07 - Strategies For Competing in International Markets

IE-E2 403
Strategic
Planning
Evelyn M. Eviota
Strategies for
Competing in
International Markets
STRATEGIES FOR COMPETING
IN INTERNATIONAL MARKETS
INTENDED LEARNING OUTCOMES:

1. Identify the primary reasons companies choose to
compete in international markets.
2. Understand why and how differing market conditions
across countries influence a company’s strategy choices
in international markets.
3. Identify the five (5) general modes of entry into foreign
markets.
4. Identify the three (3) main options for tailoring a
company’s international strategy to cross-country
differences in market conditions and buyer references.
INTENDED LEARNING OUTCOMES:

5. Explain how multinational companies are able to use
international operations to improve overall
competitiveness.
6. Understand the unique characteristics of competing in
developing country markets.
I. Cross-country differences in demographic, cultural

and market conditions
• customize offerings in each different country market
to match the taste and preferences of local buyers
• pursue a strategy of offering a mostly standardized
product worldwide that can lead to scale economies
and low-cost advantage.
II. Opportunities for location-based cost advantages

• differences from country to country in:
a) wage rates
b) worker productivity
c) energy cost
d) environmental regulations
e) tax rates
f) inflation rates
• may impact a company’s operating costs and
profitability
III. Industry cluster knowledge sharing opportunities

• advantages available to companies operating in a
location containing a cluster of related industries,
including others within the same value chain
systems.
IV. The risks of adverse exchange rate shifts

• companies producing and marketing their products
and services in many different countries are subject
to the impact of changes in currency exchange
rates.
• companies that export goods to foreign countries
always gain in competitiveness when the currency
of the country in which the goods are manufactured
is weak, and they are at a disadvantaged when the
currency of the country in which the goods are
manufactured grows stronger.
V. The impact of government policies on the business

climate in host countries
• National governments enact measures affecting
business conditions.
• Government of countries eager to spur economic
growth, create more jobs, and raise living standards
for their citizens usually make a special effort to
create a business climate that outsiders will view
favorably. May give incentives such as reduced
taxes, low-cost loans, site development assistance,
etc. to possible investors.
• A country’s business climate is also a functions of the

political and economic risks associated with
operating within its borders.
a) Political risks stem from instability or weakness in
national government and hostility to foreign
business.
b) Economic risks stem from the stability of a
country’s monetary system, economic and
regulatory policies and the lack of property rights
protection.
I. Export Strategies
• Is an excellent initial strategy for pursuing
international sales and is a conservative way to test
international waters.
• this is not advisable when:
a) manufacturing costs in the home country are
substantially higher than in foreign countries
where rivals have plants.
b) the costs of shipping the product to distant
foreign markets is high.
c) adverse shifts occur in currency exchange rates.
II. Licensing Strategies

• as an entry strategy in foreign markets, makes sense
when a firm with valuable technical know-how or a
unique patented product has neither the internal
organizational capability nor the resources to enter
foreign markets.
• licensing has the advantage of avoiding the costs
and risks of committing resources to country markets
that are unfamiliar, politically volatile, economically
unstable or risky.
• Licensing has the following disadvantages:

a) the risk of providing valuable technology know-
how to foreign companies and losing some degree
of control over its use.
b) monitoring licenses & safeguarding the company’s
proprietary know-how can be difficult in some
circumstances.
III. Franchising Strategies

• an arrangement where one party (the franchiser)
grants another party (the franchisee) the right to
use its trademark or trade-name as well as certain
business systems and processes, to produce and
market a good or service according to certain
specifications.
• the franchisee usually pays a one-time franchise fee
plus a percentage of sales revenue as royalty.
Source: http://www.businessdictionary.com/
• the franchisee gains the following from the

agreement:
immediate name recognition
tried and tested products
standard building design and décor
detailed techniques in running and promoting the
business
training of employees
ongoing help in promoting and upgrading of the
products.
• franchising has much the same advantages as

licensing because the franchisee bears most of the
risks and costs of establishing foreign locations.
• franchising disadvantages include:
franchisor faces possible problem of maintaining
quality control
another problem for the franchisor is whether to
allow foreign franchisees to modify their product
offering to satisfy the tastes and expectations of
local buyers.
IV. Foreign Subsidiary Strategies

• an option when a company prefers direct control
over all aspects of operating in a foreign market.
• This can be done through:
a. Acquisition
b. Internal development
IVa. Acquisition
• the quicker, least risky, cost efficient means of
hurdling entry barriers such as gaining access to
distribution channels, building supplier relation-
ships, establishing working relationships with key
government officials.
• the acquiring firm has to move directly to the task
of transferring resources & personnel to the newly
acquired business, integrating & redirecting the
activities of the newly acquired business into its
own, putting its own strategy into place, accelera-
ting efforts to build a strong market position.
IVb. Internal development

• establishing operations from the ground up via
internal development makes sense and is appealing
when:
a) when creating an internal start up is cheaper than
making an acquisition.
b) when adding new production capacity will not
adversely impact the supply-demand balance in
the local market.
c) when a start up subsidiary has the ability to gain

good distribution access owing to its recognized
brand name.
d) when a start up subsidiary will have the size,
cost structure and resources to compete head-to-
head against local rivals.
V. Alliances and Joint Venture Strategies

