(Mt) – OSU Elm Company International Expansion Essay

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Managing Strategy International Expansion: Is It for Everyone? The purpose of this assignment is to investigate the feasibility of a company expanding internationally. Elm Company https://www.elm.sa/en/pages/default.aspx you have to: – Analyze the organization’s internal and external environment – Find the drives/motives and opportunities for international presence – Select an appropriate strategy to achieve international presence for this organization. Chapter 8 International Strategy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 1–1 Learning Objectives Studying this chapter should provide you with the strategic management knowledge needed to: 1. Explain incentives that can influence firms to use an international strategy. 2. Identify three basic benefits firms achieve by successfully implementing an international strategy. 3. Explore the determinants of national advantage as the basis for international business-level strategies. 4. Describe the three international corporate-level strategies. 5. Discuss environmental trends affecting the choice of international strategies, particularly international corporate-level strategies. 6. Explain the five modes firms use to enter international markets. 7. Discuss the two major risks of using international strategies. 8. Discuss the strategic competitiveness outcomes associated with international strategies particularly with an international diversification strategy. 9. Explain two important issues firms should have knowledge about when using international strategies. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–2 Opportunities and Outcomes of International Strategy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–3 Identifying International Opportunities • International Strategy – A strategy through which the firm sells its goods or services outside its domestic market. • Incentives to use international strategy – New market expansion extends product life cycle – Gain access to materials and resources – Integration of operations on a global scale – Better use of rapidly developing technologies – International markets yield potential new opportunities © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–4 Classic Rationale for International Diversification: Extend a Product’s Life Cycle Firm introduces innovation in domestic market Product demand develops and firm exports products Production is standardized and relocated to low cost countries © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Foreign competition begins production Firm begins production abroad 8–5 International Strategy Benefits • Increased Market Size – Domestic market may lack the size to support efficient scale manufacturing facilities. • Economies of Scale (or Learning) – Expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R&D or distribution. – Can spread costs over a larger sales base – Can increase profit per unit © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–6 International Strategy Benefits (cont’d) • Location Advantages – Low cost markets aid in developing competitive advantage by providing access to: • raw materials • transportation • lower costs for labor • key customers • energy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–7 Incentives and Basic Benefits of International Strategy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–8 Determinants of National Advantage © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–9 Determinants of National Advantage • Factors of production – The inputs necessary to compete in any industry. • • • • • Labor Land Capital Infrastructure Natural Resources • Basic factors – Natural and labor resources • Advanced factors – Digital communication systems – Educated workforce © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–10 Determinants of National Advantage (cont’d) • Demand Conditions – Characterized by the nature and size of buyers’ needs in the home market for the industry’s goods or services. • Size of the market segment can lead to scale-efficient facilities. • Efficiency can lead to domination of the industry in other countries. • Specialized demand may create opportunities beyond national boundaries. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–11 Determinants of National Advantage (cont’d) • Related and Supporting Industries – Supporting services, facilities, suppliers, etc. • Support in design • Support in distribution • Related industries as suppliers and buyers • Firm Strategy, Structure and Rivalry – The pattern of strategy, structure, and rivalry among firms. • Common technical training • Methodological product and process improvement • Cooperative and competitive systems © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–12 Selecting an International Corporate-Level Strategy • The type of corporate strategy selected will have an impact on the selection and implementation of the business-level strategies. – Some strategies provide individual country units with the flexibility to choose their own strategies. – Other strategies dictate business-level strategies from the home office and coordinate resource sharing across units. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–13 International Corporate-Level Strategy • Focuses on the scope of operations – Product diversification – Geographic diversification • Required when the firm operates in: – multiple industries – multiple countries or regions • Headquarters unit guides the strategy, – but business or country-level managers can have substantial strategic input. