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International Strategy : A strategy through which the firm sells its goods or services

outside its domestic market. The use of international strategies is increasing not only

because of traditional motivations, but also for emerging reasons. Traditional motives

include extending the product life cycle, securing key resources, and having access to

low-cost labor. Emerging motivations focus on the combinations of the Internet and

mobile telecommunications, which facilitates global transactions. Also, there isincreased pressure for global integration as the demand for commodities becomes

borderless, and yet pressure is also increasing for local country responsiveness.

Four Benefits :

Increased Market Size

Domestic market may lack the size to support efficient scale manufacturing

facilities.

Return on Investment

Large investment projects may require global markets to justify the capital

outlays.

Weak patent protection in some countries implies that firms should expandoverseas rapidly in order to preempt imitators.

Economies of Scale (or Learning)

Expanding size or scope of markets helps to achieve economies of scale in

manufacturing as well as marketing, R&D or distribution.

Can spread costs over a larger sales base.

Can increase profit per unit.

Location Advantages

Low cost markets aid in developing competitive advantage by providing access to:

Raw materials

Transportation

Lower costs for labor

Key customers

Energy

Four Determinants

Factors of production : These national factors often provide initial advantages,

which are subsequently built upon. Each country has its own particular set of

factor conditions; hence, in each country will develop those industries for

which the particular set of factor conditions is optimal.

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Demand Conditions : Describes the state of home demand for products and

services produced in a country.Home demand conditions influence the shaping

of particular factor conditions. They have impact on the pace and direction of

innovation and product development. According to Porter, home demand is

determined by three major characteristics: their mixture (the mix of customers

needs and wants), their scope and growth rate, and the mechanisms thattransmit domestic preferences to foreign markets.

Related and Supporting IndustriesThe existence or non-existence of internationally competitive supplying

industries and supporting industries.

One internationally successful industry may lead to advantages in other related

or supporting industries. Competitive supplying industries will reinforce

innovation and internationalization in industries at later stages in the value

system. A typical example is the shoe and leather industry in Italy. Italy is not

only successful with shoes and leather, but with related products and services

such as leather working machinery, design, etc.

Firm Strategy, Structure, and RivalryThe conditions in a country that determine how companies are established, are

organized and are managed, and that determine the characteristics of domestic

competition

Porter argues that domestic rivalry and the search for competitive advantage

within a nation can help provide organizations with bases for achieving such

advantage on a more global scale.

A multidomestic corporationis a multinational corporation that

decentralizes management and other decisions to the local country. Ex :

Nestle,With operations in almost every country on the globe, its managers

match the company's products to its consumers

Global companycentralizes its management and other decisions in the home

country. These companies treat the world market as an integrated whole and

focus on the need for global efficiency. Ex : Sony, Apple, etc

a transnational Other companies are going international by eliminating

structural divisions that impose artificial geographical barriers. Ex : GE,

Exxon, Honda, etc

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Type of Entry Characteristics

Exporting High cost, low control (The firm has no foreign

manufacturing expertise and requires investment only in distribution.)

Licensing Low cost, low risk, little control, low returns (The firm needsto facilitate the product improvements necessary to enter foreign

markets.)

Strategic alliances Shared costs, shared resources, shared risks, problems

of integration (e.g., two corporate cultures) (The firm needs to connect with

an experienced partner already in the targeted market)

Acquisition Quick access to new market, high cost, complex negotiations,

problems of merging with domestic operations (The firm needs to reduce its

risk through the sharing of costs.)

New wholly owned subsidiary Complex, often costly, time consuming,high risk, maximum control, potential above-average returns (the number of

firms in the industry is growing fast)

Risks in an International Environment

Political RisksInstability in national governments

War, both civil and international

Potential nationalization of a firms resources

Economic RisksDifferences and fluctuations in the value of different currencies

Differences in prevailing wage rates

Difficulties in enforcing property rightsUnemployment