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CHAPTER 7 STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS.

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Presentation on theme: "CHAPTER 7 STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS."— Presentation transcript:

1 CHAPTER 7 STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS

2 To further exploit core competencies To spread business risk across a wider market base To gain access to new customers To achieve lower costs through economies of scale, experience, and increased purchasing power To gain access to resources and capabilities located in foreign markets WHY COMPANIES DECIDE TO ENTER FOREIGN MARKETS 7–2

3 WHY COMPETING ACROSS NATIONAL BORDERS MAKES STRATEGY- MAKING MORE COMPLEX 1. Different countries have different home- country advantages in different industries 2. Location-based value chain advantages for certain countries 3. Differences in government policies, tax rates, and economic conditions 4. Currency exchange rate risks 5. Differences in buyer tastes and preferences for products and services 7–3

4 The Diamond of National Advantage FIGURE 7.1 7–4

5 REASONS FOR LOCATING VALUE CHAIN ACTIVITIES ADVANTAGEOUSLY Lower wage ratesLower wage rates Higher worker productivityHigher worker productivity Lower energy costsLower energy costs Fewer environmental regulationsFewer environmental regulations Lower tax ratesLower tax rates Lower inflation ratesLower inflation rates Proximity to suppliers and technologically related industriesProximity to suppliers and technologically related industries Proximity to customersProximity to customers Lower distribution costsLower distribution costs Available\unique natural resourcesAvailable\unique natural resources 7–5

6 THE IMPACT OF GOVERNMENT POLICIES AND ECONOMIC CONDITIONS IN HOST COUNTRIES PositivesPositives Tax incentives Tax incentives Low tax rates Low tax rates Low-cost loans Low-cost loans Site location and development Site location and development Worker training Worker training NegativesNegatives Environmental regulations Environmental regulations Subsidies and loans to domestic competitors Subsidies and loans to domestic competitors Import restrictions Import restrictions Tariffs and quotas Tariffs and quotas Local-content requirements Local-content requirements Regulatory approvals Regulatory approvals Profit repatriation limits Profit repatriation limits Minority ownership limits Minority ownership limits 7–6

7 THE RISKS OF ADVERSE EXCHANGE RATE SHIFTS Effects of 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 countrys currency. Exporters experience a rising demand for their goods whenever their currency grows weaker relative to the importing countrys currency. Exporters experience a falling demand for their goods whenever their currency grows stronger relative to the importing countrys currency. Exporters experience a falling demand for their goods whenever their currency grows stronger relative to the importing countrys currency. 7–7

8 CROSS-COUNTRY DIFFERENCES IN DEMOGRAPHIC, CULTURAL, AND MARKET CONDITIONS To pursue a strategy of offering a mostly standardized product worldwide. To customize offerings in each country market to match the tastes and preferences of local buyers Key Strategic Considerations 7–8

9 STRATEGIC OPTIONS FOR ENTERING AND COMPETING IN INTERNATIONAL MARKETS 1.Maintain a national (one-country) production base and export goods to foreign markets. 2.License foreign firms to produce and distribute the firms products abroad. 3.Employ an overseas franchising strategy. 4.Establish a wholly-owned subsidiary by either acquiring a foreign company or through a greenfield venture. 5.Rely on strategic alliances or joint ventures with foreign companies. 7–9

10 EXPORT STRATEGIES AdvantagesAdvantages Low capital requirements Low capital requirements Economies of scale in utilizing existing production capacity Economies of scale in utilizing existing production capacity No distribution risk No distribution risk No direct investment risk No direct investment risk DisadvantagesDisadvantages Maintaining relative cost advantage of home- based production Maintaining relative cost advantage of home- based production Transportation and shipping costs Transportation and shipping costs Exchange rates risks Exchange rates risks Tariffs\import duties Tariffs\import duties Loss of channel control Loss of channel control 7–10

11 LICENSING AND FRANCHISING STRATEGIES AdvantagesAdvantages Low resource requirements Low resource requirements Income from royalties and franchising fees Income from royalties and franchising fees Rapid expansion into many markets Rapid expansion into many markets DisadvantagesDisadvantages Maintaining control of proprietary know-how Maintaining control of proprietary know-how Loss of operational and quality control Loss of operational and quality control Adapting to local market tastes and expectations Adapting to local market tastes and expectations 7–11

