International Strategy

Chris Kariyawasam
BBA (hons), MBA, MCIM, MSLIM, CMP Asia Pacific

Any Questions?
[email protected]

WhatsApp 0777 708396

 Learning Objectives
1. Familiarize students about the reasons for international expansion of firms

2. Provide strategic direction to firms as to where and how (what strategy) to

use when expanding geographically

3. Discuss the pros and cons of four different strategies for competing in the
global marketplace

4. Discuss the advantages and disadvantages of various modes of entry into

foreign markets

◼ Teaching methods:

 Real business examples

 Reading – International Strategy
 Reading Part 2
 Market Entry Strategies
 Youtube Videos
 https://www.youtube.com/watch?v=NoARkfbBmaI
 https://www.youtube.com/watch?v=4Kekdb-xHqA
 https://www.youtube.com/watch?v=oMeWOI9cOx4
 What is International Strategy

1. Why should the firm expand?

2. Where should the firm expand - what markets to

enter?

3. How should the firm expand – what strategies?

https://www.businessnewsdaily.com/8211-expand-business-
internationally.html

CBL Internationalization
 Ansoff Matrix - Growth Strategies
An important model for strategic planning
How do we Grow the Business ?
Existing Products New
Market Penetration New Product Development
• More purchasing and usage by
• Product modification via new
Existing customers
features, new variants
Existing

• Gain from competitors

• Different quality levels
• Convert non-users
• New products / range extensions
• Extend availability – new outlets
Markets

• Extend the range in exist outlets

New Market Development Diversification

• New Market Segments • Joint ventures
New

– Heavy user • Mergers

VFM segment SKUs • Acquisitions
• New distribution channels • Strategic alliances
• New geographic areas • New categories

McDONALD, M. (2007) Marketing Plans. 6th ed. Italy: Butterworth-Heinemann, p.361

Major Reasons for Expanding into
foreign markets
◼ To gain access to new customers to increase revenue, profit and long-term
growth e.g. Sony, Nokia, Toyota

◼ To achieve lower costs and enhance competitiveness

E.g. the relatively small size of markets in Switzerland forced companies
such as Nestle to sell products across Europe and expand to North
America, Asia, rest of the world

◼ To capitalise on its core competencies leading to competitive advantage in

foreign markets e.g. P&G and Unilever

◼ To spread its business risk across a wider market base rather than depend
on operations entirely on its home market
Why Do Companies Expand
Overseas ?
The Home and Host Country Business
Model

The International Environment

Home country Host country

environment environment

Exporting Market
firm

Political & legal

barriers

Source: Hollensen 2018

How Markets Differ from
Country to Country

◼ Consumer tastes and preferences

◼ Consumer buying habits

◼ Market size and growth potential

◼ Distribution channels

◼ Driving forces

◼ Competitive pressures
How Marketing Differs from Home
Country to Host Country
◼ Product, Price : Standardize or Adapt

◼ Promotion : Standardize or Adapt

◼ Modes of Entry into International Markets may differ due to

unfamiliarity with cultural and other differences in that market

◼ Negotiations between culturally different market participants

◼ Management Style

◼ Successful international managers understand the business

environment (PEST) e.g. cultural context and other aspects of
their chosen market and formulate strategies accordingly
Adaptation of Ginger Beer in Qatar
Differing symbolism in different
cultures - McDonalds in India

Example of
Communication
adaptation to suit
Indian culture

TVC
Cultural Misunderstanding
In Sri Lanka
 Strategic Alternatives
For International marketing
Promotion
Standardization Customization
Pure Standardization
Standardization

Same product with

One product, one message promotion
worldwide tailored to specific
countries
Product

Customization

Pure Customization
Same promotion with
the product
New product invention
tailored to specific
countries
Globalisation: What Does It Mean?
◼ Strategic interdependence

◼ Global sourcing

◼ Converging tastes and technologies

◼ Increasingly homogeneous markets

◼ Competition from anywhere

◼ Anonymity of source of products and services

◼ New entrants at low cost

◼ Rapid diffusion of innovation

Key decision making areas in
Internationalisation of the Firm
1. Whether to internationalise (or internationalise further)

2. Market Selection

3. Market Entry Strategy

4. Standardisation and Adaptation

5. How to organise and control

The theory suggests that the internationalisation approach and process (as in issue 1),
potentially impacts on the approach to issues 2-5.
The five-stage decision model in global expansion
Hollensen. S. 2014 0.56
Definition of Internationalisation

