The use of international strategies is increasing not only because of traditional motivations, but also for emerging reasons. Traditional motives include extending the product life cycle, securing key resources, and having access to low-cost labor. Emerging motivations focus on the combination of the Internet and mobile telecommunications, which facilitates global transactions. Also, there is increased pressure for global integration as the demand for commodities becomes borderless, and yet pressure is also increasing for local country responsiveness.
An international strategy usually attempts to capitalize on four benefits: increased market size; the opportunity to earn a return on large investments; economies of scale and learning; and advantages of location.
International business-level strategies are usually grounded in one or more home-country advantages, as Porter’s diamond model suggests. The diamond model emphasizes four determinants: factors of production; demand conditions; related and supporting industries; and patterns of firm strategy, structure, and rivalry.
International diversification facilitates innovation in a firm, because it provides a larger market to gain more and faster returns from investments in innovation
There are three types of international corporate-level strategies. A multi domestic strategy focuses on competition within each country in which the firm competes. Firms using a multi domestic strategy decentralize strategic and operating decisions to the business units operating in each country, so that each unit can tailor its goods and services to the local market. A global strategy assumes more standardization of products across country boundaries; therefore, competitive strategy is centralized and controlled by the home office. A transnational strategy seeks to combine aspects of both multi domestic and global strategies in order to emphasize both local responsiveness and global integration and coordination. This strategy is difficult to implement, requiring an integrated network and a culture of individual commitment.
Although the transnational strategy’s implementation is a challenge, environmental trends are causing many multinational firms to consider the need for both global efficiency and local responsiveness. Many large multinational firms—particularly those with many diverse products—use a multi domestic strategy with some product lines and a global strategy with others.
The threat of wars and terrorist attacks increases the risks and costs of international strategies. Furthermore, research suggests that the liability of foreignness is more difficult to overcome than once thought.
Some firms decide to compete only in certain regions of the world, as opposed to viewing all markets in the world as potential opportunities. Competing in regional markets allows firms and managers to focus their learning on specific markets, cultures, locations, resources, etc.
Firms may enter international markets in one of several ways, including exporting, licensing, forming strategic alliances, making acquisitions, and establishing new wholly owned subsidiaries, often referred to as greenfield ventures. Most firms begin with exporting or licensing, because of their lower costs and risks, but later may expand to strategic alliances and acquisitions. The most expensive and risky means of entering a new international market is through the establishment of a new wholly owned subsidiary. On the other hand, such subsidiaries provide the advantages of maximum control by the firm and, if they are successful, the greatest returns.
International diversification facilitates innovation in a firm, because it provides a larger market to gain more and faster returns from investments in innovation. In addition, international diversification may generate the resources necessary to sustain a large-scale R&D program.
In general, international diversification is related to above average returns, but this assumes that the diversification is effectively implemented and that the firm’s international operations are well managed. International diversification provides greater economies of scope and learning, which, along with greater innovation, help produce above-average returns.
Several risks are involved with managing multinational operations. Among these are political risks (e.g., instability of national governments) and economic risks (e.g., fluctuations in the value of a country’s currency).
There are also limits to the ability to manage international expansion effectively. International diversification increases coordination and distribution costs, and management problems are exacerbated by trade barriers, logistical costs, and cultural diversity, among other factors.
