Internationalization Strategy for Businesses and Global Competition

5. Internationalization Strategy

CEU
Universidad
San Pablo

5.1 The multinational firm: concept and reasons for internationalization.

5.2 Global competition: determinant factors and strategies.

5.2.1 Concept of global and multi-domestic industries.

5.2.2 Determinant factors for globalization.

5.2.3 Strategies for international competition.

5.3 Entry strategies for international markets.

5.4 Managing a multinational firm.

5.4.1 Locating activities.

5.4.2 Marketing of products.

5.4.3 Human resources policy: the management of expatriates.

5.4.4 Managing the cultural gap.

5.4.5 Organizational structure.

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Source: Guerras y Navas 2022.Internationalization Strategy
The process of globalization of the world economic system is having significant consequences for business
activities, as companies are increasingly forced to operate in international markets.

• Therefore, it is important to study the factors that lead to the globalization of industries, as well as the most
  appropriate strategies to address such situations.
• It is also necessary to analyze:

• the specific characteristics of multinational companies, such as the choice of entry strategy into foreign
  markets
• the location of value chain activities
• product or service marketing strategies
• human resources policies to achieve business integration
• the management of cultural distance between countries
• the definition of the most appropriate international organizational structure.

5.1 The multinational firm: concept

Motivation for Internationalization

The globalization of the economic system forces some companies to
leave their countries of origin in order to maintain their competitive
position

Concept of a Multinational Firm

A firm that operates in a large number of countries to maximize profits
under a global group perspective (and not in each of its national units
independently)

Result of Internationalization

Joint Value Creation Project
(SYNERGY = overall value greater than the sum of the national parts)

Characteristics of Multinational Companies

# Possibility of localization in different countries.
CHARACTERISTICS
that distinguish
multinational
companies from
national ones
# Possibility to transfer their skills and abilities on an international
scale.
# Possibility of strengthening its resource and capacity base against
a competitor that operates only on a national scale.
# Possibility of spreading the risk.

Levels of Multinationality

LEVELS of
multinationality
# Number of countries in which it operates.
# Relevance of activities outside the country of origin.

Decisions in Multinational Firms

DECISIONS
Corporate Level and Business Level (Competitive Level)

5.1 The multinational firm: reasons for internationalization.

Internal Reasons for Internationalization

* Reduction in costs
· Minimum efficient size
· Search for resources
· Exploitation of resources and
capabilities
.
Reduction in overall risk

External Reasons for Internationalization

· Industry life-cycle
· External demand
· Following-the-customer
· Competitive pressure
Globalisation of the industry

Detailed Internal Reasons

1.Reduction in Costs:
•
Lower purchase costs for production resources (raw materials, labor, capital).
•
Reduced fiscal burdens through different taxation systems.
•
Locating value chain operations in more favorable countries.
•
Achieving economies of scale and experience.
2.Minimum Efficient Size:
•
Achieving optimal size by expanding sales beyond the domestic market,
especially for firms from small countries.
3.Search for Resources:
•
Accessing natural resources, skilled labor, and specific infrastructures
available in other countries.
4.Exploitation of Resources and Capabilities:
•
Utilizing the firm's specific resources, knowledge, and management
capabilities in different countries.
5.Reduction in Overall Risk:
•
Geographical diversification to reduce overall risk, similar to product
diversification.

Detailed External Reasons

1.Industry Life-Cycle:
•
Sustained growth is challenging in mature industries. Firms may enter new
markets or diversify products to find emerging or growing markets.
2.External Demand:
•
Even if an industry is mature or declining in one region, other markets may have
high potential or unsatisfied demand, making internationalization beneficial.
3.Following-the-Customer:
•
Suppliers often follow their industrial customers when they internationalize,
common in industries like car components.
4.Competitive Pressure:
•
The internationalization of competitors drives firms to expand globally to
maintain competitive positioning and cost advantages.
5.Globalization of the Industry:
•
The inherent nature of some industries pushes firms to respond to globalization
trends, making internationalization a necessity rather than a choice.

In practice, it is usually the case that neither internal nor external reasons appear in
isolation, but instead firms address their internationalisation processes based on several
of these arguments at the same time.

5.2.1 Global competition: Concept of global and multi-domestic industries.

Global Industries

An industry is global when a firm's
competitive positioning in a country is
closely related to the one it holds in
other countries, and vice versa.
STRATEGY:
Pursuit of Competitive Advantage
on a global scale.

Multi-Domestic Industries

An industry is multi-domestic when competition in each
country (or a small group of countries) is essentially
independent of competition in other countries. The
competitive advantages are country-specific.
STRATEGY:
Competitive Strategy Portfolio

Characteristics of Global Industries

1.Global Industries:
·
Competitive positioning in one country is closely related to positioning in other countries.
.
Firms need a combined view of operations across different markets.
.
Competitive advantage comes from considering all countries jointly.

