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GS BUSA 439 CH 7 Strategies for Competing in International Markets

Terms in this set (134)

Learning Objectives

Identify the primary reasons companies choose to compete in international markets.

Understand how and why differing market conditions across countries influence a company's strategy choices in international markets.

Identify the differences among the five primary modes of entry into foreign markets

Identify the three main strategic approaches for competing internationally.
Explain how companies are able to use international operations to improve overall competitiveness.

Identify the unique characteristics of competing in developing-country markets.
A company may opt to expand outside its domestic market for any of five major reasons:

1. To gain access to new customers. Expanding into foreign markets offers potential for increased revenues, profits, and long-term growth; it becomes an especially attractive option when a company encounters dwindling growth opportunities in its home market.

2. To achieve lower costs through economies of scale, experience, and increased purchasing power. Many companies are driven to sell in more than one country because domestic sales volume alone is not large enough to capture fully economies of scale in product development, manufacturing, or marketing.

3. To gain access to low-cost inputs of production. Companies in industries based on natural resources (e.g. , oil and gas, minerals, rubber, and lumber) often find it necessary to operate in the international arena since raw-material supplies are located in different parts of the world and can be accessed more cost-effectively at the source.
4. To further exploit its core competencies. A company may be able to extend a market-leading position in its domestic market into a position of regional or global market leadership by leveraging its core competencies further.

5. To gain access to resources and capabilities located in foreign markets. An increasingly important motive for entering foreign markets is to acquire resources and capabilities that may be unavailable in a company's home market

In addition, companies that are the suppliers of other companies often expand internationally when their major customers do so, to meet their customers' needs abroad and retain their position as a key supply chain partner.
Crafting a strategy to compete in one or more countries of the world is inherently more complex for five reasons.

1. First, different countries have different home-country advantages in different industries; competing effectively requires an understanding of these differences.

2. Second, there are location-based advantages to conducting particular value chain activities in different parts of the world.

3. Third, different political and economic conditions make the general business climate more favorable in some countries than in others.
4. Fourth, companies face risk due to adverse shifts in currency exchange rates when operating in foreign markets.

5. And fifth, differences in buyer tastes and preferences present a challenge for companies concerning customizing versus standardizing their products and services.
Diamond of National Competitive Advantage
A theory showing four features as important for competitive superiority:

• demand conditions,
• factor conditions,
• related and supporting industries, and
• firm strategy, structure, and rivalry
The Diamond Framework can be used to
1. predict from which countries foreign entrants are most likely to come
○ This can help managers prepare to cope with new
foreign competitors, since the framework also reveals
something about the basis of the new rivals' strengths.

2. decide which foreign markets to enter first
○ It can reveal the countries in which foreign rivals are
likely to be weakest and thus can help managers
decide which foreign markets to enter first

3. choose the best country location for different value chain activities
○ because it focuses on the attributes of a country's
business environment that allow firms to flourish, it
reveals something about the advantages of
conducting particular business activities in that
country.

For an industry in a particular country to become competitively strong, all four factors must be favorable for that industry. When they are, the industry is likely to contain firms that are capable of competing successfully in the international arena.
1 of 4 : Diamond of National Competitive Advantage : Demand Conditions

The demand conditions in an industry's home market include
• the relative size of the market,
• its growth potential, and
• the nature of domestic buyers' needs and wants

Differing population sizes, income levels, and other demographic factors give rise to considerable differences in market size and growth rates from country to country. Industry sectors that are larger and more important in their home market tend to attract more resources and grow faster than others.
Demanding domestic buyers for an industry's products spur
greater innovativeness and improvements in quality Such conditions foster the development of stronger industries, with firms that are capable of translating a home-market advantage into a competitive advantage in the international arena.
2 of 4 : Diamond of National Competitive Advantage : Factor Conditions

Factor conditions describe the
• availability,
• quality, and
• cost of raw materials and
• other inputs (called factors of production) that firms in an industry require for producing their products and services.

Elements of a country's infrastructure may be included as well, such as its transportation, communication, and banking systems. For instance, in India there are efficient, well-developed national channels for distributing groceries, personal care items, and other packaged products to the country's 13 million retailers
3 of 4 : Diamond of National Competitive Advantage : Related and
Supporting Industries


Robust industries often develop in locales where there is a
cluster of related industries, including others within the same value chain system (e.g, suppliers of components and equipment, distributors) and the makers of complementary products or those that are technologically related.

The advantage to firms that develop as part of a related-industry cluster comes from the close collaboration with key suppliers and the greater knowledge sharing throughout the cluster, resulting in greater efficiency and innovativeness.
4 of 4 : Diamond of National Competitive Advantage : Firm Strategy, Structure, and Rivalry

Different country environments foster the development of different styles of management, organization, and strategy.
For example, strategic alliances are a more common strategy for firms from Asian or Latin American countries, which emphasize trust and cooperation in their organizations, than for firms from North America, where individualism is more influential.

