Chapter 7: Strategies for Competing in Foreign Markets Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

The Four Big Strategic Issues in Competing Multinationally Whether to customize a company’s offerings in each different country market to match preferences of local buyers or offer a mostly standardized product worldwide Whether to employ essentially the same basic competitive strategy in all countries or modify the strategy country by country Where to locate a company’s production facilities, distribution centers, and customer service operations to realize the greatest locational advantages How to efficiently transfer a company’s resource strengths and capabilities from one country to another to secure competitive advantage

Why Do Companies Expand into Foreign Markets? Gain access to new customers Capitalize on core competencies Achieve lower costs and enhance competitiveness Spread business risk across wider market base Obtain access to valuable natural resources

International vs. Global Competition International Competitor Global Competitor Company operates in a select few foreign countries, with modest ambitions to expand further Company markets products in 50 to 100 countries and is expanding operations into additional country markets annually

Factors Shaping Strategy Choices in Foreign Markets Cross-country differences in cultural, demographic, and market conditions Gaining competitive advantage based on where activities are located Risks of adverse shifts in currency exchange rates Impact of host government policies on the local business climate

Consumer tastes and preferences Consumer buying habits Market size and growth potential Distribution channels Driving forces Competitive pressures How Markets Differ from Country to Country 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.

Differences in Host Government Trade Policies Local content requirements Restrictions on exports Regulations on prices of imports Import tariffs or quotas Other regulations  Technical standards  Product certification  Prior approval of capital spending projects  Withdrawal of funds from country  Ownership (minority or majority) by local citizens

Multi-country Competition Global Competition Two Primary Patterns of International Competition

Strategy Options for Competing in Foreign Markets Exporting Licensing Franchising strategy Strategic alliances or joint ventures Multi-country strategy Global strategy

Involve using domestic plants as a production base for exporting to foreign markets Excellent initial strategy to pursue international sales Advantages  Conservative way to test international waters  Minimizes both risk and capital requirements  Minimizes direct investments in foreign countries An export strategy is vulnerable when  Manufacturing costs in home country are higher than in foreign countries where rivals have plants  High shipping costs are involved  Adverse fluctuations in currency exchange rates occur Export Strategies

Licensing Strategies Licensing makes sense when a firm  Has valuable technical know-how or a patented product but does not have international capabilities to enter foreign markets  Desires to avoid risks of committing resources to markets which are  Unfamiliar  Politically volatile  Economically unstable Disadvantage  Risk of providing valuable technical know-how to foreign firms and losing some control over its use

Franchising Strategies Often is better suited to global expansion efforts of service and retailing enterprises Advantages  Franchisee bears most of 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

Achieving Global Competitiveness via Cooperative Agreements Cooperative agreements with foreign companies are a means to  Enter a foreign market or  Strengthen a firm’s competitiveness in world markets Purpose of alliances / joint ventures  Joint research efforts  Technology-sharing  Joint use of production or distribution facilities  Marketing / promoting one another’s products

Strategic Appeal of Strategic Alliances Gain better access to attractive country markets Capture economies of scale in production and/or marketing Fill gaps in technical expertise or knowledge of local markets Share distribution facilities and dealer networks Direct combined competitive energies toward defeating mutual rivals Take advantage of partner’s local market knowledge and working relationships with key government officials in host country Useful way to gain agreement on important technical standards

Pitfalls of Strategic Alliances Overcoming language and cultural barriers Dealing with diverse or conflicting operating practices Time consuming for managers in terms of communication, trust-building, and coordination costs Mistrust when collaborating in competitively sensitive areas Clash of egos and company cultures Dealing with conflicting objectives, strategies, corporate values, and ethical standards Becoming too dependent on another firm for essential expertise over the long-term

A company varies its product offerings and basic competitive strategy from country to country in an effort to be responsive to differing buyer preferences and market conditions. What Is a “Think-Local, Act-Local” Approach to Strategy Making?

A company employs the same basic competitive approach in all countries where it operates. What Is a “Think-Global, Act-Global” Approach to Strategy Making?

A company uses the same basic competitive theme in each country but gives local managers the latitude to 1.Incorporate whatever country-specific variations in product attributes are needed to best satisfy local buyers and 2.Make whatever adjustments in production, distribution, and marketing are needed to compete under local market conditions. What Is a “Think-Global, Act-Local” Approach to Strategy Making?

