Chapter 8

Chapter 8 - Chapter 8 International Strategy IDENTIFYING...

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Chapter 8 International Strategy IDENTIFYING INTERNATIONAL OPPORTUNITIES: INCENTIVES TO USE AN INTERNATIONAL STRATEGY International strategy refers to selling products in markets outside of the firm’s domestic market to expand the market for their products. Some firms implement an international strategy to secure critical resources, such as petroleum reserves (for the oil industry), bauxite (for the manufacture of aluminum), or rubber (for tire manufacturing). Traditional motives persist, but other emerging motives also drive international expansion. Pressure has increased for global integration of operations, driven mostly by universal product demand. In some industries, technology drives globalization because the economies of scale necessary to reduce costs to the lowest level often require an investment greater than that needed to meet domestic market demand. New large-scale, emerging markets, such as China and India, provide a strong internationalization incentive because of the potential demand in them. Firms expanding into international markets must recognize that many countries have characteristics that are unique and may differ significantly from the traditional European markets into which U.S. firms have expanded. Thus, firms must recognize this and: be capable of managing multiple risks—e.g., financial, economic, political risks be aware of increased pressure for local country or regional responsiveness, especially where cultural differences require customization of goods or services weigh the potential advantages of enhancing the firm’s strategic competitiveness relative to the costs of meeting managerial challenges and product/geographic diversification requirements in international markets Accompanying these traditional and emerging reasons for international expansion, other opportunities available to firms through an international strategy include: increasing the size of potential markets achieving greater returns on capital and/or investment in new product/process developments gaining economies of scale, scope, or learning gaining location-based competitive advantage 1. Increased Market Size Expanding internationally enables firms to increase greatly the size of the potential market for their products. This may be of critical importance if the domestic market is too small to support scale-efficient manufacturing facilities (e.g., the pharmaceutical firms’ push into China). The size of a particular international market affects a firm’s willingness to invest in R&D to build advantages in that market, with larger markets tending to provide higher returns and lower risk. 2. Return on Investment When firms make large investments in such items as plants and equipment and/or research and development, they may need to search beyond their domestic market to be able to earn an adequate return on their investment.
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Note: Many firms accomplish a higher return on investment through reverse engineering. Reverse engineering
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This note was uploaded on 04/01/2012 for the course MGT 4476 taught by Professor Marthabrowski during the Spring '10 term at Troy.

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Chapter 8 - Chapter 8 International Strategy IDENTIFYING...

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