strategic management 615

CHAPTER 7

STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS

Student Version

McGraw-Hill/Irwin

Copyright ®2012 The McGraw-Hill Companies, Inc.

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To exploit core competencies

To spread business risk across a wider market base

To gain access to new customers

To achieve lower costs and economies of scale

To access resources and capabilities in foreign markets

WHY COMPANIES DECIDE TO ENTER FOREIGN MARKETS

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WHY COMPETING ACROSS NATIONAL BORDERS MAKES STRATEGY MAKING MORE COMPLEX

1.

Industry competitiveness factors that vary from country to country

2.

Location-based advantages for certain countries

3.

Differences in government policies and economic conditions

4.

Currency exchange rate risks

5.

Differences in cultural, demographic, and market conditions

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Political and Economic Risks

• Political Risks
• Stem from instability or weaknesses in national governments and hostility to foreign business.
• Economic Risks
• Stem from the stability of a country’s monetary system, economic and regulatory policies, lack of property rights protections, and risks due to exchange rate fluctuation.

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The Risks of Adverse Exchange Rate Shifts

• Effects of Exchange Rate Shifts:
• Exporters experience a rising demand for their goods whenever their currency grows weaker relative to the importing country’s currency.
• Exporters experience a falling demand for their goods whenever their currency grows stronger relative to the importing country’s currency.

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Cross-Country Differences in Demographic,
Cultural, and Market Conditions

To pursue a strategy of offering a mostly standardized product worldwide.

To customize offerings in each country market to match the tastes and preferences of local buyers

Key Strategic
Considerations

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THE CONCEPTS OF MULTIDOMESTIC COMPETITION AND GLOBAL COMPETITION

• Multidomestic Competition
• Exists when competition in each country market is localized and not closely connected to competition in other country markets.
• Global Competition
• Exists when competitive conditions and prices are strongly linked across many different national markets.

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STRATEGIC OPTIONS FOR ENTERING
AND COMPETING IN INTERNATIONAL MARKETS

• Maintain a national (one-country) production base and export goods to foreign markets.
• License foreign firms to produce and distribute the firm’s products abroad.
• Employ an overseas franchising strategy.
• Establish a wholly-owned subsidiary by either acquiring a foreign company or through a “greenfield” venture.
• Form strategic alliances or joint ventures with foreign companies.

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COMPETING INTERNATIONALLY:
THE THREE MAIN STRATEGIC APPROACHES

Multidomestic Strategy

Global
Strategy

Transnational
Strategy

Competing
Internationally

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THE QUEST FOR COMPETITIVE ADVANTAGE IN THE INTERNATIONAL ARENA

Use international location to lower
cost or differentiate
product

Share resources, competencies,
and capabilities

Gain cross-border coordination
benefits

Build Competitive Advantage
in International Markets

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Using Location to Build
Competitive Advantage

To pursue a strategy of offering a mostly standardized product worldwide.

To customize offerings in each country market to match the tastes and preferences of local buyers

Key Location
Issues

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PROFIT SANCTUARIES AND CROSS-BORDER STRATEGIC MOVES

• Profit Sanctuaries
• Are country markets (or geographic regions) in which a firm derives substantial profits because of its protected market position or its competitive advantage.
• Cross-Market Subsidization
• Is the diversion of resources and profits from one market to support competitive offensives in another different market.

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Dumping as a Strategy

• Dumping
• Selling goods in foreign markets at prices that are either below normal home market prices or below the full costs per unit.
• Why A Firm Engages in Dumping:
• To reduce or avoid the high fixed costs of idle production capacity.
• To use below-cost pricing to gain market share and drive weak firms from the market.

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STRATEGIES FOR COMPETING IN THE MARKETS OF DEVELOPING COUNTRIES

• Prepare to compete on the basis of low price.
• Prepare to modify the firm’s business model or strategy to accommodate local circumstances.
• Avoid developing markets where it is too costly to accommodate local circumstances.
• Try to change the local market to better match the way the firm does business elsewhere.

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DEFENDING AGAINST GLOBAL GIANTS: STRATEGIES FOR LOCAL COMPANIES IN DEVELOPING COUNTRIES

• Develop a business model that exploits shortcomings in local distribution networks or infrastructure.
• Utilize knowledge of local customer needs and preferences to create customized products or services.
• Take advantage of aspects of the local workforce with which large multinational firms may be unfamiliar.
• Use local acquisition and rapid-growth strategies to defend against expansion-minded internationals.
• Transfer the firm’s expertise to cross-border markets.