9.1 for exam| Summary for the course international strategy/ management 2018/2019, including all the slides and mandatory reading. The set up of the document is as follows: it includes all the information from the slides and this is elaborated on with information from the book where needed. Finally...
,Week 1
International business strategy =
International business strategy is effectively and efficiently matching a multinational enterprise’s
international strengths, relative to competitors, with the opportunities and challenges found in
geographically dispersed environments that cross international borders.
• Walmart, a supermarket in the United States with exceptional service, goes to Germany
because they saw opportunities. They did this by buying German supermarkets Interspar and
Wertkauf. However, Walmart withdrawal in the host country because they were not price-
competitive and their formula mismatched with the German customer experiences (not
appealing to exceptional service). Their firm-specific advantages mismatched with the
German market.
Elements of international strategy (Benito, 2015)
An international strategy consists of four elements: why, where, what and how.
In the article those are called motives. “A company’s internationalization is inextricably linked to the
motives underlying it.”
John H Dunning distinguished 4 main motives:
Why
Marketing seeking: to find customers.
Industry: consumer goods and services.
Core activity: marketing and sales
Efficiency seeking: to lower costs of performing economic activities, and/or that aim at
rationalizing their already existing operations in various locations.
Industry: manufacturing
Core activity: manufacturing
Resource seeking: to access resources that are not readily available at home or that can be
obtained at a lower cost abroad.
Industry: Extractive industry, other primary sectors or companies with vertical supply chains.
Core activity: Extraction and production
Strategic asset seeking: to obtain strategic assets (tangible or intangible), which may be
critical to their long term strategy, but that are not available at home. (e.g. patents or Silicon
Valley to have connections which will help you boost your competition).
Industry: High tech
Core activity: R&D, innovation
Where
This has to do with the attractiveness of a country when looking at the ‘distance’ to home country.
Distance describes cultural, economic, institutional and geographic distance. Distance is particularly
significant for B2B companies, because closeness is crucial in b2b relationships.
The location decision factors differ for different reasons, and are dependent on the why:
Market seeking seek location with: large population, densely populated, high purchasing
power.
Efficiency seeking: cost levels, availability of human resources, well developed infrastructure
and proximity to home country.
Resource seeking companies: are often more constrained in their choices; resources not
evenly distributed geographically. Thus reason to enter becomes imperative.
3
, Strategic asset seeking: existence of vibrant clusters, high level of development, urban
centres. They are forward looking, not looking to exploit existing resources thus seek diverse
and dynamic environments that are simultaneously able to both continually produce high
innovation rates and to absorb failures
What
The reason behind the internationalization. This could be: marketing and sales (Walmart),
manufacturing (Apple going to China), purchasing, extraction, Research and Development etc.
How
The way the company wants to internationalize: export, licensing, franchising, acquisition, alliances,
joint venture, Brownfield FDI or a Greenfield FDI.
According to internalization theory (Buckley and Casson, 1976), the choice of how is fundamentally
about finding the most efficient (cot minimizing) way of operating abroad. The theory also states that
the in-house option is superior only in circumstances where the alternatives either do not provide a
social context among those involved in an activity that is advantageous to its performance, or entails
using proprietary assets and resources whose value could be exploited by outside parties without
due compensation.
Again this decision is dependent on the why:
Market seeking: they own brand or trademarks that are or can be valuable when expanding
in new markets. There is a threat of free-riders, to safeguard your assets setting up own
subsidiary would be most advisable.
Efficiency seeking: often make substantial investments in production and logistical systems
and hardware to gain economies of scale, scope and time. This often results in much tailored
assets, which have little reduced value in alternative uses threat of holdup &
underinvestment. The article speaks of feasibility of capturing benefits by shedding off
activities and operations that might previously have been performed In house or at home
Resource seeking: also experience hold-up and under investment challenges. Companies are
often existed to contract breaches or extortionate behaviour from other parties. They also
face risks from government or political actions, which even makes ownership less attractive
as assets could be seized.
Strategic asset seeking: key concern is to get there first. They are likely to prioritize control
over foreign operations over all other (relevant) concerns.
How to measure performance:
Market seeking: Volumes sold, sales growth, market share.
Efficiency seeking: cost-profit margins, productivity.
Resource seeking companies: input costs, price-cost margins, stability and reliability of
supplies
Strategic asset seeking: new patens or other intellectual property, introduction of new
products or new processes.
Companies can move from one motive from another but can also do a variety of activities abroad for
different motives. Companies that aspire to compete globally are often inclined to pursue several
motives at the same time, and such companies have to calibrate their internationalization strategies
accordingly.
Firm-specific advantages (core competences) (book)
Firm is a portfolio of ‘core competences’: higher-order firm specific advantages, the firm’s
routines and recombination capabilities.
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