Competing in

Foreign

Markets

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

“You have no choice but

to operate in a world

shaped by globalization

and the information

revolution. There are two

options: Adapt or die.”

Andrew S. Grove

The Four Big Strategic Issuesin Competing Multinationally

• Whether to customize a company’s offerings in each different country market to match preferences of local buyers or offer a mostly standardized product worldwide

• Whether to employ essentially the samebasic competitive strategy in all countriesor modify the strategy country by country

• Where to locate a company’s production facilities,distribution centers, and customer service operationsto realize the greatest locational advantages

• How to efficiently transfer a company’s resource strengths and capabilities from one country to another to secure competitive advantage

Why Do Companies Expandinto Foreign Markets?

Gain access tonew customers

Capitalizeon core

competencies

Achieve lowercosts and enhance competitiveness

Spreadbusiness risk across

widermarket base

Obtain access to valuable natural

resources

International vs. Global Competition

International Competitor

GlobalCompetitor

Company operates in a select few foreign countries, with

modest ambitions to expand further

Company markets products in 50 to 100 countries and

is expanding operations into additional country markets

annually

• Economy• Legal/political• Regulatory• Technology• Socio-cultural• Demographic

How Markets Differ from Country to Country

CIA World Fact Book

Multi-country Competition

Global Competition

Two Primary Patternsof International Competition

Characteristics ofMulti-Country Competition

• Market contest among rivals in one country not closely connected to market contests in other countries

• Buyers in different countries areattracted to different product attributes

• Sellers vary from country to country• Industry conditions and competitive forces in

each national market differ in important respectsRival firms battle for national championships –

winning in one country does not necessarily signal the ability to fare well in other countries!

• Competitive conditions acrosscountry markets are strongly linked– Many of same rivals compete in

many of the same country markets– A true international market exists

• A firm’s competitive position in one country is affected by its position in other countries

• Competitive advantage is based on a firm’s world-wide operations and overall global standingRival firms in globally competitive

industries vie for worldwide leadership!

Characteristics of Global Competition

Strategy Options for Competing in Foreign Markets

• Exporting

• Licensing

• Franchising strategy

• Multi-country strategy

• Global strategy

• Strategic alliances or joint ventures

Localized Multicountry Strategiesor a Global Strategy?

• Whether to vary a company’s competitive approach to fit specific market conditions and buyer preferences in each host county

OR• Whether to employ essentially the same strategy

in all countries

Strategic Issue

Characteristics of a “Think-Local,Act-Local” Approach to Strategy Making

• Business approaches are deliberately crafted to– Accommodate differing tastes and expectations of buyers

in each country– Stake out the most attractive market positions vis-à-vis

local competitors• Local managers are given considerable

strategy-making latitude• Plants produce different products

for different local markets• Marketing and distribution are adapted

to fit local customs and cultures

Characteristics of a “Think-Global,Act-Global” Approach to Strategy Making

• Same products under the same brand names are sold everywhere• Same distribution channels are used in all countries• Competition is based on the same capabilities

and marketing approaches worldwide• Strategic moves are integrated and coordinated worldwide• Expansion occurs in most nations where significant buyer demand

exists• Strategic emphasis is placed on building

a global brand name• Opportunities to transfer ideas, new

products, and capabilities from onecountry to another are aggressively pursued

Your OpinionAssume you are in charge of developing the strategy for a multinational company selling products in several different countries around the world.

A. If your company’s product is personal computers, do you think it would make better strategic sense to employ a multicountry strategy or a global strategy? Why?

B. If your company’s product is dry soup mixes and canned soups, would a multicountry strategy seem to be more advisable than a global strategy? Why?

C. If your company’s product is washing machines, would it seem to make more sense to pursue a multicountry strategy or a global strategy? Why?

D. If your company’s product is basic work tools (hammers, screwdrivers, pliers, wrenches, saws), would a multicountry strategy or a global strategy seem to have more appeal? Why?

Building CompetitiveAdvantage in Foreign Markets

• Three ways to gain competitive advantage

1. Locating activities among nations in ways that lowercosts or achieve greater product differentiation

2. Efficient/effective transfer of competitivelyvaluable competencies and capabilities fromcompany operations in one country to company operations in another country

3. Coordinating dispersed activities in ways a domestic-only competitor cannot

Locating Activities to Build aGlobal Competitive Advantage

• Two issues

– Whether to

• Concentrate each activity in afew countries or

• Disperse activities to manydifferent nations

– Where to locate activities

• Which country is best location for which activity?

Transferring Valuable Competencies to Build a Global Competitive Advantage

• Transferring competencies, capabilities, and resource strengths across borders contributes to– Development of broader competencies and capabilities– Achievement of dominating depth in some competitively

valuable area

• Dominating depth in a competitively valuable capability is a strong basis for sustainable competitive advantage over– Other multinational or global competitors and– Small domestic competitors in host countries

What Are Profit Sanctuaries?

• Profit sanctuaries are countrymarkets where a firm

– Has a strong, protected marketposition and

– Derives substantial profits

• Generally, a firm’s most strategicallycrucial profit sanctuary is its home marketProfit sanctuaries are a valuable

competitive asset in global industries!

• Involves supporting competitive offensives in one market with resources/profits diverted from operations in other markets

• Competitive power of cross-market subsidization results from a global firm’s ability to– Draw upon its resources and profits in other country markets to

mount an attack on single-market or one-country rivals and– Try to lure away their customers with

• Lower prices• Discount promotions• Heavy advertising• Other offensive tactics

What Is Cross-Market Subsidization?

Global Strategic Offensives

• Attack a foreign rival’s profit sanctuaries – Approach places a rival on the defensive, forcing it to

• Spend more on marketing/advertising• Trim its prices• Boost product innovation efforts• Take actions raising its costs and eroding its profits

• Employ cross-market subsidization– Attractive offensive strategy for companies competing in multiple country

markets with multiple products• Dump goods at cut-rate prices

– Approach involves a company selling goods in foreign markets at prices• Well below prices at which it sells in its home market or• Well below its full costs per unit

Three Options

SIC CodesEU

MERCOSURWTO

Strategic Appeal of Strategic Alliances

• Gain better access to attractive country markets from host country’s government to import and market products locally

• Capture economies of scale in production and/or marketing• Fill gaps in technical expertise or knowledge of local markets• Share distribution facilities and dealer networks• Direct combined competitive energies

toward defeating mutual rivals• Take advantage of partner’s local market

knowledge and working relationships withkey government officials in host country

• Useful way to gain agreement onimportant technical standards

• Tailoring products for big, emerging markets often involves– Making more than minor product changes and– Becoming more familiar with local cultures

• Companies have to attract buyers withbargain prices as well as better products

• Specially designed and/or speciallypackaged products may be needed toaccommodate local market circumstances

• Management team must usually consistof a mix of expatriate and local managers

Characteristics of Competingin Emerging Foreign Markets

Strategic Options: How to Competein Emerging Country Markets

• Prepare to compete on the basis of low price

• Be prepared to modify aspects ofthe company’s business model toaccommodate local circumstances

• Try to change the local market to better match the way the company does business elsewhere

• Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accommodate local circumstances

Strategic Options to Defend Against Global Giants

• Use home field advantage• Transfer expertise• Shift business model • Go global

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