Presentation on theme: "STRATEGIES FOR COMPETING IN GLOBALIZING MARKETS"— Presentation transcript:
1 STRATEGIES FOR COMPETING IN GLOBALIZING MARKETS CHAPTER 6STRATEGIES FOR COMPETING IN GLOBALIZING MARKETSScreen graphics created by:Jana F. Kuzmicki, PhD, Mississippi University for Women
2 “. . . there’s no purely domestic industry anymore.” “You do not choose to become global. The market chooses for you; it forces your hand.”Alain Gomez“. . . there’s no purely domestic industry anymore.”“Quote”Robert Pelosky and Morgan StanleyMcGraw-Hill/IrwinCopyright2001 by The McGraw-Hill Companies, Inc. All rights reserved.
3 Chapter Outline Why Companies Expand into Foreign Markets Cross-Country DifferencesThe Competitive Environment: Multi-country or Global Competition?Strategy Options for Entering and Competing in Foreign MarketsPursuing Competitive Advantage by Competing MultinationallyProfit Sanctuaries, Cross-Market Subsidization, and Global OffensivesStrategic Alliances and Joint Ventures with Foreign PartnersCompeting in Emerging Foreign MarketsStrategies for Local Companies in Emerging Markets
4 Why is the World Economy Globalizing? Previously closed national economies are opening up their markets to foreign companiesImportance of geographic distance is shrinking due to the InternetGrowth-minded companies are racing to stake out positions in the markets of more and more countries
5 What is the Motivation for Competing Internationally? Gain access tonew customersCapitalizeon resource strengths andcompetenciesHelpachievelower costsSpreadbusiness risk across wider market baseObtain access to valuable naturalresources
6 International vs. Global Competition or MultinationalCompetitorCompany operates in a select few foreign countries, with modest ambitions to expand furtherGlobalCompetitorCompany markets products in 50 to 100 countries and is expanding operations into additional country markets annually
7 Cross-Country Differences in Cultural, Demographic, and Market Conditions Cultures and lifestyles differ among countriesDifferences in market demographicsVariations in manufacturing and distribution costsFluctuating exchange ratesDifferences in host government trade policies=
8 How Markets Differ from Country to Country Consumer tastes and preferencesConsumer buying habitsMarket size and growth potentialDistribution channelsDriving forcesCompetitive pressures One of the biggest concerns of companies competing in foreign markets is whether to customize their product offerings in each different country market to match the tastes and preferences of local buyers or whether to offer a mostly standardized product worldwide.
9 Manufacturing costs vary based on Potential Locational Advantages Stemming from Cost Variations Among CountriesManufacturing costs vary based onWage ratesWorker productivityNatural resource availabilityInflation ratesEnergy costsTax ratesQuality of a country’s business environmentClustering of suppliers, trade associations, and makers of complementary products
10 Differences in Host Government Trade Policies Local content requirementsImport tariffs or quotasRestrictions on exportsRegulations regarding prices of importsOther regulationsTechnical standardsProduct certificationPrior approval of capital spending projectsWithdrawal of funds from countryMinority ownership by local citizens
11 Two Primary Patterns of International Competition Multi-country CompetitionGlobal Competition
12 Characteristics of Multi-Country Competition Each country market is self-containedCompetition in one country market is independent of competition in other country marketsRivals competing in one country market differ from set of rivals competing in another country marketRivals vie for national market leadershipNo “international” market, just a collection of country markets
13 Characteristics of Global Competition Competitive conditions across country markets are strongly linked togetherMany of same rivals compete in many of the same country marketsRivals vie for worldwide leadershipA true international market existsA firm’s competitive position in one country is affected by its position in other countriesCompetitive advantage (or disadvantage) is based on a firm’s world-wide operations and overall global standing
14 Strategy Options for International Markets ExportingLicensingFranchising strategyMulti-country strategyGlobal strategy based onLow costDifferentiationBest-costFocusingStrategic alliances or joint ventures
15 Characteristics of Export Strategies Involves using domestic plants as a production base for exporting to foreign marketsExcellent initial strategy to pursue international salesAdvantagesMinimizes both risk and capital requirementsConservative way to test international watersMinimizes direct investments in foreign countriesAn export strategy is vulnerable whenManufacturing costs in home country are higher than in foreign countries where rivals have plantsHigh shipping costs are involved
16 Characteristics of Licensing Strategies Licensing makes sense when a firmHas valuable technical know-how or a patented product but does not have international capabilities or resources to enter foreign marketsDesires to avoid risks of committing resources to markets whichAre unfamiliarPresent economic uncertaintyAre politically volatileDisadvantageRisk of providing valuable technical know-how to foreign firms and losing some control over its use
17 Characteristics of Franchising Strategies Often is better suited to global expansion efforts of service and retailing enterprisesAdvantagesFranchisee bears most of costs and risks of establishing foreign locationsFranchisor has to expend only the resources to recruit, train, and support franchiseesDisadvantageMaintaining cross-country quality control
18 Multi-Country Strategy Strategy is matched to local market needsDifferent country strategies are called for whenSignificant country-to-country differences in customers’ needs existBuyers in one country want a product different from buyers in another countryHost government regulations preclude uniform global approachTwo drawbacks1. Poses problems of transferring competencies across borders2. Works against building a unified competitive advantage
19 Global StrategyStrategy for competing is similar in all country marketsInvolvesCoordinating strategic moves globallySelling in many, if not all, nations where a significant market existsWorks best when products and buyer requirements are similar from country to country
20 Competitive Strategy Principle A multi-country strategy isappropriate for industrieswhere multi-countrycompetition dominates!A global strategy works best inmarkets that are globallycompetitive or beginning to globalize!
