Multicountry competition exists when

McGraw-Hill/Irwin

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 7: Strategies for Competing in Foreign Markets

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.

Troy University

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McGraw-Hill/Irwin

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

“You have no choice but to operate in a world shaped by globalization and the information revolution. There are two options: Adapt or die.”

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McGraw-Hill/Irwin

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

“Industries actually vary a great deal in the pressures they put on a company to sell internationally.

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Chapter Learning Objectives

Develop an understanding of why companies that have achieved competitive advantage in their domestic market may opt to enter foreign markets.

Learn how and why differing market conditions in different countries influence a company’s strategy for competing in foreign markets.

Gain familiarity with the major strategic options for entering and competing in foreign markets.

Understand the principal approaches used by multinational companies in building competitive advantage in foreign markets.

Gain an understanding of the unique characteristics of competing in emerging markets.

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Chapter Roadmap

Why Companies Expand into Foreign Markets
Factors that Shape Strategy Choices in Foreign Markets
The Concepts of Multicountry Competition and Global Competition
Strategy Options for Entering and Competing in Foreign Markets
The Quest for Competitive Advantage in Foreign Markets
Strategies to Compete in the Markets of Emerging Countries
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The Four Big Strategic Issues
in Competing Multinationally

Whether to customize a company’s offerings in each different country market to match preferences of local buyers or offer a mostly standardized product worldwide
Whether to employ essentially the same
basic competitive strategy in all countries
or modify the strategy country by country
Where to locate a company’s production facilities,
distribution centers, and customer service operations to realize the greatest locational advantages
How to efficiently transfer a company’s resource strengths and capabilities from one country to another to secure competitive advantage
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Why Do Companies Expand
into Foreign Markets?

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International vs. Global Competition

International

Competitor

Global

Competitor

Company operates in a select few foreign countries, with modest ambitions to expand further

Company markets products in 50 to 100 countries and
is expanding operations into additional country markets annually

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Factors Shaping Strategy
Choices in Foreign Markets

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Cultures and lifestyles differ among countries
Differences in market demographics
and income levels
Variations in manufacturing
and distribution costs
Fluctuating exchange rates
Differences in host government
economic and political demands
Cross-Country Differences in Cultural, Demographic, and Market Conditions

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Consumer tastes and preferences
Consumer buying habits
Market size and growth potential
Distribution channels
Driving forces
Competitive pressures
How Markets Differ from
Country to Country

One of the biggest concerns of companies competing in foreign markets is whether to customize their product offerings in each different country market to match the tastes and preferences of local buyers or whether to
offer a mostly standardized product worldwide.

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Manufacturing costs vary from country to country based on
Wage rates
Worker productivity
Inflation rates
Energy costs
Tax rates
Government regulations
Quality of business environment varies from country to country
Suppliers, trade associations, and makers of complementary products often find it advantageous to cluster their operations in the same general location
Different Countries Have
Different Locational Appeal

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Fluctuating Exchange Rates Affect
a Company’s Competitiveness

Currency exchange rates are unpredictable
Competitiveness of a company’s operations
partly depends on whether exchange rate
changes affect costs favorably or unfavorably
Competitive impact of fluctuating exchange rates
Exporters always gain in competitiveness
when the currency of the country where
goods are manufactured grows weaker
Exporters are disadvantaged when
the currency of the country where
goods are manufactured grows stronger
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Test Your Knowledge

Which one of the following statements concerning the effects of fluctuating exchange rates on companies competing in foreign markets is true?

A. Japan-based manufacturers exporting goods to the U.S. would be disadvantaged if the Japanese yen grows weaker in relation to the U.S. dollar.

B. Fluctuating foreign exchange rates greatly reduce the risks of competing in foreign markets—the big problem occurs when exchange rates are fixed at unreasonably low levels.

C. Domestic companies under pressure from lower-cost imports are benefited when their government’s currency grows weaker in relation to the currencies of the countries where the imported goods are being made.

D. Chinese exports to Europe would likely grow in volume if the Chinese currency becomes much stronger relative to the euro.

E. If the exchange rate of U.S. dollars for euros changes from $1.25 per euro to $1.30 per euro, then it is correct to say that the U.S. dollar has grown stronger.

Answer: C

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Differences in Host
Government Trade Policies

Local content requirements
Restrictions on exports
Regulations on prices of imports
Import tariffs or quotas
Other regulations
Technical standards
Product certification
Prior approval of capital spending projects
Withdrawal of funds from country
Ownership (minority or majority) by local citizens
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Two Primary Patterns
of International Competition

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Characteristics of
Multi-Country Competition

Market contest among rivals in one
country not closely connected to
market contests in other countries
Buyers in different countries are
attracted to different product attributes
Sellers vary from country to country
Industry conditions and competitive forces in
each national market differ in important respects
Rival firms battle for national championships –

winning in one country does not necessarily signal the ability to fare well in other countries!

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Competitive conditions across country markets are strongly linked
Many of same rivals compete in
many of the same country markets
A true international market exists
A firm’s competitive position in one country is affected by its position in other countries
Competitive advantage is based on a firm’s world-wide operations and overall global standing
Characteristics of Global Competition

Rival firms in globally competitive
industries vie for worldwide leadership!

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Strategy Options for
Competing in Foreign Markets

Exporting
Licensing
Franchising strategy
Strategic alliances or
joint ventures
Multi-country strategy
Global strategy
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Involve using domestic plants as a production base for exporting to foreign markets
Excellent initial strategy to
pursue international sales
Advantages
Conservative way to test international waters
Minimizes both risk and capital requirements
Minimizes direct investments in foreign countries
An export strategy is vulnerable when
Manufacturing costs in home country are higher
than in foreign countries where rivals have plants
High shipping costs are involved
Adverse fluctuations in currency exchange rates occur
Export Strategies

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Licensing Strategies

Licensing makes sense when a firm
Has valuable technical know-how or a patented product but does not have international capabilities to enter foreign markets
Desires to avoid risks of committing resources to markets which are
Unfamiliar
Politically volatile
Economically unstable
Disadvantage
Risk of providing valuable technical know-how to foreign firms and losing some control over its use
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Franchising Strategies

Often is better suited to global expansion efforts of service and retailing enterprises
Advantages
Franchisee bears most of 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
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Achieving Global Competitiveness
via Cooperative Agreements

Cooperative agreements with
foreign companies are a means to
Enter a foreign market or
Strengthen a firm’s
competitiveness in world markets
Purpose of alliances / joint ventures
Joint research efforts
Technology-sharing
Joint use of production or distribution facilities
Marketing / promoting one another’s products
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Strategic Appeal of Strategic Alliances

Gain better access to attractive country markets
Capture economies of scale in production and/or marketing
Fill gaps in technical expertise or knowledge of local markets
Share distribution facilities and dealer networks
Direct combined competitive energies toward defeating mutual rivals
Take advantage of partner’s local market
knowledge and working relationships with
key government officials in host country
Useful way to gain agreement on
important technical standards
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Pitfalls of Strategic Alliances

Overcoming language and cultural barriers
Dealing with diverse or conflicting operating practices
Time consuming for managers in
terms of communication,
trust-building, and coordination costs
Mistrust when collaborating in
competitively sensitive areas
Clash of egos and company cultures
Dealing with conflicting objectives, strategies, corporate values, and ethical standards
Becoming too dependent on another firm for essential expertise over the long-term
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Localized Multicountry Strategy
or a Global Strategy?

Whether to vary a company’s competitive approach to fit specific market conditions and buyer preferences in each host county
or

Whether to employ essentially the same strategy in all countries
Strategic Issue