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Strategic Management Chapter-7

The document discusses factors that affect a nation's competitiveness according to Michael Porter's diamond model, including factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. It also covers reasons for international expansion, risks of expansion, and strategies companies can take including global, multidomestic, and transnational strategies. Different entry modes for international expansion are also presented.

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Towhidul Hoque
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39 views24 pages

Strategic Management Chapter-7

The document discusses factors that affect a nation's competitiveness according to Michael Porter's diamond model, including factor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. It also covers reasons for international expansion, risks of expansion, and strategies companies can take including global, multidomestic, and transnational strategies. Different entry modes for international expansion are also presented.

Uploaded by

Towhidul Hoque
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 24

7

International Strategy:
Creating Value in Global Markets
7-2

Factors Affecting
a Nation’s Competitiveness

• Factor conditions
- Nation’s position in factors of production
• Skilled labor
• Infrastructure
• Demand conditions
- Nature of home-market demand
• Industry’s product
• Industry’s service
7-3

Factors Affecting
a Nation’s Competitiveness

• Related and supporting industries


- Presence or absence in the nation of internationally
competitive
• Supplier industries
• Other related industries
• Firm strategy, structure, and rivalry
- Conditions in the nation governing how companies are
• Created
• Organized
• Managed
- Nature of domestic rivalry
7-4

Factor Conditions

• To achieve competitive advantage, factors of


production must be created
- Industry specific
- Firm specific
- Pool of resources at a firm’s or country’s disposal is less
important than the speed and efficiency with which the
resources are deployed
7-5

Demand Conditions

• Demands that consumers place on an industry for


goods and services
- Demanding consumers push firms to move ahead of
companies from other nations
- Demanding consumers drive firms in a country to
• Meet high standards
• Upgrade existing products and services
• Create innovative products and services
7-6

Related and Supporting Industries

• Related and supporting industries


- Enable firms to manage inputs more effectively
- Strong supplier base adds efficiency to downstream
activities
- Competitive supplier base lets a firm obtain inputs using
cost-effective, timely methods
- Allow joint efforts among firms
- Create the probability that new entrants will enter the
market
7-7

Firm Strategy, Structure and Rivalry

• Rivalry is intense in nations with conditions of


- Strong consumer demand
- Strong supplier bases
- High new entrant potential from related industries

• Competitive rivalry increases the efficiency with


which firms develop, market, and distribute products
and services within the home country
7-8

Firm Strategy, Structure and Rivalry

• Competitive rivalry increases the efficiency with


which firms
- Develop within the home country
- Market within the home country
- Distribute products and services within the home country
7-9

Firm Strategy, Structure and Rivalry

• Domestic rivalry provides a strong impetus for firms


to
- Innovate
- Find new sources of competitive advantage

• Domestic rivalry forces firms to look beyond national


borders for new markets
7 - 10

Porter’s Diamond of National


Advantage: As Applied to India

Adapted from Exhibit 7.1 India’s Diamond in Software


7 - 11

A Company’s Motivation for


International Expansion

• Increase the size of potential markets


• Attain economies of scale
• Reducing the costs of R&D as well as operating costs
• Extend the life cycle of a product
• Optimize the physical location for every activity in its
value chain
- Performance enhancement
- Cost reduction
- Risk reduction
7 - 12

Potential Risks of
International Expansion

• Political and economic risk


- Social unrest
- Military turmoil
- Demonstrations
- Violent conflicts and terrorism
- Laws and their enforcement
7 - 13

Risk Rankings
7 - 14

Potential Risks of
International Expansion

• Currency risks
- Currency exchange fluctuations
- Appreciation of the U.S. dollar
• Management risks
- Culture
- Customs
- Language
- Income levels
- Customer preferences
- Distribution system
7 - 15

Outsourcing and Offshoring

• Outsourcing occurs when a firm decides to utilize


other firms to perform value-creating activities that
were previously performed in-house.

• Offshoring takes place when a firm decides to shift an


activity that they were previously performing in a
domestic location to a foreign location.
7 - 16

Opposing Pressures and Four Strategies

Exhibit 7.4 Opposing Pressures and Four Strategies


7 - 17

International Strategy

• Pressure for both local adaptation and low costs are


rather low
• Different activities in the value chain have different
optimal locations
• Susceptible to higher levels of currency and political
risks
7 - 18

Global Strategy

• Competitive strategy is centralized and controlled


largely by corporate office
• Emphasizes economies of scale
• Advantages
- Larger production plants
- Efficient logistics and distribution networks
- Supports high levels of investment in R&D
- Standard level of quality throughout the world
7 - 19

Global Strategy

• Disadvantages
- Concentration on scale-sensitive resources and activities in
one or few locations leads to higher transportation and tariff
costs
- Activity is isolated from targeted markets
- The rest of the firm becomes dependent on that
geographically isolated location
7 - 20

Multidomestic Strategy

• Emphasis is differentiating products and services to


adapt to local markets
• Authority is more decentralized
• Risks include
- Increased cost structure
- Potential problems with local adaptations
- Finding optimal degree of local adaptation is difficult
7 - 21

Transnational Strategy

• Optimization of tradeoffs associated with efficiency,


local adaptation, and learning
• Firm’s assets and capabilities are dispersed according
to the most beneficial location for a specific activity
• Avoids the tendency to either
- Concentrate activities in a central location
- Disperse them across many locations to enhance adaptation
7 - 22

Transnational Strategy

• Unique risks and challenges


- Choice of an “optimal” location cannot guarantee that the
quality and cost of factor inputs will be optimal
- Knowledge transfer can be a key source of competitive
advantage, but it does not take place automatically
7 - 23

Entry Modes of International Expansion


7 - 24

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