In addition, countries vary in terms of the competitive rivalry of their industries. Fierce rivalry in home markets tends to hone domestic firms' competitive capabilities and ready them for competing internationally
Opportunities for Location-Based Advantages

Increasingly, companies are locating different value chain activities in different parts of the world to exploit location-based advantages that vary from country to country.
Differences in
• wage rates,
• worker productivity,
• energy costs, and the like create sizable variations in
manufacturing costs from country to country.

In such cases, the low-cost countries become principal production sites, with most of the output being exported to markets in other parts of the world.

Likewise, concerns about short delivery times and low shipping costs make some countries better locations than others for establishing distribution centers.
The Impact of Government Policies and Economic Conditions in Host Countries

Cross-country variations in government policies and economic conditions affect both the opportunities available to a foreign entrant and the risks of operating within the host country.

When new business-related issues or developments arise, "pro-business" governments make a practice of seeking advice and counsel from business leaders. When tougher business-related regulations are deemed appropriate, they endeavor to make the transition to more costly and stringent regulations somewhat business-friendly rather than adversarial.
The governments of some countries are eager to attract foreign investments, and thus they go all out to create a business climate that outsiders will view as favorable.

Governments eager to spur economic growth, create
• more jobs, and
• raise living standards for their citizens
• usually enact policies aimed at stimulating business
innovation and capital investment

They may provide such incentives as
• reduced taxes,
• low-cost loans, site location and
• site development assistance, and
• government-sponsored training for workers to
encourage companies to construct production and
distribution facilities.
The Impact of Government Policies and Economic Conditions in Host Countries

On the other hand, governments sometimes enact policies that, from a business perspective, make locating facilities within a country's borders less attractive.
• the nature of a company's operations may make it
particularly costly to achieve compliance with a
country's environmental regulations

• governments provide subsidies and low-interest loans
to domestic companies to enable them to better
compete against foreign companies

• enact deliberately burdensome procedures and
requirements regarding customs inspection for foreign
goods and may impose tariffs or quotas on imports

• may specify that a certain percentage of the parts and
components used in manufacturing a product be
obtained from local suppliers,

• require prior approval of capital spending projects,
• limit withdrawal of funds from the country, and

• require partial ownership of foreign company
operations by local companies or investors

• place restrictions on exports to ensure adequate local
supplies and regulate the prices of imported and
locally produced goods
Political risks stem from
instability or weakness in national governments and hostility to foreign business.

Other political risks include the loss of investments due to war or political unrest, regulatory changes that create operating uncertainties, security risks due to terrorism, and corruption
Economic risks stem from
instability in a country's monetary system, economic and regulatory policies, and the lack of property rights protections.

. In some countries, the threat of piracy and lack of protection for intellectual property are also sources of economic risk. Another is fluctuations in the value of different currencies.
Risks of Adverse Exchange Rate Shifts
Sizable shifts in exchange rates pose significant risks for two reasons:

1. They are hard to predict because oft he variety of factors involved and the uncertainties surrounding when and by how much these factors will change.

2. They create uncertainty regarding which countries represent the low-cost manufacturing locations and which rivals have the upper hand in the marketplace
A weaker dollar

A weaker US dollar is therefore an economically favorable exchange rate shift for manufacturing plants based in the United States. A decline in the value of the US. dollar strengthens the cost-competitiveness of U.S.-based manufacturing plants and boosts buyer demand for U.S.-made goods.
1. A weaker dollar acts to reduce or eliminate whatever cost advantage foreign manufacturers may have had over U.S. manufacturers (and helps protect the manufacturing jobs of US. workers).

2. A weaker dollar makes foreign-made goods more expensive in dollar terms to US. consumers—this curtails US. buyer demand for foreign-made goods, stimulates greater demand on the part of US. consumers for U.S.-made goods, and reduces U.S. imports of foreign-made goods.

3. A weaker US. dollar enables the U.S.-made goods to be sold at lower prices to consumers in countries whose currencies have grown stronger relative to the US. dollar—such lower prices boost foreign buyer demand for the now relatively cheaper U.S.-made goods, thereby stimulating exports of U.S_-made goods to foreign countries and creating more jobs in US. based manufacturing plants.

4. A weaker dollar has the effect of increasing the dollar value of profits a company earns in foreign-country markets where the local currency is stronger relative to the dollar.
Domestic companies facing competitive pressure from lower-cost imports benefit when
their government's currency grows weaker in relation to the currencies of the countries where the lower-cost imports are being made.
Cross-country Differences in Demographic, Cultural, and Market Conditions

Consequently, companies operating in an international marketplace have to wrestle with whether and how much to customize Page 196 their offerings in each country market to match local buyers' tastes and preferences or whether to pursue a strategy of offering a mostly standardized product worldwide.

While making products that are closely matched to local tastes makes them more appealing to local buyers, customizing a company's products country by country may raise production and distribution costs due to the greater variety of designs and components, shorter production runs, and the complications of added inventory handling and distribution logistics.
Buyer tastes for a particular product or service sometimes differ substantially from country to country.

