Academic journal article Management International Review

The Industry-Focused International Strategy Prevalence and Profile

Academic journal article Management International Review

The Industry-Focused International Strategy Prevalence and Profile

Article excerpt

Abstract:

* Many firms facing low-cost international competition can reposition into niches. This study examines one such niche: industry-focused international firms, defined as companies that produce, sell, and expand internationally within one industry. Analysis of the global pharmaceutical industry finds a group comprising of about 20% of the firms that pursue this strategy. This strategy is distributed internationally, but not uniformly.

* It is relatively more prevalent among firms based in emerging countries compared to industrialized nations. These firms invest in R&D in order to create deep specialized expertise that they exploit internationally.

Keywords: Strategy * Focus * Niche * International

Introduction

Strategists can deal with increasing international low-cost competition by repositioning their firm into viable niches. They can benefit from learning about tried niches, which would reduce the risk of moving into them. If they had this knowledge, managers could develop the resources needed to be effective in a particular niche. But since the number of types of niches possible is large and their needed resources are not known, managers find it extraordinarily difficult to identify, prepare, and move into them.

Focus is one of the three generic business strategies, together with low-cost and differentiation, articulated by Porter (1980). Firms may focus on different dimensions. We define a focused firm as one that specializes in a function of the value chain, in a narrow set of customers (Porter 1980), on existing markets such as in a defender strategy (Miles and Snow 1978), in limited product variety (Hannan and Freeman 1984), and/or a limited geographic area. Thus focused firms may specialize in one or more of these dimensions while possibly having a broader scope on others.

This study examines industry-focused international firms. These firms produce, sell, and expand internationally within one industry. In their chosen field, they develop know-how that helps them overcome foreign entry barriers. They expand abroad to capture international growth opportunities, international risk diversification, factor cost differences, and greater market power within their niche. At the same time, by restricting their industrial scope, they avoid diversification into other industries where they have little relevant expertise and fewer synergies exist.

Macroeconomic trends suggest a general movement towards greater industry focus, as the fraction of firms that are industrially diversified has declined over time, and towards increased international expansion, as the fraction of firms with international sales has increased over time (Denis et al. 2002).

Strategic group theory suggests that an industry may contain different sets of firms pursuing similar strategies that are separated by mobility barriers (Porter 1980; Mascarenhas and Asker 1989). An industry may conceivably have a strategic group composed of industry-focused international firms.

The industry-focused international strategy may generate higher returns under specific conditions. Research suggests that a firm's market valuation is discounted because of industrial and international diversification due to inefficient internal capital allocation, coordination difficulties, monitoring and agency costs between managers and investors (Denis et al. 2002). However, international diversification may improve market valuation (Doukas and Lang 2003) provided it is based on exploiting intangible assets through internalization (Morck and Yeung 1991). Thus there is a need to examine if and how the industry-focused international strategy is based on intangible assets.

This study of 164 pharmaceutical firms from 24 industrialized and emerging nations finds a group that pursues this strategy comprising about 20% of all firms. The findings suggest that the strategy is commonly and internationally practiced, but not uniformly distributed. …

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