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REASONS COMPANIES COMPETE IN

Strategies for INTERNATIONAL MARKETS

Competing in Global To gain access to new customers

To achieve lower costs through economies of scale, experience, and

Markets increased purchasing power.

To further exploit core competencies

To gain access to resources and capabilities located in foreign markets.

To spread business risk across a wider market base

WHY COMPETING INTERNATIONALLY MAKES

COMPETING INTERNATIONALLY vs.
STRATEGY-MAKING MORE COMPLEX
COMPETING GLOBALLY
Creating a strategy in different countries is more complex for 5 reasons
Typically a company will start to compete internationally by entering just one or
a few foreign markets. 1. Different countries have different competitive strengths

When the company has established operations in several continents and foreign 2. Location-based value chain advantages for certain countries
markets and begins competing with rivals for global market leadership is 3. Variances in government policies, economic conditions, and tax rates
when the company globally.
4. Exchange rate shift risks

5. Differences in demographics, cultures, and market conditions

DIFFERENT COUNTRIES ARE KNOWN FOR The Diamond

CERTAIN STRENGTHS of National
Advantage
Developing competitive advantages depends on 4 main factors: Diagram
1.Demand Conditions

2.Factor Conditions

3.Related and Supporting Industries

4.Firm Strategy, Structure, and Rivalry

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LOCATION-BASED VALUE CHAIN VARIANCES IN GOVERNMENT POLICIES,

ADVANTAGES FOR CERTAIN COUNTRIES ECONOMIC CONDITIONS, AND TAX RATES
Value chain activities in different countries provide varying advantages Government policies and economic conditions can affect foreign businesses
negatively or positively
The following differences can greatly impact manufacturing costs: Political risks: instability or weakness in governments
Wage rates Economics risks: instability of a country’s:
Energy Costs Monetary system

Government regulations Regulatory policies

Property rights protections

Economic Policies

VARIANCES IN EXCHANGE RATE SHIFT RISKS

GOVERNMENT
POLICIES, Effects of Exchange Rate Shifts:
ECONOMIC
CONDITIONS, Fluctuating exchange rates can create economic risks to companies in foreign
AND TAX markets
RATES
For exporters:
Demand rises when their currency grows weaker relative to the importing country’s currency

Demand falls when their currency grows stronger relative to the importing country’s currency

DIFFERENCES IN DEMOGRAPHICS, CULTURES, THE 5

AND MARKET CONDITIONS STRATEGIC
OPTIONS
• Buyer demand for particular products and services can differ substantially from FOR
ENTERING
country to country
FOREIGN
MARKETS
• Differences in population size, income levels, and other demographic factors
create differences in market size and growth rates from country to country

• Companies should customize their products/services to match the preferences

and tastes of local buyers

2

Export Strategies
Strengths
 Limited involvement in foreign
markets
 Efficiency in utilizing existing
productions
 Low capital needed
 No investment risks
Foreign Subsidiary Strategies
Strengths
 High level of control
 Avoids entry barriers
Local distribution channels
Government relationships
Supplier connections
 Fast large-scale market entry
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Licensing/Franchising Strategies
Weaknesses Strengths Weaknesses
 High shipping costs  Avoid risk of foreign markets that  Loss of operational and quality
are economically unstable control
 Tariffs or other trade barriers
 Low resource requirements  Risk of losing valuable
 Fluctuating exchange rates
knowledge to foreign companies
 Quick expansion into many
foreign markets  Adjust to different market
expectations & tastes
 Income from royalties and
franchising fees
Alliance & Joint Venture Strategies
Weaknesses Strengths Weaknesses
 High acquisition costs  Firms can benefit greatly from a  Costs of establishing the working
foreign partner’s familiarity with: arrangement
 Complexity of acquisition
Local market conditions
process  Differences in corporate values
Local government regulations
and ethical standards.
 Integration of the firm's’ Buying habits & preferences of local
consumers
structures, cultures, operations  Cultural and language barriers
and personnel  Achieving economies of scale
through joint operations
THE 3 MAIN
STRATEGIC
Multidomestic Strategy
APPROACHES FOR
COMPETING It calls for varying a firm’s product offering
INTERNATIONALLY and competitive approach from country to country
in an effort to be responsive to significant country
differences in customer preferences, buyer
purchasing habits, distribution channels, or
marketing methods.
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Global Strategy Transnational Strategy

It employ the same basic competitive
approach in all countries where a firm operated and
are best suited to industries that are globally
standardized in terms of customer preferences,
buyer purchasing habits, distribution channels or
marketing methods.
It employ essentially the same strategic
theme in all country markets, while allowing some
country-to-country customization to fit local market
conditions.

The Quest for Competitive Advantage in the

International Arena Location to Build Competitive Advantage

To build an advantage there are two issues to consider:

I. Customize product offerings to match each individual local market

Vs.

II. Offer a mostly standardized product worldwide

Few Locations vs. Many Locations Few Locations vs. Many Locations

Many Locations:
Few Locations:
• Buyer-related activities can be conducted from a distance
● The cost is lower in one place compared to a different location
• Transportation costs are high
● More beneficial to have a few efficient plants compared to small plants across
the country • Central location is too costly due to trade barriers
● Certain locations have more valuable advantages • Dispersion helps: prevent supply interruptions, avoid political developments,
and reduces exchange rates

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Sharing and Transferring Resources and UNIQUE CHARACTERISTICS OF COMPETING

Capabilities to Build Competitive Advantage IN FOREIGN MARKETS
 Whether to customize the company's offerings in each different country
Build a Resource-Based Competitive Advantage: market to match the tastes and preference

Using powerful brand names to extend a differentiation-based competitive
advantage beyond the home market
Coordinating activities for snaring and transferring resources and production
capabilities across different countries’ domains to develop market dominating
depth in key competencies
 Whether to employ the same basic competitive strategy in all countries or
modify the strategy
 Where to locate the company's production facilities, distribution centers, and
customer service operations
 How to efficiently transfer the company's resource strengths and capabilities
from one country to another.