INTERNATIONAL STRATEGY

Nguyen Hong Van

INTERNATIONALISATION AS A GROWTH STRATEGY
• International strategy is a subset of corporate level strategy: the challenge is about
operating in multiple territories rather than multiple products or value chains. The decision
to internationalise is taken at the corporate level.
• Even a company selling a single product line, with subsidiaries in a number of different
countries, will face two main corporate strategy issues: which countries to invest in and
how to manage multiple operating units from corporate headquarters.

• Due to the interdependencies

and interconnectedness
between firms and between
countries, organisations need
to adopt a much broader
geographical perspective New geographic
even if they don’t operate (overseas) markets –
international strategy
internationally (e.g. a
domestic company may have
a supplier from another
country).
THE DYNAMICS OF INTERNATIONALISATION: PUSH AND PULL FACTORS
• At the upstream end of the
firm’s activities, it must balance
push factors arising from rising
prices of inputs in home country
that encourage it to go abroad
to seek cheaper inputs. At the
same time, these activities are
‘pulled’ abroad because there
are scale economies from
relocating these activities in
cheaper foreign locations.
• At the downstream end, closer
to the final market and the
customer, there are a variety of
push and pull factors. The home
market may be mature, and
firms need to seek new
opportunities for growth in new
and faster-growing countries
(push factor). On the other
hand, there may be barriers to
exports that encourage the firm
to relocate overseas, acting as
a pull factor.
DRIVERS OF INTERNATIONALISATION
Converging
markets
Customer
Culture Converging
• Similar customer needs
• Global customers technologies
• Transferable marketing
Country

• Trade policies • Scale economies

• Technical standards International • Sourcing efficiencies
Government • Country-specific costs Cost
• Host government strategies
influence policies • High product advantages
development costs

• Interdependence
Cost
• Global competitors
• High exports / imports

Competition
Global
competition

Source: Adapted from Yip’s globalisation drivers. G. Yip (1989). Global strategy in a world of nations. MIT Sloan Management Review, 31(1), 29-41.
INTERNATIONALISATION DECISIONS: WHERE TO LOCATE?
Location decisions must take account of three sets of factors:
▪ National resource conditions / location advantages: What are the key resources
which the product requires? Where are these available at low cost or at the required
expertise/skill level? What are the location advantages in a country or region?
Locations/countries often specialize in particular activities or products (e.g. luxury
watch industry in Switzerland, automobile industry in Germany, fashion design in Milan
and Paris while clothes manufacturing in low-cost Asian countries, technology firms in
Silicon Valley)
▪ Firm-specific advantages: To what extent is the company’s competitive advantage
based upon firm-specific resources and capabilities, and are these transferable?
Some resources and capabilities are location-bound, i.e. not transferable between
locations or countries (e.g. a company like Huawei has strong ties with the Chinese
government, which will provide advantages in China, but often viewed suspiciously by
many other countries).
▪ Tradability issues: Can the product be transported at economic cost? If not, or if trade
barriers exist, then production must be close to the market.
DETERMINING THE OPTIMAL LOCATION OF VALUE CHAIN ACTIVITIES
EXAMPLE: GLOBALLY DISPERSED PRODUCTION OF BOEING 787 DREAMLINER

Wing box: Mitsubishi Heavy Industries (Japan) Forward fuselage:

Wing ice protection: GKN Aerospace (UK) Centre fuselage: Kawasaki Heavy Industries (Japan)
Alenia Aeronautica (Italy) Spirit Aerosystems (USA)

Rear fuselage: Escape slides: Air

Vertical Stabiliser: Boeing Boeing South Carolina (USA) Doors & windows: Cruisers (USA)
Commercial Airplanes (USA) Zodiac Aerospace (USA)
Lavatories: PPG Aerospace (USA) Flight deck seats:
Jamco (Japan) Ipeco (UK)

Raked wing tips: Korean Airlines

Aerospace division (Korea)