◼ Internal and External factors that influence a firm’s decision to initiate,

develop, and sustain international business activities (Managing the
Internationalisation Process pg 1)

◼ Johanson & Vahlne (1977) define internationlisation as a process in

which the firm gradually increases its international involvement

◼ Above authors claim that internationalisation is the product of a series

of incremental decisions

◼ Beamish (1990) “the process by which firms both increase their

awareness of the direct and indirect influences of international
transactions on their future, and establish and conduct transactions
with other countries (Beamish 1990 p 77-92)
 Basic Entry Decisions
1. Which overseas markets to enter (WHERE)
 Assessment of long-run profit potential
 Balancing the benefits, costs, and risks associate with
doing business in a country

2. Timing of entry (WHEN)

 First-mover advantages: preempt and build share
 First-mover disadvantages: pioneering costs

3. Scale of Entry (HOW)

 Entering on a large scale is a major strategic
commitment
 Benefits and drawbacks of small-scale entry
Patterns of Geographic Expansion
- Stages Approach

◼ Gradual Internationalisation:
maximising manageability

◼ Focus on domestic market first

◼ Entering foreign markets one by one

◼ Likely to be neighbouring markets

◼ Role of learning and experience

(including trial and error)
 Internationalisation - Summary

◼ Internationalisation is a process that includes many incremental

decisions and strategies

◼ It involves inward or outward products, services or resource

transferring across national boundaries

◼ Internationlisation is influenced by a series of factors that come from

the firm and its environment
Group Case discussion: Starbucks
Corporation and Tata Global Beverages
1. Explain the business rationale for Starbucks to enter the Indian market?

2. Why did Starbucks decide to enter with a local partner – Tata Global
Beverages? Why not enter this market on its own?

3. What aspects of the Starbucks global business strategy was adapted to

better meet the objectives for the Indian market and why?

4. What factors would your group

consider before selecting a country
to expand your business and why?
 Product Adaptation: Dilmah Tea in
Australia and other overseas markets

An in-depth understanding of
the market context; culture and
usage habits and adapting your
offering increases probability
of business success
Internationalisation Strategy Framework
Drivers of Internationalisation
 International Market Entry Options

Control Manufacturing
Cooperation • Own subsidiary
• Joint ventures • Acquisition
• Strategic alliances

Internet Direct Exporting

• Distributors
• Agents
• Direct marketing
• Franchise
• Management contract

Indirect Exporting
• Piggyback
• Through trading comp
• Export management comp
• Domestic direct purchase

Risk
The Uppsala Model
(Johanson and Wiedersheim-Paul (1975)

◼ Key observations:

◼ Firms start expanding to neighbouring countries or countries with

relatively less psychic distance

◼ A firms international expansion depends on its experiential knowledge

of its foreign markets

◼ There is a direct link between market knowledge and market

commitment (better the knowledge, stronger the commitment)

◼ Firms expand their international operations step by step

◼ Johanson and Wiedersheim-Paul studied the internationalisation

process of four large Swedish multinationals (including Volvo)
The Uppsala Model
(Johanson and Wiedersheim-Paul (1975)

◼ The internationlisation pattern of these firms was marked by a number

of small incremental changes

◼ They identified four successive stages in the firm’s international

expansion from no export involvement to overseas production and
manufacturing :

 No export activities

 Export activities via independent representatives of agents

 The establishment of an overseas subsidiary

 Overseas production and manufacturing

The Uppsala Model
(Johanson and Wiedersheim-Paul (1975)

◼ The findings form the basis of the Uppsala Model which suggests that a
firm’s international expansion is a gradual process dependent on
experiential knowledge and incremental steps

◼ Firms proceed to internationalise based on their gradual acquisition and

use of information gathered from foreign markets and operations

◼ This information leads to greater levels of commitment to that market.

E.g. Foreign direct investment (FDI) shows higher market commitment
than exporting or licensing
The Uppsala Model
(Johanson and Wiedersheim-Paul (1975)

◼ The Uppasal model assumes that more the firm knows about the
foreign market the lower the perceived market risk and the higher the
level of investment

◼ E.g. Carrefour initially expanded into other Western European countries

: Belgium and Spain before making direct investment in Turkey, USA,
and China

◼ However, firms do not always follow the Uppsala model

The paradox of globalisation and
localisation

◼ Tension between treating the world as one market and

acknowledging national differences

◼ The demand for global synergy

◼ The demand for local responsiveness

◼ Cost of localization vs ability to make profit

◼ Ability to sustain competitive advantage to recoup fixed

cost related to localizaion
 Strategic choices: What should be
sold?

