To gain access to new customers – Expanding into foreign markets offers attention for increased revenues, profits, and long-term growth and becomes an especially attractive option when a company’s home markets are mature. B. To achieve lower costs and enhance the firm’s competitiveness – Many companies are driven to sell in more than one country because domestic sales volume Is not large enough to fully capture manufacturing economies of scale or learning curve effects and thereby substantially Improve the firm’s cost- competitiveness. C.
To capitalize on its core competencies – A company may be able to leverage Its competencies and capabilities Into a position of competitive advantage In foreign arrests as well as Just domestic markets. D. To spread its business risk across a wider market base – A company spreads business risk by operating In a number of different foreign countries rather than depending entirely on operations in its domestic market. A. The Difference between Competing Internationally and Competing Globally 1 . Typically, a company will start to compete Internationally by entering Just one or maybe a select few foreign markets. Hat operates in a select few foreign countries (accurately termed an international competitor) and a company that markets its products in 50 to 100 countries and is expanding its operations into additional country markets annually (which qualifies as a global competitor). Ill. Cross-Country Differences In Cultural, Demographic, and Market Conditions 1 . Regardless of a company’s motivation for expanding outside its domestic markets, the strategies it uses to compete in foreign markets must be situation driven. 2. Cultural, demographic, and market conditions vary significantly among the countries of the world.
Cultures and lifestyles are the most obvious areas in which countries differ; market demographics are close behind. 3. Market growth varies from country to country. In emerging markets, market growth potential is far higher than in the more mature economies. 4. One of the biggest concerns of companies competing in foreign markets is whether to customize their offerings in each different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide. 5.
Aside from basic cultural and market differences among countries, a company also has to pay special attention to location advantages that stem from country-to- country variations in manufacturing and distribution costs, the risks of fluctuating exchange rates, and the economic and political demands of host governments. A. The Potential for Location Advantages 1 . Differences in wage rates, worker productivity, inflation rates, energy costs, tax rates, government regulations, and the like create sizable variations in manufacturing costs from country to country. 2.
The quality of a country’s business environment also offers location advantages – the governments of some countries are anxious to attract foreign investments and go all-out to create a business climate that outsiders will view as favorable. 1. The volatility of exchange rates greatly complicates the issue of geographic cost advantages. Currency exchange rates often fluctuate as much as 20 to 40 percent annually. Changes of this magnitude can either totally wipe out a country’s low- cost advantage or transform a former high-cost location into a competitive-cost location.
CORE CONCEPT: Companies with manufacturing facilities in Brazil are more cost-competitive in exporting goods to world markets when the Brazilian real is weak; their competitiveness erodes when the Brazilian real grows stronger relative to the currencies of the countries where the Brazilian-made goods are being sold. . Declines in the value of the U. S. Dollar against foreign currencies reduce or eliminate whatever cost advantage foreign manufacturers might have over U. S. Manufacturers and can even prompt foreign companies to establish production plants in the United States. . Currency exchange rates are rather unpredictable, swinging first one way then another way, so the competitiveness of any company’s facilities in any country is partly dependent on whether exchange rate changes over time have a favorable or unfavorable cost impact. CORE CONCEPT: Fluctuating exchange rates pose significant risks to a Meany’s competitiveness in foreign markets. Exporters win when the currency of the country where goods are being manufactured grows weaker and they lose when the currency grows stronger.
Domestic companies under pressure from lower-cost imports are benefited when their government’s currency grows weaker in relation to the countries where the imported goods are being made. 4. Companies making goods in one country for export to foreign countries always gain in competitiveness as the currency of that county grows weaker. Exporters are disadvantaged when the currency of the country where goods are being manufactured grows stronger. C. Host Government Restrictions and Requirements and the operations of foreign companies in their markets. . Host governments may set local content requirements on goods made inside their borders by foreign-based companies, put restrictions on exports to ensure adequate local supplies, regulate the prices of imported and locally produced goods, and impose tariffs or quotas on the imports of certain goods. ‘V. The Concepts of Multiplicity Competition and Global Competition 1. There are important differences in the patterns of international competition room industry to industry. 2.
At one extreme is Multiplicity competition in which there is so much cross- country variation in market conditions and in the companies contending for leadership that the market contest among rivals in one country is not closely connected to the market contests in other countries. 3. The standout features of Multiplicity competition are that: a. Buyers in different countries are attracted to different product attributes b. Sellers vary from country to country c. Industry conditions and competitive forces in each national market differ in important respects 4.
Maintain a national (one-country) production base and export goods to foreign markets – using either company-owned or foreign-controlled forward distribution channels b. License foreign firms to use the company’s technology or to produce and distribute the company’s products . Employ a franchising strategy d. Follow a Multiplicity strategy – varying the company’s strategic approach from country to country in accordance with local conditions and differing buyer tastes and preferences approach in all country markets where the company has a presence f.
Use strategic alliances or Joint ventures with foreign companies as the primary vehicle for entering foreign markets – and perhaps using them as an ongoing strategic arrangement aimed at maintaining or strengthening its competitiveness A. Export Strategies 1. Using domestic plants as a production base for exporting goods to foreign arrests is an excellent initial strategy for pursuing international sales. 2.
With an export strategy, a manufacturer can limit its involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world. 3. Whether an export strategy can be pursued successfully over the long run hinges on the relative cost-competitiveness of the home-country production base. 4. An export strategy is vulnerable when: a. Manufacturing costs in the home country are substantially higher than in reign countries where rivals have plants b.
