international strategy is a special kind of corporate strategy so it's positioning uh in the book right after corporate strategy makes a lot of sense uh it's really internationalizing strategy rather than international strategy and then the four kinds of internationalizing strategy uh are international global multi-domestic and transnational we will go over them later on but since one of the four kinds of uh internationalizing strategy is called international strategy therefore the macro concept should not be called international strategy which is the way our books chapter is written as with any other chapters in this book this one also starts with learning objectives and i strongly recommend that you pause here to go over them this chapter also starts with a few concepts that are more basic concepts that pertain to uh internationalization but which are not really core to uh internationalizing strategy as such so one such com concept is globalization we've heard this a lot of times globalization refers to the increase in international exchange including trade and goods and services as well as exchange of money ideas and information and globalization over the past five or so decades has resulted in growing similarity of laws rules norms values and ideas across countries nevertheless excuse me uh nevertheless the uh growth patterns have been different in different parts of the world the economies of east asia have attained rapid growth at times even as high as 10 or more percent per year income in latin american countries uh grew by six percent annually in the past two decades uh on the other hand average incomes in sub-saharan and africa and the old eastern european bloc have uh for for some of those countries uh they've actually declined so things have been quite different in different parts of the world so the question is what affects economic growth in different countries and unlike economists who examine economic growth as an aggregate in in strategy our aim is to focus on industry growth in different countries so when we talk about growth uh in a given country we are really not looking into we're not looking into let's say mexico's growth in general but mexico's growth in telecommunications or mexico's lack of growth let's say in perhaps industry it could be education or healthcare perhaps so so so so to examine the growth of an industry or the prospect of an industry in a given country there is this tool that's called the diamond framework in strategy and we're going to go over this diamond framework and this slide that we're at right now is the first light of that diamond framework so we're actually beginning from this slide onward some of the core concepts of internationalizing strategy so the diamond framework has four factors the idea of the diamond framework is that these four factors with respect to a given industry in a given country will successfully explain the prospect of that industry in that country so here you see the first one is factor endowments it and then the next one is called demand conditions the first one factor endowments can also be remembered easily as supply conditions okay and then you know you as soon as you think of it as supply conditions you can easily remember demand and supply those are the two condition components the that's two of the four at any rate so factor endowments or supply conditions refer to the nation's position in factors of production such as skilled labor or infrastructure neces it could be other raw materials as well necessary to compete in a given industry demand conditions refer to the nature of home market demand for the industry's product or service so for some specific industries and industries products or services it's it may also be not just the home market demand but also international demand um because uh transport of those products or services may be extremely extremely uh easy or and not prohibitive at all cost wise the third uh component in the diamond framework is the is is related and supporting industries which refers to the presence or absence in the nation of the supplier industry of supply industries and other related industries uh for that for for for the industry in question by the way so that are internationally competitive so uh if we're talking about the growth of let's say let's say the growth of movie industry [Music] what are the related and supporting industries that you can think of well quite a few um a so we're talking about movie production um one of the key supporting industries would be the theater halls another one would be the other alternative channels like cable netflix there or you know other hulu some other other other platforms through which movie can be shown um another related and supporting industry is the glamour uh business that that exists as a part of the media and the broad media industry there are also educational institutions film schools um and and then there are there's also uh the non-media and award shows and things like that the all of these will be related and supporting industries for the film industry for and that was the that's how i started that example and then the fourth component the last component of the diamond framework it's a it's a long name but it's i'll try to dispel it so it's the name is farm strategy structure and rivalry the middle word structure here is referring to industry structure so that's something to note of it's not farm structure or industry structure but what is it really trying to capture it's really trying to capture how competitive the industry is that that's as simple as that industry competitiveness it could have been so much easier to uh remember and to understand if the phrase was industry competitiveness so and the description is as follows the conditions in the nation with respect to that industry by the way governing how companies are created organized and managed as well as the nature of domestic rivalry again within that industry when we're talking about any of these four components of the diamond framework we're not talking