 Strategic Management: Strategic Managment Gregory G. Dess,
University of Texas at Dallas
G.T. Lumpkin,
University of Illinois--Chicago
International Strategy: Creating Value in Global Markets
Chapter Overview| We live in a highly interconnected global community where many of the best opportunities for growth and profitability lie beyond the boundaries of a company’s home country. Along with the opportunities, of course, there are many risks associated with diversification into global markets.
The first section of the chapter addressed the factors that determine a nation’s competitiveness in a particular industry. The framework was developed by Professor Michael Porter of Harvard University and was based on a four-year study that ex- plored the competitive success of 10 leading trading nations. The four factors, collectively termed the "diamond of national advantage," were factor conditions, demand characteristics, related and supporting industries, and firm strategy, structure, and rivalry.
The discussion of Porter’s "diamond" helped, in essence, to set the broader context for exploring competitive advantage at the firm level. In the second section, we discussed the primary motivations and the potential risks associated with international expansion. The primary motivations included increasing the size of the potential market for the firm’s products and services, achieving economies of scale, extending the life cycle of the firm’s products, and optimizing the location for every activity in the value chain. On the other hand, the key risks included political and economic risk, currency risks, and management risks. Management risks are the challenges associated with responding to the inevitable differences that exist across countries such as customs, culture, language, customer preferences, and distribution systems.
Next, we addressed how firms can go about attaining competitive advantage in global markets. We began by discussing the two opposing forces—cost reduction and adaptation to local markets—which managers must contend with when entering global markets. The relative importance of these two factors plays a major part in determining which of the three basic types of international strategies to select: global, multidomestic, or transnational. The chapter covered the benefits and risks associated with each type of strategy.
The final section discussed the four types of entry strategies that managers may undertake when entering international markets. The key trade-off in each of these strategies is the level of investment or risk versus the level of control. In order of their progressively greater investment/risk and control, the strategies range from exporting to licensing and franchising, to strategic alliances and joint ventures, to wholly owned subsidiaries. The relative benefits and risks associated with each of these strategies were addressed.
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