Michael_A._Hitt,_R._Duane_Ireland,_Robert_E._Hosk

Chapter 8: International Strategy 239

8-1 Identifying International Opportunities

An international strategy is a strategy through which the firm sells its goods or services
outside its domestic market.^3 In some instances, firms using an international strategy
become quite diversified geographically as they compete in numerous countries or
regions outside their domestic market. This is the case for Netflix in that it competes in
about 50 countries. In other cases, firms engage in less international diversification
because they compete in a smaller number of markets outside their “home” market.
There are incentives for firms to use an international strategy and to diversify their
operations geographically, and they can gain three basic benefits when they successfully
do so.^4 We show international strategy’s incentives and benefits in Figure 8.2.

8-1a Incentives to Use International Strategy

Raymond Vernon expressed the classic rationale for an international strategy.^5 He sug-

gested that typically a firm discovers an innovation in its home-country market, especially

in advanced economies such as those in Germany, France, Japan, Sweden, Canada, and

the United States. Often demand for the product then develops in other countries, caus-

ing a firm to export products from its domestic operations to fulfil demand. Continuing

increases in demand can subsequently justify a firm’s decision to establish operations

outside of its domestic base, as illustrated in the Opening Case on Netflix. As Vernon

noted, engaging in an international strategy has the potential to help a firm extend the

life cycle of its product(s).

Gaining access to needed and potentially scarce resources is another reason firms use

an international strategy. Key supplies of raw material—especially minerals and energy—

are critical to firms’ efforts in some industries to manufacture their products. Energy and

mining companies have access to the raw materials, through their worldwide operations,

which they in turn sell to manufacturers requiring those resources. Rio Tinto Group is

An international strategy

is a strategy through which

the firm sells its goods or

services outside its domestic

market.

Figure 8.1 Opportunities and Outcomes of International Strategy

Identify International

Opportunities

Basic Benefits

Explore Resources

and Capabilities

International

Strategies

Use Core

Competencies

Modes of Entry

Increased

market size

Economies of

scale and

learning

Location

advantages

Strategic

Competitiveness

Outcomes

International

business-

level strategy

International

corporate-

level strategy

• Multidomestic
  strategy


• Global strategy


• Transnational
  strategy

Exporting

Licensing

Strategic

alliances

Acquisitions

New wholly

owned subsidiary

Management

problems and

risk

Improved

performance

Enhanced

Innovation

Management

problems and

risk