Chapter 7

Strategies for Competing in International Markets

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

The Appeal of International Market Expansion Gain access to new customers Help achieve lower costs Capitalize on core competencies Spread business risk over a broader base

7-2

Factors Shaping Strategy Choice in International 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

7-3

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

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
7-4

How Markets Demographics Differ from 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

7-5

Location-Based Cost Drivers

Manufacturing costs vary from country to country based on
Wage rates Worker productivity Government regulations and industry subsidies Inflation rates Energy costs Tax rates
7-6

The Effects of Shifting Exchange Rates 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
7-7

Host Government Policies Affecting International Competition

Examples of host government policies affecting foreign-based companies include:
Local content requirements Trade policies protecting domestic companies Deliberately burdensome customs requirements Restrictions on exports based upon national security concerns Tariffs and quotas Subsidies for domestic companies
7-8

Strategy Options for Entering and Competing in Foreign Markets General strategic options for expanding outside a companys domestic market include:
Exporting Licensing Franchising strategy Multicountry strategy Global strategy Strategic alliances or joint ventures
7-9

Export Strategies
Involves using domestic plants as a production base for exporting to foreign markets Advantages
Conservative way to test international waters Minimizes both risk and capital requirements

7-10

Export 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

7-11

Licensing Strategies
Licensing makes sense when a firm
Has valuable technical know-how or a patented product but has neither the internal capabilities nor resources to enter foreign markets

Disadvantage
Risk of providing valuable technical know-how to foreign firms and thereby losing some control over its use
7-12

International Franchising Strategies

Often is better suited to global expansion efforts of service and retailing enterprises Advantages
Franchisee bears most of the costs and risks of establishing foreign locations Franchisor has to expend only the resources to recruit, train, and support franchisees

Disadvantage
Maintaining cross-country quality control
7-13

Establishing International Operations Choosing between localized multicountry strategies or a global strategy
Deciding upon the degree to vary competitive approach country by country depends on cross-country differences in buyer preferences and market conditions

7-14

Localized Multicountry Strategies

Think local, act local -- A company
varies its product offerings and basic competitive strategy from country to country Used when
Significant 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
7-15

Global 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
7-16

Global 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
7-17

International Strategic Alliances and Joint 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
7-18

Keys to Building Successful International Strategic Alliances and Collaborative 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
7-19

Using International Operations to Improve Overall Competitiveness

Expanding outside a companys domestic market can improve overall competitiveness in three ways
Concentrating 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
7-20

Using Location to Build Competitive Advantage

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
7-21

When to Concentrate Internal Processes in a Few Locations

Concentrating activities and processes in a few countries makes sense when
The 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
7-22

Using Cross-Border Coordination to Build 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 7-23

Using Profit Sanctuaries to Wage a Strategic Offensive

Profit sanctuaries are protected markets that provide multinational companies with substantial profits
A companys 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
7-24

Using Profit Sanctuaries to Wage a Strategic Offensive

Dumping involves a company selling goods in foreign markets at prices
Well below prices at which it sells in its home market or Well 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
7-25

Characteristics of Competing in Emerging Foreign Markets

Tailoring products to fit conditions in emerging markets often involves
Making more than minor product changes and Becoming more familiar with local cultures

7-26

Strategic Options for Emerging Country Markets

Prepare to compete on the basis of low price Be prepared to modify aspects of the companys business model to accommodate local circumstances Try to change the local market to better match the way the company does business elsewhere Avoid emerging markets where it is impractical or uneconomical to modify the companys business model to accommodate local circumstances
7-27