Strategic Management

Competing in a Global Marketplace |1

Module 8 Competing in a
Global Marketplace

Course Learning Outcomes:

1. To fully understand the competitive challenges in a Global Marketplace

2. To learn more strategies about Entering a Global Market.
3. To have a bold interest in setting up a business.

Global Market

In most instances, the global marketplace is centered around national or

regional competitive spheres.
Arthur Thompson, A.J. Strickland, and John Gamble are successful
business executives who have co-written over a dozen educational books
on business strategies together. According to them, “Global competition
exists when competitive conditions across national markets are linked
strongly enough to form a true world market and when leading
competitors compete head-to-head in many different countries.”

Entering a New Market

When companies decide to compete internationally, they should not

automatically use the same strategies that they used in local markets.
Thompson, Strickland, and Gamble suggest that companies should
consider:

 Whether to customize products or services by market or produce the

same thing everywhere.
 Whether to use the same strategy everywhere or modify it by market.

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 Locating production, distribution, service centers, and offices to make the

most of the location advantages.
 Best practices for positioning their company in new markets.

A company’s approach to strategy is key to gaining a competitive edge. A

survey report from Oxford Economics, Manufacturing
Transformation, shows that many executives are rethinking their current
strategies in order to go beyond operational excellence to gain a
competitive edge. As companies explore new markets, knowing how to
adopt a strategy to fit new markets is key.

Understanding a Local Labor Laws

Compliance with local labor laws is one of the most important aspects of
a company’s global expansion. Every country has slightly different
standards for how employers should treat employees. For instance,
countries such as Japan, France, and Brazil make it difficult for companies
to dismiss a worker. Companies that fail to comply with local labor laws in
countries where they have operations may face fines, work stoppages, or
lawsuits.

One of the best ways to ensure compliance in global markets is to work

with an International PEO (Professional Employer Organization) to help
navigate labor laws in new markets. This Employer of Record solution
helps your organization avoid needless costs and delays, so you can focus
on international success.

Speed to Market
If a company is unable to enter a market quickly, it may not see the
success it expects, no matter how innovative its product and service
offerings are. A slow speed to market can result in a company’s product
or service being considered outdated, especially if their competition was
able to enter the market faster.

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Here are some ways to improve speed to market:

 Foster collaboration and communication within the team

 Focus on improving efficiency in the organization
 Develop an effective, detailed strategy for market entry
 Keep the team on track to eliminate wasted time

Best Practices for Success in the Global Marketplace

1. Scour Emerging Markets

International companies based in mature economies can use their
relationships in emerging markets to speed along innovation. Whether a
company chooses to bring new products from emerging economies into
mature ones or is taking current offerings into a developing country,
emerging markets are ripe with opportunities. Taking advantage of these
growing economies can give a company the competitive edge they are
looking for in global markets.

2. Form Strategic Partnerships

Thompson, Strickland, and Gamble write that strategic partnerships can
help by “filling gaps in technical expertise and/or knowledge of local
markets.” As we mentioned above, partnering with an International PEO
gives companies access to in-country experts. An International PEO not
only provides insight into local labor laws but also helps company on-
board top talent in their desired country, even in countries that might
face labor shortages.

3. Innovate Everywhere
Innovation should be a part of every aspect of a business. Companies
need to innovate at every level, especially when planning for a global
expansion. The key to innovation is to develop a strategy that harnesses
market trends, as opposed to reacting to them. Companies that are able
to do successfully as they expand into new markets gain the edge over
their competition.

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By employing a strong strategy, understanding local labor laws, focusing

on speed to market, and using partnerships to drive efficiency and
innovation, companies can gain the competitive edge they are looking for
in the global marketplace.

Strength, Weakness, Opportunity, and Threat (SWOT) Analysis

What Is SWOT Analysis?

SWOT (strengths, weaknesses, opportunities, and threats) analysis is a

framework used to evaluate a company's competitive position and to
develop strategic planning. SWOT analysis assesses internal and external
factors, as well as current and future potential.

