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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