Weekly Discussion

Source: The Competitive Advantage of Nations by Michael E. Porter.

Jump to Figure 13.1: Porter’s Diamond of National Advantage, Appendix

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Competitive Advantage of Nations

Nation’s ability to turn its natural resources, skilled labor, and infrastructure into a competitive advantage

Factor conditions

Nature of domestic demand and the sophistication of domestic customers for the industry’s product or service

Demand conditions

Existence or absence in the country of supplier and related industries that are also internationally competitive

Related and supporting industries

Conditions in the nation that govern how companies are created, organized, and managed, and how intensely they compete domestically

Company strategy, structure, and rivalry

Jump to Competitive Advantage of Nations, Appendix

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Problems with Entering Foreign Markets, 1

Cultural misunderstanding

Areas in which differences occur

Communication

Spatial boundaries

Perception of time

Behavior

Managers must make the necessary efforts to learn, understand, and adapt to the cultural norms of customers and managers and sales team members in countries in which they do business

Sensitivity to cultural differences is essential

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Problems with Entering Foreign Markets, 2

Political uncertainty

Government instability

Social unrest

Armed conflict

Import restrictions

Tariffs, quotas, and other types of restrictions

Established to promote self-sufficiency and can be a roadblock for multinational firms

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Problems with Entering Foreign Markets, 3

Exchange controls and ownership restriction

Established by nations experiencing balance-of-payment problems

Important considerations in the decision to expand into a foreign market

Economic conditions

Differences in economies due to political upheaval or social changes

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Organizing the Multinational Company

Types global companies

Multidomestic company: Pursues different strategies in each of its foreign markets

Global company: Views the world as one market and pits its resources against competition in an integrated fashion

Alternatives to organizing global companies

Worldwide product divisions

Divisions responsible for all products sold within a geographic region

Matrix system that combines elements of both of these arrangements

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Factors Affecting Global Strategy

Market factors

Economic factors

Environmental factors

Competitive factors

External factors

Structure

Management processes

Culture

People

Internal factors

Jump to Factors Affecting Global Strategy, Appendix

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Organizational Issues to Be Considered in Global Marketing Research, 1

Population characteristics

Demographic variables, such that the number and size of families, education, occupation, and religion, are important

Ability to buy

Gross national product or per capita national income

Distribution of income

Rate of growth in buying power

Extent of available financing

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Organizational Issues to Be Considered in Global Marketing Research, 2

Willingness to buy

Related to cultural values and attitudes, tastes, and habits

Differences in research tasks and processes

Language

Data content

Timeliness

Availability in the United States

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Global Product Strategy

Global marketing research helps determine whether there is:

Unsatisfied need for which a new product could be developed to serve a foreign market

Unsatisfied need that could be met with an existing domestic product, either as is or adapted to the foreign market

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Global Distribution Strategy

Role of the distribution network is as important in foreign markets as it is at home

Channel arrangements range from no control to almost complete control of the distribution system by manufacturers

Influencing both home country and foreign country channels is challenging

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Global Pricing Strategy

Pricing task is more complicated in foreign markets because of problems associated with tariffs, antidumping laws, taxes, inflation, and currency conversion

Constraints

Import duties

Rigidity in price structures

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Global Advertising Strategy

Issues related to advertising

Language barrier

Selection of media

Limited media availability and their inability to reach out to potential buyers

Lack of accurate media information

Type of agency to be used to prepare and place the firm’s advertisements

Sales promotion

Used as a strategy for bypassing restrictions on advertisements placed by some foreign governments

Effective means for reaching people in rural locations where media support for advertising is virtually nonexistent

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Entry and Growth Strategies for Global Marketing

Strategy depends on analysis of market opportunities, company capabilities, degree of marketing involvement and commitment, and risk tolerance

Company can decide to:

Make minimal investments of funds and resources by limiting its efforts to exporting

Make large initial investments of resources and management effort to try to establish a long-term share of global markets

Take an incremental approach

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Growth Strategies for Global Marketing: Exporting

Firm produces the product outside the final destination and then ships it there for sale

Advantages

Avoids the cost of establishing manufacturing operations in the host country

It may help a firm achieve experience-curve and location economies

Disadvantages

Higher cost associated with the process

Necessity of the exporting firm to pay import duties or face trade barriers

Delegation of marketing responsibility for the product to foreign agents

Jump to Growth Strategies for Global Marketing: Exporting, Appendix

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Growth Strategies for Global Marketing: Licensing

Organization’s granting of patent rights, trademark rights, and the right to use technological processes to foreign markets

Advantages

Firm does not have to bear the development costs and risks associated with opening up a foreign market

Attractive option in unfamiliar or politically volatile markets

Disadvantages

Firm does not have tight control over manufacturing, marketing, and strategy

There is the risk that foreign companies may capitalize on the licensed technology

Jump to Growth Strategies for Global Marketing: Licensing, Appendix

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Growth Strategies for Global Marketing: Franchising and Joint Ventures

Franchising: Franchisor sells limited rights to use its brand name in return for a lump sum and share of the franchisee’s future profits

Employed by service firms, as opposed to manufacturing firms

Offers an effective mix of centralized and decentralized decision making

Joint ventures: Sharing management with one or more collaborating foreign firms

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Advantages and Disadvantages of Joint ventures

Firm may be able to benefit from a partner’s knowledge of the host country

Firm gains by sharing costs and risks of operating in a foreign market

Sole option when political considerations make joint ventures the only feasible entry mode

Firms can take advantage of a partner’s distribution system, technological know-how, or marketing skills

Advantages

Firm may risk giving up control of proprietary knowledge to its partner

Firm may lose the tight control over a foreign subsidiary needed to engage in coordinated global attacks against rivals