A SWOT analysis is designed to facilitate a realistic, fact-based, data-driven

look at the strengths and weaknesses of an organization, its initiatives, or
an industry. The organization needs to keep the analysis accurate by
avoiding pre-conceived beliefs or gray areas and instead focusing on real-
life contexts. Companies should use it as a guide and not necessarily as a
prescription.

Using internal and external data, the technique can guide businesses
toward strategies more likely to be successful, and away from those in
which they have been, or are likely to be, less successful. An independent
SWOT analysis analysts, investors or competitors can also guide them on
whether a company, product line or industry might be strong or weak and
why.

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In 2015, a Value Line SWOT analysis of The Coca-Cola Company noted

strengths such as its globally famous brand name, vast distribution
network and opportunities in emerging markets. However, it also noted
weaknesses and threats such as foreign currency fluctuations, growing
public interest in "healthy" beverages and competition from healthy
beverage providers.

Its SWOT analysis prompted Value Line to pose some tough questions
about Coca-Cola's strategy, but also to note that the company "will
probably remain a top-tier beverage provider" that offered conservative
investors "a reliable source of income and a bit of capital gains exposure."

 Strengths describe what an organization excels at and

what separates it from the competition: a strong brand, loyal customer
base, a strong balance sheet, unique technology, and so on. For example,
a hedge fund may have developed a proprietary trading strategy that
returns market-beating results. It must then decide how to use those
results to attract new investors.
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 Weaknesses stop an organization from performing at its optimum

level. They are areas where the business needs to improve to remain
competitive: a weak brand, higher-than-average turnover, high levels of
debt, an inadequate supply chain, or lack of capital.

 Opportunities refer to favorable external factors that could give

an organization a competitive advantage. For example, if a country
cuts tariffs, a car manufacturer can export its cars into a new market,
increasing sales and market share.

 Threats refer to factors that have the potential to harm an

organization. For example, a drought is a threat to a wheat-producing
company, as it may destroy or reduce the crop yield. Other common
threats include things like rising costs for materials, increasing
competition, tight labor supply and so on.

Advantages of SWOT Analysis

A SWOT analysis is a great way to guide business-strategy meetings. It's

powerful to have everyone in the room to discuss the company's core
strengths and weaknesses and then move from there to define the
opportunities and threats, and finally to brainstorming ideas. Oftentimes,
the SWOT analysis you envision before the session changes throughout
to reflect factors you were unaware of and would never have captured if
not for the group’s input.

A company can use a SWOT for overall business strategy sessions or for a
specific segment such as marketing, production or sales. This way, you
can see how the overall strategy developed from the SWOT analysis will
filter down to the segments below before committing to it. You can also
work in reverse with a segment-specific SWOT analysis that feeds into an
overall SWOT analysis.

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Market Entry Strategies

There are a variety of ways in which a company can enter a foreign

market. No one market entry strategy works for all international markets.
Direct exporting may be the most appropriate strategy in one market
while in another you may need to set up a joint venture and in another
you may well license manufacturing. There will be a number of factors
that will influence your choice of strategy, including, but not limited to,
tariff rates, the degree of adaptation of your product required, marketing
and transportation costs. While these factors may well increase your
costs it is expected the increase in sales will offset these costs. The
following strategies are the main entry options open to you.

Direct Exporting
Direct exporting is selling directly into the market you have chosen using
in the first instance you own resources. Many companies, once they have
established a sales program turn to agents and/or distributors to
represent them further in that market. Agents and distributors work
closely with you in representing your interests. They become the face of
your company and thus it is important that your choice of agents and
distributors is handled in much the same way you would hire a key staff
person.

Licensing
Licensing is a relatively sophisticated arrangement where a firm transfers
the rights to the use of a product or service to another firm. It is a
particularly useful strategy if the purchaser of the license has a relatively
large market share in the market you want to enter. Licenses can be for
marketing or production.