◼ Should it be responsive to local markets?

◼ Should that product be the same everywhere?

◼ Trade-offs between customizing the product for local

market conditions against the consequent loss of
efficiency and simplicity from not manufacturing one
standard product the same way at one location and
selling it everywhere.
Four Basic Strategies

Companies
  typically choose
among the four
main global
strategic postures
when competing
internationally.

  The
appropriateness of
each strategy
varies with the
extent of pressures
for cost reduction
versus local
responsiveness.

Source: Charles W L Hill and Gareth R Jones (2007). Strategic

Management: An Integrated Approach.
 Pressures for Cost Reduction
Pressure for cost reduction is greatest in
industries producing commodity-type products
where price is the main competitive weapon:

◼ Where differentiation on non-price factors is difficult

◼ Where competitors are based in low-cost location
◼ Where consumers are powerful and face low
switching costs
◼ Where there is persistent excess capacity
◼ The liberalization of the world trade and investment
environment
Pressures for Local Responsiveness

The greatest pressures for local responsiveness

arise from:
◼ Differences in customer tastes and preferences
◼ Differences in infrastructure and traditional
practices
◼ Differences in distribution channels
◼ Host government demands

Dealing with these contradictory pressures is a difficult

strategic challenge, primarily because being locally
responsive tends to raise costs.
 Choosing a Global Strategy

 Standard Globalization Strategy

 Reaping the cost reductions that come from economies of scale
and location economies
 Business model based on pursuing a low-cost strategy on a global
scale
Makes the most sense when there are strong pressures for cost
reduction and the demand for local responsiveness is minimal
 Localization Strategy
 Customizing the company’s goods or services so that they provide
a good match to tastes and preferences in different national
markets
Most appropriate when there are substantial differences across
nations with regard to consumer tastes and preferences and where
cost pressures are not too intense
 Choosing a Global Strategy
 Transnational Strategy
 Difficult to pursue due to its conflicting demands
 Business model that simultaneously:
◼Achieves low costs » Differentiates across markets
◼Fosters a flow of skills between subsidiaries
Building an organization capable of supporting a transnational
strategy is a complex and challenging task.
 International Strategy
 Multinational companies that sell products that serve universal
needs (minimal need to differentiate) and do not face significant
competitors (low cost pressure).
In most international companies the head office retains tight control
over marketing and product strategy.
https://www.youtube.com/watch?v=BDrlueAntjM&t=64s

https://www.youtube.com/watch?v=T9ALTVXawNk
https://www.youtube.com/watch?v=BDrlueAntjM
Porter’s National Diamond Framework
 National Competitive Advantage

◼ There are nation-based advantages that help determine the competitive

position of a firm in some industries

◼ Four attributes of a nation or country-specific environment that influences

global competitiveness of local firms are described in Michael Porter’s
Diamond

◼ The Four Attributes :

 Factor endowments:
The nation’s position in factors of production such as skilled labor or
necessary infrastructure

 Demand conditions:
The nature of home demand for the industry’s product or service
 National Competitive Advantage

 Relating and supporting industries

The presence or absence of supplier industries and related industries
those are internationally competitive

 Firm strategy, structure, and rivalry

The conditions of the home nation governing how companies are

created, organized, and managed and the nature
of domestic rivalry
 Choosing Among Entry Modes

◼ Distinctive Competencies and Entry Mode

Optimal mode of entry depends on the nature of the company’s distinctive
competency:
 Technological know-how
◼ Wholly-owned subsidiary is preferred over licensing and joint
ventures to minimize risk of losing control.
 Management know-how
◼ Franchising, joint ventures, or subsidiaries are preferred as risk is
low of losing management know-how.

