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Unformatted text preview: Competing Across Competing Across Borders
Dr. Daniel Cohen Spring 2009 ILRHR 4640 Key Learning Points Key Learning Points Understand and be able to distinguish between different international strategic approaches Understand the characteristics and outcomes associated with different international strategies Internalize the complexities and risks associated with international strategies Be able to see the limits/constraints of international expansion Multidomestic Strategy Multidomestic Strategy Decisions are decentralized to SBU in each country Products/Services tailored to local markets Business units are independent of each other Assumes markets differ by country or regions Focus on competition in each market Prominent strategy among European firms due to broad variety of cultures and markets in Europe Global Strategy Global Strategy Products are standardized across national markets Decisions regarding businesslevel strategies are centralized in the home office Strategic business units (SBU) are assumed to be interdependent Emphasizes economies of scale Often lacks responsiveness to local markets Requires resource sharing and coordination across borders (hard to manage) Transnational Strategy Transnational Strategy Seeks to achieve both global efficiency and local responsiveness Difficult to achieve because of simultaneous requirements: Strong central control and coordination to achieve efficiency Decentralization to achieve local market responsiveness Must pursue organizational learning to achieve competitive advantage The AAA Approach The AAA Approach Aggregation Adaptation Arbitrage What are they? How does a firm decide which may be best fit? What about integration/Structure? Environmental Trends Environmental Trends Liability of foreignness Legitimate concerns about the relative attractiveness of global strategies AntiAmerican sentiment Difficulty in implementing global strategies Focusing on particular region (s) rather than on global markets Better understanding of the cultures, legal and social norms Regionalization Cultural Distance Distance Between Two Countries Distance Between Two Countries Increases with…
Culturally near vs far Different languages, ethnicities, religions etc… Political instability Weak legal and financial institutions Administrative and Political Distance Geographic Distance Economic Distance Physical remoteness, different climates Different consumer incomes; different information or knowlege Choice of International Entry Mode Choice of International Entry Mode
Type of Entry Exporting Licensing Strategic alliances Acquisition Characteristics
High cost, low Control Low cost, low risk, little control, low returns
Shared costs, shared resources, shared risks, problems of integration Quick access to new market, high cost, complex negotiations, problems of merging with domestic operations New wholly owned subsidiary Complex, often costly, time consuming, high risk, maximum control, potential aboveaverage returns Expanding sales of goods or services across borders: International Diversification and International Diversification and Returns
May increase a firm’s returns May achieve: Economies of scale and experience Location advantages Increased market size Opportunity to stabilize returns International Diversification and International Diversification and Innovation Expansion sales of goods or services across Borders: May yield potentially greater returns on innovations (a larger market) Can generate additional resources for investment in innovation Provides exposure to new products, processes, and knowledge creation Complexity of Managing Complexity of Managing Multinational Firms Expansion into global operations in different geographic locations or markets: Makes implementing international strategy increasingly complex Can produce greater uncertainty and risk May result in the firm becoming unmanageable May cause the cost of managing the firm to exceed the benefits of expansion Exposes the firm to possible instability of some national governments Political risks include: Risk in the International Risk in the International Environment Economic risks are interdependent with political risks and include: Instability in national governments War, both civil and international Potential nationalization of a firm’s resources Differences and fluctuations in the value of different currencies Differences in prevailing wage rates Difficulties in enforcing property rights Unemployment Limits to International Expansion Limits to International Expansion Management Problems Cost of coordination across diverse geographical business units Institutional and cultural barriers Understanding strategic intent of competitors The overall complexity of competition Questions? Questions? ...
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- Spring '09