Characteristics of Multi-Domestic Industries

2.Multi-Domestic Industries:
·
Competition in each country is independent of competition in other countries.
.
Firms compete independently in each country due to country-specific competitive advantages.

Strategic Implications

1.Global Industry Strategy:
A single, integrated strategy for competing globally.
Integration of value chain operations on a global basis.
2.Multi-Domestic Industry Strategy:
A portfolio of strategies tailored to each country or group of countries based on their competitive conditions.

5.2.1 Global competition: Concept of global and multi-domestic industries.

Example: Global Industries

Technology: Companies like Apple and Samsung
operate in a global industry. Apple's competitive position
in the United States is closely related to its position in
Europe, Asia, and other markets.
Decisions regarding product design, supply chain, and
marketing strategies are coordinated globally. For
example, the launch of a new iPhone is carried out
simultaneously in several countries, and brand perception
in one market influences others.

Example: Multi-Domestic Industries

Retail: Companies like Walmart and Carrefour operate
in a multi-country industry. Although they have a presence
in many countries, competition in each market is
independent.
For example, Walmart may face competition from local
stores in Mexico that do not have a presence in other
countries.
Pricing, product, and marketing strategies can vary
significantly from one country to another.

5.2.2 Global competition: determinant factors and strategies.

Factors Influencing Industry Globalization

Factors Influencing Industry Globalization (Solberg, 1991): Combining these factors helps define the degree of globalization in an industry.

Structure of the Offer

1.Structure of the Offer:
•
Competitive Structure: Fewer, larger competitors make an industry more global.
•
Degree of Domestic Specialization: Industries with suppliers in only a few countries tend to be more global.
2. Types of Offer Structures:
•
Domestic Offer: Dominated by domestic players or fragmented competition.
•
Regional Offer: Intermediate situation.
•
Global Offer: Dominated by a few global players.

Market Accessibility

3.Market Accessibility:
•
Entry Barriers: Lower barriers make an industry more open and global.
•
Similarity of Demand: Homogeneous customer behavior across countries makes an industry more global.
4.Market Accessibility Levels:
•
Easy: Low entry barriers and homogeneous demand.
•
Moderately Difficult: Intermediate levels.
•
Difficult: High entry barriers and heterogeneous demand.

Determinant Factors for Globalization

DETERMINANT FACTORS FOR GLOBALIZATION
Competitive
Structure
No. of competitors
Structure of the
Offer
Relative size of
Competitors
TYPES of
Offer
Structures
Domestic Offer
Regional Offer
Global Offer
refers to the type of
competition existing in that
industry, it depends on two
factors:
Degree of
Domestic
Specialization
Generalized
Specialized
Entry Barriers to
the Country
Closed
Market
Accessibility
Open
Market
Accessibility
LEVELS
Easy
Moderately Difficult
Difficult
Similarity of
Demand
the degree of ease or difficulty
of access to the different
countries, determined by:
Homogeneous
Heterogeneous

Level of Globalization in an Industry

Globalization Levels by Market Accessibility and Supply Structure

Easy
GLOBAL
INDUSTRIES
MARKET
ACCESSIBILITY
Moderately
difficult
POTENTIALLY GLOBAL INDUSTRIES
Difficult
MULTI-DOMESTIC
INDUSTRIES
National
Regional
Global
STRUCTURE OF THE SUPPLY
Source: Adapted from Solberg (1991:13)

Level of Globalization in an Industry

Examples of Globalization Levels

1. Easy Market / Global Supply Structure: GLOBAL INDUSTRY Example: The smartphone industry: Smartphones have high
global demand and entry barriers are relatively low in many markets due to high internet penetration and the availability of
technological infrastructure. Companies like Apple and Samsung operate globally, with a supply that is distributed and marketed
in almost every country in the world. Competition in this market is intense and global, with similar products available in multiple
regions.
2. Moderately Difficult Market / Regional Supply Structure: POTENTIALLY GLOBAL INDUSTRY Example: The electric car
industry in Europe: The European electric car market is moderately difficult due to strict regulations, the need for charging
infrastructure, and specific consumer preferences. Companies like Volkswagen and Renault have a strong regional presence
and adapt their strategies to local regulations and demands. The supply is structured regionally, with models and features that
may vary by country within Europe.
3. Difficult Market / National Supply Structure: MULTI-COUNTRY INDUSTRY Example: The telecommunications industry in
China: The telecommunications market in China is difficult due to strict government regulations, the need to comply with
security standards, and strong competition from well-established domestic companies. Companies like China Mobile and China
Telecom dominate the domestic market. The supply structure is primarily national, as these companies focus on meeting local
market needs and complying with specific country regulations. Additionally, the entry of foreign companies is highly restricted,
reinforcing the national nature of the supply.