◼ Pressures for Cost Reduction and Entry Mode

The greater the cost pressure, the more likely a company will want to pursue some
combination of exporting and wholly-owned subsidiary:
 Export finished goods from wholly-owned subsidiary
 Marketing subsidiaries for overseeing distribution
◼ Tight control over local operations allows company to use profits
generated in one market to improve position in other markets.
 Psychic Distance affects the
internationalisation process of the firm

◼ Definition

The distance that is perceived to exist between characteristics of a firm’s

home country and a foreign country with which that firm is or is
contemplating doing business or investing (Child et al 2009)

◼ High psychic distance (perceived large differences between home and host
country) will discourage international expansion into a given country due to
uncertainty

◼ Factors affecting psychic distance :

 Geographical distance, language, religion, education level, level of industrial

development, infrastructure, political and legal system, government influence on
business
The Strategic Position of an
Organisation
The Strategic Management
Process

45
 Strategic Capability

◼ Strategic Capability is the skills and abilities by which

resources are deployed through an organisation’s activities and
processes to achieve competitive advantage in ways that others
cannot imitate. E.g. P&G capability in Hair Care

◼ E.g. Toyota has the strategic capability of manufacturing the

worlds most fuel efficient hybrid car. Honda is nowhere close.

◼ Strategic capability refer to the resources and competencies of

an organisation needed for it to acquire an unmatchable
competitive advantage
Strategic Capability
Resources & Capabilities

The resource-based view of strategy: the competitive advantage and superior

performance of an organisation is explained by the distinctiveness of its capabilities
Resources & Capabilities
 Examples of a Company’s Resources and
Capabilities
RESOURCES CAPABILITIES

Finance Product
Development
Technology Purchasing

Engineering
Plant and
equipment Manufacturing
Location Financial
Management
Distribution R&D

Brands Marketing and

Sales
Government
Key question:
Does the organisation have the required Resources Relations
And Capabilities that will provide a competitive advantage Strategic
In the market place that will lead to superior returns to Management
shareholders ?
https://www.youtube.com/watch?v=U-9BH5JrRzE R&C Explained
 How Resources and Capabilities
create competitive advantage

Source: Grant 2010

– Strategy is the overall plan for deploying resources to establish a favorable

position (competitive advantage) in the market . E.g. Cargills strategy
– Important. – to be in the right business at the right time to take advantage of
profitable business opportunities
Resources, Capabilities, and Competencies

https://www.youtube.com/watch?v=RZ4SmWvXu3w
Strategic Position explained
◼ A firm’s decisions on how to serve customers and compete against rivals is
called strategic positioning.

◼ In order to develop its position, a firm combines its understanding of the

competitive environment, including the firm’s own resources and
capabilities, its industry situation, and facts about the macro environment.

◼ A strategic position is about a choice of generic competitive strategy, which

a firm selects based on its own capabilities and in response to the positions
already staked out by its industry rivals.

◼ The firm also determines which customers to serve and what those
customers are willing to pay for. A strategic position also includes decisions
about what geographic markets to participate in.

◼ Most importantly, a firm’s strategic position should try to be unique in some

way that competitors cannot imitate quickly or easily.
Strategic Position explained
◼ Competitive advantage is achieved when a firm attracts more customers or
makes more profit than rivals. This cannot happen unless the firm organizes
its activities to provide customers with better value than rivals.

◼ A firm develops a strategic position in response to the factors present in its

competitive environment.

◼ Strategic analysis is essential in identifying and understanding the factors

that a strategic position must address.

◼ The choice of strategic position factors in a firm’s is its resources and

capabilities when choosing a generic competitive strategy, product or
service to be offered, target market, and geographic reach to compete
successfully against rivals in an industry.

◼ To be successful and achieve a competitive advantage in its industry, a

firm’s strategic position should be different from its competitors’ positions in
the same industry and should be hard for competitors to copy so that the
firm’s competitive advantage lasts (sustainable competitive advantage).
Meaning of Strategic Position
◼ The strategic position is concerned with the impact on strategy of
the external environment, internal resources and competences, and
the expectations and influence of stakeholders.

◼ Together, a consideration of the environment, strategic capability,

the expectations and the purposes within the cultural and political
framework of the organisation provides a basis for understanding
the strategic position of an organisation. Johnson and Scholes, 2018

◼ It is important to take account of the future and to assess whether

the current strategy is a suitable fit with the strategic position. If not,
the organisation needs to determine what changes it needs to make
and whether it is capable of effecting such changes.

◼ In summary, the strategic position forms an integral part of the

strategic management process. It informs the strategic choices that
need to be made and subsequently implemented.
Meaning of Strategic Position
◼ As indicated above, there are three key aspects of strategic position,
all of which have a powerful influence on the organisation’s strategy:

1. the external environment

2. the organisation’s strategic capability in terms of its resources
and competences
3. culture and ethical values of the organisation and stakeholder
influences.