• Strategic alliances, joint ventures and other
cooperative agreements with foreign companies are
favorite and potentially fruitful means for entering
foreign markets or strengthening a firm’s
competitiveness in world markets.
• Cross-border alliances (CBAs) can be defined as
partnerships that are formed between two or more
firms from different countries for the purpose of
pursuing mutual interests through sharing their
resources and capabilities.
Source: https://brainmass.com
• Drivers of Cross Border Alliances:

a) gaining better access to attractive country markets
b) capture economies of scale in production and/or
marketing
c) fill gaps in technical expertise and/or knowledge of
local markets (buying habits and product
preferences of consumers, local customs, etc.)
d) share distribution facilities and dealer networks
and to mutually strengthen each partner’s access to
buyers.
e) allies can direct their competitive energies more

toward mutual rivals and less toward each one
another, teaming up may help them close the gap
on leading companies.
f) when companies wanting to enter a new foreign
market conclude that alliances with local
companies are an effective way to establish
working relationships with officials in the host-
country government.
g) alliances can be a useful way for companies across
the world to gain agreement on important
technical standards.
• Advantages of Cross Border Alliances:

a) allows a company to preserve its independence and
avoid using scarce financial resources to fund
acquisitions.
b) offers the flexibility to readily disengage once its
purpose has been served or if the benefits proved
elusive.
• Risks of Cross Border Alliances:

a) Cross border allies have to overcome language and
cultural barriers and figure out how to deal with
diverse and conflicting operating practices.
b) Communication, trust building and coordination
costs are high in terms of management time.
c) Conflicting objectives and strategies, deep
differences of opinions and differences in corporate
values and ethical standards.
d) danger of becoming overly dependent on foreign
partners for essential expertise and competitive
capabilities.
I. Multi-domestic Strategy
• also called “Think Local, Act Local” approach to
strategy making
• 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.
• essential when host-government regulations or trade
policies preclude a uniform, coordinated worldwide
market approach.
II. Global Strategy

• also called “Think Global, Act Global” approach to
strategy making
• employs 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.
III. Transnational Strategy

• also called “Think Global, Act Local” approach to
strategy making
• involves employing the 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
condition.
Using International Operations to Improve Overall

Competitiveness:
I. Use Location to Build Competitive Advantage:

• to use location to build competitive advantage, a
company must consider the following:
a) Concentrate each internal process in a few
countries or to disperse performance of each
process to many nations
b) Which country to locate a particular activity
When to Concentrate Internal Processes in a few Locations:

● when the cost of manufacturing or other activities are
significantly lower
● when there are significant scale economies
● when there is steep learning curve associated with
performing an activity
● when certain locations have superior resources, allow
better coordination of related activities, or offer
other valuable advantages.
When to Disperse Internal Processes Across Many Locations:

● buyer related activities usually must take place close to
buyers
● high transportation costs, diseconomies of large scale
and trade barriers make it too expensive to operate
in a central location
● hedge against the risks of fluctuating exchange rates and
adverse political developments.
II. Using cross-border coordination to build

competitive advantage
• A global or international manufacturer can shift
production from a plant in one country to a plant in
another:
a) to take advantage of exchange rate fluctuations
b) to enhance its leverage with host-country
government
c) to respond to changing wage rates, components
shortages, energy costs, or changes in tariffs and
quotas
Strategies in Competing in Markets of Developing

Countries:
1. Prepare to compete on the basis of low price.
2. Modify aspects of the company’s business model or
strategy to accommodate local circumstances.
3. Try to change the local market to better match the way
the company does business elsewhere.
4. Stay away from those emerging markets where it is
impractical or uneconomical to modify the company’s
business model to accommodate local circumstances.
Strategies for Local Companies in Defending Against

Global Giants in Emerging Markets:
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 low-cost and other competitively
important local workforce qualities.
4. Use acquisition and rapid growth strategies to better
defend against expansion-minded multinationals.
5. Transfer company expertise to cross-border markets and
initiate actions to contend on a global level.

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IE-E2 403

INTENDED LEARNING OUTCOMES:

INTENDED LEARNING OUTCOMES:

I. Cross-country differences in demographic, cultural

II. Opportunities for location-based cost advantages

III. Industry cluster knowledge sharing opportunities

IV. The risks of adverse exchange rate shifts

V. The impact of government policies on the business

• A country’s business climate is also a functions of the

II. Licensing Strategies

• Licensing has the following disadvantages:

III. Franchising Strategies

• the franchisee gains the following from the

• franchising has much the same advantages as

IV. Foreign Subsidiary Strategies

IVb. Internal development

c) when a start up subsidiary has the ability to gain

V. Alliances and Joint Venture Strategies

• Drivers of Cross Border Alliances:

e) allies can direct their competitive energies more

• Advantages of Cross Border Alliances:

• Risks of Cross Border Alliances:

II. Global Strategy

III. Transnational Strategy

Using International Operations to Improve Overall

I. Use Location to Build Competitive Advantage:

When to Concentrate Internal Processes in a few Locations:

When to Disperse Internal Processes Across Many Locations:

II. Using cross-border coordination to build

Strategies in Competing in Markets of Developing

Strategies for Local Companies in Defending Against

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