McGraw-Hill/Irwin Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved.

Chapter 7Chapter 7

Strategies for Strategies for Competing in Competing in International International

MarketsMarkets

7-2

The Appeal of International Market The Appeal of International Market ExpansionExpansion

Gain access to new customers Help achieve lower costs Capitalize on core competencies Spread business risk over a

broader base

7-3

Factors Shaping Strategy Choice in Factors Shaping Strategy Choice in International marketsInternational markets

The degree to which there are important cross-country differences in cultural, demographic, and market conditions

Whether opportunities exists to gain a location-based competitive advantage

The risks of adverse shifts in currency exchange rates

The extent to which governmental policies affect the business environment

7-4

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

Differences in cultures and lifestyles

Differences in market demographics

Variations in market growth from country to country

Country to country differences in manufacturing and distribution costs

Shifts in exchange rates

Differences in host government policies and trade regulations

7-5

How Markets Demographics DifferHow Markets Demographics Differfrom Country to Countryfrom Country to Country

Consumer tastes and preferences

Consumer purchasing power

Consumer buying habits

Distribution channel emphasis

Demands for localized products

The strength of competitive rivalry

7-6

Location-Based Cost DriversLocation-Based Cost Drivers

Manufacturing costs vary from country to country based onWage ratesWorker productivityGovernment regulations and industry

subsidiesInflation ratesEnergy costsTax rates

7-7

The Effects of Shifting Exchange The Effects of Shifting Exchange RatesRates

Exporters gain in competitiveness when the currency of the country in which the goods are manufactured is weak

Exporters are at a disadvantage when the currency of the country where goods are manufactured grows stronger

7-8

Host Government Policies Affecting Host Government Policies Affecting International CompetitionInternational Competition

Examples of host government policies affecting foreign-based companies include:Local content requirementsTrade policies protecting domestic

companiesDeliberately burdensome customs

requirementsRestrictions on exports based upon national

security concernsTariffs and quotasSubsidies for domestic companies

7-9

Strategy Options for Entering and Strategy Options for Entering and Competing in Foreign MarketsCompeting in Foreign Markets

General strategic options for expanding outside a company’s domestic market include:Exporting

Licensing

Franchising strategy

Multicountry strategy

Global strategy

Strategic alliances or joint ventures

7-10

Export StrategiesExport Strategies

Involves using domestic plants as a production base for exporting to foreign markets

AdvantagesConservative way to test international watersMinimizes both risk and capital requirements

7-11

Export StrategiesExport Strategies

An export strategy is vulnerable

when

Manufacturing costs in home country are higher than in foreign countries where rivals have plants

The cost of shipping the product to distant markets are relatively high

Adverse fluctuations in currency exchange rates

7-12

Licensing StrategiesLicensing Strategies

Licensing makes sense when a firmHas valuable technical know-how or a

patented product but has neither the internal capabilities nor resources to enter foreign markets

DisadvantageRisk of providing valuable technical

know-how to foreign firms and thereby losing some control over its use

7-13

International Franchising StrategiesInternational Franchising Strategies

Often is better suited to global expansion efforts of service and retailing enterprises

AdvantagesFranchisee bears most of the

costs and risks of establishing foreign locations

Franchisor has to expend only the resources to recruit, train, and support franchisees

DisadvantageMaintaining cross-country quality control

7-14

Establishing International Establishing International OperationsOperations

Choosing between localized multicountry strategies or a global strategyDeciding upon the degree to vary

competitive approach country by country depends on cross-country differences in buyer preferences and market conditions

7-15

Localized Multicountry StrategiesLocalized Multicountry Strategies

Think local, act local -- A company varies its product offerings and basic competitive strategy from country to country

Used whenSignificant country-to-country differences

exist in customer preferences, buying habits, distribution channels, or marketing methods or

When host governments enact local content requirements or trade restrictions that preclude a uniform, coordinated worldwide market approach

7-16

Global StrategiesGlobal Strategies

A company employs the same basic competitive approach in all countries where it operates

