CHAPTER 7 STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS Student Version
WHY COMPANIES DECIDE TO ENTER FOREIGN MARKETS To gain access to new customers To spread business risk across a wider market base To exploit core competencies To achieve lower costs and economies of scale To access resources and capabilities in foreign markets
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
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.
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.
Cross-Country Differences in Demographic,Cultural, and Market Conditions To customize offerings in each country market to match the tastes and preferences of local buyers Key Strategic Considerations To pursue a strategy of offering a mostly standardized product worldwide.
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.
STRATEGIC OPTIONS FOR ENTERINGAND 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.
COMPETING INTERNATIONALLY: THE THREE MAIN STRATEGIC APPROACHES Competing Internationally Multidomestic Strategy GlobalStrategy Transnational Strategy
THE QUEST FOR COMPETITIVE ADVANTAGE IN THE INTERNATIONAL ARENA Build Competitive Advantage in International Markets Use international location to lower cost or differentiate product Share resources, competencies, and capabilities Gain cross-border coordination benefits
Using Location to Build Competitive Advantage To customize offerings in each country market to match the tastes and preferences of local buyers Key LocationIssues To pursue a strategy of offering a mostly standardized product worldwide.
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.
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.
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.
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.