about the entire country's situation we're talking about an industry within that country the situation of that industry so factor endowments also known as supply conditions to achieve competitive advantage factors of production must be developed uh industry specific and also farm specific in a given industry right the pool of resources that affirms our country's disposal is less important than the speed and efficiency with which uh the resources are deployed in other words uh a country may be quite rich in resources and capabilities for a specific industry but perhaps the deployment rate of or freeing up of those resources is very very slow in which case no growth will happen in in that specific industry [Music] something to think about demand conditions um well demand demanding consumers uh will drive companies in a given industry uh in a given country to to to do what they'll try to meet high standards because consumers demand that level of performance it'll force those companies to upgrade existing products and services more frequently it'll force them to create innovative products and services but also it will assure them to have a market to sell um very important right um you don't want to just keep producing with the idea that oh we can't really sell them here we got to then export it out and rely on another country space for that no that's not gonna work so um the consumers need to be able to it's not just willing but they need to be also be able to buy those offer products or services that you're trying to offer something that's not clearly mentioned on this slide by the way and then related and supporting industries well they'll help they'll enable firms to manage inputs more effectively they may reduce certain costs you won't have to rely on you know flaky suppliers or ineffective retailers or just you know in general your business might become just much more attractive because of all these strong supporting industries that surround the focal industry where you are trying to grow and the last component the rivalry well rivalry is associated with i we earlier mentioned about consumer strong consumer demand leading to companies trying to work harder to uh meet the consumer demand but right when rivalries intense that that desire will be that much stronger and companies will really try and push as hard as possible to become a major player in that very attractive business uh because the prize is huge uh it basically will assure a company to become a major success uh in a major industry of the world competitive rivalry increases the efficiency with which firms develop uh within the home country market within the home country and also distribute products and services within the home country but it's sometimes possible to do slightly beyond home country is something you need to think of as well so here's an example of the of the software industry in india in a matter of just few years in a decade or so india became a major powerhouse in the software industries the second strongest uh software industry in the world and uh why why why why why did that happen and if you examine what's written in this diagram it starts to become rather clear so this leads us to a question all of the factors below have made india's software services industry extremely competitive on a global scale except what i think the answer is pretty obvious the one that's not mentioned is in choice c so what are the motivations for a company to expand internationally so the slide has a whole bunch of bullets but if we just really try to step back and kind of think through what what these bullets are telling us what we have is that we're companies try to optimize the physical location for every activity in its value chain and sometimes international expansion is the answer companies try to enhance their performance and again international expansion may be the answer companies try to reduce their overall cost basis and international expansion may be the answer it's also possible that companies will discover that by expanding internationally it can successfully reduce risks and again that will also motivate internet companies to expand internationally our chapter introduces us to besides uh the diamond framework also these macro level risk per country these are not unique to an industry of course so after conducting a diamond framework analysis for a given industry in a given country or multiple uh countries for a given industry where you are a player and are planning to expand you will then want to conduct or at this point not even conduct or look up the country level risk factors of those countries that you uh your your diamond framework analysis have suggested that those countries are attracted uh diamond framework analysis does not recognize country level risks so it is a good idea to look up the country level risks that after conducting your diamond framework analysis um this will be a good complement to your diamond framework analysis so the country level risk analysis uh includes risks in several broad domains it we have political and economic risk and examples are here we have currency risks um again some examples are here management risks more examples and so you know up until that point basically the discussion was on um the country level risks and it's just something that you want to you really want to be able to look up but after you've conducted a thorough examination using the diamond framework so finally we're at uh the slide on outsourcing and then the next slide will be on offshoring and these are concepts that come up a lot for a company that's planning to expand internationally outsourcing occurs when a firm decides to utilize other firms to perform value creating activities that were previously performed in-house see this concept in-house means ownership was inside the company right whereas outsourcing is suggesting that the ownership transfer will happen that's a big defining characteristic of outsourcing any given activity that used to be previously done inside the company as part