Abeera Malik
BBA-VIII (B)
011-18-0026
Review Questions chapter
8: International strategy
Q # 01: What incentives influence firms to use international strategies?
The use of international strategies is increasing. Multiple factors and conditions are influencing
the increasing use of these strategies, including opportunities to
■ extend a product’s life cycle
■ gain access to critical raw materials, sometimes including relatively inexpensive labor
■ integrate a firm’s operations on a global scale to better serve customers in different countries
■ better serve customers whose needs appear to be more alike today as a result of global
communications media and the Internet’s capabilities to inform
■ meet increasing demand for goods and services that is surfacing in emerging markets.
Q # 02: What are the three basic benefits firms can achieve by successfully using an
international strategy?
When used effectively, international strategies yield three basic benefits: increased market size,
economies of scale and learning, and location advantages. Firms use international business-level
and international corporate-level strategies to geographically diversify their operations.
Larger market access allows the firm to market and sell its products and services to large number
of customers.
International strategy allows a firm to produce in large volumes so that the per unit cost for the
product goes down, thereby allowing the company to have a large market share.
Strategic and lower cost location advantages allow a company to manufacture and assemble the
components in a country where it has large market share for the product or where the labor is
cheaply available in abundant quantities.
Q # 03: What four factors are determinants of national advantage and serve as a basis for
international business-level strategies?
International business-level strategies are usually grounded in one or more home-country
advantages. Research suggests that there are four determinants of national advantage: factors of
production; demand conditions; related and supporting industries; and patterns of firm strategy,
structure, and rivalry.
Factors of production define the relative availability of resources like land, labor, and capital in
the particular country.
Demand conditions define the demand for the particular product manufactured by the firm in that
country.
Related and supporting industries define the allied industries that aid the growth of the main
industry. For example, the automobile industry to flourish in a particular area requires the
presence of the various component manufacturers with-in a short radius from the manufacturing
hub so the transportation and other related costs can be brought down.
Firm strategy, structure and rivalry defines the amount of competitiveness in the particular
industry, the structure of the industry and the strategy used by the firm in order to capture enough
market share.
Q # 04: What are the three international corporate-level strategies?
There are three types of international corporate-level strategies.
A multidomestic strategy focuses on competition within each country in which the firm
competes. Firms using a multidomestic strategy decentralize strategic and operating decisions to
the business units operating in each country, so that each unit can tailor its products to local
conditions.
A global strategy assumes more standardization of products across country boundaries; therefore,
a competitive strategy is centralized and controlled by the home office. Commonly, large
multinational firms, particularly those with multiple diverse products being sold in many
different markets, use a multidomestic strategy with some product lines and a global strategy
with others.
A transnational strategy seeks to integrate characteristics of both multidomestic and global
strategies for the purpose of being able to simultaneously emphasize local responsiveness and
global integration
What are the advantages and disadvantages associated with these individual strategies?
Multidomestic strategy: The advantage is that it will typically build the local market share;
however its disadvantage is that it is less knowledge sharing and the inability to develop
economies of scale.
Global Strategy: It can create economies of scale. It also has an advantage that it can launch
innovative campaigns and products across the markets as well large multinationals particularly
use this strategy. The disadvantage is that it cannot be differentiated or cannot be localized.
Transnational strategy: The advantage is that the strategy is very flexible depending upon the
requirements. The downside is that it can lose touch with standardization, as well as profitability,
as it tries to meet local needs for products.
Q # 05: What are some global environmental trends affecting the choice of international
strategies, particularly international corporate-level strategies?
Two global environmental trends, liability of foreignness and regionalization, are influencing
firms’ choices of international strategies as well as their implementation. Liability of foreignness
challenges firms to recognize that distance between their domestic market and international
markets affects how they compete. Some firms choose to concentrate their international
strategies on regions (e.g., the EU and NAFTA) rather than on individual country markets.
Q # 06: What five entry modes do firms consider as paths to use to enter international
markets? What is the typical sequence in which firms use these entry modes?
Firms can use one or more of five entry modes to enter international markets. Exporting,
licensing, strategic alliances, acquisitions, and new wholly owned subsidiaries, often referred to
as greenfield ventures, are the five entry modes.
The typical sequence that a company would use to enter a new market based on cost and risk is
export, licensing, strategic alliances or acquisitions, greenfield venture.
As we move from export to a greenfield project, the amount of risk goes on increasing. Also, the
amount of capital investment required goes on increasing.
Most firms begin with exporting or licensing because of their lower costs and risks. Later they
often use strategic alliances and acquisitions as well. The most expensive and risky means of
entering a new international market is establishing a new wholly owned subsidiary (greenfield
venture). On the other hand, such subsidiaries provide the advantages of maximum control by the
firm and, if successful, the greatest returns. Large, geographically diversified firms often use
most or all five entry modes across different markets when implementing international strategies.
Q # 07: What are political risks and what are economic risks? How should firms approach
dealing with these risks?
Political risks - are those where the operations could be disrupted by political forces and events
such as military engagements and civil wars. The best way to handle the political risks is to do a
political risk evaluation so the company can be aware of what to expect and how to work around
in certain situations.
Economic risks are the basic weaknesses that are inherent to each country or region's economy
that can affect the overall effectiveness of the global initiative. A company should select a
country that protects its intellectual property on a high level It should also look for countries that
have a high level of national security as well.
Q # 08: What are the strategic competitiveness outcomes firms can reach through
international strategies, and particularly through an international diversification strategy?
Successful use of international strategies (especially an international diversification strategy)
contributes to a firm’s strategic competitiveness in the form of improved performance and
enhanced innovation. International diversification facilitates innovation in a firm because it
provides a larger market to gain greater and faster returns from investments in innovation. In
addition, international diversification can generate the resources necessary to sustain a large-
scale R&D program.
International diversification helps to achieve 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.
Q # 09: What are two important issues that can potentially affect a firm’s ability to
successfully use international strategies?
Size and complexity are two areas of interest that can affect a company's ability to navigate
international strategies. The bigger the size of the firm with a lot of resources, the easier it would
be, for the firm to manage and implement the strategies. The more complex the market is, the
more difficult it would be for a firm, to do business in a complex country.