MGSC01H3 Chapter Notes - Chapter 8: Sunk Costs, Ator

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Chapter 8 Looking for International Strategies Notes
International Strategy
international strategy process by which a firm approaches the cross-border activities and those of competitors and plans to
approach them in the future
in the narrowest sense, a firm’s managers need only think about international strategy when they conduct some aspect of their
business across national borders
whether expanding internationally to reinforce a particular business’s strategy or as part of a corporate strategy, international
expansion is a form of diversification because the firm has chosen to operate in a different market
International Strategy and Competitive Advantage
1-2-3 Model of Internationalization
increasingly, many strategic management experts view global expansion as necessary for about every medium and large corporation
this opinion is based on a few basic observations:
1) capital markets and employees favour fast-growing firms, and domestic markets in developed countries are becoming saturated
2) efficiencies in all value-chain activities are linked across borders, and linkages and pressures for efficiency continue to escalate
3) new market opportunities are present in developing economies
4) knowledge is not uniformly distributed around the world, and new ideas increasingly are coming from emerging economies
5) customers themselves are becoming global at both the organizational level in terms of the growth and proliferation of
multinationals and at the individual level in terms of consumer preferences
6) competitors are globalizing, even if the organization is not
Using CAGE to Choose Foreign Countries
CAGE framework tool that considers the dimensions of culture, administration, geography, and economics to assess the distance
created by global expansion
application of the CAGE framework requires managers to identify attractive locations based on raw material costs, access to markets
or consumers, or other key decision criteria
Cultural Distance Administrative Distance Geographic Distance Economic Distance
Attributes Creating Distance
Different languages
Different ethnicities: lack
of connective ethnic or
social networks
Different religions
Different social norms
Absence of colonial ties
Absence of shared
monetary or political
association
Political hostility
Government policies
Institutional weakness
Physical remoteness
Lack of a common border
Lack of sea or river access
Size of country
Weak transportation or
communication links
Differences in climates
Differences in consumer
incomes
Differences in costs and
quality of:
natural resources
financial resources
human resources
infrastructure
intermediate inputs
Vehicles:
International market entry tactics?
Greenfield
Alliance
Acquisition
Differentiators:
How does being international differentiate us from
our competitors?
Does expanding internationally make our products
more attractive to existing or future customers?
Will our existing differentiators be effective in
these new markets?
Economic logic:
How does our international strategy contribute to
the economic logic of our business and corporate
strategies?
Staging & pacing:
When do we go international?
Speed of international expansion?
Sequence of entry tactics?
Arenas:
Which geographic arenas?
Which channels in those arenas?
Which value chain activities?
1. Why
Positive economic logic?
Supported by our differentiators?
Strengthens/adds to our differentiators?
NO – Stop!
2. Where?
What new countries fit our differentiators?
Which ones can strengthen/add to our
differentiators?
What hard and soft criteria do we use to
evaluate them?
Where is business fit the best? The worst?
If there are multiple opportunities, which
ones should be first, second, etc.?
3. How?
Do it on our own?
Do we need a local
partner?
How big and how
fast?
Hard Criteria Soft Criteria Fit
Market size
Size of target market
segment(s)
Future growth
Pricing levels
Regulatory or statutory
hurdles/incentives for
target products or
market segments
Competitive
environment
Customer needs
Ability to earn
reasonable returns
Economic and political
stability
Restriction on foreign
ownership
Freedom of capital
flows
Intellectual property
issues
Human resource
availability
Government
transparency
Legal environment
Infrastructure
Human resources
Geographic proximity
Cultural differences
Risk adversity
Internal company
resource
YES
info or knowledge
Industries or Products Affected by Distance
Products have high
linguistic content (TV)
Products affect cultural or
national identity of
consumers (food)
Product features vary in
terms of size (cars),
standards (electrical
appliances), or packaging
Products carry country-
specific quality
associations (wines)
Government involvement
is high in industries that
are:
producers of staple
goods (electricity)
producers of other
“entitlements” (drugs)
large employers
(farming)
large suppliers to
government (mass
transportation)
national champions
(aerospace)
vital to national
security (telecom)
exploiters of natural
resources (oil, mining)
subject to high sunk
costs (infrastructure)
Products have a low value-
of-weight or bulk ratio
(cement)
Products are fragile or
perishable (glass, fruit)
Communications and
connectivity are important
(financial services)
Local supervision and
operational requirements
are high (many services)
Nature of demand varies
with income levels (cars)
Economies of
standardization or scale are
important (mobile phones)
Labour and other factor
cost differences are salient
(garments)
Distribution or business
systems are different
(insurance)
Companies need to be
responsive and agile
(home appliances)
Summary of Challenges