Sometimes, product designs suitable in one country are inappropriate in another because of differing local standards

Cultural influences can also affect consumer demand for a product. For instance, in South Korea many parents are reluctant to purchase PCs even when they can afford them because of concerns that their children will be distracted from their schoolwork by surfing the Web, playing PC based video games, and becoming Internet addicts.
Once a company decides to expand beyond its domestic borders, it must consider the question of how to enter foreign markets

There are five primary modes of entry to choose among:

Which mode of entry to employ depends on a variety of factors, including
• the nature of the firm's strategic objectives,
• the firm's position in terms of whether it has the full
range of resources and capabilities needed to operate
abroad,
• country-specific factors such as trade barriers, and
• the transaction costs involved (the costs of contracting
with a partner and monitoring its compliance with the
terms of the contract, for example).

The options vary considerably regarding the level of investment required and the associated risks—but higher levels of investment and risk generally provide the firm with the benefits of greater ownership and control.
1. Maintain a home-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 in foreign markets.

4. Establish a subsidiary in a foreign market via acquisition or internal development

5. Rely on strategic alliances or joint ventures with foreign companies.
Export Strategies

Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial strategy for pursuing international sales

With an export-based entry strategy, a manufacturer can limit its involvement in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire distribution and marketing function in their countries or regions of the world. If it is more advantageous to maintain control over these functions, however, a manufacturer can establish its own distribution and sales organizations in some or all of the target foreign markets.
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

Unless an exporter can keep its production and shipping costs competitive with rivals' costs, secure adequate local distribution and marketing support of its products, and effectively hedge against unfavorable changes in currency exchange rates, its success will be limited.
Licensing Strategies

Licensing as an entry strategy makes sense when

If the royalty potential is considerable and the companies to which the licenses are being granted are trustworthy and reputable, then licensing can be a very attractive option.
a firm with valuable technical know-how, an appealing brand, or a unique patented product has neither the internal organizational capability nor the resources to enter foreign markets.

Advantage of
• avoiding the risks of committing resources
to country markets that are unfamiliar,
politically volatile, economically unstable,
or otherwise risky.
• can generate income from royalties while
shifting the costs and risks of entering
foreign markets to the licensee.

One downside of the licensing alternative is that the partner who bears the risk is also likely to be the biggest beneficiary from any upside gain.

• providing valuable technological know-
how to foreign companies and thereby
losing some degree of control over its
use;
• monitoring licensees and safeguarding the
company's proprietary know-how can
prove quite difficult in some
circumstances
Franchising Strategies

Franchising is often better suited
to the international expansion efforts of service and retailing enterprises.

Franchising has many of the same advantages as licensing.
• The franchisee bears most of the costs
and risks of establishing foreign locations;
• a franchisor has to expend only the
resources to recruit, train, support, and
monitor franchisees.

The big problem a franchisor faces is maintaining quality control; foreign franchisees do not always exhibit strong commitment to consistency and standardization, especially when the local culture does not stress the same kinds of quality concerns.

A question that can arise is whether to allow foreign franchisees to make modifications in the franchisor's product offering so as to better satisfy the tastes and expectations of local buyers.
Companies that want to participate in direct performance of all essential value chain activities typically establish
a wholly owned subsidiary, either by acquiring a local company or by establishing its own new operating organization from the ground up.
A greenfield venture (or internal startup) is
is a subsidiary business that is established by setting up the entire operation from the ground up
1 of 2: Foreign Subsidiary Strategies :

Acquiring a local business is the quicker of the two options

One thing an acquisition-minded firm must consider is whether to pay a premium price for a successful local company or to buy a struggling competitor at a bargain price.

If the buying firm has little knowledge of the local market but ample capital, it is often better off purchasing a capable, strongly positioned firm.

However, when the acquirer sees promising ways to transform a weak firm into a strong one and has the resources and managerial know-how to do so, a struggling company can be the better long-term investment
• Least risky and
• Most cost-efficient means of hurdling
such entry barriers as
○ gaining access to local distribution
channels,
○ building supplier relationships, and
○ establishing working relationships with
government officials and other key
constituencies

• Allows the acquirer to move directly to the
task of transferring resources and
personnel to the newly acquired business,
• Redirecting and integrating the activities
of the acquired business into its own
operation,
• Putting its own strategy into place, and
• Accelerating efforts to build a strong
market position
1 of 2: Foreign Subsidiary Strategies : Entering a new foreign country via a greenfield makes sense when


Four more conditions combine to make a greenfield venture strategy appealing:

• When creating an internal startup is cheaper than
making an acquisition.
• When adding new production capacity will not
adversely impact the supply-demand balance in the
local market
• When a startup subsidiary has the ability to gain good
distribution access (perhaps because of the company's
recognized brand name).
• When a startup subsidiary will have the size, cost
structure, and capabilities to compete head-to-head
against local rivals.
• a company already operates in a number
of countries,
• has experience in establishing new
subsidiaries and overseeing their
operations, and
• has a sufficiently large pool of resources
and capabilities to rapidly equip a new
subsidiary with the personnel and what it
needs otherwise to compete successfully
and profitably.

cons
• subject to a high level of risk
• require numerous other company
resources as well, diverting them from
other uses.
• They do not work well in countries without
strong, well-functioning markets and
institutions that protect the rights of
foreign investors and provide other legal
protections.

