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For example, in the United States, Hulu has been increasing its subscriber base substantially
by partnering with television networks to get their best content. Netflix had been cherry-
picking this content with lower contractual pricing, but it is having to pay more, and as such,
Netflix is not choosing as much prime content. Meanwhile, Hulu has a better relationship with
the television networks because it was originally founded and partly owned by the networks.
As such, Hulu is willing to pay a higher price for the premium television network video content.
This strategy has helped increase its subscriber base from 6 million in 2014 to potentially
9 million in 2015. Furthermore, the television network producers see Netflix as a competitor
because it is now producing its own video television content for its subscriber base.
A positive for Netflix, though, is that it can use its propriety video content globally without the
contractual complexities noted earlier.
In summary, although the international expansion strategy has facilitated growth and
profits for Netflix through sharing costs and expenses across a large subscriber base, it has also
increased the complexity of its management structure. Additionally, the difficulty in global
contracting for top-level domestic U.S. content has increased both international and domestic
competition as it has pursued its international strategy.
Sources: M. Armenta & S. Ramachandran, 2015, Business news: Netflix builds steam abroad—International operations
spilled red ink but growth in number of subscribers propels the stock higher, Wall Street Journal, April 16, B3; B. Darrow,
2015, Alibaba to opening streaming video service in China, Fortune, http://www.fortune.com, June 15; K. Hagey &
S. Ramachandran, 2015, Hulu courts TV networks in bid to catch up with Netflix, Wall Street Journal, A1, A2; J. Lansing,
2015, TV everywhere: The thundering head, Broadcasting & Cable, May 11, 19; S. Ramachandran, 2015, Netflix steps up
foreign expansion, subscriber additions top streaming service’s forecast, helped by growth in markets abroad, Wall
Street Journal, http://www.wsj.com, January 21; A. Tracy, 2015, Marriott and Netflix have partnered up, Forbes, June 10, 22;
F. Video, 2015, Netflix eyes China for continued global expansion, Fortune, http://www.fortune.com, June 11; S. Saghoee, 2014,
Who could buy Netflix?, Fortune, http://www.fortune.com, November 18.O
ur description of Netflix’s competitive actions in this chapter’s Opening Case
(e.g., international expansion strategy) highlights the importance of international
markets for this firm. Netflix is using its growth in international markets to overcome
weakening subscriber growth in its U.S. market. Being able to effectively compete in
countries and regions outside a firm’s domestic market is increasingly important to firms
of all types, as exemplified by Netflix. One reason for this is that the effects of globaliza-
tion continue to reduce the number of industrial and consumer markets in which only
domestic firms can compete successfully. In place of what historically were relatively sta-
ble and predictable domestic markets, firms across the globe find they are now competing
in globally oriented industries—industries in which firms must compete in all world mar-
kets where a consumer or commercial good or service is sold in order to be competitive.^1
Unlike domestic markets, global markets are relatively unstable and much less predictable.
The purpose of this chapter is to discuss how international strategies can be a source
of strategic competitiveness for firms competing in global markets. To do this, we exam-
ine a number of topics (see Figure 8.1). After describing incentives that influence firms
to identify international opportunities, we discuss three basic benefits that can accrue
to firms that successfully use international strategies. We then turn our attention to the
international strategies available to firms. Specifically, we examine both international
business-level strategies and international corporate-level strategies. The five modes of
entry firms can use to enter international markets for implementing their international
strategies are then examined. Firms encounter economic and political risks when using
international strategies. Some refer to these as economic and political institutions.^2 These
risks must be effectively managed if the firm is to achieve the desired outcomes of higher
performance and enhanced innovation. After discussing the outcomes firms seek when
using international strategies, the chapter closes with mention of two cautions about
international strategy that should be kept in mind.