◼ The real art of understanding strategic position is in being aware of

the linkages between these three aspects, how they change over
time and how they can be integrated to create value.

◼ Johnson and Scholes point out that a successful organisation ‘will

have found a way of operating such that environmental forces,
organisational resources and competences, and stakeholder
expectations mutually reinforce one another.
Strategic Position - the main model

(166) ACCA P3 Chapter 2 Strategic planning models - YouTube

Source: Johnson, Scholes, & Whittington 2015
Strategic Positioning – the main Model

Source: Johnson, Scholes, & Whittington 2015

Strategic Capability
◼ This considers what customers value in terms of product and service
features. The organisation first needs to understand the threshold
features that all providers must offer if they are to stay in the market.

◼ It must then understand the critical success factors or what it must do

well in order to succeed and outperform the competition.

◼ In addition, the organisation should consider whether it has the

resources and competences to succeed in that particular market.

◼ Distinguish the threshold resources and competences that are required

to operate in the market compared with those that are unique to the
organisation and thus represent a key source of competitive advantage.

◼ It is important to note that even the threshold level may change over
time so the organisation may need to continue to invest in its resource
base simply to stay in business.
Resources & Competencies

Source: Johnson & Scholes 2015

Resources may be classified in the following ways:

❑ physical resources such as plant, machinery and buildings
❑ human resources
❑ financial resources
❑ intangible resources such as knowledge and intellectual capital,
brands and reputation.

Organisations will obtain competitive advantage by using resources

effectively to create competences.
Competencies
◼ It is important to note that the core competence must relate to an
activity that underpins the value in the product feature from the
perspective of the customer.

◼ Customer preferences will change over time and therefore core

competences will be eroded. However, Opportunities will open up to
exploit core competences in new markets.

◼ Benchmarking can help the organisation understand what constitutes

good or bad performance.

◼ Value chain analysis can help the organisation to understand where

value is created and lost as it maps the activities which together create
the product or service.

◼ A value chain can be defined as: The sequence of business activities

by which, in the perspective of the end user, value is added to the
products or services produced by an entity.
Grant’s (Grant 2004) Approach to the appraisal of
resources and capabilities
◼ A three step approach suggested by Grant as to the appraisal of
resources and capabilities and how these affect strategy formulation
is outlined below. Grant, 2004

❑ Step 1 is to identify key resources and capabilities. Value chain

analysis can be used here.

❑ Step 2 is to appraise resources and capabilities against the two

key criteria of importance and relative strengths. Benchmarking
can be used to appraise the latter.

❑ Step 3 is to develop strategy implications by exploiting key

strengths, and managing key weaknesses
Understanding Stakeholders and Organisation
Culture
◼ Understanding the specific political and cultural context in which the
organisation operates can have a significant impact on strategy.

Johnson and Scholes set out the following key areas that need to be
addressed.
❑ The corporate governance and regulatory framework – whom is the
organisation there to serve and how should its purposes and direction be
determined?

❑ Organisational stakeholders – whom does the organisation actually serve in

practice and where does the power lie?

❑ Ethical considerations – which purposes should the organisation fulfil?

❑ Cultural issues – which purposes are prioritised in practice and why?

Understanding Stakeholders and Organisation
Culture

◼ Such analysis enables the organisation to understand the ease or

difficulty with which new strategies could be adopted.

◼ However, it is arguable that this is the most important aspect of the

strategic position to understand, given that a strategy is only
successful when it is implemented effectively.
Meaning of Strategic Position (additional reading)
◼ Prior to the 1990s, strategic management tended to focus on the
interface between strategy and the external environment in which
the organisation operated.

◼ However, during the 1990s, the emphasis shifted towards internal

factors or the ‘resource based view’ which stressed the role of the
organisation’s resources and capabilities as the principal basis for
its strategy.

◼ The organisation can exploit its unique collection of resources and

competences to gain competitive advantage and in a way that is
difficult for competitors to imitate.

◼ What really matters is that understanding the strategic position

should help the organisation to formulate and implement a
successful strategy.
Meaning of Strategic Position
Understanding the external environment
◼ Organisations need to understand the external environment in terms
of:
◼ macro influences – these include political, economic, technological
and social factors
◼ micro influences – factors specific to the particular industry and
related industries, including competition, customers, suppliers and
barriers to entry.

◼ The PESTEL framework

◼ This approach reviews current and future aspects of the external
environment based on categories such as social, technological,
economic, ethical, political and identify issues