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Summary of International Strategic Management
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INTERNATIONAL STRATEGICMANAGEMENT
SUMMARY
LECTURE 1 : INTRODUCTION
INTERNATIONAL STRATEGIC MANAGEMENT
Strategies = an integrated and coordinated set of commitments and actions designed to exploit core competencies
to gain a competitive advantage.
- Core competencies = the roots of the organization
- Competitive advantage = create more value than the competition
Strategic management = the ongoing process that evaluates the firm – its competitors – and sets goals and
strategies to meet existing and potential competitors: and then reassesses these to determine whether it has
succeeded or needs replacement with new strategies.
International strategic management = a management planning process aimed at developing strategies to allow an
organization to expand abroad and compete international.
INTERNATIONALIZATION
Four manners for internationalization:
1. Domestic configuration
2. Export configuration
3. Multinational configuration
4. Global configuration
DOMESTIC CONFIGURATION
= operating in one country – sourcing in one country – supply in one country : everything is done in one country for
one country.
Value is generated through consumer and producer surplus :
o Consumer surplus : consumers prefer beer than capital (consumers spend capital for beer)
o Producer surplus: consumers spend more than the costs of production
The international strategic manager does not have a role in domestic configuration
The problem with domestic configuration are :
o Small market (limited to the size of the domestic countries)
o Limited growth potential
o High market dependence
EXPORT CONFIGURATION
,= differentials in price (foreigners are willing to spend more) and demand (foreigners are able to drink more beer)
create opportunities abroad.
Value is generated if the differentials in price and demand are high enough and the costs of supplies
(transportation costs) are low enough to create profit.
The international strategic manager defines market attractiveness and selects export markets.
The problem with export configuration is the transportation costs that create inefficiencies.
MULTINATIONAL CONFIGURATION
= replicating the firms operations to other countries.
Value is generated if :
o Costs are minimized.
o Foreign consumers are willing to spend foreign prices for domestic goods (produce a Dutch beer
in China with Chinese production costs and the foreign consumers are still willing to spend
premium prices for a Dutch beer while it is produced in China).
The international strategic manager must consider besides defining market attractiveness and selecting
export markets:
o Organizing subsidiaries: what to set up where and with who.
o Managing international staff : who to hire or to send abroad.
The problem with multinational configuration is :
o The duplication of functions (using the same organization processes without taking differences in
countries into account).
o Inefficient use of resources.
GLOBAL CONFIGURATION
= firms split their supply chains across countries to maximize profits at each stage to exploit regional differentials in
costs – supply – and demand.
Value is generated through functions which are unprofitable in countries moving to locations in which the
functions are profitable.
The international strategic manager must consider besides the tasks in the previous models :
o Assign functions to countries
o Circulate managers and staff between functions
o Ensure communication between functions
The problem with global configuration is nothing since it is the most efficient model known.
,GLOBALIZATION
Globalization = the process of internationalization integration arising from the interchange of world views –
products – ideas – and other aspects of culture.
4 factors for globalization:
Political factors Technological factors
- World trade organizations : free trade - Reduction in travel costs
- Deregulations : EU and NAFTA - Increase in communications
- Foreign investments : FDI - Economies of scale
- Free market economic schools
Social factors Competitive factors
- Linguistic standards : English education - Pushed to compete
- Advertising and tastes - Lower costs
- Cultural convergence
INTERNATIONALIZATION ADVANTAGES
- Cost benefits
o Lower production costs
o Lower transportation costs
- Revenue benefits
o Bigger markets with more consumers
- Learning benefits
o Learn from international failures
o Learn from other countries
- Arbitrage benefits
o Find expensive resources cheaper
!!! INTERNATIONALIZATION DISADVANTAGES
4 critical things to be aware of :
1. Liability of foreignness
2. Localization advantages
3. Creation of disadvantages
4. Location bound advantages
LIABILITY OF FOREIGNNESS
= the set of costs based on a particular firms unfamiliarity with the lack of roots in a local environment (a stranger
in a strange land)
The liability of foreignness means :
- That a firm will not have the same success
- That a firm will incur more costs in the foreign market
, LOCALIZATION ADVANTAGES
= The advantages that come when the firm chooses to focus on serving one (local) market rather than all (global)
markets. These advantages come from :
Cultural factors Commercial factors
- Taste - Distribution
- Attitude - Customization
- Behavior - Responsiveness
- Social norms
Technical factors Legal factors
- Standards - Regulations
- Spatial presence - National security issues
- Transportation
- Language
In a market with localization advantages internationalization implies :
- Loss of flexibilities
- Loss of proximities
- Loss of quick response abilities
In other words : in industries there is one force pushing us to globalize and another pushing us to localize.
CREATION OF DISADVANTAGES
= threat of discrimination
LOCATION-BOUND ADVANTAGES
= not all firms can internationalize to understand we have to :
- Identify the competitive advantage
- Determine if it is location-bound
Competitive advantages are location bound if :
- The competitive advantage uses immobile resources
- The competitive advantage is based on things like local market reputations or knowledge
Location-bound competitive advantages cannot be transferred across borders – non-location bound advantages
can be transferred across borders.
REVIEW QUESTIONS
1. Which type of firms can internationalize?
a. All firms
b. Firms with internationalize staff
c. Firms with internationalize competitive advantages
d. Firms in markets with localization advantages
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