12 FOREIGN SUBSIDIARY STRATEGIES AdvantagesAdvantages High level of control High level of control Quick large-scale market entry Quick large-scale market entry Avoids entry barriers Avoids entry barriers Access to acquired firms skills Access to acquired firms skills DisadvantagesDisadvantages Costs of acquisition Costs of acquisition Complexity of acquisition process Complexity of acquisition process Integration of the firms structures, cultures, operations and personnel Integration of the firms structures, cultures, operations and personnel 7–12

13 CORE CONCEPT A greenfield venture is a subsidiary business that is established by setting up the entire operation from the ground up.A greenfield venture is a subsidiary business that is established by setting up the entire operation from the ground up. 7–13

14 BENEFITS OF ALLIANCE AND JOINT VENTURE STRATEGIES Gaining partners knowledge of local market conditions Gaining partners knowledge of local market conditions Achieving economies of scale through joint operations Achieving economies of scale through joint operations Gaining technical expertise and local market knowledge Gaining technical expertise and local market knowledge Sharing distribution facilities and dealer networks, and mutually strengthening each partners access to buyers. Sharing distribution facilities and dealer networks, and mutually strengthening each partners access to buyers. Directing competitive energies more toward mutual rivals and less toward one another Directing competitive energies more toward mutual rivals and less toward one another Establishing working relationships with key officials in the host-country government Establishing working relationships with key officials in the host-country government 7–14

15 THE RISKS OF STRATEGIC ALLIANCES WITH FOREIGN PARTNERS Outdated knowledge and expertise of local partners Outdated knowledge and expertise of local partners Cultural and language barriers Cultural and language barriers Costs of establishing the working arrangement Costs of establishing the working arrangement Conflicting objectives and strategies and/or deep differences of opinion about joint control Conflicting objectives and strategies and/or deep differences of opinion about joint control Differences in corporate values and ethical standards. Differences in corporate values and ethical standards. Loss of legal protection of proprietary technology or competitive advantage Loss of legal protection of proprietary technology or competitive advantage Over dependence on foreign partners for essential expertise and competitive capabilities. Over dependence on foreign partners for essential expertise and competitive capabilities. 7–15

16 COMPETING INTERNATIONALLY: THREE STRATEGIC APPROACHES Multidomestic Strategy Global Strategy Transnational Strategy Competing Internationally 7–16

17 CORE CONCEPTS An international strategy is a strategy for competing in two or more countries simultaneously.An international strategy is a strategy for competing in two or more countries simultaneously. A multidomestic strategy is one in which a firm varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level.A multidomestic strategy is one in which a firm varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level. 7–17

18 CORE CONCEPTS A global strategy is one in which a company employs the same basic competitive approach in all countries where it operates, sells much the same products everywhere, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represents a think-global, act-global approach.A global strategy is one in which a company employs the same basic competitive approach in all countries where it operates, sells much the same products everywhere, strives to build global brands, and coordinates its actions worldwide with strong headquarters control. It represents a think-global, act-global approach. A transnational strategy is a think-global, act-local approach that incorporates elements of both multidomestic and global strategies.A transnational strategy is a think-global, act-local approach that incorporates elements of both multidomestic and global strategies. 7–18

19 Three Approaches for Competing Internationally FIGURE 7.2 7–19

20 THE QUEST FOR COMPETITIVE ADVANTAGE IN THE INTERNATIONAL ARENA Use international location to lower cost or differentiate product Share resources and capabilities Gain cross-border coordination benefits Build Competitive Advantage in International Markets 7–20

21 SHARING AND TRANSFERRING RESOURCES AND CAPABILITIES TO BUILD COMPETITIVE ADVANTAGE Build a Resource-Based Competitive Advantage By: Build a Resource-Based Competitive Advantage By: Using powerful brand names to extend a differentiation-based competitive advantage beyond the home market. Using powerful brand names to extend a differentiation-based competitive advantage beyond the home market. Coordinating activities for sharing and transferring resources and production capabilities across different countries domains to develop market dominating depth in key competencies. Coordinating activities for sharing and transferring resources and production capabilities across different countries domains to develop market dominating depth in key competencies. 7–21

22 CORE CONCEPTS Profit sanctuaries are country markets that provide a firm with substantial profits because of a strong or protected market position.Profit sanctuaries are country markets that provide a firm with substantial profits because of a strong or protected market position. Cross-market subsidizationsupporting competitive offensives in one market with resources and profits diverted from operations in another marketcan be a powerful competitive weapon.Cross-market subsidizationsupporting competitive offensives in one market with resources and profits diverted from operations in another marketcan be a powerful competitive weapon. 7–22


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