Moreover, an important disadvantage of greenfield ventures relative to other means of international expansion is that they are the slowest entry route—particularly if the objective is to achieve a sizable market share.
Collaborative strategies involving alliances or joint ventures with foreign partners are
a popular way for companies to edge their way into the markets of foreign countries.
Alliance and Joint Venture Strategies

1. A company can benefit immensely from a foreign partner's familiarity with local government regulations, its
knowledge of the buying habits and product preferences of consumers, its distribution-channel relationships, and so on.

2. Another reason for cross-border alliances is to capture economies of scale in production and/or marketing. By joining forces in producing components, assembling models, and marketing their products, companies can realize cost savings not achievable with their own small volumes.

3. A third reason to employ a collaborative strategy is to share distribution facilities and dealer networks, thus mutually strengthening each partner's access to buyers.

Alliances may also be used to pave the way for an intended merger; they offer a way to test the value and viability of a cooperative arrangement with a foreign partner before making a more permanent commitment.
• Strategic alliances,
• joint ventures, and
• other cooperative agreements

4. A fourth benefit of a collaborative strategy is the learning and added expertise that comes from performing joint research, sharing technological know-how, studying one another's manufacturing methods, and understanding how to tailor sales and marketing approaches to fit local cultures and traditions.

5. A fifth benefit is that cross-border allies can direct their competitive energies more toward mutual rivals and less toward one another; teaming up may help them close the gap on leading companies.

6. And, finally, alliances can be a particularly useful way for companies across the world to gain agreement on important technical standards

Cross-border alliances are an attractive means of gaining the aforementioned types of benefits (as compared to merging with or acquiring foreign-based companies) because they allow a company to preserve its independence (which is not the case with a merger) and avoid using scarce financial resources to fund acquisitions.

Furthermore, an alliance offers the flexibility to readily disengage once its purpose has been served or if the benefits prove elusive, whereas mergers and acquisitions are more permanent arrangements'
The Risks of Strategic Alliances with Foreign Partners

• Sometimes a local partner's knowledge and expertise
turns out to be less valuable than expected (because
its knowledge is rendered obsolete by fast-changing
market conditions or because its operating practices
are archaic).

Companies with global operations make it a point to develop senior managers who understand how "the system" works in different countries, plus they can avail themselves of local managerial talent and know-how by simply hiring experienced local managers and thereby detouring the hazards of collaborative alliances with local companies.
• must overcome language and cultural
barriers and figure out how to deal with
diverse (or conflicting) operating practices

• transaction costs of working out a
mutually agreeable arrangement and
monitoring partner compliance with the
terms of the arrangement can be high

• One worrisome problem with alliances or
joint ventures is that a firm may risk losing
some of its competitive advantage if an
alliance partner is given full access to its
proprietary technological expertise or
other competitively valuable capabilities.

○ There is a natural tendency for allies to
struggle to collaborate effectively in
competitively sensitive areas, thus
spawning suspicions on both sides
about forthright exchanges of
information and expertise.
An international strategy

But as it expands further internationally, it will have to confront head-on two conflicting pressures:

1. the demand for responsiveness to local needs versus
2. the prospect of efficiency gains from offering a
standardized product globally.
is a strategy for competing in two or more countries simultaneously

Three options for resolving this issue: choosing a

1. multi domestic,
2. global, or
3. transnational strategy
1 of 3 : International strategy : Multi-domestic
Strategies—a "Think-Local, Act-Local" Approach

A multidomestic strategy is one in which a company 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.

○ is most appropriate when the need for local
responsiveness is high due to significant cross-country
differences in demographic, cultural, and market
conditions and when the potential for efficiency gains
from standardization is limited
Strategy in which a company varies its product offering and competitive approach from country to country in an effort to meet differing buyer needs and to address divergent local-market conditions

• plants produce different product versions
for different local markets
• adapt marketing and distribution to fit
local customs, cultures, regulations, and
market requirements

Despite their obvious benefits, think-local, act-local strategies have three big drawbacks:

1. They hinder transfer of a company's capabilities, knowledge, and other resources across country boundaries, since the company's efforts are not integrated or coordinated across country boundaries. This can make the company less innovative overall.

2. They raise production and distribution costs due to the greater variety of designs and components, shorter production runs for each product version, and complications of added inventory handling and distribution logistics.

3. They are not conducive to building a single, worldwide competitive advantage. When a company's competitive approach and product offering vary from country to country, the nature and size of any resulting competitive edge also tends to vary. At the most, multidomestic strategies are capable of producing a group of local competitive advantages of varying types and degrees of strength.
2 of 3 : International strategy : Global Strategies—a
"Think-Global, Act-Global" Approach

A global strategy contrasts sharply with a multidomestic strategy in that it

may be adapted in minor ways to accommodate specific situations in a few host countries, the company's fundamental competitive approach (low cost, differentiation, best cost, or focused) remains very much intact worldwide and local managers stick close to the global strategy

○ prompts company managers to integrate and
coordinate the company's strategic moves worldwide
○ and to expand into most, if not all, nations where there
is significant buyer demand
○ considerable strategic emphasis on building a global
brand name and aggressively pursuing opportunities
to transfer ideas, new products, and capabilities
from one country to another
○ Global strategies are characterized by relatively
centralized value chain activities, such as production
and distribution.

