A. Licensing and Franchising
1. Benefits
Licensing and franchising are both forms of contractual arrangements. Franchise
contracts typically include a broader range of factors in an operation and have a longer period
2. Risks and Limitations
The other side of the coin, of course, is that the multinational firm receives only a portion
B. Strategic Alliances and Joint Ventures
1. Benefits
Joint ventures and strategic alliances have become an increasingly popular way for firms
to enter and succeed in foreign markets in recent years. These two forms of partnerships differ in
2. Risks and Limitations
In Chapter 6 (corporate-level strategy) we addressed some of the major advantages and
In the SUPPLEMENT below, Rosabeth Moss Kanter provides an interesting perspective
on cultural issues in strategic alliances.
Extra Example: Managing International Strategic Alliances
“Managing international alliances makes cultural differences especially salient. But my research…on foreign
acquisitions of domestic companies made clear that national cultural differences are often less important sources of
problems than company style differences. Those involved in alliances and partnerships must respect diverse cultural
traditions and values, whatever their source. They must deal with fuzzy social variables such as trust and reputation
and soft skills such as empathy and understanding to build relationships of mutuality. These fuzzy intangibles are
increasingly recognized as having value for economies as well as businesses. The economic prosperity of nations,
regions, and communities benefit from stocks of “social capital” and trust in institutions.”
Source: Kanter, R. M. 1999. Change is everyone’s job: Managing the extended enterprise in a globally connected
world. Organizational Dynamics, 28(1): 21.
We also discuss how some companies such as Lotus Corporation and Hewlett-Packard
Discussion Question 25: What are some other examples of successful (or unsuccessful)
strategic alliances and joint ventures?
C. Wholly Owned Subsidiaries
A wholly owned subsidiary is a situation in which a multinational company owns 100
percent of the stock in the venue. There are two means by which a firm can establish a wholly
1. Benefits
Wholly owned subsidiaries are most appropriate when a firm already has the appropriate
knowledge and capabilities that can be readily leveraged through multiple locations. We provide
2. Risks and Limitations
While assuring the most control, wholly owned subsidiaries also are typically the most
expensive and risky of the various modes of entry. Unlike strategic alliances and joint ventures,
Discussion Question 26: What are some other examples of successful (or unsuccessful)
wholly owned subsidiaries?
IVI. Issue for Debate
The case focuses on Medtronic, a Minnesota-based medical device firm that executed a
tax-inversion acquisition and changed its legal headquarters to Ireland, the home of Covidien, the
firm it is acquiring. A tax-inversion acquisition allows the acquiring firm to lower its tax burden.
While corporations that undertake tax inversions move their legal headquarters to another
country, they typically don’t change the locations of major facilities or most corporate staff.
Discussion Question 27: Is Medtronic justified in moving its legal home to Ireland?
On one side, students may argue that Medtronic is acting completely appropriately. It is
following the legal rules in both the United States and Ireland. It is taking this action to provide
the highest value to its shareholders, the legal owners of the firm. Additionally, Medtronic
competes in a global market. The firm would argue that it leaves itself at a competitive
On the other hand, students may argue that Medtronic is just a greedy capitalist firm that
is searching out a legal loophole to avoid paying its fair share. From this perspective, firms have
Thus, the debate likely hinges on students’ general perceptions of corporations and the
Discussion Question 28: How should firms balance the desire to limit taxes to maximize
cash generation with the need to be a good corporate citizen?
This may trigger a strong reaction from students. Some students have very strong value
stances regarding corporations. In recent years, there have been a number of high profile news
The instructor may want to use this as an opportunity to cycle the discussion back to one
of the early points in the text—that different firms have different missions and values. From this
view, there likely isn’t a single avenue for firms to pursue. What is needed is for firms to project
Discussion Question 29: How should the U.S. government respond to the increasing
frequency of tax inversions?
There are really two directions students could go with this. For students who see this
action as being morally wrong, they are likely to push for regulations that attempt to limit the
feasibility of tax-inversion acquisitions. This is the course that the U.S. government has taken,
The alternative view is the United States can dampen this trend by bringing its tax code in
alignment with that in other countries, one where the base rate is lower with a much smaller set
of loopholes or incentives that lower the effective tax rate for firms. In other words, the United
VII. Reflecting on Career Implications
Below, we provide some suggestions on how you can lead the discussion on the career
implications for the material in Chapter 7.
International Strategy: Be aware of your organization’s international strategy. What
percentage of the total firm activity is international? What skills are needed to enhance
your company’s international efforts? How can you get more involved in your
organization’s international strategy? For your career, what conditions in your home
country might cause you to seek careers abroad?
