264 Part 2: Strategic Actions: Strategy Formulation
8-7 The Challenge of International Strategies
Effectively using international strategies creates basic benefits and contributes to the
firm’s strategic competitiveness. However, for several reasons, attaining these positive
outcomes is difficult.8-7a Complexity of Managing International Strategies
Pursuing international strategies, particularly an international diversification strategy,
typically leads to growth in a firm’s size and the complexity of its operations. In turn,
larger size and greater operational complexity make a firm more difficult to manage.
At some point, size and complexity either cause the firm to become virtually unmanage-
able or increase the cost of its management beyond the value created using international
strategies. Different cultures and institutional practices (e.g., those associated with gov-
ernmental agencies) that are part of the countries in which a firm competes when using
an international strategy also can create difficulties.^134
Firms have to build on their capabilities and other advantages to overcome the chal-
lenges encountered in international markets. For example, some firms from emerging
economies that hold monopolies in their home markets can invest the resources gained
there to enhance their competitiveness in international markets (because they don’t have
to be concerned about competitors in home markets).^135 The key is for firms to overcome
the various liabilities of foreignness regardless of their source.8-7b Limits to International Expansion
Learning how to effectively manage an international strategy improves the likelihood of
achieving positive outcomes such as enhanced performance. However, at some point, the
degree of geographic and possibly product diversification the firm’s international strat-
egies bring about causes the returns from using the strategies to level off and eventually
become negative.^136
There are several reasons for the limits to the positive effects of the diversification
associated with international strategies. First, greater geographic dispersion across coun-
try borders increases the costs of coordination between units and the distribution of
products. This is especially true when firms have multiple locations in countries that have
diverse subnational institutions. Second, trade barriers, logistical costs, cultural diversity,
and other differences by country (e.g., access to raw materials and different employee skill
levels) greatly complicate the implementation of an international strategy.^137
Institutional and cultural factors can be strong barriers to the transfer of a firm’s core
competencies from one market to another.^138 Marketing programs often have to be rede-
signed and new distribution networks established when firms expand into new markets.
In addition, firms may encounter different labor costs and capital expenses. In general,
it becomes increasingly difficult to effectively implement, manage, and control a firm’s
international operations with increases in geographic diversity.^139
The amount of diversification in a firm’s international operations that can be managed
varies from company to company and is affected by managers’ abilities to deal with ambi-
guity and complexity. The problems of central coordination and integration are mitigated
if the firm’s international operations compete in friendly countries that are geographically
close and have cultures similar to its own country’s culture. In that case, the firm is likely
to encounter fewer trade barriers, the laws and customs are better understood, and the
product is easier to adapt to local markets.^140 For example, U.S. firms may find it less dif-
ficult to expand their operations into Mexico, Canada, and Western European countries
than into Asian countries.