CHAPTER 7 : STRATEGIES FOR COMPLETING IN INTERNATIONAL MARKETS

Learning Objectives :

1 . Develop an understanding of the primary reasons companies choose to compete in international markets.
2 . Learn how and why differing market conditions across countries influence a company's strategy choices in international markets.
3 . Learn about the five major strategic options for entering foreign markets.
4 . Gain familiarity with the three main strategic approaches for competing internationally.
5 . Understand how multinational companies are able to use international operations to improve overall competitiveness . 
6 . Gain an understanding of the unique characteristics of competing in developing-country markets.

Why companies decide to enter foreign markets ?

• To gain access to new customers
• To achieve lower costs through economies of scale,experience,and 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 across national Borders Makes Strategy-Making More Complex

• Different countries have different home-country advantages in different industries 

• Location-based value-chain advantages for certain countries

• Differences in government policies,tax rates, and economic conditions

• Currency exchange rate risks

• Differences in buyer tastes and preferences for products and services

POLITICAL RISKS : stem from instability or weaknesses in national governments and hostility to foreign business. ECONOMIC RISKS : stem from the stability of a country's monetary system,economic and regulatory policies,the lack of property rights protections.

EXPORT STRATEGIES Advantages : Low capital requirements, economies of scale in utilizing existing production capacity , no distribution risk , no direct investment risk Disadvantages : Maintaining relative cost advantage of home-based production , transportation and shipping costs , exchange rates risks , tariffs/import duties , loss of channel control

licensing and franchising strategies Advantages : Low resources requirements , income from royalties and franchising fees , rapid expansion into many markets Disadvantages : Maintaining control of proprietary know-how , loss of operational and quality control , adapting to local market tastes and expectations .  foreign subsidiary strategies  Advantages : high level of control , quick large-scale market entry , access to acquired firm's skills , avoids entry barriers  Disadvantages : Costs of acquisition , complexity of acquisition process , integration of the firms' structures,cultures,operations and personnel greenfield strategies  Advantages : High level of control over venture , "learning by doing" in the local market , direct transfer of the firm's technology,skills,business practices,and culture Disadvantages : Capital costs of initial development , risks f loss due to political instability or lack of legal protection of ownership , slowest form of entry due to extended time required to construct facility benefit of alliance and joint venture strategies :   Gaining partner's knowledge of local market conditions , achieving economies of scale through joint operations , gaining technical expertise and local market knowledge , sharing distribution facilities and dealer networks and mutually strengthening each partner's access to buyers , directing competitive energies more toward mutual rivals and less toward one another , establishing working relationships with key officials in the host-country government. the risks of strategic alliances with foreign partners : Outdated knowledge and expertise of local partners , cultural and language barriers , costs of establishing the working arrangement , conflicting objectives and strategies and/or deep differences of opinion about joint control , differences in corporate values and ethical standards , loss of legal protection of proprietary technology or competitive advantage , over dependence on foreign partners for essential expertise and competitive capabilities .  INTERNATIONAL STRATEGY : A strategy for competing in two or more countries simultaneously .  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 .  GLOBAL STRATEGY : is one in which a company employs the same basic 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. TRANSNATIONAL STRATEGY : a think-global,act-global approach that incorporates elements of both multidomestic and global strategies .

THREE APPROACHES FOR COMPETING INTERNATIONALLY

MULTIDOMESTIC APPROACH  (Think local,act local) 

Advantages : can meet the specific needs of each market more precisely,can respond more swiftly to localized changes in demand,can target reactions to the moves of local rivals,can respond more quickly to local opportunities and threats

Disadvantages : hinders resource and capability sharing or cross-market transfers,higher production and distribution costs,not conductive to a worldwide competitive advantage

TRANSNATIONAL APPROACH  (Think global,act local)

Advantages : offers the benefits of both local responsiveness and global integration,enables the transfer and sharing of resources and capabilities across borders,provides the benefits of flexible coordination

Disadvantages : more complex and harder to implement , conflicting goals may be difficult to reconcile and require trade-offs,implementation more costly and time-consuming

GLOBAL APPROACH  (Think global,act global)

Advantages : lower costs due to scale and scope economies,greater efficiencies due to the ability to transfer best practices across markets,more innovation from knowledge sharing and capability transfer,the benefit of a global brand and reputation

Disadvantages : Unable to address local needs precisely,less responsive to changes in local market conditions,higher transportation costs and tariffs,higher coordination and integration costs.