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Lecture notes International Strategy Strategic Management 2020
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Notes of all lectures of the International Strategy Course of Strategic Management.
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International Strategy – Master Strategic ManagementLecture 1 - Clip 1: Introduction
Opening Case Harley Davidson
• Challenges of Harley Davidson in internationalizing.
• The buying group of the motors is a dying generation. What to do in order to continue operation?
• Product diversification → more recent motor cycle introduced by Harley Davidson
• Domestic consolidation → related to the cost side, to the production side. Your production is
efficient as possible. Bringing together the production at a smaller number of facilities, smaller
number of locations.
Internationalization
• What?
• Where?
• How?
Internationalization is an important element of a strategy. There are 3 questions that come up when you
think of internationalization. What? Where? And How?
Internationalization: What, Where & How? → Opening case Harley Davidson
• They have sales in 86 countries. Motorcycles produced in US, also production in other sites. Ship to
home country where they are sold to customers.
• Assembly in India (100% import tariff)
• Assembly in Thailand (60% import tariff – member of ASEAN)
An important motivation to produce in India and Thailand is the import tariff. Import tariff in India is 100%.
This means that an importer motor cycle becomes twice as expensive as would be only based on the cost
price. That is a powerful motivation to move some activities to that country, so that you can avoid that high
import tariff.
Internationalization: what are the risks?
• Exchange rates
• Supply chain
• Managing across cultures → motives workers, have different set of expectations from your workers in
your home country
• Host country risk → risks that are associated with activities in foreign countries, can have to do with
political changes (revolution, new laws with regard what foreign companies can and cannot do, can
make your investment less attractive)
• Home country risk → backlash because you invest in a foreign country instead of your home country.
Davidson Harley experienced this, since Donald Trump criticized the company about it, or brought up
this topic.
Internationalization is not risk-free. There may be exchange rate risks: Exchange rate risks is even the case
when you sell in other countries.
International = difficult
,What is Strategy?
Number of pictures symbolizing different approaches
Upper Left hand corner: classical way of looking at strategy as a decision making process: mission →
Goals → objectives → strategies → actions → control → rewards. And there is a feedback loop
Porter’s five forcers → middle and right picture on the top. How attractive is a new market.
Right hand corner top: the generic strategies that are developed by Porter.
At the bottom left hand side: value chain thinking, more recent work of Porter. In international context, the
value chain is also spread over different countries, brings new challenges and opportunities.
Lower right- hand side: picture symbolizing the core competences approach. As a company, you have
particular resources that lead to capabilities which are embodied in core competencies. Core competencies
give your company strategic advantage.
If you don’t have some type of strategic advantage or strength, then going abroad makes very little sense.
You need to have some strength that allows you to be successful not only in your own country but also in
other countries (where live most of the times is more difficult than in your home country).
We cross borders. On the picture on the slide the border is showed between India and Pakistan → Though
border. In Europe, it is pretty easy to cross borders. As we have seen in the case Harley Davidson, there are
borders in the world where there are very high tariff barriers.
,What is international business strategy?
• Matching a multinational enterprise’s (MNE’s) internal strengths
o → you need to have something at which you are very good in
• With the opportunities and challenges found in cross-border environments
o → not in your own home country, but in other countries
• While overcoming the disadvantages of being a foreign company
o → you are very often at a disadvantage as a foreign company
• And/or capitalizing on the advantages of being a foreign company
o → can be specific advantages that need to be used to good purpose
• And/or capitalizing on the advantages of having an international network
• Going abroad is not the default
o → What is meant with going abroad: FDI. Talking about foreign direct investment, NOT
LICENSINSING OR EXPORTING, but setting up other activities in another countries by
investing in that country.
• O.L.I (Ownership Location Internationalization) paradigm (Dunning, 2015): foreign direct
investment only makes sense if a firm has three types of advantages:
o Ownership advantages (firm-specific advantages – FSAs)
▪ → you need to have some strength, referred to as FSAs in this course
o Location advantages (attractiveness of the host country)
▪ → Location advantages in the other country: host country
o Internationalization advantages (advantages of doing-it-yourself)
▪ → rather than to for instance exporting (don’t do it yourself, not setting up activities
in the other country, you could use a local agent for example). You can decide to do it
yourself because you want to protect your brand image that is valuable for you.
O.L.I paradigm is the dominant paradigm is international business.
The WHY of internationalization → (Benito paper, 2015)
• Internationalization motives:
o Market seeking
▪ many consumers that want to buy your product
o Efficiency seeking
▪ produce cheaper because particular inputs (labor, electricity) is cheaper in that
foreign country. You want to move your production to that location
o Resource seeking
▪ for example, you are in the mining industry and want to find particular minerals.
o Strategic asset seeking (knowledge, connectivity)
▪ not looking for efficiency, customers or tangible resources, but for intangible
resources such as knowledge and possibility to connect to other players.
Why are many financial companies located in London? Because other companies are located there as well.
This is the place to do business. The distance is geographical sense is very small, can easily visit other
companies and help certain businesses.
The WHERE of internationalization
• Location choice
o Attractiveness of country
o “Distance” to home country
Not only geographical distances but also cultural distances, etc.
, The WHAT of internationalization
• Marketing & Sales
• Manufacturing
• Purchasing, extraction
• R&D
• ….
The HOW of internationalization → entry modes
• Export
• Licensing
• Franchising
• JV/Alliance → collaborative form
• FDI (strongest form of internationalization)
o Acquisition
o Brownfield (basically an acquisition which is then upgraded)
o Greenfield
Lecture 1 - Clip 2 – Conceptual foundations
Conceptual foundations of international strategy
• Firm-specific advantages (FSAs): transferable and non-transferable
• Location advantages: home country advantages and host country advantages
• Investment in – and value creation through – recombination of FSAs
• Complementary resources of external actors
• Liability of foreigners cause by bounded rationality and bounded reliability
• Advantages of foreignness: cultural attraction and arbitraging
Conceptual foundations of international strategy
• FSAs (firm-specific advantages) that are transferable abroad: (we call them) non-located bound
FSAs. You have something that gives you strength and you can put that to work in another country.
• Patent document: gives protection, if it is filled in other countries, it will give you international or
even worldwide protection of your technology
• If you have capital: capital can easily be transferred from one country to another country. Capital can
be transferred relatively easily, can help you setting up businesses elsewhere.
• Technology can travel. Superior technology can give you advantages in other countries.
• The brand name and brand image (example of Apple) can easily travel
These are examples of non-location bound firm-specific advantages
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