Franchising
Franchising is a typical North American process for rapid market
expansion but it is gaining traction in other parts of the world.
Franchising works well for firms that have a repeatable business model
(eg. food outlets) that can be easily transferred into other markets. Two
caveats are required when considering using the franchise model. The
first is that your business model should either be very unique or have
strong brand recognition that can be utilized internationally and secondly
you may be creating your future competition in your franchisee.

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Partnering
Partnering is almost a necessity when entering foreign markets and in
some parts of the world (e.g. Asia) it may be required. Partnering can
take a variety of forms from a simple co-marketing arrangement to a
sophisticated strategic alliance for manufacturing. Partnering is a
particularly useful strategy in those markets where the culture, both
business and social, is substantively different than your own as local
partners bring local market knowledge, contacts and if chosen wisely
customers.

Joint Ventures
Joint ventures are a particular form of partnership that involves the
creation of a third independently managed company. It is the 1+1=3
process. Two companies agree to work together in a particular market,
either geographic or product, and create a third company to undertake
this. Risks and profits are normally shared equally. The best example of a
joint venture is Sony/Ericsson Cell Phone.

Buying a Company
In some markets buying an existing local company may be the most
appropriate entry strategy. This may be because the company has
substantial market share, are a direct competitor to you or due to
government regulations this is the only option for your firm to enter the
market. It is certainly the most costly and determining the true value of a
firm in a foreign market will require substantial due diligence. On the plus
side this entry strategy will immediately provide you the status of being a
local company and you will receive the benefits of local market
knowledge, an established customer base and be treated by the local
government as a local firm.

Piggybacking
Piggybacking is a particularly unique way of entering the international
arena. If you have a particularly interesting and unique product or service
that you sell to large domestic firms that are currently involved in foreign
markets you may want to approach them to see if your product or service
can be included in their inventory for international markets. This reduces
your risk and costs because you are essentially selling domestically and
the larger firm is marketing your product or service for you
internationally.

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Turnkey Projects
Turnkey projects are particular to companies that provide services such
as environmental consulting, architecture, construction and engineering.
A turnkey project is where the facility is built from the ground up and
turned over to the client ready to go – turn the key and the plant is
operational. This is a very good way to enter foreign markets as the client
is normally a government and often the project is being financed by an
international financial agency such as the World Bank so the risk of not
being paid is eliminated.

Greenfield Investments
Greenfield investments require the greatest involvement in international
business. A greenfield investment is where you buy the land, build the
facility and operate the business on an ongoing basis in a foreign market.
It is certainly the most costly and holds the highest risk but some markets
may require you to undertake the cost and risk due to government
regulations, transportation costs, and the ability to access technology or
skilled labour.

Barriers to Entry

Barriers to entry are the economic term describing the existence of high
start-up costs or other obstacles that prevent new competitors from
easily entering an industry or area of business. Barriers to entry benefit
existing firms because they protect their revenues and profits.

Common barriers to entry include special tax benefits to existing firms,

patents, strong brand identity or customer loyalty, and high customer
switching costs. Others include the need for new firms to obtain proper
licenses or regulatory clearance before operation.

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How Barriers to Entry Work?

Some barriers to entry exist because of government intervention, while

others occur naturally within a free market. Often, industry firms lobby
for the government to erect new barriers to entry. Ostensibly, this is
done to protect the integrity of the industry and prevent new entrants
from introducing inferior products into the marketplace.

Government Barriers to Entry

Industries heavily regulated by the government are usually the most

difficult to penetrate; examples include commercial airlines, defense
contractors, and cable companies. The government creates formidable
barriers to entry for varying reasons. In the case of commercial airlines,
not only are regulations stout, but the government limits new entrants to
limit air traffic and simplifying monitoring. Cable companies are heavily
regulated and limited because their infrastructure requires extensive
public land use.

Sometimes the government imposes barriers to entry not by necessity

but because of lobbying pressure from existing firms. For example, in
many states, government licensing is required to become a florist or an
interior decorator. Critics assert that regulations on such industries are
needless, accomplishing nothing but limiting competition and stifling
entrepreneurship.

