Chapter 12 Outline

Introduction

Our primary concern thus far in this book has been with aspects of the larger environment in which international businesses compete. This environment has included the different political, economic, and cultural institutions found in different nations, the international trade and investment framework, and the international monetary system. Now our focus shifts from the environment to the firm, and in particular, to the actions that managers can take to compete more effectively as an international business. In this chapter, we look at how firms can increase their profitability by expanding their operations in foreign markets. We discuss the different strategies that firms pursue when competing internationally, consider the pros and cons of these strategies, discuss the various factors that affect a firm's choice of strategy, and look at the tactics firms adopt when competing head to head across various national markets. In subsequent chapters, we shall build on the framework established here to discuss a variety of topics including the design of organization structures and control systems for international businesses, the use and misuse of strategic alliances, strategies for exporting, and the various manufacturing, marketing, R&D, human resource, accounting, and financial strategies that are pursued by international businesses.

General Motors, which was profiled in the opening case, gives us a preview of some issues we will deal with in the current chapter. As described in the case, General Motor's international expansion is being driven by a belief that emerging markets offer the greatest potential for future demand growth. GM is not alone in this belief. Not only are many other automobile firms also pursuing a similar expansion strategy, but so are firms based in a wide range of industries. Although GM has long had operations overseas, until recently these took second place in the company's Detroit-centric view of the world. Now GM is recognizing that if it is to compete successfully in emerging markets, it is no longer enough to transfer outdated technology and designs from Detroit. It must build a globally integrated corporation that draws on centers of excellence wherever they may reside in the world to engineer "global" cars and state-of-the-art production systems. But for all its economic benefits, the trend toward greater integration of its global operations is raising concerns within GM's European units. They fear that an ability to respond to local market needs may be lost in the process. As we shall see in this chapter, GM's struggle with this issue is not unique. Many multinational enterprises are struggling to find the right balance between global integration and local responsiveness.