Chapter 10: International strategy Flashcards
What is international strategy?
It refers to a range of options for operating outside of an organisations country of origin
What are the 4 internationalization drivers? (Yips globalization framework)
- Market drivers
- Cost drivers
- Government drivers
- Competitive drivers
What are the market drivers? (yips globalization framework)
- Similar customer needs
- Global customers
- Transferable marketing
What are the cost drivers? (yip)
1.Scale economics
2. Country-specific differences
3. Favourable logistics
What are the competitive drivers?
- Interdependence between countries
- Competitors global strategies
What are the government drivers?
- Trade policies
- Technical standards
- Host government policies
What are the main reasons for internationalization? (pp)
- Market seeking motives
- Resource seeking motives
- Efficiency seeking motives
- Strategic asset seeking motives
What is the liability of foreigness?
facing additional costs of doing business compared to the locals.
What is the Porters diamond?
Porters diamond suggests four determinants of national advantage; why some countries are better than others in a specific industry; such as the Swiss in private banking or the northern Italians in the leather industry.
- Factor conditions
- Firm strategy, structure and rivalry
- Related and supporting industries
- Demand conditions
What is the international value system?
Sources of geographical advantage is not only from the domestic conditions. It can also be thanks to internationalization. Ericsson is from Sweden but 95% of its sales is from outside Sweden.
So for International companies, advantage also needs to be drawn from the international configuration of their value system. The different skills, resources and costs of countries around the world can be systematically exploited in order to locate each element of the value chain in that country or region where it can be conducted most effecitvely. Large MNC often develop and manage complex global or regional supply chains in this way. This can be achieved through foreign direct investments (FDI) and joint ventures, but also through global sourcing: purchasing services and components from the most appropriate suppliers around the world.
What are the two major locational advantages?
Cost and unique local capabilities
What are the four international strategies?
Export strategy
Multi-domestic strategy
Global strategy
Transnational strategy
- an integrated network of distributed, interdependent resources and capabilities.
- each national unit is a source of ideas and capabilities that can benefit the whole corporation
Where to locate production? (three factors)
- National resource conditions
- Firm-specific advantages
- Tradability issues
How to think when deciding which country to enter?
Countries can initially be compared using standard environmental analysis techniques, such as PESTEL (PESL) or 5 forces for specific industries. But there are specific determinants of market attractiveness that needs to be considered in internationalisation strategy: the inner characteristics of the country and market. A key point is how initial estimates of country attractiveness can be modified by considering various measures of distance and the likelihood of competitor retaliation (response)
What is the CAGE framework?
By Ghemawat. He said that PESL is not enough. He points out that the compatibility of the countries with the internationalizing firm itself and its country of origin is important. So, the MATCH between the countries. Ex: a Spanish firm might be closer to a South American market than an East Asian market and might therefore prefer that market EVEN if its lower ranked on standard criteria.
Ghemawats CAGE framework: emphasizes the importance of the cultural, administrative, geographical and economic distance between county to enter and country of origin.
C=cultural distance
A=administrative and political distance
G=geographical distance
E=economic distance
How can country markets be assessed when considering potential competitor retaliation?
International competitor retaliation refers to actions taken by a company in response to a foreign competitor’s entry into their home market or an important international market. Retaliation is a competitive reaction meant to discourage the competitor from gaining market share or profits in that new territory.
According to three criteria:
1. Market attractiveness to the new entrant based on PESL, CAGE, 5forces
- Defenders reactiveness
- Defenders clout
Which are the 4 entry mode strategies?
- Exporting/importing
- Liscensing or franchising to local partners
- Joint ventures with local companies
- Foreign Direct Investments
What is a foreign direct investment?
FDI, definition: investment abroad in order to control a foreign asset. Much of FDI takes the form of Greenfield ventures, building up your subsidiary from scratch. Or a merger or acquisition. I decide to target the foreign firm.
Why do firms invest abroad? (OLI Framework, John Dunning) aka The Eclectic Paradigm
OLI:
O=ownership advantage
L=location advantage
I=internationalisation advantage
If you meet the OLI criteria, then the firm is likely to engage in FDI (merging, acquiring, Greenfield).
What is Porters competitive advantage of nations?
It extends and adapts traditional theory of comparative advantage to take account of three factors:
international CA is about companies and not countries
SCA depends upon dynamic factors and innovation
the critical role of the national environment is its impact upon the dynamics of innovation and upgrading
What is the nature of international business?
- Value-adding activities of a firm
- International trade
Firms can internationalize through different entry strategies. Which are these?
1.
What is a foreign direct investment?
- Invovles greenfield subsidiaries (setting up your own organically growing firm). building up your subsidiary from scratch.
or
- A merger or acquisition.
Why do firms invest abroad in FDIs according to John Dunning?
One of the key explanations connects to the Eclectic Paradigm or OLI-framework. (John Dunning).
If you meet the OLI Criteria, then the firm is likely to engage in FDI.
Ownership advantage:
aka firm specific advantage or just competitive advantage. means that you have a competitive advantage that allows you to compete and outcompete others. it needs to be sufficiently great to compete or outcompete the local businesses in the target country. because there is something called liability of foreigness. you don’t know about the nitty gritty stuff always about the host markets. To do this you need a great cost or differentiation advantage.
Ownership: Do I have an ownership advantage that is sufficiently large to allow me to overcome the liability of foreigness? If yes -> move on to 2.
Location advantage: similar to the notion of comparative advantages. locational advantages echoes comparative advantages. specific advantages that exist in the host country. low labour costs. access to natural resources. skilled labour. its a synergetic type of argument. my competitive advantage feeds into location factors. OR the comparative advantage of my home country feeds so much in to my competitive advantage and has synergetic effects that I am still able to overcome the liability of foreigness.
Internationalization advantages: If a company decides to internalize, they are more likely to engage in foreign direct investment (FDI). This is because FDI allows the company to own and control its operations directly in a different country, which aligns with the goal of internalization.
Make or buy. Is it more efficient to internalize?
