Overview
This lecture covers internationalizing strategy as a key part of corporate strategy, explains the diamond framework for industry analysis, outlines four main international strategies, and reviews international entry modes and related risks.
Internationalizing Strategy: Foundations
- International strategy is better called "internationalizing strategy," distinct from the specific "international strategy" among four types.
- Four types: international, global, multi-domestic, and transnational strategies.
- Globalization increases the exchange of goods, services, money, and ideas, leading to similar laws and norms across countries.
- Economic growth varies by region; strategy focuses on industry growth per country, not national growth overall.
The Diamond Framework
- Used to analyze industry prospects in a specific country.
- Four components:
- Factor Endowments (supply conditions): skilled labor, infrastructure, necessary resources.
- Demand Conditions: nature of home market demand for the industry’s products/services.
- Related and Supporting Industries: presence of competitive supplier and related industries.
- Firm Strategy, Structure, and Rivalry: how companies compete, organize, and manage within the industry.
- Competitive advantage relies on rapid deployment of resources, demanding consumers, strong supporting industries, and intense domestic rivalry.
Motivations & Risks in International Expansion
- Firms internationalize to optimize location, enhance performance, reduce costs, and lower risks.
- After industry analysis (diamond framework), assess macro-level country risks: political, economic, currency, and management risks.
Outsourcing and Offshoring
- Outsourcing: transferring ownership of value-creating activities to external firms, domestically or abroad.
- Offshoring: relocating an activity to another country, but ownership remains with the original firm.
Four Generic Internationalizing Strategies
- International Strategy: minimal adaptation or cost reduction, used for learning and experience.
- Global Strategy: centralized control, uniform global products, cost-focused, low local adaptation.
- Multi-Domestic Strategy: high local adaptation, customized products/services, less focus on cost.
- Transnational Strategy: combines efficiency, local adaptation, and knowledge sharing (learning centers).
International Entry Modes
- Modes include exporting, licensing, franchising, strategic alliances, joint ventures, and wholly owned subsidiaries.
- Entry modes vary in ownership, control, investment, risk, and time horizon.
- Country policies may restrict wholly owned subsidiaries, requiring alternative strategies (e.g., joint ventures).
Key Terms & Definitions
- Globalization — increasing international exchange of goods, services, information, and ideas.
- Diamond Framework — tool analyzing factors affecting industry competitiveness in a country.
- Factor Endowments — resources available to compete in an industry.
- Demand Conditions — local market demand for an industry's products/services.
- Outsourcing — moving activities outside the company via ownership transfer.
- Offshoring — relocating activities abroad, but keeping ownership.
- Global Strategy — centralized, standardized global operations to reduce costs.
- Multi-Domestic Strategy — local adaptation with decentralized operations.
- Transnational Strategy — seeks both global integration and local adaptation.
- Entry Modes — various ways firms enter foreign markets (e.g., exporting, joint ventures).
Action Items / Next Steps
- Review strengths and limitations of each internationalizing strategy.
- Study the details of international entry modes in the textbook.
- Make note of country-specific restrictions on foreign ownership for international expansion plans.