POTENTIAL RISKS OF

INTERNATIONAL EXPANSION
• Political Risk - potential threat to a
firm’s operations in a country due to
ineffectiveness of the domestic
political system
•Political Risk
- Social unrest
- Military turmoil
- Demonstrations
- Violent conflicts and terrorism
 POTENTIAL RISKS OF
INTERNATIONAL EXPANSION
• Economic Risk - potential threat to a
firm’s operations in a country due to
economic policies and conditions,
including property rights laws and
enforcement of those laws
• Economic Risk
-Laws
-Enforcement of Laws
Counterfeiting- selling of trademarked goods
without the consent of the trademark holder
 POTENTIAL RISKS OF
INTERNATIONAL EXPANSION
• Currency Risk - potential threat to a
firm’s operations in a country due to
fluctuations in the local currency’s
exchange rate
 POTENTIAL RISKS OF
INTERNATIONAL EXPANSION
• Management Risk - potential threat
to a firm’s operations in a country
due to the problems that managers
have making decisions in the context
of foreign markets
• Management Risk
-Culture
-Customs
-Language
-Income Levels
-Customer Preferences
-Distribution Systems
 GLOBAL DISPERSION OF
VALUE CHAINS
• Outsourcing - occurs when a firm
decides to utilize other firms to
perform value- creating activities
that were previously performed in-
house
 GLOBAL DISPERSION OF
VALUE CHAINS
• Offshoring - takes place when a firm
decides to shift an activity that they
were performing in a domestic
location to a foreign location
 TWO OPPOSING PRESSURES: REDUCING
COSTS AND ADAPTING TO LOCAL MARKETS
• Theodore Levitt: Strategies that favor
global products and brands
-should standardize all of a firm’s products
for all of their worldwide markets
-should reduce a firm’s overall costs by
spreading investments over a larger market
 TWO OPPOSING PRESSURES: REDUCING
COSTS AND ADAPTING TO LOCAL MARKETS
Levitt’s Three Assumptions
1. Customer needs and interests are becoming increasingly
homogeneous worldwide.
2. People around the world are willing to sacrifice preferences in
product features, functions, design, and the like for lower prices
at high quality.
3. Substantial economies of scale in production and marketing can
be achieved through supplying global markets.
 TWO OPPOSING PRESSURES: REDUCING
COSTS AND ADAPTING TO LOCAL MARKETS
• But those three assumptions may not always be true
-Product markets vary widely between nations (customer
needs and interests)
-In many product and service markets, there appears to be
a growing interest in multiple product features, quality
and service (preference for low price)
-Technology permits flexible production, cost of production
may not be critical to product cost, and firm’s strategy
should not be product-driven
Opposing Pressures and Four Strategies
 ACHIEVING COMPETITIVE ADVANTAGE
IN GLOBAL MARKET
• International Strategy - a strategy based on
firms’ diffusion and adaptation of the
parent companies’ knowledge and expertise
to foreign markets, used in industries where
the pressures for both local adaptation and
lowering costs are low
• International Strategy
The primary goal of the strategy is
worldwide exploitation of the parent
firm’s knowledge and capabilities.
 ACHIEVING COMPETITIVE
ADVANTAGE IN GLOBAL MARKET
• Global Strategy - a strategy based on firms’
centralization and control by the corporate
office, with the primary emphasis on
controlling costs, and used in industries
where the pressure for local adaptation is
low and the pressure for lowering costs is
high