5-10 Page Executive Summary (ESSAY) on Lecture Slides
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Chapter7.pptxChapter 7: Competing Internationally
Describe the benefits and risks of competing internationally.
Utilize the "diamond model" to explain why some firms compete better in international markets than others.
List and define the three types of international strategies that firms can adopt.
Describe four options for entering an international market.
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Why sell internationally?
The most obvious reason to compete in international markets is gaining access to new customers
The U.S. accounts for only about 5% of the world’s population
Selling goods and services to the other 95% of people on the planet can be very appealing for companies whose industry within their home market are saturated
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Why sell internationally?
Many firms that compete in international markets hope to gain cost advantages
If a firm can increase it sales volume by entering a new country, for example, it may attain economies of scale that lower its production costs
Offshoring: Relocation of a business activity to another country
A popular yet controversial means for reducing costs
The job losses in the firm’s home country can devastate local communities
Reshoring
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Why sell internationally?
Business risk: The potential that a business operation might fail
If a firm is completely dependent on one country, negative events in that country could ruin the firm
Business risk is reduced when involved in multiple countries
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Why Compete in New Markets?
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International Market Risk
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International Market Risk
Political risk: The potential for government upheaval or interference with business to harm an operation within a country
Unstable governments make it difficult for firms to plan for the future
A government hostile to foreign businesses could impose new taxes and new regulations
Nationalization: Seizure of privately-owned business operations by the national government
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International Market Risk
Economic risk: The potential for a country’s economic conditions and policies, property rights protections, and currency exchange rates to harm an operation
Cultural risk: The potential for a company’s operations in a country to struggle due to differences in language, customs, norms and customer preferences
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Cultural Intelligence
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Cultural Intelligence
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Porter’s Diamond Model
Drivers of Success and Failure
Demand conditions: The nature of domestic customers, especially when they have high expectations of the goods and services that they buy
Firms benefit when their domestic customers have high expectations
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Drivers of Success and Failure
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Drivers of Success and Failure
Factor conditions: The nature of raw material and other inputs that firms need in order to create goods and services
Firms benefit when they have good access to factor conditions and face challenges when they do not
Overcoming disadvantages in factor conditions leads companies to develop unique skills
Just-in-time inventory management: A production system that conserves space and lowers costs, by requiring inputs to a production process to arrive at the moment they are needed
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Drivers of Success and Failure
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Drivers of Success and Failure
Related and supporting industries: The extent to which firms’ domestic suppliers and other complementary industries are developed and helpful
In extreme cases, the poor condition of related and supporting industries can undermine an operation
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Drivers of Success and Failure
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Drivers of Success and Failure
Firm strategy, structure, and rivalry: How challenging it is to survive domestic competition
Companies that have survived intense rivalry within their home markets are likely to have developed strategies and structures that will facilitate their success when competing in international markets
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Drivers of Success and Failure
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Porter’s Diamond Model
Types of International Strategies
Multinational corporation: A firm that has operations in more than one country
International strategy
Strategies that are used to guide a firm’s effort in various countries
These strategies vary in their emphasis on achieving efficiency around the world and responding to local needs
There are three main international strategies available:
Multidomestic
Global
Transnational
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Types of International Strategies
Multidomestic strategy: Sacrifices efficiency in favor of being responsive to varying local preferences across countries
Global strategy: Sacrifices responsiveness to local preferences in favor of being efficient
This strategy is the complete opposite of a multidomestic strategy
Stresses the need to gain economies of scale by offering essentially the same products or services in each market
Transnational strategy: Involves balancing the desire for efficiency with the need to varying preferences across countries
Seeks a middle ground between a multidomestic strategy and a global strategy
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Types of International Strategies
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Options for Competing in International Markets
When the executives in charge of a firm decide to enter a new country, they must decide between the five different ways of entering:
Exporting involves creating goods within a firm’s home country and then shipping them to another country.
A wholly-owned subsidiary is a business operation in a foreign country that a firm fully owns.
A firm can develop a wholly-owned subsidiary through a greenfield venture, meaning that the firm creates the entire operation itself.
Another possibility is purchasing an existing operation from a local company or another foreign operator.
Franchising has been used by many firms who compete in service industries to develop a worldwide presence.
© 2015 by Flat World Education, Inc.
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Options for Competing in International Markets
Licensing is most frequently used in manufacturing industries.
Licensing involves granting a foreign company the right to create a company’s product within a foreign country in exchange for a fee.
A firm that grants a license avoids absorbing a lot of costs, but its profits are limited to the fees that it collects from the local firm.
Creating a joint venture or a strategic alliance is also an option.
In a joint venture, two or more organizations each contribute to the creation of a new entity.
In a strategic alliance, firms work together cooperatively, but no new organization is formed.
In both cases, the firm and its local partner or partners share decision making authority, control of the operation, and any profits that the relationship creates.
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Research Round-Up: Entry Strategies in Emerging Economies
A study of four emerging economies—India, Vietnam, South Africa, and Egypt—examined multinational enterprises that used greenfield ventures, acquisitions, or joint ventures.
The study found that forms of entry that could be more easily managed at arm’s length—greenfield ventures and acquisitions—were more common than joint ventures in countries that offer high levels of freedom to engage in business activity.
Relying on joint ventures is helpful in countries that have inefficient markets or those marked by corrupt business practices.
The overall message of this study is that when choosing a market entry strategy, executives must consider both the need to gain access to local resources and the business norms and rules in a particular country.
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Chapter 7: Key Takeaways
This chapter explains competition in international markets.
Executives must consider the benefits and risks of competing internationally when making decisions about whether to expand overseas.
Executives also need to determine the likelihood that their firms will succeed when they compete in international markets by examining demand conditions, factor conditions, related and supporting industries, and strategy, structure, and rivalry among its domestic competitors.
When a firm does venture overseas, a decision must be made about whether its international strategy will be multidomestic, global, or transnational.
When leading a firm to enter a new market, executives can choose to manage the operation via exporting, creating a wholly owned subsidiary, franchising, licensing, and creating a joint venture or strategic alliance.
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