21 Table 6.1: Differences Between Multi-country and Global Strategies McGraw-Hill/IrwinCopyright2001 by The McGraw-Hill Companies, Inc. All rights reserved.
22 Pursuing Competitive Advantage by Competing Multinationally Three ways to gain competitive advantage1. Locating activities among nations to lower costs or achieve greater product differentiation2. Efficient/effective transfer of competitively valuable competencies and capabilities from domestic to foreign markets3. Coordinating dispersed activities in ways a domestic-only competitor cannot
23 Locating Activities to Build a Global Competitive Advantage Two issuesWhether toConcentrate each activity in a few countries orDisperse activities to many different nationsWhere to locate activities -Which country is best location for which activity?
24 Concentrating Activities to Build a Global Competitive Advantage Activities should be concentrated whenCosts of manufacturing or other value chain activities are meaningful lower in certain locations than in othersThere are sizable scale economies in performing the activityThere is a steep learning curve associated with performing an activity in a single locationCertain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages
25 Dispersing Activities to Build a Global Competitive Advantage Activities should be dispersed whenThey need to be performed close to buyersTransportation costs, scale diseconomies, or trade barriers make centralization expensiveBuffers for fluctuating exchange rates, supply interruptions, and adverse politics are needed
26 Transferring Valuable Competencies to Build a Global Competitive Advantage Transferring competencies, capabilities, and resource strengths across borders contributes toDevelopment of broader competencies and capabilitiesAchievement of dominating depth in some competitively valuable areaDominating depth in a competitively valuable capability is a strong basis for sustainable competitive advantage overOther multinational or global competitors andSmall domestic competitors in host countries
27 Coordinating Cross-Border Activities to Build a Global Competitive Advantage Aligning activities located in different countries contributes to competitive advantage in several waysChoose where and how to challenge rivalsShift production from one location to another to take advantage of most favorable cost or trade conditions or exchange ratesEnhance brand reputation by incorporating same differentiating attributes in its products in all markets where it competes
28 What Are Profit Sanctuaries? Profit sanctuaries are country markets where a firmHas a strong or protected market position andDerives substantial profitsGenerally, a firm’s most strategically crucial profit sanctuary is its home marketProfit sanctuaries are a valuable competitive asset in global industries!
29 What is Cross-Market Subsidization? Involves supporting competitive offensives in one market with resources/profits diverted from operations in other marketsCompetitive power of cross-market subsidization results from a multinational firm’s ability toDraw upon its organizational resources and profits in other country markets to help mount an attack on single-market or one-country rivals and try to lure away their customers with lower prices, discount promotions, heavy advertising, or other offensive tactics
30 Achieving Global Competitiveness via Cooperation Cooperative agreements / strategic alliances with foreign companies are a means toEnter a foreign market orStrengthen a firm’s competitiveness in world marketsPurpose of alliancesJoint research effortsTechnology-sharingJoint use of production or distribution facilitiesMarketing / promoting one another’s products
31 Benefits of Strategic Alliances Gain scale economies in production and/or marketingFill gaps in technical expertise or knowledge of local marketsShare distribution facilities and dealer networksDirect combined competitive energies toward defeating mutual rivalsUseful way to gain agreement on important technical standards
32 Pitfalls of Strategic Alliances Becoming too dependent on another firm for essential expertise over the long-termDifferent motives and conflicting objectivesTime consuming; slows decision-makingLanguage and cultural barriersMistrust when collaborating in competitively sensitive areasClash of egos and company cultures
33 Guidelines in Forming Strategic Alliances Pick a good partner, one that shares a common visionBe sensitive to cultural differencesRecognize the alliance must benefit both sidesBoth parties have to deliver on their commitments in the agreementStructure decision-making process so actions can be taken swiftly when neededParties must do a good job of managing the learning process, adjusting the alliance agreement over time to fit new circumstances
34 Characteristics of Competing in Emerging Foreign Markets Tailoring products for the big, emerging markets often involvesMaking more than minor product changes andBecoming more familiar with the local culturesCompanies have to attract buyers with bargain prices as well as better productsSpecially designed and/or specially packaged products may be needed to accommodate local market circumstancesManagement team must usually consist of a mix of expatriate and local managers
35 Strategies for Local Companies in Emerging Markets Optimal strategic approach hinges onWhether a firm’s competitive assets are suitable only for the home market or can be transferred abroadWhether industry pressures to move toward global competition are strong or weak
36 Figure 6.1: Strategy Options for Local Companies in Competing Against Global Challengers Dodge Rivals by Shifting to a New Business Model or Market NicheInitiate Actions to Contend on aGlobal LevelDefend byUsing“Home-field”AdvantagesTransferCompanyExpertise toCross-BorderMarketsHighIndustry Pressures to GlobalizeLowTailored for Home MarketTransferable to Other CountriesSource: Adapted from Niroj Dawar & Tony Frost, “Competing with Giants: Survival Strategies for Local Companies in Emerging Markets,” Harvard Business Review, 77 No. 1 (Jan.-Feb. 1999), p. 122Resources and Competitive Capabilities