The costs of shipping the product to distant foreign markets are relatively high c. Adverse fluctuations occur in currency exchange rates B. Licensing Strategies Licensing makes sense when a firm with valuable technical know-how or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets. 2. Licensing also has the advantage of avoiding the risks of committing resources to country markets that are unfamiliar, politically volatile, economically unstable, or otherwise risky. 3.
The big disadvantage of licensing is the risk of providing valuable technological know-how to foreign companies and thereby losing some degree of control over its use. C. Franchising Strategies technology, franchising is often better suited to the global expansion efforts of service and retailing enterprises. 2. Franchising has much the same advantages as licensing. 3. The franchisee bears most of the costs and risks of establishing foreign locations while the franchiser has to expend only the resources to recruit, train, support, and monitor franchisees. 4. The big problem a franchiser faces is maintaining quality control. Another problem that may arise is whether to allow foreign franchisees to make modifications in the franchiser’s product offerings so as to better satisfy the tastes and expectations of local buyers. D. A Multi-country Strategy or a Global Strategy? 1 . The need for a multi-country strategy derives from the vast differences in cultural, economic, political, and competitive conditions in different countries. 2. The more diverse national market conditions are, the stronger the case for a multi-country strategy in which the company tailors its strategic approach to fit each host country’s market situation.
A multi-country strategy is appropriate for industries where multi-country competition dominates and local responsiveness is essential. A global strategy works best in markets that are globally competitive or beginning to globalize. 3. While multi-country strategies are best suited for industries where multi- country competition dominates and a fairly high degree of local responsiveness is competitively imperative, global strategies are best suited for globally competitive industries. 4.
A global strategy is one in which the company’s approach is predominantly the same in all countries. 5. A global strategy involves: . Integrating and coordinating the company’s strategic moves worldwide b. Selling in many if not all nations where there is a significant buyer demand the markets of all countries or whether to vary the company’s competitive approach to fit specific market conditions and buyer preferences in each host country is perhaps the foremost strategic issues firms face when they compete in foreign markets. 8.
The strength of a multi-country strategy is that it matches the company’s competitive approach to host country circumstances and accommodates the differing tastes and expectations of buyers in each country. 10. However, a multi-country strategy has two big drawbacks: a. It hinders transfer of a company’s competencies and resources across country boundaries b. It does not promote building a single, unified competitive advantage 11. As a rule, most multinational competitors endeavor to employ as global a strategy as customers’ needs permit. 2. A global strategy can concentrate on building the resource strengths to secure a sustainable low-cost or differentiation-based competitive advantage over both domestic rivals and global rivals racing for world market leadership. VI. The Quest for Competitive Advantage in Foreign Markets 1. There are three ways in which a firm can gain competitive advantage or offset domestic disadvantages by expanding outside its domestic markets: a. Use location to lower costs or achieve greater product differentiation b.
Transfer competitively valuable competencies and capabilities from its domestic markets to foreign markets c. Use cross-border coordination in ways that a domestic-only competitor cannot A. Using Location to Build Competitive Advantage 1. To use location to build competitive advantage, a company must consider two issues: a. Whether to concentrate each activity it performs in a few select countries or to sippers performance of the activity to many nations b. In which countries to locate particular activities locating activities in the most advantageous nations; a domestic-only competitor has no such opportunities. . Companies tend to concentrate their activities in a limited number of locations in the following circumstances: a. When the costs of manufacturing or other activities are significantly lower in some geographic locations than in others b. When there are significant scale economies c. When there is a steep learning curve associated with performing an activity in a single location d. When certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages 3.
In several instances, dispersing activities is more advantageous than concentrating them. 4. The classic reason for locating an activity in a particular country is low-cost. B. Using Cross-Border Transfer of Competences and Capabilities to Build Competitive Advantage Expanding beyond domestic borders is a way for companies to leverage their core competences and resource strengths, using them as a basis for competing successfully in additional country markets and growing sales and profits in the recess. 2.
Transferring competences, capabilities, and resource strengths from country to country contributes to the development of broader and deeper competences and capabilities – ideally helping a company achieve dominating depth in some competitively valuable area. Dominating depth in a competitively valuable capability, resource, or value chain activity is a strong base for sustainable competitive advantage over multinational or global competitors and especially so over domestic- only competitors. 1. Coordinating company activities across different countries contributes to sustainable competitive advantage in several different ways: a.
Multinational and global competitors can choose where and how to challenge rivals b. Using Internet technology applications, companies can collect ideas for new and improved products from customers and sales and marketing personnel all over the world c. A company can enhance its brand reputation by consistently incorporating the same differentiating attributes in its products worldwide VI’. Profit Sanctuaries, Cross-Market Subordination, and Global Strategic Offensives 1. Profit sanctuaries are country markets in which a company derives substantial refits because of its strong or protected market position. 2.
Companies that compete globally are likely to have more profit sanctuaries than companies that compete in Just a few country markets; a domestic-only competitor can have only one profit sanctuary. Companies with large, protected profit sanctuaries -? country markets in which a company derives substantial profits because of its strong or protected market position -? have competitive advantage over companies that do not have a protected sanctuary. Companies with multiple profit sanctuaries have a competitive advantage over companies with a single sanctuary. A. Using Cross-Market Subordination to Wage a Strategic Offensive 1.
