In this chapter we reviewed basic principles of strategy and the various ways in which firms can profit from global expansion, and we looked at the strategies that firms that compete globally can adopt. The chapter made these points:
A firm's strategy can be defined as the actions that managers take to attain the goals of the firm. For most firms, the preeminent goal is to maximize long-term profitability. Maximizing profitability requires firms to focus on value creation.
Due to national differences, it may pay a firm to base each value creation activity it performs at that location where factor conditions are most conducive to the performance of that activity. We refer to this strategy as focusing on the attainment of location economies.
By rapidly building sales volume for a standardized product, international expansion can assist a firm in moving down the experience curve.
International expansion may enable a firm to earn greater returns by transferring the skills and product offerings derived from its core competencies to markets where indigenous competitors lack those skills and product offerings.
A multinational firm can create additional value by identifying valuable skills created within its foreign subsidiaries and leveraging those skills within its global network of operations.
The best strategy for a firm to pursue often depends on a consideration of the pressures for cost reductions and 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, national infrastructure and traditional practices, distribution channels, and from host-government demands.
Firms pursuing an international strategy transfer the skills and products derived from distinctive competencies to foreign markets, while undertaking some limited local customization.
Firms pursuing a multidomestic strategy customize their product offering, marketing strategy, and business strategy to national conditions.
Firms 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 firms must adopt a transnational strategy. This involves a simultaneous focus on reducing costs, transferring skills and products, and boosting local responsiveness. Implementing such a strategy may not be easy.
Strategic alliances are cooperative agreements between actual or potential competitors.
The advantage 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 firms establish technical standards.
The disadvantage of a strategic alliance is that the firm risks giving away technological know-how and market access to its alliance partner in return for very little.
The disadvantages associated with alliances can be reduced if the firm selects partners carefully, paying close attention to the firm's reputation and the structure of the alliance so as to avoid unintended transfers of know-how.
Two keys to making alliances work seem to be building trust and informal communications networks between partners and taking proactive steps to learn from alliance partners.