Whenever country-to-country differences are small enough to be accommodated within the framework of a global strategy, a global strategy is preferable because a company can more readily unify its operations and focus on establishing a brand image and reputation that are uniform from country to country
takes a standardized, globally integrated approach to producing, packaging, selling, and delivering the company's products and services worldwide.

• sell the same products under the same
brand names everywhere,
• utilize much the same distribution
channels in all countries, and
• compete on the basis of the same
capabilities and marketing approaches
worldwide

Because a global strategy cannot accommodate varying local needs, it is an appropriate strategic choice when there are pronounced efficiency benefits from standardization and when buyer needs are relatively homogeneous across countries and regions.
○ especially beneficial when high volumes
significantly lower costs due to
economies of scale or added experience
○ advantageous if it allows the firm to
replicate a successful business model on a
global basis efficiently or
○ engage in higher levels of R&D by
spreading the fixed costs and risks over a
higher-volume output
○ It is a fitting response to industry
conditions marked by global competition.
2 of 3 : International strategy : Global Strategies—a
"Think-Global, Act-Global" Approach

There are, however, several drawbacks to global strategies:

1. They do not enable firms to address local needs as precisely as locally based rivals can;

2. they are less responsive to changes in local market conditions, in the form of either new opportunities or competitive threats;
3. they raise transportation costs and may involve higher tariffs; and

4. they involve higher coordination costs due to the more complex task of managing a globally integrated enterprise.
3 of 3 : International strategy : Transnational
Strategies—a "Think-Global, Act-Local"
Approach

A transnational strategy (sometimes called glocalization) incorporates elements of both a globalized and a localized approach to strategy making.

This type of middle-ground strategy is called for when
there are relatively high needs for local responsiveness as well as appreciable benefits to be realized from standardization, as Figure 7.2 suggests.

A transnational strategy encourages a company to use a think-global, act-local approach to balance these competing objectives.

Companies implement a transnational strategy with mass-customization techniques that enable them to address local preferences in an efficient, semi-standardized manner.

But, like other approaches to competing internationally, transnational strategies also have significant drawbacks:

1. They are the most difficult of all international strategies to implement due to the added complexity of varying the elements of the strategy to situational conditions.

2. They place large demands on the organization due to the need to pursue conflicting objectives simultaneously.

3. Implementing the strategy is likely to be a costly and time-consuming enterprise, with an uncertain outcome.
There are three important ways in which a firm can gain competitive advantage (or offset domestic disadvantages) by expanding outside its domestic market
1. First, it can use location to lower costs or achieve greater product differentiation.

2. Second, it can transfer competitively valuable resources and capabilities from one country to another or share them across international borders to extend its competitive advantages.

3. And third, it can benefit from cross-border coordination opportunities that are not open to domestic-only competitors.
Using Location to Build Competitive Advantage
To use location to build competitive advantage, a company must consider two issues:

1. whether or not to concentrate some of the activities it performs in only a few select countries of those in which they operate and if so

2. in which countries to locate particular activities.
When to Concentrate Activities in a Few Locations

It is advantageous for a company to concentrate its activities in a limited number of locations when
• The costs of manufacturing or other
activities are significantly lower tn some
geographic locations than in others.

• Significant scale economies exist in
production or distribution

• Sizable learning and experience benefits
are associated with performing an activity.

• Certain locations have superior resources,
allow better coordination of related
activities, or offer other valuable
advantages.
When to Disperse Activities across Many Locations

In some instances, dispersing activities across locations is more advantageous than concentrating them.
Buyer-related activities—such as distribution, marketing, and after-sale service—usually must take place close to buyers.

This makes it necessary to physically locate the capability to perform such activities in every country or region where a firm has major customers.
Sharing and Transferring Resources and Capabilities across Borders to Build Competitive Advantage

However, cross-border resource sharing and transfers of capabilities are not guaranteed recipes for success. For example, whether a resource or capability can confer a competitive advantage abroad depends on the conditions of rivalry in each particular market.

If the rivals in a foreign-country market have superior resources and capabilities, then an entering firm may find itself at a competitive disadvantage even if it has a resource-based advantage domestically and can transfer the resources at low cost.
• If its resources retain their value in foreign
contexts, then entering new foreign
markets can extend the company's
resource-based competitive advantage
over a broader domain.

• Transfer technological know-how or other
important resources and capabilities from
its operations in one country to its
operations in other countries

• Sharing and transferring resources and
capabilities across country borders may
also contribute to the development of
broader or deeper competencies and
capabilities—helping a company achieve
dominating depth in some competitively
valuable area.
Benefiting from Cross-Border Coordination

Companies that compete on an international basis have another source of competitive advantage relative to their purely domestic rivals:
They are able to benefit from coordinating activities across different countries' domains.

By coordinating their activities, international companies may also be able to enhance their leverage with host-country or respond adaptively to changes in tariffs and quotas.

