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BUSN 495 Exam 3 - Chapter 7
Terms in this set (48)
- Think global act global:
- Employ basic competitive approach in all countries where a company operates and are best suited to industries that are globally standardized in terms of customer preferences
Think global act local:
- Employing essentially the same strategic theme in all country markets, while allowing some country-to-country customization to fit local market conditions
Think local, act local:
- Varying a company's product offering and competitive approach from country to country in response to significant cross-country differences
2 big drawbacks of think local, act local
1) Hinder transfer of a company's competencies and resources across country boundaries because the strategies in different host countries can be grounded in varying competencies and capabilities
2) they do not promote building a single, unified competitive advantage, especially one based on low-cost leadership
think local, act local
Think local, act local
•A firm varies its product offerings and basic competitive strategy from country to country.
- Useful when:
•Significant country-to-country differences exist in customer preferences, buying habits, distribution channels, or marketing methods.
•Host governments enact local content requirements or trade restrictions that preclude a uniform, coordinated worldwide market approach
calls for varying a company's product offering and competitive approach from country to country in an effort to be responsive to significant cross-country differences in customer preferences, buyer purchasing habits, distribution channels, or marketing methods.
Think local, act local strategy making approaches
are also essential when host-government regulations or trade policies preclude a uniform, coordinated worldwide market approach.
think global, act global
Think global, act global strategy
•Integrates and coordinates the firm's strategic moves worldwide.
•Promotes establishing an identifiably uniform brand image and reputation from country to country.
•Focuses the firm's full resources on securing a sustainable low-cost or differentiation-based competitive advantage over both domestic rivals and global rivals.
Employ the same basic competitive approach in all countries where a company operates and are best suited to industries that are globally standardized in terms of customer preferences, buyer purchasing habits, distribution channels, or marketing methods. This is the think global, act global strategic theme
think global, act local
Think global, act local
- A middle-ground approach that entails:
•Utilizing the same basic competitive theme (low-cost, differentiation, or focused) in each country but allows local managers the latitude to:
•Incorporate whatever country-specific variations in product attributes are needed to best satisfy local buyers.
•Make whatever adjustments in production, distribution, and marketing are needed to respond to local market conditions and compete successfully against local rivals
is a think global, act local approach to strategy making that involves employing essentially the same strategic theme (low-cost, differentiation, focused, best-cost) in all country markets, while allowing some country-to-country customization to fit local market conditions
Strategy Options for Entering Foreign Markets
1. Maintain a national (one-country) production base and export goods to foreign markets.
2. License foreign firms to produce and distribute the company's products abroad.
3. Employ a franchising strategy.
4. Establish a subsidiary in a foreign market via acquisition or internal development.
5. Rely on strategic alliances or joint ventures with foreign partners to enter new country markets
involves using domestic plants as a production base for exporting to foreign markets
Advantages of export strategies
•Conservative way to test international waters.
•Minimizes both risk and capital investment requirements
Disadvantages of export strategies
•Home country manufacturing costs are higher than in foreign countries where rivals have plants.
•Product transportation costs to distant markets are relatively high.
•Adverse shifts can occur in currency exchange rates.
Licensing makes sense when a firm:
•Has valuable technical know-how or a patented product but has neither the internal capabilities nor resources to enter foreign markets.
•Wants to avoid risks of committing resources to country markets that are unfamiliar, politically volatile, economically unstable, or otherwise risky.
•Seeks to generate income from potential royalties
Disadvantage of licensing
•Difficulty in maintaining control over the use of technical know-how provided to foreign firms.
are often better suited to the global expansion efforts of service and retailing enterprises
Advantages of Franchising Strategies
•Franchisee bears many of the costs and risks of establishing foreign locations.
•Franchisor must expend only the resources to recruit, train, and support franchisees.
Disadvantages of Franchising Strategies
•Maintaining quality control in franchisee operations.
•Allowing franchisees discretion in adapting product offerings to local tastes and expectations.
Foreign Subsidiary Strategies
allow for direct control over all aspects of operating in a foreign market
Options for developing a subsidiary
•Acquiring either a struggling or successful foreign local firm is the quickest, least risky, and most cost-efficient path to hurdling local market entry barriers.
•Establishing a foreign subsidiary from the ground up via internal development relies heavily on the firm's prior experience with foreign market operations.
Internal start up strategy of a foreign subsidiary is appealing when:
•The parent firm has the experience, competencies, and resources required to develop and operate foreign subsidiaries.
•Creating an internal start-up is cheaper than making an acquisition in a foreign market.
•Adding new production capacity will not adversely impact the supply-demand balance in the local market.
•The start-up subsidiary can gain access to local distribution networks (perhaps due to the firm's recognized brand name).
•A start-up subsidiary will have the size, cost structure, and resources to compete head-to-head against local rivals.
Alliance and Joint Venture Strategies: mutual benefits of cross-border alliances
•Strengthens a firm's competitiveness in world markets.
•Facilitates host country approval of entry into local markets.
•Captures economies of scale in production and marketing.
•Fills gaps in technical expertise and local market knowledge.
•Promotes sharing of distribution facilities, dealer networks, and mutual access to customers.
•Assists in coordination of attacks on mutual rivals and the provision of mutual support.
