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Strategic Management
, Sixth Edition
Charles W. L. Hill, University of Washington
Gareth R. Jones, Texas A&M University
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Chapter Summaries
Chapter 8: Strategy in the Global Environment
- For some companies, international expansion represents a way of earning greater
returns by transferring the skills and product offerings derived from their
distinctive competencies to markets where indigenous competitors lack those skills.
- Because of national differences, it pays a company to base each value creation
activity it performs at the location where factor conditions are most conducive
to the performance of that activity. This strategy is known as focusing on the attainment
of location economies.
- By building sales volume more rapidly, international expansion can assist
a company in the process of moving down the experience curve.
- The best strategy for a company to pursue may depend on the kind of pressures
it must cope with: pressures for cost reductions or for local responsiveness.
Pressures for cost reductions are greatest in industries producing commodity-type products, where price is the main competitive
weapon. Pressures for local responsiveness arise from differences in consumer
tastes and preferences, as well as from national infrastructure and traditional
practices, distribution channels, and host government demands.
- Companies pursuing an international strategy transfer the skills and products
derived from distinctive competencies to foreign markets, while undertaking
some limited local customization.
- Companies pursuing a multidomestic strategy customize their product offering,
marketing strategy, and business strategy to national conditions.
- Companies pursuing a global strategy focus on reaping the cost reductions that come from experience curve
effects and location economies.
- Many industries are now so competitive that companies must adopt a transnational
strategy. This involves a simultaneous focus on reducing costs, transferring skills and products, and local
responsiveness. Implementing such a strategy may not be easy.
- The most attractive foreign markets tend to be found in politically stable
developed and developing nations that have free market systems and where there is not
a dramatic upsurge in either inflation rates or private sector debt.
- Several advantages are associated with entering a national market early, before other international businesses have established themselves. These advantages
must be balanced against the pioneering costs that early entrants often have
to bear, including the greater risk of business failure.
- There are five different ways of entering a foreign market: exporting, licensing,
franchising, entering into a joint venture, and setting up a wholly owned
subsidiary. The optimal choice among entry modes depends on the company's strategy.
- Strategic alliances are cooperative agreements between actual or potential
competitors. The advantages of alliances are that they facilitate entry into
foreign markets, enable partners to share the fixed costs and risks associated
with new products and processes, facilitate the transfer of complementary skills between
companies, and help companies establish technical standards.
- The drawbacks of a strategic alliance are that the company risks giving away technological know-how and market access to its alliance partner while getting
very little in return.
- The disadvantages associated with alliances can be reduced if the company
selects partners carefully, paying close attention to reputation, and structures the alliance so as to avoid unintended
transfers of know-how.
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