Chapter 8: International Strategy 265
The relationships between the firm using an international strategy and the govern-
ments in the countries in which the firm is competing can also be constraining.^141 The rea-
son for this is that the differences in host countries’ governmental policies and practices
can be substantial, creating a need for the focal firm to learn how to manage what can be
a large set of different enforcement policies and practices. At some point, the differences
create too many problems for the firm to be successful. Using strategic alliances is another
way firms can deal with this limiting factor. Partnering with companies in different coun-
tries allows the foreign-entering firm to rely on its partner to help deal with local laws,
rules, regulations, and customs. But these partnerships are not risk free and managing
them tends to be difficult.^142
SUMMARY
■ The use of international strategies is increasing. Multiple fac-
tors and conditions are influencing the increasing use of these
strategies, including opportunities to
■ extend a product’s life cycle
■ gain access to critical raw materials, sometimes including
relatively inexpensive labor
■ integrate a firm’s operations on a global scale to better
serve customers in different countries
■ better serve customers whose needs appear to be more
alike today as a result of global communications media and
the Internet’s capabilities to inform
■ meet increasing demand for goods and services that is sur-
facing in emerging markets
■ When used effectively, international strategies yield three
basic benefits: increased market size, economies of scale and
learning, and location advantages. Firms use international
business-level and international corporate-level strategies to
geographically diversify their operations.
■ International business-level strategies are usually grounded
in one or more home-country advantages. Research sug-
gests that there are four determinants of national advantage:
factors of production; demand conditions; related and sup-
porting industries; and patterns of firm strategy, structure,
and rivalry.
■ There are three types of international corporate-level strate-
gies. A multidomestic strategy focuses on competition within
each country in which the firm competes. Firms using a
multidomestic strategy decentralize strategic and operating
decisions to the business units operating in each country, so
that each unit can tailor its products to local conditions. A
global strategy assumes more standardization of products
across country boundaries; therefore, a competitive strategy
is centralized and controlled by the home office. Commonly,
large multinational firms, particularly those with multiple
diverse products being sold in many different markets, use amultidomestic strategy with some product lines and a global
strategy with others.
■ A transnational strategy seeks to integrate characteristics of
both multidomestic and global strategies for the purpose of
being able to simultaneously emphasize local responsiveness
and global integration.
■ Two global environmental trends—liability of foreignness and
regionalization—are influencing firms’ choices of international
strategies as well as their implementation. Liability of foreign-
ness challenges firms to recognize that distance between their
domestic market and international markets affects how they
compete. Some firms choose to concentrate their international
strategies on regions (e.g., the EU and NAFTA) rather than on
individual country markets.
■ Firms can use one or more of five entry modes to enter
international markets. Exporting, licensing, strategic alliances,
acquisitions, and new wholly owned subsidiaries, often
referred to as greenfield ventures, are the five entry modes.
Most firms begin with exporting or licensing because of their
lower costs and risks. Later they often use strategic alliances
and acquisitions as well. The most expensive and risky means
of entering a new international market is establishing a new
wholly owned subsidiary (greenfield venture). On the other
hand, such subsidiaries provide the advantages of maximum
control by the firm and, if successful, the greatest returns.
Large, geographically diversified firms often use most or all
five entry modes across different markets when implementing
international strategies.
■ Firms encounter a number of risks when implementing inter-
national strategies. The two major categories of risks firms
need to understand and address when diversifying geograph-
ically through international strategies are political risks (risks
concerned with the probability that a firm’s operations will
be disrupted by political forces or events, whether they occur
in the firm’s domestic market or in the markets the firm has
entered to implement its international strategies) and eco-
nomic risks (risks resulting from fundamental weaknesses in a