Efficiencies can also be achieved by shifting workloads from where they are unusually heavy to locations where personnel are underutilized.
Cross-Border Strategic Moves

While international competitors can employ any of the offensive and defensive moves discussed in Chapter 6, there are two types of strategic moves that are particularly suited for companies competing internationally.
1. The first is an offensive move that an international competitor is uniquely positioned to make, due to the fact that it may have a strong or protected market position in more than one country.

2. The second type of move is a type of defensive action involving multiple markets.
Cross-market subsidization
supporting competitive offensives in one market with resources and profits diverted from operations in another market—can be a powerful competitive weapon.
Waging a Strategic Offensive

One advantage to being an international competitor is the possibility of having more than one significant and possibly protected source of profits.

• provide the company with the financial strength to
engage in strategic offensives in selected country
markets
• lowballing its prices or launching high-
cost marketing campaigns in the domestic
company's home market and grabbing
market share at the domestic company's
expense

• can adjust the depth of its price cutting to
move in and capture market share quickly,
or it can shave prices slightly to make
gradual market inroads

A company is said to be dumping when it sells its goods in foreign markets at prices that are

1. well below the prices at which it normally sells them in its home market or
2. well below its full costs per unit.
Defending against International Rivals

Cross-border tactics involving multiple country markets can also be used as a means of defending against the strategic moves of rivals with multiple profitable markets of their own.
For companies with at least one major market, having a presence in a rival's key markets can be enough to deter the rival from making aggressive attacks.

When the same companies compete against one another in multiple geographic markets, the threat of cross-border counterattacks may be enough to encourage mutual restraint among international rivals.

○ Mutual restraint of this sort tends to
stabilize the competitive position of
multi market rivals against one another.
○ And while it may prevent each firm from
making any major market share gains at
the expense of its rival, it also protects
against costly competitive battles that
would be likely to erode the profitability
of both companies without any
compensating gain.
Strategy Options for Competing in Developing-country Markets

There are several options for tailoring a company's strategy to fit the sometimes unusual or challenging circumstances presented in developing-country markets:

• Prepare to compete on the basis of low price.
Consumers in developing markets are often highly
focused on price, which can give low cost local
competitors the edge unless a company can find ways
to attract buyers with bargain prices as well as better
products.

• Modify aspects of the company's business model to
accommodate the unique local circumstances of
developing countries.
• Try to change the local market to better
match the way the company does
business elsewhere. An international
company often has enough market clout
to drive major changes in the way a local
country market operates.

• Stay away from developing markets where
it is impractical or uneconomical to modify
the company's business model to
accommodate local circumstances.

Profitability in developing markets rarely comes quickly or easily—new entrants have to adapt their business models to local conditions, which may not always be possible.
Defending Against Global Giants: Strategies for Local Companies in Developing Countries

Studies of local companies in developing markets have disclosed five strategies that have proved themselves in defending against globally competitive companies:

1. Develop business models that exploit shortcomings in
local distribution networks or infrastructure.

2. Utilize keen understanding of local customer needs
and preferences to create customized products or
services

3. Take advantage of aspects of the local workforce with
which large international companies may be unfamiliar
4. Use acquisition and rapid-growth
strategies to better defend against
expansion-minded internationals.
Most successful companies in
developing markets have pursued
mergers and acquisitions at a rapid-fire
pace to build first a nationwide and then
an international presence.

5. Transfer company expertise to cross-
border markets and initiate actions to
contend on an international level When a
company from a developing country has
resources and capabilities suitable for
competing in other country markets,
launching initiatives to transfer its
expertise to foreign markets becomes a
viable strategic option.
Natural-resource companies move into foreign markets to ______.
access supplies of raw material more cost effectively
Companies typically move into foreign markets to ______.
exploit their core competencies
Why may a company find it easier to operate in one country than in another? (Choose every correct answer.)
Favorable political conditions

Advantages for specific value chain activities

Strong economic conditions
Spurring market growth in a domestic market can translate into an international competitive advantage owing to which of the following?
Increasing innovation and quality improvements
Elements of a country's infrastructure that can contribute to factor conditions include which of the following? (Choose every correct answer.)
Communication
Banking systems
Transportation
What are reasons that companies expand into foreign markets? (Choose every correct answer.)
To achieve lower costs
To gain access to new customers
To gain access to low-cost production
True or false: Strategic alliances are more frequently used by firms from North America than from Asia or Latin America.
False
Companies are often motivated to enter foreign markets to ______.
take advantage of new resources and capabilities
Building production facilities in which countries presents a competitive advantage because of low-wage labor? (Choose every correct answer.)
China
India
Creating a strategy for entering an international market can be more difficult than entering a domestic market because ______.
buyer preferences in foreign markets force companies to customize their products
Governments wishing to create a favorable business climate for foreign companies will typically ______.
seek advice from business leaders
What are examples of demand conditions? (Choose every correct answer.)
Relative size of the market
Domestic buyers' needs and wants
Growth potential
To discourage foreign companies from locating manufacturing facilities in a country, the country's government can do which of the following? (Choose every correct answer.)
Provide government financial assistance to domestic companies

Require partial ownership of the facilities by local companies or investors

Make a new facility's compliance with local environmental regulations very costly
What are elements of factor conditions for production? (Choose every correct answer.)
Availability of raw materials
Cost of labor
Different country environments require companies to customize their approaches to which of the following? (Choose every correct answer.)
Organization
Strategy
Management
Countries with which characteristics present advantages for becoming principal production sites? (Choose every correct answer.)
Close proximity to suppliers
Relaxed government regulations
Lower labor costs
In terms of a country's business climate, the instability or weakness of a national government is a type of ______.
political risk
Which of the following are policies that governments adopt to stimulate business investment? (Choose every correct answer.)
Offering low-cost business loans
Providing government-sponsored job training
How can currency exchange rates pose a risk for businesses? (Choose every correct answer.)
They can affect a company's profit.

