Chapter 7

Strategies for Competing in International Markets

McGraw-Hill/Irwin Copyright 2010 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

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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
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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
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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

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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
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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
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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

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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
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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
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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
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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
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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
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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

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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
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