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–14 International Corporate-Level Strategy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–15 Multidomestic Strategy • Strategy and operating decisions are decentralized to strategic business units (SBU) in each country. • Products and services are tailored to local markets. • Business units in one country are independent of each other. • Assumes markets differ by country or regions. • Focus on competition in each market. • Prominent strategy among European firms due to broad variety of cultures and markets in Europe. Multi-domestic strategy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–16 Global Strategy • Products are standardized across national markets. • Business-level strategic decisions are centralized in the home office. • Strategic business units (SBUs) are assumed to be interdependent. • Emphasizes economies of scale. • Often lacks responsiveness to local markets. • Requires resource sharing and coordination across borders (hard to manage). Global Strategy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–17 Transnational Strategy • Seeks to achieve both global efficiency and local responsiveness. • Difficult to achieve because of simultaneous requirements for: – strong central control and coordination to achieve efficiency. – decentralization to achieve local market responsiveness. – pursuit of organizational learning to achieve competitive advantage. Transnational Strategy © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–18 Environmental Trends • Liability of Foreignness – Legitimate concerns about the relative attractiveness of global strategies – Global strategies not as prevalent as once thought – Difficulty in implementing global strategies • Regionalization – Focusing on particular region(s) rather than on global markets – Better understanding of the cultures, legal and social norms © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–19 Environmental Trends © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–20 Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm has no foreign manufacturing expertise and requires investment only in distribution. Exporting © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–21 Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm needs to facilitate the product improvements necessary to enter foreign markets. Licensing © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–22 Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm needs to connect with an experienced partner already in the targeted market and to reduce its risk through the sharing of costs. Strategic Alliance © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–23 Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm is facing uncertain situations such as an emerging economy in its targeted market. Strategic Alliance © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–24 Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm needs rapid cross-border access to new international markets Acquisitions © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–25 Choice of International Mode of Entry What’s the best solution? Situation Optimal Solution The firm’s intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is growing fast, and the need for global integration is high. Wholly-owned Subsidiary © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–26 Risks in an International Environment • Political Risks • Economic Risks – Instability in national governments – War, both civil and international – Potential nationalization of a firm’s resources ? – Differences and fluctuations in the value of different currencies – Differences in prevailing wage rates – Difficulties in enforcing property rights – Unemployment ? ? ? © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–27 International Diversification and Returns © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–28 International Diversification and Returns • Expanding sales of goods or services across global regions and countries and into different geographic locations or markets: – may increase a firm’s returns (such firms usually achieve the most positive stock returns). – may achieve economies of scale and experience, location advantages, increased market size and opportunity to stabilize returns. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–29 International Diversification and Innovation • Expansion sales of goods or services across global regions and countries and into different geographic locations or markets: – may yield potentially greater returns on innovations (a larger market) – can generate additional resources for investment in innovation – provides exposure to new products and processes in international markets; generates additional knowledge leading to innovations © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–30 Complexity of Managing Multinational Firms • Expansion into global operations in different geographic locations or markets: – makes implementing international strategy increasingly complex. – can produce greater uncertainty and risk. – may result in the firm becoming unmanageable – may cause the cost of managing the firm to exceed the benefits of expansion. – exposes the firm to possible instability of some national governments. © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–31 Limits to International Expansion • Management Problems – Cost of coordination across diverse geographical business units – Institutional and cultural barriers – Understanding strategic intent of competitors – The overall complexity of competition © 2017 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8–32 Managing Strategy International Expansion: Is It for Everyone? The purpose of this assignment is to investigate the feasibility of a company expanding internationally. Elm Company https://www.elm.sa/en/pages/default.aspx you have to: – Analyze the organization’s internal and external environment – Find the drives/motives and opportunities for international presence – Select an appropriate strategy to achieve international presence for this organization. Please justify your ideas and support your ideas with the respective literature, duly accompanied with in-text and end references Managing Strategy International Expansion: Is It for Everyone? The purpose of this assignment is to investigate the feasibility of a company expanding internationally. Elm Company https://www.elm.sa/en/pages/default.aspx you have to: – Analyze the organization’s internal and external environment – Find the drives/motives and opportunities for international presence – Select an appropriate strategy to achieve international presence for this organization. Please justify your ideas and support your ideas with the respective literature, duly accompanied with in-text and end references

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