The goal of this reflection is to raise students’ awareness of the international scope of their firms’
operations and how it may affect their careers. Students may not be aware of their firms’
Perhaps it refers to percent of sales in foreign markets, or percent of inputs obtained from abroad,
or percent of new investments in foreign countries, or percent of competitors that are from
foreign countries, or percent of stock owned by foreign residents. There are a great many ways
In this international environment, students may have to develop a range of new skills. Ask
students what these skills may be? They are likely to include more than language skills. Cultural
Can students have a domestically focused career? Ask students which ones plan to avoid the
international business environment during their careers. For students who see their careers as
involving foreign operations, ask how they plan to get involved. Taking a foreign assignment or
handling a foreign account are possibilities. The sooner the students take these positions, the
Outsourcing and Offshoring: More and more organizations have resorted to
outsourcing and offshoring in recent years. To what extent has your firm engaged in
either? What activities in your organization can/should be outsourced or offshored? Be
aware that you are competing in the global marketplace for employment and professional
advancement. What is the likelihood that your own job may be outsourced or offshored?
In what ways can you enhance your talents, skills, and competencies to reduce the odds
that your job may be offshored or outsourced?
Outsourcing and offshoring have been described in the chapter, as well as the conditions under
which firms will engage in them. The goal of this discussion is to make the trends more relevant
to students’ careers. It would be nice if there were some students who worked for large
refer to the resource-based view of students’ skills and capabilities. How can students make their
skills rare, valuable, costly to imitate, and costly to substitute?
In the discussion, note that technical skills, such as financial or accounting analysis, may be
vulnerable. Less vulnerable are skills that are embedded in the firm’s social system. Linking the
International Career Opportunities: Taking on overseas assignments in other countries
can often provide a career boost. There are a number of ways in which you can improve
your odds of being selected for an overseas assignment. Studying abroad for a semester
One way to approach class discussion on this issue is to discuss the issue of moving. Some
students may have moved away from home in order to go to college. Others may have travelled
abroad for a period of 6 months or more. The experiences of international students may also be
relevant. The point is that such moves are difficult. They involve loneliness, hardships, and
Management Risks: Explore ways in which you can develop cultural sensitivity.
Interacting with people from other cultures, foreign travel, reading about foreign
In today’s global culture, many students may already be exposed to international culture. To get
them to appreciate this exposure, instructors can ask students about their activities such as
visiting websites about foreign places; watching foreign-based media such as British television,
Asian movies, and interviews with foreigners; and friendships with foreigners. Are they aware of
the U.S. debate on immigration policy? Can students appreciate the challenges facing foreign
VIII. Summary
We live in a highly interconnected global community where many of the best
opportunities for growth and profitability lie beyond the boundaries of a company’s home
The first section of the chapter addressed the factors that determine a nation’s
competitiveness in a particular industry. The framework was developed by Professor Michael
The discussion of Porter’s “diamond” helped, in essence, to set the broader context for
exploring competitive advantage at the firm level. In the second section, we discussed the
primary motivations and the potential risks associated with international expansion. The primary
Next, we addressed how firms can go about attaining competitive advantage in global
markets. We began by discussing the two opposing forces—cost reduction and adaptation to
The final section discussed the four types of entry strategies that managers may undertake
when entering international markets. The key trade-off in each of these strategies is the level of
End of Chapter Teaching Notes
Chapter 7: International Strategy: Creating Value in Global Markets
Summary Review Questions
1. What are some of the advantages and disadvantages associated with a firm’s expansion
into international markets?
Response:
Firms that expand internationally can gain revenue from selling abroad, can lower transportation
and input costs by producing near those markets, and access knowledge from human capital
worldwide. If managed effectively, know-how from various countries can be combined
efficiently to form new sustainable competitive advantages. The international environment offers
2. What are the four factors described in Porter’s diamond of national advantage? How do
the four factors explain why some industries in a given country are more successful than
others?
Response:
The four factors are 1) factor endowments, 2) demand conditions, 3) related and supporting
industries, and 4) firm strategy, structure, and rivalry. Together, these four factors, individually
and collectively, indicate the ability of a nation to foster globally competitive firms. Porter
developed his model through analysis of more than 100 industries, and these four factors
characterized countries with globally competitive industries. For example:
Countries with highly educated and skilled labor forces will tend to foster firms that are
Countries with sophisticated consumers will tend to foster globally competitive firms that
Countries with clusters of advanced related and supporting industries will foster
Countries with highly developed rivalries among domestic firms will foster globally