Horizontal Stabiliser:
Engines: GE Engines
Alenia Aeronautica (Italy) Centre wing box: (USA), Rolls Royce (UK)
Fuji Heavy Industries
Aux. power unit: Hamilton (Japan) Engine nacelles: Goodrich (USA)
Sundstrand (USA)
Landing gear: Messier-Dowti Software: Dassault Systemes (France)
Passenger doors: (France) Navigation: Honeywell (USA)
Latécoère Aéroservices (France) Electric brakes: Messier- Pilot control system: Rockwell Colins
Cargo doors: Saab (Sweden) Bugatti (France) (USA)
Tires: Bridgestone Tires Wiring: Safran (France)
Prepreg composites: (Japan)
Toray (Japan) Final assembly: Boeing
Commercial Airplanes (USA)
CAGE DISTANCE FRAMEWORK
• Pankaj Ghemawat emphasises that it’s not just the attractiveness of different
countries relative to each other, but that the compatibility of countries with the
internationalising firm itself, and its country of origin is what matters. This underlines
the importance of match between country and firm. For firms coming from any
particular country, some countries are more ‘distant’ – or mismatched – than
others.
• The CAGE Distance framework defines four categories of ‘distances’ that may
have an impact on cross-border interactions between countries and businesses.
• Cultural distance includes differences in religious beliefs, race/ethnicity, language, and
social norms and values. Countries can even differ in their social attitudes to the market
power of firms and income inequality, which may have implications on the economic
policies of the individual countries.
• Administrative distance covers historical and political associations between countries, and
include colonial links, free trade agreements, and the length of bilateral relationships.
• Geographic distance encompasses more than how far two countries are from each other
geographically. Other factors include a country’s physical size, within-country distances to
borders, access to ocean, topography, and even time zones.
• Economic distance includes consumer wealth and labor costs, but other factors that
impact the economic distance include differences in market size, availability of resources,
infrastructure.
CAGE DISTANCE FRAMEWORK: SOME INDICATORS

Types of distance Cultural Administrative Geographic Economic

• Different • Institutional • Physical • Differences in

languages weaknesses distance consumer incomes
• Different • Different • Lack of • Differences in cost
ethnicities varieties of common and quality of:
Attributes causing economic border • Natural
creating lack of system • Weak resources
distance social • Local political transportation • Financial
networks instability or and resources
• Different hostility communication • Human
religions • Lack of shared links resources
• Different regional trading • Differences in • Infrastructure
social norms bloc climate • Information or
• Lack of colonial • Size of country knowledge
ties

CAGE distance indicators are used to identify and prioritise the differences between
countries that companies must address when developing cross-border strategies.
HOW TO ENTER A FOREIGN MARKET?
Modes of overseas market entry

TRANSACTIONS (non-equity) DIRECT INVESTMENT (equity)

Exporting Licensing Joint venture Wholly owned

subsidiary
Marketing & Fully
Spot Foreign distribution integrated
sales agent / only
distributor

Long- Licensing Franchising Marketing & Fully

term patents & distribution integrated
contract other IP only

Low Resource commitment High

GLOBAL-LOCAL DILEMMA: GLOBAL INTEGRATION VS LOCAL RESPONSIVENESS
The global-local dilemma, often called glocal dilemma relates to the extent to which
products and services may be standardised across national boundaries or need to be
adapted to meet the requirements of specific national markets.
• Global integration: Pressures which require the production and distribution of products and
services of a homogeneous type and quality on a worldwide basis in order to maximize
economic efficiency.
• Logic of standardization

• National/local responsiveness: Pressures which require adapting to and managing different

consumer tastes in segmented country or regional markets, and responding to different
national standards and regulations imposed by sovereign governments and agencies.
• Logic of customization

• Organisations need to assess to what degree there are potential advantages of cost and
quality of global integration, and balance those pressures against the need to adapt
products and/or services to local conditions. This dilemma between global integration and
local responsiveness suggests four possible international strategies (Bartlett and Ghoshal,
1989)