They can can change by more than 20% a year.

They can vary unpredictability.
Which of the following are ways by which governments can discourage the import of specific items? (Choose every correct answer.)
Enacting burdensome procedures and requirements regarding customs inspection for foreign goods

Imposing a ban on importation

Setting up import quotas
For domestic manufacturers, what are positive aspects of a weak domestic currency? (Choose every correct answer.)
Reduced domestic demand for foreign-made goods

Lower prices for domestic products
A strong domestic currency tends to ______.
weaken the cost competitiveness of domestic companies
In terms of a country's business climate, a country's inflation rate and level of deficit spending are types of ______.
economic risk
True or false: Cultural differences are a major source of the cross-country variations that affect buyer preferences.
True
A country's desirability as a low-cost manufacturing location can vary frequently depending on shifts in the country's ______.
currency exchange rate
A weak domestic currency can result in a favorable exchange rate shift for domestic companies by ______.
reducing the cost advantage for foreign companies
A strong domestic currency can create an unfavorable exchange rate shift for domestic companies because ______.
domestic manufacturing becomes less competitive with foreign plants
One of the five primary strategic options a company can use to expand into a foreign market is to ______.
maintain a domestic production base while exporting goods
Producing goods in domestic plants and exporting them is considered ______.
a conservative way to enter a foreign market
To compete in an international market, a basic decision companies must make is whether to ______ to accommodate cross-country differences in buyer tastes and preferences.
customize products and services
In which of the following situations a company's export strategy may fail? (Choose every correct answer.)
When foreign countries impose tariffs on imports

When shipping costs are exorbitant

When domestic manufacturing costs are higher than those of foreign competitors
A domestic company wishing to enter the international market may choose to license its products or services to a foreign company for which reason?
The company has no resources to enter a foreign market directly.
The primary problem that franchisors face over foreign-market expansion is the lack of ______ control.
quality
What are among the five primary strategic options for a company wishing to enter international markets? (Choose every correct answer.)
Establishing a subsidiary in a foreign market

Licensing foreign firms to produce and distribute the company's products abroad

Relying on joint ventures with foreign companies
A company that wishes to control all aspects of its operation when it expands into foreign markets should establish a ______.
wholly owned subsidiary
The strategic option of home-based production and export allows a company to do what? (Choose every correct answer.)
Minimize its direct investment in foreign countries

Limit its involvement in foreign markets
A company seeking to establish a subsidiary in a foreign country may choose to establish a greenfield venture when an internal startup has which of the following characteristics? (Choose every correct answer.)
It costs less than an acquisition.

It can successfully compete with local rivals.

It can gain good distribution access.
Exporting goods may be a successful strategic option if the company ______.
can maintain its cost competitiveness at home
The strategic option of acquiring a foreign partner gives which advantages to a company expanding into a foreign market? (Choose every correct answer.)
Familiarity with local government regulations

Intimate knowledge of local buying habits and consumer preferences

Already-established relationships with distributors
The biggest risk a company assumes with a licensing strategy is that ______.
it will lose control over the use of its technological know-how
Joint ventures are likely to fail when what occurs?
a local partner's expertise is less valuable than expected
McDonald's, 7-Eleven, and Hilton Hotels have all entered the international market by using ______.
franchising strategies
Which two issues do companies commonly encounter when undergoing international expansion? (Choose every correct answer.)
The demand to customize products to suit local preferences

The cost-effectiveness of providing a standardized product globally
Acquiring a foreign company as a means of entering a foreign market can allow a business to do which of the following? (Choose every correct answer.)
Build supplier relationships
Avoid the risks of a greenfield venture
Gain access to local distribution channels
An internal startup or a(n) ______ venture is a subsidiary business that is established by setting up the entire operation from the ground up. (Enter one word in the blank.)
greenfield
Companies that employ a multidomestic strategy attempt to meet buyer needs by ______.
offering different products and services in different countries
A company that expands into a foreign market by pursuing the option of entering into a strategic alliance with a foreign partner is able to do which of the following? (Choose every correct answer.)
Share distribution facilities
Achieve cost savings
Share technological know-how
A think-local, act-local strategy gives local managers the decision-making capability to do which of the following? (Choose every correct answer.)
Focus competitive efforts
Address market needs
A joint venture can hamper a company's goals for global market leadership by fostering ______.
too much dependence on a foreign partner
Which of the following can be inhibited by a multidomestic strategy? (Choose every correct answer.)
The transfer of company knowledge
The transfer of company resources
The transfer of company technological know-how
An international strategy is a company's strategy for competing in two or more ______ simultaneously.
countries
To be successful, a think-global, act-global approach generally requires which of the following? (Choose every correct answer.)
centralized production and distribution
a global brand name
What are drawbacks of global strategies? (Choose every correct answer.)
Higher transportation costs
Difficulty addressing local needs
Car manufacturers often employ a multidomestic approach and allow local managers to market the vehicles according to which of the following? (Choose every correct answer.)
Competitive conditions
Cultural preferences
Buyer tastes
Another way to define the concept of multidomestic strategy is as a ______.
think-local, act-local approach
What are drawbacks of a multidomestic strategy? (Choose every correct answer.)
It won't help a company build a single international competitive advantage.

