• 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 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.
− Similar customer needs (e.g. credit cards).
− Global customers (e.g. car components).
− Transferable marketing (e.g. Coca-Cola).
− 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).
− 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).
− Interdependence (e.g. global coordination between subsidiaries in different countries).
− Global competitors (e.g. rivals may use profits to cross subsidise aggressive moves).
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.
• 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.
• 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.
• 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.
• 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.
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 regime..
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.
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.
• No need for operational facilities in host country
• Economies of scale in the home country
• Internet can facilitate export marketing opportunities
• Lose any location advantages in the host country
• Dependence on export intermediaries
• Exposure to trade barriers
• Transportation costs.
• Contractual source of income
• Limited economic and financial exposure
• Loss of competitive advantage
• Limited benefits from host nation.
• Difficult to identify good partner
• Shared investment risk
• Complementary resources
• Maybe a requirement for market entry.
• Difficult to find good partners
• Relationship management issues
• Loss of competitive advantage
• Difficult to integrate and coordinate.
• Full control
• Integration and co-ordination possible
• Rapid market entry through acquisitions
• Greenfield investments are possible and may be subsidised.
• Substantial investment and commitment
• Acquisitions may create integration/ coordination issues
• Greenfield investments are time consuming and unpredictable.
• 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.
• 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.
• What are the current challenges for international business in your country?
• What is the government doing about them?
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