1. Define international strategy and identify its implications for the strategy diamond.
A firm’s international strategy is how it approaches the cross-border business activities of its own firm and competitors and how it
contemplates doing so in the future. International strategy essentially reflects the choices a firm’s executives make with respect to
sourcing and selling its goods in foreign markets. A firm’s international activities affect both its business strategy and its corporate
strategy. Each component of the strategy diamond may be affected by international activities.
2. Understand why a firm would want to expand internationally and explain the relationship between international strategy
and competitive advantage.
Firms often expand internationally to fuel growth; however, international expansion does not guarantee profitable growth and should
be pursued to help a firm build or exploit a competitive advantage. International expansion can exploit four principle drivers of
competitive advantage: economies of scale and scope, location, multipoint competition, and learning. However, these benefits can be
offset by the costs of international expansion, such as the liabilities of newness and foreignness, and governance and coordination
costs.
3. Use the CAGE framework to identify international arenas.
CAGE stands for cultural distance, administrative distance, geographic distance, and economic distance and is a tool to help you
better understand the firm-specific implication of a country attractiveness portfolio (CAP). There are some steps to identify a
portfolio of geographic markets and rank them on their relative attractiveness. The first step involved gathering data on personal
income and market performance for a particular segment or industry. The second step involved creating a CAP by plotting the data
on a grid to observe relative differences in attractiveness across countries. The third step asked you to make judgments about relevant
CAGE dimensions and apply them to your CAP.
4. Describe different vehicles for international expansion.
Foreign-country entry vehicles include exporting, alliances, and foreign direct investment (FDI). Exporters generally use local
representatives or distributors to sell their products in new international markets. Two specialized forms of exporting are licensing
and franchising. Alliances involve partnering with another firm to enter a foreign market or undertake an aspect of the value chain in
that market. FDI can facilitate entry into a new foreign market and can be accomplished by greenfield investment or acquisition.
Although importing is not technically a form of international expansion, it does not provide firms with knowledge, experience, and
relationships on which future international expansion choices and activities can be based.
5. Apply different international strategy configurations.
The different forms that international strategies may take are driven by trade-offs in attempts to customize for local needs and to
pursue global cost efficiencies. The first configuration seeks to achieve high levels of local responsiveness while downplaying the
search for global efficiencies. The second configuration seeks relatively few global efficiencies and markets relatively standard
products across different markets. The third configuration seeks to exploit global economies and efficiencies and accepts less local
customer responsiveness (i.e., more standardized products). The fourth configuration attempts to simultaneously achieve global
efficiencies and a high degree of local product specialization.
6. Outline the international strategy implications of the stable and dynamic perspectives.
Cross-border business adds another level of complexity to both strategy formulation and execution, and unfortunately such
complexity may be unavoidable for firms in dynamic contexts. As products mature, firms’ international strategies evolve, often
moving from little global involvement during the introductory phase to high degrees of internationalization in mature markets.
Resources need to be renewed more rapidly in dynamic markets. Thus, when a firm enters a new foreign market, it must also embark
on developing the resources necessary to make that market-entry decision a success. In addition, what is learned in new markets can
be leveraged for application in existing markets. Obviously, these objectives can be best achieved when managers with an
international mindset are in place.

Document Summary

Regulatory or statutory hurdles/incentives for target products or market segments. Infrastructure increasingly, many strategic management experts view global expansion as necessary for about every medium and large corporation this opinion is based on a few basic observations: Different languages of connective ethnic or social networks. Size of country: weak transportation or communication links. Differences in costs and quality of: natural resources financial resources human resources infrastructure intermediate inputs. Products affect cultural or national identity of consumers (food) Product features vary in terms of size (cars), standards (electrical appliances), or packaging. Government involvement is high in industries that are: producers of staple goods (electricity) producers of other. Entitlements (drugs) large employers (farming) large suppliers to government (mass transportation) national champions (aerospace) vital to national security (telecom) exploiters of natural resources (oil, mining) subject to high sunk costs (infrastructure) Products have a low value- of-weight or bulk ratio (cement) Local supervision and operational requirements are high (many services) info or knowledge.