It can raise production and distribution costs.
A company that employs a global strategy will do which of the following? (Choose every correct answer.)
Build a global brand

Sell a standardized global product

Coordinate efforts across country boundaries

Create a strong headquarters to oversee its global activities
A global strategy is an appropriate choice in which situation?
Buyer needs for a particular product or service are relatively the same in many countries.
A transnational strategy is a ______ approach.
think-global, act-local
Which of the following are drawbacks of a transnational strategy? (Choose every correct answer.)
It is a difficult strategy to implement.

It involves pursuing conflicting goals.

It can create a costly and time-consuming operation.
If significant economies of scale exist, a company that concentrates on a limited number of locations can do what?
Achieve major cost savings
Companies that focus on a certain locations can benefit from which of the following? (Choose every correct answer.)
Superior resources
Better activities coordination
Well-trained personnel
A company that distributes its activities across multiple locations can seek which advantages? (Choose every correct answer.)
Providing customers with timely service and technical support

Reducing the risks of fluctuating exchange rates

Lowering distribution costs
Companies that implement a transnational strategy often employ mass-customization techniques designed to ______.
accommodate local preferences in a semi-standardized way
What are reasons a company would share a valuable competitive asset with its international locations? (Choose every correct answer.)
To attract customers
To increase its global market share
A transnational strategy can enable a company to do which of the following?
Leverage subsidiary skills and capabilities
Focusing on a limited number of locations can increase a company's competitive advantage when which of the following are true? (Choose every correct answer.)
A large learning curve is associated with a particular task.

Manufacturing costs are lower in a certain area.
A company may find cross-border resource sharing or transfers of capabilities fail to translate into a competitive advantage because ______.
a rival firm in a foreign-country market has superior resources and technology
One strategy associated with limiting the number of locations is to open a customer service center in a specific country in order to:
cultivate close relationships with important clients.
Which factors make dispersing a company's activities competitively important? (Choose every correct answer.)
Trade barriers to importing manufactured goods

Major customers in areas without low-cost production

The threat of supply interruptions
What can an international company can do to leverage its capabilities and increase its competitive advantage? (Choose every correct answer.)
Share a brand name or other valuable competitive asset with all its stores

Transfer technological know-how to its international operations
A company trying to gain advantages over domestic rivals by shifting production from a plant in one country to a plant in another to profit from exchange rate fluctuations is using cross-border ______.
coordination
Why may a company's products have little value in certain foreign-market locations? (Choose every correct answer.)
Buyer preferences and lifestyles vary from country to country.

Local brands may remain very popular no matter how well a competing brand is regarded internationally.
True or false: Cross-market subsidization can be a powerful competitive weapon for companies operating in numerous markets.
True
the decision on the part of two companies to refrain from launching aggressive actions against each other, may occur when the companies compete against one another in multiple geographic markets.
Mutual restraint
One of the ways companies can compete profitably in a developing-country market is to ______.
tailor the packaging and product quantity to local preferences
Sharing resources with its international operations allows a company to do which of the following? (Choose every correct answer.)
Spread the development costs over a larger volume of unit sales

Reduce the cost of creating them at each location
Which of the following is a way by which a company can successfully compete in a developing country market as shown by Japan's Suzuki when it entered India?
Change the local market to match the company's core operations.
Companies that practice cross-border coordination often gain which benefits? (Choose every correct answer.)
Better workload distribution
Coordinated production schedules
Adaptation to tariff and quota changes
What are reasons that domestic companies often have an advantage over global companies? (Choose every correct answer.)
Domestic companies are familiar with local culture and consumer needs.

Domestic companies are familiar with the local labor force.
subsidization refers to supporting competitive offensives in one market with resources and profits diverted from operations in another market.
cross-market
By transferring company expertise to cross-border markets, a domestic company can successfully do what?
Transform into a global company in its own right
What is the term used to describe rivals competing against one another in many of the same markets?
Multimarket competition
What can help a company compete successfully in developing-country markets? (Choose every correct answer.)
Offering lower-priced, better products

Customizing its business model to suit local circumstances
If it is impractical for a company to adapt to the situation in a developing-country market, the company should ______.
avoid that market
True or false: One way a domestic company can successfully compete against a global business giant is by exploiting shortcomings in the global company's local distribution networks.
True
A domestic company can defend against expanding international companies through which methods? (Choose every correct answer.)
Employing a rapid-growth strategy
Pursuing mergers and acquisitions
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