Disadvantages

Jump to Advantages and Disadvantages of Joint ventures, Appendix

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Growth Strategies for Global Marketing: Strategic Alliances

Partnerships where two or more firms invest in each other to gain competitive advantages on a worldwide versus local level

Long term in nature

Advantages

Reduced manufacturing costs, accelerated technological diffusion, and new product development

Legal and trade barriers can be overcome

Disadvantage: Increased risk of competitive conflict between the partners

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Growth Strategies for Global Marketing: Direct Ownership

Establishment of a wholly owned subsidiary or acquisition where it owns 100 percent of the stock

Advantages

Complete control over its technology and operations

Immediate access to foreign markets

Instant credibility and gains in the foreign country

Ability to install its own management team

Disadvantages: Huge costs and significant risks

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APPENDIces

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Goals of Global Marketing, Appendix

There are 2 small rectangular boxes partially overlapping 2 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The content in the large box explains the term provided in the small box. In the first pair of boxes, the small box is labeled offensive goals. The large box has 4 points. Starting from the top, the points are increase long-term growth and profit prospects, maximize total sales revenue, take advantage of economies of scale, and improve overall market position. In the second pair of boxes, the small box is labeled defensive goals. The large box has 4 points. Starting from the top, the points are compete with foreign companies on their own turf, gain access to technological innovations in other countries, take advantage of differences in operating costs, preempt competitors’ global moves, and avoid being locked out of future markets by arriving too late.

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Figure 13.1: Porter’s Diamond of National Advantage, Appendix

There are two overlapping boxes in the figure. One is a base box and the other on it is a slightly smaller box. Two dashed, double-ended arrows form a cross at the center of the smaller box. Each of the four arrowheads points to a box. The upper arrowhead points to a box that is labeled company, strategy, structure, and rivalry. The right arrowhead points to a box that is labeled demand conditions. The lower arrowhead points to a box that is labeled related and supporting industries. The left arrowhead points to a box that is labeled factor conditions. Two dashed, double-ended arrows extend from either side of the box labeled company, strategy, structure, and rivalry and point to the factor conditions box on the left and the demand conditions box on the right. Two dashed, double-ended arrows extend from each of these boxes and point to related and supporting industries box below.

Jump back to Figure 13.1: Porter’s Diamond of National Advantage

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Competitive Advantage of Nations, Appendix

There are 4 small rectangular boxes partially overlapping 4 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The content in the large box explains the term provided in the small box. In the first pair of boxes, the small box is labeled factor conditions. The content in the large box reads nation’s ability to turn its natural resources, skilled labor, and infrastructure into a competitive advantage. In the second pair of boxes, the small box is labeled demand conditions. The content in the large box reads nature of domestic demand and the sophistication of domestic customers for the industry’s product or service. In the third pair of boxes, the small box is labeled related and supporting industries. The content in the large box reads existence or absence in the country of supplier and related industries that are also internationally competitive. In the fourth pair of boxes, the small box is labeled company strategy, structure, and rivalry. The content in the large box reads conditions in the nation that govern how companies are created, organized, and managed, and how intensely they compete domestically.

Jump back to Competitive Advantage of Nations

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Factors Affecting Global Strategy, Appendix

There are 2 small rectangular boxes partially overlapping 2 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The content in the large box explains the term provided in the small box. In the first pair of boxes, the small box is labeled external factors. The large box has 4 points. Starting from the top, the points are market factors, economic factors, environmental factors, competitive factors. In the second pair of boxes, the small box is labeled internal factors. The large box has 4 points. Starting from the top, the sub-points are structure, management processes, culture, and people.

Jump back to Factors Affecting Global Strategy

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Growth Strategies for Global Marketing: Exporting, Appendix

The slide contains 2 rectangular boxes. Starting from the left, the header of the first box reads advantages and 2 points are listed below the header. The first point reads avoids the cost of establishing manufacturing operations in the host country, and the second point reads it may help a firm achieve experience-curve and location economies. The header of the second box reads disadvantages and 3 points are listed below the header. The first point reads higher cost associated with the process, the second point reads necessity of the exporting firm to pay import duties or face trade barriers, and the third point reads delegation of marketing responsibility for the product to foreign agents.

Jump back to Growth Strategies for Global Marketing: Exporting

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Growth Strategies for Global Marketing: Licensing, Appendix

The slide contains 2 rectangular boxes. Starting from the left, the header of the first box reads advantages and 2 points are listed below the header. The first point reads firm does not have to bear the development costs and risks associated with opening up a foreign market, and the second point reads attractive option in unfamiliar or politically volatile markets. The header of the second box reads disadvantages and 2 points are listed below the header. The first point reads firm does not have tight control over manufacturing, marketing, and strategy, and the second point reads there is the risk that foreign companies may capitalize on the licensed technology.

Jump back to Growth Strategies for Global Marketing: Licensing

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Advantages and Disadvantages of Joint Ventures, Appendix

There are 2 small rectangular boxes partially overlapping 2 large rectangular boxes. Each pair of small and large boxes is placed one below the other. The content in the large box explains the term provided in the small box. In the first pair of boxes, the small box is labeled advantages. The large box has 4 points. Starting from the top, the points are firm may be able to benefit from a partner’s knowledge of the host country, firm gains by sharing costs and risks of operating in a foreign market, sole option when political considerations make joint ventures the only feasible entry mode, allow firms to take advantage of a partner’s distribution system, technological know-how, or marketing skills. In the second pair of boxes, the small box is labeled disadvantages. The large box has 2 points. Starting from the top, the points are firm may risk giving up control of proprietary knowledge to its partner, and firm may lose the tight control over a foreign subsidiary needed to engage in coordinated global attacks against rivals.

Jump back to Advantages and Disadvantages of Joint ventures

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