of an owned activity will be sold off to some other company that after buying will also be in an agreement to prove serve as a provider now so what you made on your own now you will buy why would a company do that because the cost of you making that activity doing engaging in that activity and getting those services on your own was costing you more money than some other company doing it and then selling you that services if that is possible then outsourcing makes sense outsourcing can be within the country or could be outside of the country now offshoring um does not have the ownership transfer component offshoring takes place when a firm decides to shift an activity that they were previously performing in a domestic location to a foreign location but here the company continues to own that particular activity so they are produ generating that service for themselves they are not selling that activity or that's a service function to some other company we are now approaching that part uh in this chapter where um we will uh set up the groundwork for the four generic uh internationalizing strategies so strategies that favor global products and brands yield uh arabic of a certain kind of uh of internationalizing strategy and though that that kind of a strategy should standardize all of the firm's products for all of their worldwide markets the such a strategy should reduce the farm's overall costs by spreading investments over a larger market this kind of strategy is called the global strategy now here we're really building on three assumptions customer needs and interests worldwide are becoming more homogeneous um and then people are willing to sacrifice product preferences for lower prices at higher quality and that economies of scaly production and marketing can be achieved through supplying to global markets if all of these are valid then global strategy starts to make a lot of sense however these assumptions may not always be true product markets vary widely between nations sometimes and in many product and service markets there appears to be a growing interest in multiple product features quality and service so maybe for those instances it might be a lot more effective if you customize your products and services by the mark different markets where you are planning to serve or you're already serving and that kind of a strategy where heavy customization occurs country by country is called multi-domestic strategy that's another kind another category of generic internationalizing strategy now in this slide we see with the first bullet new technologies often permit flexible production um this would allow firms to enjoy some of the mass production benefits while customizing products for different countries where it operates with the second bullet when cost of production is not a major component of production cost customizing products by country specific needs may increase cost of production but that increase will have minimal effect on overall production cost and with the third bullet a firm's internationalizing strategy should be driven by resources and capabilities that it has and in what countries for which products they can be best utilized so the message here is that truck the product does not drive the strategy but rather the strategy drives the product so it finally we are at the slide where we can see the four generic internationalizing strategies we have some exposure to the global strategy and the multi-domestic strategy note that international strategy is the bare bones approach to internationalizing where the company is neither responding to pressures for local adaptation nor responding to the pressures for lowering costs it's internationalizing for the sake of internationalizing where you're trying to just gain some experience uh experience of dealing with taxation dealing with customs etc sometimes companies will have some jitters about internationalizing international strategy helps you to do a one-off experience it helps helps the company to gain a one-off experience about with internationalization and then depending on how the experience is they may decide to become more involved in that in the international space through global strategy or multi-domestic strategy or at times even through transit national strategy transnational strategy it tries to benefit tries to incorporate benefits of global strategy and multi-domestic strategy that's conceptually rather hard to do because global strategy relied on a uniform product throughout the work for the whole wide world whereas multi-domestic strategy this idea was to have customized products uh in each geographic region or in each country where the con where the firm was operating how could a company that's trying to pursue transnational strategy benefit from both well it's really a kind of multi-domestic strategy where there are extra efforts made to benefit from the knowledge that is developed in different autonomous domestic areas where the company is operating so in multi-domestic strategy different country operations uh for a company are autonomous and they're not really trying to blend in anything uh they're trying to be uh you know their main goal is to customize and operate uh to improve their efficiency and not really be concerned of what another domestic space is doing that is how multi-domestic strategy thrives um but imagine a situation where there are dedicated structural units called learning centers uh maybe for every country or every few countries a company establishes a learning center where the learning center's job is to glean the knowledge uh the approach of doing business in each of the countries for each of those products and then examine analyze those approaches to figure out commonalities and then disseminate that knowledge so that the approaches can be improved in other countries to to do business for similar products when that happens it's not just simple multi-domestic strategy it's a company that's trying to achieve some integration and achieve some global strategy like benefits and that