Chapter 8: International Strategy

International Strategy: A strategy through which the firm sells its goods and/or services outside its domestic market.
International Diversification Strategy: A strategy through which a firm expands the production and/or sales of its goods and/or services internationally, across borders of various regions and countries.
- The resources a firm possesses provide limits to its international diversification and serve as a basis for achieving competitive advantage in various countries.

Firms often discover innovations in their home market, especially in advanced economies.
- If demand develops for the innovation in other countries, firms may start exporting products to satisfy this demand.
- Increasing demand justifies firms establishing or expanding operations outside their home country.

Global Value Chains: Increasing popularity; important companies operate digital platforms enhancing cross-border capabilities.
Regionalization: Countries developing trade agreements enhance regional strategies, thus influencing firms' international strategy choices.
- Firms can expand their market size by entering international markets, potentially enjoying economies of scale through an increased number of competing markets.

Access to key supplies, like raw materials and labor can lead firms to establish facilities in other countries for cost efficiency.
- Cultural and institutional factors impact location advantages and disadvantages for businesses.

Knowledge can be transferred between the headquarters and international subsidiaries, aided by different environmental conditions providing valuable insights.
- Multinational firms engage in joint R&D to create and exploit new discoveries, sharing resources and knowledge across borders.

Liability of Foreignness: Firms may face significant challenges due to differences from their home country's institutional environments, leading to coordination difficulties.
Political Risks: Operations can be disrupted by political forces/events in either home or host countries.
- Potential issues include government regulations, conflicting legal frameworks, and risk of nationalization of assets.
Economic Risks: Economic downturns or unfavorable conditions in the host country can jeopardize international strategies.
- Factors include intellectual property protection, infrastructure reliability, security risks (e.g., terrorism), and currency fluctuations.

Growth through international diversification increases operational complexity, making management more challenging.
Cultural differences across countries hinder the transfer of competencies, requiring effective integration of social aspects among business units.
Management problems include:
- Varying importance of CSR and sustainability in different markets.
- Navigating differences in governmental policies and practices, often requiring multinationals to adapt their operations for compliance and effectiveness.

After deciding to diversify internationally, firms must select suitable countries, considering unique political, legal, economic, social, and competitive environments.
- Selection involves analyzing various determinants of attractiveness:
- Factors of Production: Resources needed for production, including labor, land, capital, and infrastructure.
- Demand Conditions: Understanding the size and nature of customer needs to compete effectively in new markets.
- Related Industries: Evaluating the strength of industries providing materials and technology needed for operations.

The strength and stability of a country's institutions significantly affect entry success; certain governments may impose regulations hindering foreign firms.
Important economic metrics include GDP growth, inflation rates, income distribution, and currency exchange rates.

Cultural distance refers to disparities in norms shared across cultures, affecting behavior and operational integration.
- The difficulties include communication barriers and the need for autonomy in local management strategies to tailor products effectively.

A firm’s international corporate-level strategy dictates the degree of autonomy for business units in host countries.
- Types of International Corporate-Level Strategies:
- Multidomestic Strategy: Decentralized decision-making, allowing each unit to cater to local markets, fostering local competition but limiting economies of scale.
- Global Strategy: Centralized decision-making to develop economies of scale, assuming uniform customer needs globally but requiring operational efficiency.
- Transnational Strategy: Striking a balance between global efficiency and local responsiveness, necessitating a flexible coordination approach to integrate operations across diverse markets.

A firm’s success in international strategies depends on:
- Identifying suitable countries for entry.
- Executing appropriate corporate-level and business-level strategies.
- Choosing effective entry modes.
Careful analysis of non-controllable factors such as political and cultural environments can help mitigate risks and enhance strategic desirability.

Sustaining competitive advantage through continuous innovation requires leveraging international diversification to access larger markets and new product insights, thereby supporting R&D efforts.