The Quest for Competitive Advantage in Foreign Markets Three ways to gain competitive advantage 1. Locating activities among nations in ways that lower costs or achieve greater product differentiation 2. Efficient/effective transfer of competitively valuable competencies and capabilities from company operations in one country to company operations in another country 3. Coordinating dispersed activities in ways a domestic-only competitor cannot

Tailoring products for big, emerging markets often involves  Making more than minor product changes and  Becoming more familiar with local cultures Companies have to attract buyers with bargain prices as well as better products Specially designed and/or specially packaged products may be needed to accommodate local market circumstances Management team must usually consist of a mix of expatriate and local managers Characteristics of Competing in Emerging Foreign Markets

Strategic Options: How to Compete in Emerging Country Markets Prepare to compete on the basis of low price Be prepared to modify aspects of the company’s business model to accommodate local circumstances Try to change the local market to better match the way the company does business elsewhere Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances

Chapter 9: Ethical Business Strategies, Social Responsibility, and Environmental Sustainability Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

Linking Strategy to Ethics and Social Responsibility Should there be a link between a company’s efforts to craft and execute a winning strategy and its duties to  Conduct activities in an ethical manner?  Demonstrate socially responsible behavior by  Being a committed corporate citizen?  Attending to needs of non-owner stakeholders?  Limit its strategic initiatives to those meeting needs of consumers without depleting resources needed by future generations Key Issues

What Is Business Ethics? Business ethics involves applying general ethical principles and standards to business behavior Ethical principles in business are not different from ethical principles in general Business actions are judged  By general ethical standards of society  Not by a set of rules businesspeople apply to their own conduct

How Do Ethical Standards Impact the Tasks of Crafting and Executing Strategy? Two sets of questions must be considered by senior executives when reviewing a new strategic initiative  Is what we are proposing to do fully compliant with our code of ethical conduct? Is there anything here that could be considered ethically objectionable?  Is it apparent that this proposed action is in harmony with our core values? Are any conflicts or concerns evident? The litmus test of a company’s code of ethics is the extent to which it is embraced in crafting strategy and in operating the business day to day!

Are Ethical Standards Universal or Dependent on Local Norms? Three schools of thought regarding extent to which ethical standards can be applied... Ethical Universalism Ethical Relativism Integrative Social Contracts Theory

Concept of Ethical Universalism According to the school of ethical universalism...  Same standards of what is ethical and what is unethical resonate with peoples of most societies regardless of  Local traditions and  Cultural norms  Thus, common ethical standards can be used to judge conduct of personnel at companies operating in a variety of  Country markets and  Cultural circumstances

Examples of Universal Ethical Principles or Norms Honesty Trustworthiness Respecting rights of others Practicing the Golden Rule  Treating people with dignity and respect Exercising due diligence in product safety Acting in a manner that does not  Harm others or  Pillages the environment

Concept of Ethical Relativism According to the school of ethical relativism...  Different societies/cultures/countries  Put more/less emphasis on some values than others  Have different standards of right and wrong  Have different social mores and behavioral norms  What is ethical or unethical  Must be judged in light of local customs and social mores and  Can vary from one country to another

A thorny ethical problem is faced by multinational companies  Degree of cross-country variability in paying bribes as part of business transactions Companies forbidding payment of bribes in their codes of ethics face a formidable challenge in countries where payments are entrenched as a local custom Foreign Corrupt Practices Act prohibits U.S. companies from paying bribes in all countries where they do business Payment of Bribes and Kickbacks

Ethical Relativism = Multiple Sets of Ethical Standards Proponents of the ethical relativism school maintain there are  Few ethical absolutes to judge a company’s conduct in various countries  Plenty of situations where ethical norms are contoured to fit  Local customs and traditions  Local beliefs about what is fair  Local standards of “right” and “wrong” Ethical problems in business cannot be fully resolved without appealing to the shared convictions of the parties in question

Concept of Integrative Social Contracts Theory According to the integrative social contracts theory, the ethical standards a company should try to uphold are governed by both  A limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and  The circumstances of local cultures, traditions, and shared values that further prescribe what constitutes  Ethically permissible behavior and  What does not

Three Categories of Management Morality Moral manager Amoral manager Immoral manager Managerial ethical and moral principles

Dedicated to high standards of ethical behavior in  Own actions  How the company’s business is to be conducted Considers it important to  Be a steward of ethical behavior  Demonstrate ethical leadership Pursues business success  Within confines of both letter and spirit of laws  With a habit of operating well above what laws require Characteristics of a Moral Manager