Best suited to industries that are globally standardized in terms of customer preferences, buyer purchasing habits, distribution channels or marketing methods

7-17

Global StrategiesGlobal Strategies

Think global, act global—Strategic moves are integrated and coordinated worldwide, emphasis on building a global brand name

Think global, act local—Utilizes a common strategic approach (low-cost, differentiation, focus, best costs), but allowing some country-to-country customization to fit local market conditions

7-18

International Strategic Alliances and International Strategic Alliances and Joint VenturesJoint Ventures

Cooperative agreements with foreign-based companies are a means to

Enter a foreign market or

Strengthen competitiveness in world markets through joint research efforts, joint use of production or distribution facilities, or by gaining agreement on global technical standards

7-19

Keys to Building Successful Keys to Building Successful International Strategic Alliances and International Strategic Alliances and Collaborative PartnershipsCollaborative Partnerships

Overcoming language and cultural barriers

Resolving differences in values, objectives, strategies, and operating practices

Developing trust, coordination, and effective communications between partners

Resolving interpersonal conflict among the two partners’ managers

7-20

Using International Operations to Using International Operations to Improve Overall CompetitivenessImprove Overall Competitiveness

Expanding outside a company’s domestic market can improve overall competitiveness in three waysConcentrating processes and activities in

advantageous locations

Coordinating value chain activities across borders to improve competencies or lower costs

Using profit sanctuaries to wage a strategic offensive

7-21

Using Location to Build Competitive Using Location to Build Competitive AdvantageAdvantage

Multinational companies attempting to gain location-based competitive advantage should consider

1. Whether to concentrate activities in a few countries or disperse performance of each process to many countries

2. Which countries offer the best locational advantage for each activity

7-22

When to Concentrate Internal When to Concentrate Internal Processes in a Few LocationsProcesses in a Few Locations

Concentrating activities and processes in a few countries makes sense whenThe cost of manufacturing or performing

other activities is lower in a specific geographic location

Significant scale economies can be achieved by concentrating particular activities

There is a steep learning curve associated with performing an activity

Certain locations have superior resources or allow better coordination of related activities

7-23

Using Cross-Border Coordination to Using Cross-Border Coordination to Build Competitive AdvantageBuild Competitive Advantage

Multinational and global companies are able to coordinate activities across borders to achieve competitive advantage by

Transferring knowledge and skills developed in one location to a location in another country

Shifting production to locations having excess capacity or underutilized personnel

Shift production between plants in different countries to take advantage of shifting exchange rates, energy costs, or changes in tariffs and quotas

7-24

Using Profit Sanctuaries to Wage a Using Profit Sanctuaries to Wage a Strategic OffensiveStrategic Offensive

Profit sanctuaries are protected markets that provide multinational companies with substantial profitsA company’s domestic market is most likely

its chief profit sanctuary

Profit sanctuaries can give a multinational company added financial resources to wage a market offensive against a domestic-only competitor in its home market

7-25

Using Profit Sanctuaries to Wage a Using Profit Sanctuaries to Wage a Strategic OffensiveStrategic Offensive

Dumping involves a company selling goods in foreign markets at pricesWell below prices at which it sells in its home

market orWell below its full costs per unit

Is a legitimate practice if the company must rely on sales in international markets to avoid unused production capacity

Will likely violate anti-dumping laws if cut-rate pricing places domestic firms in financial peril

7-26

Tailoring products to fit conditions in emerging markets often involvesMaking more than

minor product changes and

Becoming more familiar with local cultures

Characteristics of CompetingCharacteristics of Competingin Emerging Foreign Marketsin Emerging Foreign Markets

7-27

Strategic Options for Emerging Strategic Options for Emerging Country Markets Country Markets

Prepare to compete on the basis of low price

Be prepared to modify aspects of the company’s business model toaccommodate local circumstances

Try to change the local marketto better match the way thecompany does business elsewhere

Avoid emerging markets where it is impractical or uneconomical to modify the company’s business model to accommodate local circumstances