Bartlett, C. A. and Ghoshal, S. (1989). Managing across Borders : The Transnational Solution. Boston: Harvard Business School Press.
INTERNATIONAL STRATEGIES
INTERNATIONAL STRATEGIES EXPLAINED: EXPORT STRATEGY
• In an international environment where both pressures for integration and for
responsiveness are low, exploiting parent company knowledge and capabilities
through worldwide diffusion (replication) is the dominant strategic requirement.
• This strategy leverages home country capabilities, innovations, and products into
different foreign countries.
• Commonly pursued by businesses that bank on their home country’s reputation
for products (e.g. French wine, Scottish whiskey) or in the agricultural sector
where crops grow only in few locations and exported worldwide (e.g. cocoa,
coffee beans, tea, rice).
• Internet-based and technology intensive businesses may also pursue this
strategy. Companies like Google, Facebook, Uber, Deliveroo, etc centralises the
core architecture underlying its services at its headquarters and exploits it
internationally with minor adaptations for local languages.
• The downside of this approach is the limits of a home country centralised view of
the business with risks of skilled local competitors getting ahead.
INTERNATIONAL STRATEGIES EXPLAINED: GLOBAL STRATEGY
• In ‘global strategy’ where the pressures for cross-border integration are high and
the pressures for local responsiveness are low, managers need to pay more
attention to leveraging aspects like economies of scale, product development,
global customers and global competition than to issues of local responsiveness.
• Companies that follow a global strategy are said to ‘think global, act global’.
Such an organization employs the same competitive approach regardless of the
markets where it operates.
• Maximises global integration with little or no local adaptation of products/
services. Standardised products are deemed to suit all markets and efficient production
is emphasised through economies of scale.
• Resource allocations with respect to key elements of strategy for that business
(such as plant location and investments, pricing, product development) may
have to be centralised. Geographically dispersed activities are centrally
controlled from corporate headquarters.
• Common for commodity products (e.g. cement) but also employed by
companies like Apple that sell the same products all over the world with little or
no adaptation to local markets.
INTERNATIONAL STRATEGIES EXPLAINED: MULTI-DOMESTIC STRATEGY
• Maximises local responsiveness – different product offerings for different markets.

• Key strategic choices need to be responsive to local conditions and need to be

‘managed in a decentralised mode’ - overseas subsidiaries are rather important,
as their task is to sense and exploit local opportunities.
• Each country is treated differently with considerable autonomy for each country
manager to best meet the needs of local markets and customers in that particular
country.
• The organisation becomes a collection of relatively independent units with value
chain activities adapted to specific local conditions – loosely controlled from
corporate headquarters.
• Commonly found in food and consumer product industries where local
idiosyncratic preferences are significant (e.g. FMCG companies like Unilever)
INTERNATIONAL STRATEGIES EXPLAINED: TRANSNATIONAL STRATEGY
• This ‘think global, act local’ approach is a hybrid strategy that is appropriate when there
is a relatively high need for local responsiveness, but the firm can realize benefits from a
degree of standardization.
• The value chain configuration includes an intricate combination of global integration on
some elements of strategy to increase efficiency (e.g. R&D, production), combined with
other elements that are subject to pressures for local responsiveness and adaptations
(e.g. product features, marketing).
• The best strategy to cater these mixed demands is to build a dispersed, interdependent
and specialised network of national units that provide differentiated contributions to
their specific markets. Knowledge is developed jointly and shared worldwide, guided by
a corporate headquarters that is devoted to non-hierarchical decision making.
• The subsidiaries exchange ideas regarding efficiency, business processes, customer
responsiveness and innovation across different parts of the value chain and diverse
countries worldwide. However, while it is argued that transnational strategies are
becoming increasingly necessary, many firms find it difficult to implement given its
complexity and the fundamental trade-off between integration and responsiveness.
INTERNATIONALISATION DECISION STAGES