Figure 8.1 Opportunities and Outcomes of International Strategy
Identifying International Opportunities • International Strategy – A strategy through which the firm sells its goods or services outside its domestic market. • Incentives to use international strategy – New market expansion extends product life cycle. – Gain access to materials and resources. – Integration of operations on a global scale – Better use of rapidly developing technologies – International markets yield potential new opportunities.
Classic Rationale for International Diversification: Extend a Product’s Life Cycle Production is standardized and relocated to low cost countries Product demand develops and firm exports products Firm introduces innovation in domestic market Foreign competition begins production Firm begins production abroad
International Strategy Benefits • Increased Market Size – Domestic market may lack the size to support efficient scale manufacturing facilities. • 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, distribution. – Can spread costs over a larger sales base. – Can increase profit per unit.
International Strategy Benefits • Location Advantages – Low cost markets aid in developing competitive advantage by providing access to: • Raw materials • Transportation • Lower costs for labor • Key customers • Energy
Figure 8.2 Incentives and Basic Benefits of International Strategy
Figure 8.3 Determinants of National Advantage, p. 233-235
Determinants of National Advantage • Factors of production – The inputs necessary to compete in any industry Ø Labor Ø Land Ø Natural resources Ø Capital Ø Infrastructure • Basic factors – Natural and labor resources • Advanced factors – Digital communication systems and an educated workforce
Determinants of National Advantage • Demand Conditions – Characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services. • Size of the market segment can lead to scale-efficient facilities. • Efficiency can lead to domination of the industry in other countries. • Specialized demand may create opportunities beyond national boundaries.
• Related and Supporting Industries – Supporting services, facilities, suppliers and so on.
- Spring '15
- Business, Globalization