: unite key advantages of the multidomestic and global strategies while minimising the disadvantages.)
A blend of the multi-domestic and global strategies, attempting to combine their benefits.
Aims for efficiency and local responsiveness, promoting knowledge exchange between units in different
countries.
Products and activities adapted to each country.
(Coordination is not centralised at home or in foreign countries, knowledge is accepted wherever it comes from.)
(Advantage: capacity to support efficiency and effectiveness while at the same time being able to serve local needs and leverage learning across units. But, difficult to implement - complexity and fundamental trade-off
between integration and responsiveness.)
Example: ABB, which later transitioned to a more regional strategy.
Describe the Regional strategy.
Many companies prioritize regions (like Europe or North America) over individual countries for their
international expansions.
A compromise between local and global strategies, aiming to achieve economic efficiency and location
benefits while also enabling local adaptation.
Example: Over 85% of cars sold within regions like Europe, North America, and Japan/Asia are manufactured within those regions.
Describe the Arbitrage strategy.
Multinationals exploit price differences between markets, benefiting from disparities in costs, knowledge, capital, and taxes.
Example: Walmart sourcing products from China to sell in the USA.
Name two strategic implications of international strategies.
- These strategies aren’t rigid categories; organizations often blend approaches based on evolving
internationalization drivers and market conditions. - Different international strategies demand varied organizational structures.
This section underscores the challenges faced by organizations in navigating the global-local dilemma in international expansion. It emphasizes the need for companies to critically evaluate their strengths, market conditions, and internationalization drivers to determine the most suitable international strategy.
What are country and market characteristics?
Standard measures like GDP and political stability can gauge a country’s appeal, but deeper aspects, such as
institutional infrastructure, also matter.
The PESTEL framework helps assess political, economic, social, and legal aspects of potential markets. Helps
evaluating and comparing countries for entry
Importance of compatibility between the country and the firm is stressed. For example, a Spanish company might
feel “closer” to a South American market than an East Asian one.
Describe Ghemawat’s CAGE framework.
Ghemawat’s ‘CAGE framework’ measures the match between countries and companies according to 4 dimensions of distance.
Emphasises the importance of
1. cultural
2. administrative
3. geographical
4. economic
distance between countries and companies.
Why is considering the potential for competitor retaliation crucial? What three criteria can help to assess country markets?
The choice of country can be influenced by the
defender’s reactiveness and clout.
Country markets can be assessed according to 3 criteria:
Market attractiveness to the new entrant based on PESTEL, CAGE, 5 forces analyses for example.
Defender’s reactiveness, More reactive if markets important to defender and has managerial capabilities
to coordinate its response.
Defender’s clout. Power of defender to fight back. Comes from share in market but can be influenced by connections to other powerful local players (retailers, gov)
Describe Entry mode strategies. What are the four different entry mode strategies?
Entry mode strategies Differ in the degree of resource commitment to a particular market and the extent to which an organisation is operationally involved in a particular location.
Exporting: Least resource-intensive, fewer risks, may incur transportation costs.
Licensing or Franchising: Contractual agreements with local firms. Examples include Coca-Cola and
McDonald’s. Local partners bear primary financial and political risk = resource commitment can be low.
Joint Ventures: Shared ownership with a local partner, as seen with Volvo in China. resource and financial commitments limited vs full ownership. Risks also reduced. Drawback: losing control over technologies to
partner and conflicts.
Wholly Owned Subsidiaries: Full control, either through setting up new greenfield operations or acquiring
local firms. Examples include Geely’s acquisition of Volvo Cars and Tata Motors’ acquisition of Jaguar and Land Rover.
What are the four subsidiary roles and strategies in multinational firms?
- Strategic Leaders:
These are subsidiaries that possess crucial resources and capabilities and are situated in countries vital for the firm’s competitive edge.
Their importance could stem from factors like the size of the local market or access to key technologies.
Examples include Japanese and European subsidiaries in the USA. They are pivotal and can even have
entrepreneurial potential for the entire multinational corporation. - Contributors:
These subsidiaries are in countries of lesser strategic importance but have significant internal capabilities, allowing them to play essential roles within the multinational organization. An example provided is the Australian subsidiary of Ericsson, which developed specialized mobile phone
systems. - Implementers:
While they might not directly enhance the firm’s competitive edge, implementers are crucial for generating vital financial resources.
Their role can be likened to the ‘cash cows’ in the Boston Consulting Group matrix. However, there’s a risk they could turn into ‘dogs’ if not managed properly. - Black Holes: These are subsidiaries located in strategically important countries but lack significant resources or
capabilities.
They require heavy investment, drawing a comparison to astrophysical black holes that pull matter in. An example includes many subsidiaries of US and European firms that faced challenges in Japan for extended
periods.