•Builds working relationships with local political and host-country governmental entities.
•Fosters agreements on technical and process standards.
Alliance and Joint Venture Strategies: Individual partner benefits of alliances
•Preservation of each partner firm's independence.
•Avoidance of the firm's use of scarce financial resources to fund acquisitions.
•Retention of the firm's flexibility to readily disengage once the purpose of the alliance has been served.
•Option to withdraw from the alliance if its benefits prove elusive, unlike the more permanent arrangement required by an acquisition.
The Risks of Strategic Alliances with Foreign Partners
•Language and cultural barriers.
•Diversity in ethical standards, partner values and objectives, corporate strategies, and operating practices.
•Development of trust, coordination, and effective communications between partners.
•Interpersonal conflict among partners' managers.
•Overdependence on foreign partners for essential expertise and competitive capabilities.
Why would a company go international?
1) Gain access to new customers; 2) achieve lower costs through economies of scale, experience and increased purchasing power
3) to gain access to low cost-cost inputs of production
4) further exploit core competencies;
5) gain access to resources and capabilities located in foreign markets;
6) to retain their position as a key supply chain partner to major customers
Factors that shape strategy choices in international markets
•Degree to which there are important cross-country differences in demographic, cultural, market conditions.
•Whether opportunities exist to gain a location-based advantage based on wage rates, worker productivity, inflation rates, energy costs, tax rates, and other factors that impact cost structure.
•Risks of adverse shifts in currency exchange rates.
•Extent to which governmental policies affect the local business climate.
Cross-Country Differences in Demographic, Cultural, and Market Conditions
When buyer tastes for a product differ substantially from country to country: Italy prefers espressos but in NA they prefer milder-roasted
Cross-Country Differences in Demographic, Cultural, and Market Conditions
- Adjustments to local buyer tastes:
•Raise manufacturing and distribution costs.
•Reduce scale economies and increase learning curve effects.
- Differences in market growth potential:
•Reflect wide variances in the demographics, income levels, and cultural attitudes in emerging markets.
•Can result from a lack of infrastructure, reliable distribution systems, and existing retail networks.
•Indicate local variations in the intensity of competition.
How Markets Demographics Differ from Country to Country
•Consumer tastes and preferences.
•Consumer purchasing power.
•Consumer buying habits.
•Distribution channel emphasis.
•Demands for localized products.
•Strength of local competitive rivalry.
Opportunities for Location-Based Cost Advantages
Operating cots and profitability are significantly impacted by where it's production and customer service activities are located: Wage rates, energy cots, tax rates, and inflation rates account for this
Opportunities for location-based cost advantages
- A firm's costs and profitability are impacted by the location of its activities due to:
•Access to resources.
Risks of Adverse Exchange Rates
Companies that export goods to foreign markets always gain in competitiveness when the currency of the country in which the goods are manufactured is weak
Risk of Adverse Exchange Rate Shifts
- An exporter gains in competitiveness when the currency of the country in which exported goods are manufactured is weak relative to the currency of the country to which the goods will be exported.
- An exporter is at a disadvantage when the currency of the country where exported goods are manufactured grows stronger relative to the country to which the goods will be exported.
Impact of Government policies on the business climate
When national governments enact all kinds of measures affecting business conditions and the operation of foreign companies in their markets
The positive impact of host country government policies on the business climate
- Host government policies that create a business climate favorable to foreign firms agreeing to construct or expand production and distribution facilities in the host country include:
Negative impact of host country government policies on the business climate
- Host government policies that negatively affect foreign-based firms include:
•Customs requirements, tariffs, and quotas.
•Local content requirements.
•Requiring prior approval of capital spending projects.
•Limits on repatriation of local funds.
•Local ownership or partner requirements.
•Subsidies for domestic companies.
Have to do with the instability of weak governments or the potential for future elections to produce government leaders hostile to foreign-owned businesses
- Have to do with the threat of piracy and lack of protection for the company's intellectual property and the stability of a country's economy.
- Skyrocketing inflation rates or uncontrolled deficit spending by the government
stem from instability or weakness in national governments and hostility to foreign business
stem from instability in a country's monetary system, changes in economic and regulatory policies, and the lack of property rights protections
When to concentrate internal processes in a few locations
•The costs of manufacturing or other activities are significantly lower in some locations than in others.
•Significant scale economies can be achieved by concentrating on particular activities.
•There is a steep learning curve associated with performing an activity.
•Certain locations offer superior resources, allow better coordination of related activities, or offer other advantages.
Using Cross-Border Coordination to Build Competitive Advantage
- Multinational and global competitors coordinate activities across borders to achieve competitive advantage by:
•Sharing product knowledge, operating skills, and supply chain efficiencies across their markets.
•Shifting production between plants in different countries to take advantage of changes in exchange rates, energy costs, or in tariffs and quotas.
•Shifting production to locations having excess capacity or underutilized personnel.
When to Disperse Internal Processes Across Many Locations
•Buyer-related activities must take place close to buyers.
•High transportation costs, diseconomies of large size, and trade barriers make it too expensive to operate from a central location.
•Dispersing activities reduces the risks of fluctuating exchange rates and adverse political developments.
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