Characteristics of an Immoral Manager Actively opposes ethical behavior in business Willfully ignores ethical principles in making decisions Views legal standards as barriers to overcome Pursues own self-interests Is an example of self-serving greed Ignores interests of others Focuses only on bottom line – making one’s numbers Will trample on others to avoid being trampled upon

Believes business and ethics should not be mixed since different rules apply to  Business activities  Other realms of life Does not factor ethical considerations into own actions since business activity lies outside sphere of moral judgment Views ethics as inappropriate for tough, competitive business world Concept of right and wrong is lawyer-driven (what can we get by with without running afoul of the law) Characteristics of an Intentionally Amoral Manager

Is blind to or casual about ethics of decision-making and business actions Displays lack of concern regarding whether ethics applies to company actions Sees self as well-intentioned or personally ethical Typical beliefs  Do what is necessary to comply with laws and regulations  Government provides legal framework stating what society will put up with—if it is not illegal, it is allowed Characteristics of an Unintentionally Amoral Manager

Evidence of Managerial Immorality in the Global Business Community Evidence exists a sizable majority of managers are either  Amoral or  Immoral Results of recent issues of the Global Corruption Report indicate corruption is widespread across the world Corruption extends beyond bribes and kickbacks

What Are the Drivers of Unethical Strategies and Business Behavior? Large numbers of immoral and amoral business people Overzealous pursuit of personal gain, wealth, and other selfish interests Heavy pressures on company managers to meet or beat earnings targets Company cultures that place profits and good performance ahead of ethical behavior

Managers often feel enormous pressure to do whatever it takes to deliver good financial performance Actions often taken by managers  Cut costs wherever savings show up immediately  Squeeze extra sales out of early deliveries  Engage in short-term maneuvers to make the numbers  Stretch rules to extreme, until limits of ethical conduct are overlooked Executives feel pressure to hit performance targets since their compensation depends heavily on company performance Fundamental problem with a “make the numbers” syndrome  Company does not create additional value for customers or improve its competitiveness Heavy Pressures on Company Managers to Meet or Beat Earnings Targets

Company Cultures that Put Bottom Line Ahead of Ethical Behavior In an ethically corrupt or amoral work climate, people have a company-approved license to  Ignore “what’s right”  Engage in most any behavior or employ most any strategy they think they can get away with Pressures to conform to cultural norms can prompt otherwise honorable people to  Make ethical mistakes  Succumb to the many opportunities to engage in unethical practices

Why Ethical Strategies Matter An unethical strategy  Is morally wrong  Reflects badly on the character of company personnel An ethical strategy is  Good business  In the best interest of shareholders

Characteristics of Managers Committed to Ethical Approaches to Strategy-Making Possess strong moral and ethical characteristics Strongly advocate a corporate code of ethics and strict ethics compliance Display genuine commitment to certain corporate values and business practices Walk the talk in  Displaying a company’s stated values  Living up to ethical business principles and standards Adopt values statements/ethics codes that truly paint the white lines for a company’s business practices Consciously opt for strategic actions passing moral scrutiny

Figure 9.1: The Business Costs of Ethical Failures

Unconcerned or Nonissue Approach Damage Control Approach Compliance Approach Ethical Culture Approach Approaches to Managing a Company’s Ethical Conduct

What Is Corporate Social Responsibility? The notion that corporate executives should balance interests of all stakeholders began to blossom in the 1960s Social responsibility as it applies to businesses concerns a company’s duty to  Operate in an honorable manner  Provide good working conditions for employees  Be a good steward of the environment  Actively work to better quality of life in  Local communities where it operates and  Society at large

Figure 9.2: Demonstrating a Social Conscience: The Five Components of Socially Responsible Business Behavior

What Is a Social Responsibility Strategy? A company’s specific combination of socially beneficial and community citizenship activities it opts to support via contributions of  Time,  Money,  Other resources.

What Is an Environmental Sustainability Strategy? A company’s concerted actions to meet current needs of all stakeholders to  Protect the environment,  Provide for the longevity of natural resources,  Maintain ecological support systems for future generations, and  Guard against ultimate endangerment of the planet.

Crafting Social Responsibility and Sustainability Strategies The socially responsible/sustainability strategies a company pursues impacts its ability to achieve a competitive advantage Management should match a company’s social responsibility/sustainabilty strategy to its  Core values  Business mission  Overall strategy Some companies are integrating social responsibility and/or environmentally sustainability objectives into their  Missions  Performance targets  Strategies