Natural Barriers to Entry

Barriers to entry can also form naturally as the dynamics of an industry

take shape. Brand identity and customer loyalty serve as barriers to entry
for potential entrants. Certain brands, such as Kleenex and Jell-O, have
identities so strong that their brand names are synonymous with the
types of products they manufacture.

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High consumer switching costs are barriers to entry as new entrants face
difficulty enticing prospective customers to pay the additional money
required to make a change/switch.

Industry-Specific Barriers to Entry

Industry sectors also have their own barriers to entry that stem from the
nature of the business as well as the position of powerful incumbents.

 Pharmaceutical Industry
 Electronics Industry
 Oil and Gas Industry
 Financial Services Industry

Global Business Strategies for Responding to Cultural Differences

Global Business Strategies

A major concern for managers deciding on a global business strategy is

the tradeoff between global integration and local responsiveness. Global
integration is the degree to which the company is able to use the same
products and methods in other countries. Local responsiveness is the
degree to which the company must customize their products and
methods to meet conditions in other countries. The two dimensions
result in four basic global business strategies: export, standardization,
multi-domestic, and transnational. These are shown in the figure below.

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An export strategy is used when a company is primarily focused on its

domestic operations. It does not intend to expand globally but does
export some products to take advantage of international opportunities. It
does not attempt to customize its products for international markets. It is
not interested in either responding to unique conditions in other
countries or in creating an integrated global strategy.

A standardization strategy is used when a company treats the whole

world as one market with little meaningful variation. The assumption is
that one product can meet the needs of people everywhere. Many
business-to-business companies can use a standardization strategy.
Machines tools and equipment or information technologies are universal
and need little customization for local conditions. CEMEX, the Mexico-
based cement and building materials company, was able to expand
globally using a standardization strategy. Apple uses a standardization
strategy because its products do not have to be customized for local
users. An iPod will look the same wherever you buy it. Domino’s Pizza
also uses a standardization strategy. Although toppings may vary to meet

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local tastes, the basic recipes are the same and the store model of
carryout or delivered pizza is the same everywhere.

A standardization strategy produces efficiencies by centralizing many

common activities, such as product design, gaining scale economies in
manufacturing, simplifying the supply chain, and reducing marketing
costs.

A multi-domestic strategy customizes products or processes to the

specific conditions in each country. In the opening example, Lincoln
Electric should have used a multi-domestic strategy to customize its
manufacturing methods to the conditions in each country where it built
factories. Retailers often use multi-domestic strategies because they
must meet local customer tastes. 7-Eleven is an example of a company
using a multi-domestic strategy. It tailors the product selection, payment
methods, and marketing to the values and regulations in each country
where it operates. For example, in Japan, 7-Eleven allows customers to
pay their utility bills at the store. In a company with a multi-domestic
strategy, overall management is centralized in the home country but
country managers are given latitude to make adaptations. Companies
sacrifice scale efficiencies for responsiveness to local conditions.
Companies benefit from a multi-domestic strategy because country
managers understand local laws, customs, and tastes and can decide how
to best meet them.

A transnational strategy combines a standardization strategy and a

multi-domestic strategy. It is used when a company faces significant cost
pressure from international competitors but must also offer products
that meet local customer needs. A transnational strategy is very difficult
to maintain because the company needs to achieve economies of scale
through standardization but also be flexible to respond to local
conditions. Ford Motor Company is adopting a transnational strategy.
Ford is producing a “world car” that has many common platform
elements that accommodate a range of add-ons. That way Ford benefits
from the standardization of costly elements that the consumer does not
see but can add custom elements to meet country laws, can customize
marketing to local standards, and can provide unique products to meet
local tastes.

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References
https://velocityglobal.com/blog/gain-competitve-edge-global-marketplace/

http://www.tradestart.ca/market-entry-strategies

https://www.investopedia.com/terms/b/barrierstoentry.asp

https://courses.lumenlearning.com/wm-principlesofmanagement/chapter/responding-to-cultural-
differences/

https://www.investopedia.com/terms/s/swot.asp

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