Exploring Strategy
Twelfth Edition
Part II
Strategic choices
Chapter 9
International strategy
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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 strategy
entry modes, including joint ventures, licensing and
and franchising and wholly owned subsidiaries.
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International strategy: main themes
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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.
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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).
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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).
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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.
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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
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The international value
system (1 of 2)
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: for example, labour costs,
transportation and communications costs, taxation and
investment incentives.
• Unique local capabilities: for example, centres of
excellence in R&D clusters globally.
• National market characteristics and national
reputation for a particular product.
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The international value
system (2 of 2)
Locational advantages can be due to:
• Cost advantages including labour costs, transportation
and communications costs and taxation and investment
incentives for example, 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 for example, Gibson guitars.
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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.
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International strategies
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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.
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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.
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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.
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Four international strategies (4 of 4)
Transnational strategy:
• Complex strategy that try to maximise local
responsiveness and global coordination.
• Aims to exploit learning and knowledge
exchange between dispersed units.
• Efficient operations but products/services
adapted to local conditions.
• Very hard to achieve but General Electric
is a possible example.
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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 – variation in countries’ legal regimes. .
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The CAGE framework (1 of 2)
Cultural Administrative and
distance political distance
Geographic Economic/wealth
distance distance
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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.
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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
Organizational Behavior Effectiveness’.)
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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.
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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.
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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.
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Modes of entry
Export
Licensing or franchising
Joint ventures
Wholly owned subsidiaries
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Comparison of entry mode strategies
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Export
Advantages Disadvantages
• No need for • Lose any location
operational facilities in advantages in the
host country host country
• Economies of scale in • Dependence on
the home country export intermediaries
• Internet can facilitate • Exposure to trade
export marketing barriers
opportunities. • Transportation
costs.
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Licensing and franchising
Advantages Disadvantages
• Contractual source of • Difficult to identify
income good partner
• Limited economic and • Loss of competitive
financial exposure. advantage
• Limited benefits from
host nation.
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Joint ventures
Advantages Disadvantages
• Shared investment • Difficult to find good
risk partners
• Complementary • Relationship
resources management issues
• Maybe a requirement • Loss of competitive
for market entry. advantage
• Difficult to integrate
and coordinate.
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Wholly owned subsidiaries
Advantages Disadvantages
• Full control • Substantial investment
• Integration and co- and commitment
ordination possible • Acquisitions may create
• Rapid market entry integration/coordination
through acquisitions issues
• Greenfield • Greenfield investments
investments are are time consuming and
possible and may be unpredictable.
subsidised.
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Subsidiary roles in multinational firms
Source: Reprinted by premission 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.
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Internationalisation and performance
Inverted U-curve – complexity may erode
the advantages of internationalisation
Service-sector disadvantages –
internationalisation may work
less well than for manufacturing firms
Internationalisation and product diversity
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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 strategies,
varying according to extent of coordination and
geographical configuration: export strategy,
multi-domestic strategy, global strategy and
transnational strategy.
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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.
• Internationalisation has an uncertain relationship to
financial performance, with an inverted U-curve
warning against over-internationalisation.
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