International Strategy:

Creating Value in Global Markets

Chapter Seven

McGraw-Hill/Irwin Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 The Global Economy: A Brief
Overview
Globalization
the increase in international exchange,
including trade in goods and services as well
as exchange of money, information, ideas,
and information.
the growing similarity of laws, rules, norms,
values, and ideas across countries.

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 Factors Affecting
a Nations Competitiveness
Factor endowments
The nations position in factors of production,
such as skilled labor or infrastructure,
necessary to compete in a given industry.
Demand conditions
The nature of home-market demand for the
industrys product or service.

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 Factors Affecting
a Nations Competitiveness (cont.)
Related and supporting industries
The presence or absence in the nation of
supplier industries and other related
industries that are internationally competitive.

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 Factors Affecting
a Nations Competitiveness (cont.)
Firm strategy, structure, and rivalry
The conditions in the nation governing how
companies are created, organized, and
managed, as well as the nature of domestic
rivalry.

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Related and Supporting Industries
Related and supporting industries
Enable firms to manage inputs more
effectively
Allow joint efforts among firms

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 A Companys Motivation for
International Expansion
Increase the size of potential markets
Attain economies of scale
Taking advantage of arbitrage
opportunities
Extend the life cycle of a product
Optimize the physical location for every
activity in its value chain

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 Two Opposing Pressures: Reducing Costs
and Adapting to Local Markets
Strategies that favor global products and
brands
Should standardize all of a firms products for
all of their worldwide markets
Should reduce a firms overall costs by
spreading investments over a larger market

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 Two Opposing Pressures: Reducing Costs and
Adapting to Local Markets
Three assumptions
1. Customer needs and interests worldwide are
becoming more homogeneous
2. People are willing to sacrifice product
preferences for lower prices at high quality
3. Economies of scale in production and
marketing can be achieved through supplying
global markets

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 Two Opposing Pressures: Reducing Costs
and Adapting to Local Markets
Assumptions may not always be true
Product markets vary widely between nations
In many product and service markets, there
appears to be a growing interest in multiple
product features, quality and service

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 Two Opposing Pressures: Reducing Costs and
Adapting to Local Markets
Technology permits flexible production
Cost of production may not be critical to product
cost
Firms strategy should not be product-driven

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 International Strategy
An international The primary goal of
strategy is based on the strategy is
diffusion and worldwide exploitation
adaptation of the of the parent firms
parent companys knowledge and
knowledge and capabilities.
expertise to foreign
markets.

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 Multi-domestic Strategy
Emphasis is differentiating products and
services to adapt to local markets
Authority is more decentralized

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 Transnational Strategy
Optimization of tradeoffs associated with
efficiency, local adaptation, and learning
Firms assets and capabilities are
dispersed according to the most beneficial
location for a specific activity

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Entry Modes of International
Expansion

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