kind of a strategy is called transnational strategy so um international strategy the bare bones approach it's a strategy based on farms diffusion and adaptation of the parent company's knowledge and expertise to foreign markets used in industries where the pressures for both local adaptation and lowering costs are low and it's it's it's low as perceived by the firm the real pressures may be different but as long as the company decided that they are not going to be responding to such pressures they are going to be moving for an international strategy book has a nice list of strengths and limitations for each of the four strategies so it's a good idea to look at them slowly global strategy uh is a strategy based on firms centralization and control by the corporate office with the primary emphasis on controlling costs and used in industries where the pressure for local adaptation is low and the pressure for lowering costs is high so the central headquarter will have the obligation to do a tremendous amount of coordination to get this global scale strategy to work once again the strengths and limitations provided with the book are very very good please pause and make a note of these multi-domestic strategy is a strategy based on firms differentiating uh their products and services to adapt as to adapt to uh local markets used in industries where the pressure for local adaptation is high and the pressure for lowering costs is low often taste based industries like food and fashion lifestyle living hotels et cetera um hospitality all of those will be [Music] following a multi-domestic strategy so then you have the strings and limitations again please pause and make a note of these transnational strategy uh is a strategy based on firms optimizing the trade-offs associated with efficiency local adaptation and learning used in industries where the pressures for both local adaptation and lowering costs are high and once more uh the stress and limitations are there and i recommend that you pause and go through these so this leads us to the last major concept area of this chapter and that's the international entry modes which look very similar to strategic moves they are strategic moves but there are special types especially with exporting licensing franchising these are not really talked and discussed much much in the strategic moves literature but are very important entry modes when considering international expansion um if you notice here you'll see that there are two dimensions where these entry modes have been placed degree of ownership and control and extent of investment and risk you can also think of of a third dimension which will have to do with uh time horizon and it could be like somewhat low to high it would also be roughly like that in the same sequence with exporting arrangements having a short-term horizon licensing and franchising more than that maybe even alliances and the joint ventures definitely a lot more than that and then wholly owned subsidies being the maximum it's important to understand um what what you want for your international expansion how much ownership is warranted you know ownership costs money on the other hand it also gives you control if it's a sensitive business where leakage of knowledge will be catastrophic uh maybe you need a lot of control maybe ownership is the way to go if it's um if it's not of that nature and you you can actually let go of some control perhaps you should think of what do you need how much risk tolerance can you accept and um another important consideration would be how much money are you willing to invest if you're not going to invest any money at almost any money at all then your best bet regardless of anything else is to start with exporting and then if things start to work okay and maybe you should consider the next step being licensing you can skip franchising because not all businesses will have the franchising model um and it's also possible that a company starts with exporting then jumps to alliances uh with its export partner it establishes a longer term collaborative agreement you you you also see that alliances and then join ventures in other words the the the tab that says alliance strategic alliance is not it's not like joint ventures are not strategic alliances they are but they are a special kind called joint ventures and and the uh tab before that strategic alliance by that what we're really trying to capture in this particular diagram is that those are the non-joint venture type strategic alliances something to think about as well how do you make wholly owned subsidiaries something to also question and get an answer for well you can have an acquisitions or you could have marchers and you can have a greenfield investments on your own investments um those will all need to wholly own subsidiaries that's also um something to consider one last thing about this these choices is uh the country's policies uh it's some many countries are there that have a policy against foreign companies owning a wholly owned subsidiary so therefore if your if diamond framework analysis and country risk analysis suggests that such that country a given country is a perfect match for your expansion twelve and um and if that country does not have a policy to allow wholly owned subsidiary then you gotta scrap that off and think about other options available to you if you need as much control as possible you have to go with the next best option which would be the joint venture we will talk a lot more about these moves under strategic moves lecture anyway so exporting refers to producing goods in one country to sell to residents for another country and you know this quite well licensing is uh when the company received a fee in exchange for the right to use its intellectual property and we just talked about wholly owned subsidiary subsidiary as well so one last question before we conclude the lecture of this particular topic and if you have chosen answer choice c you got it correct this concludes the lecture on internationalizing strategy