Chapter

7
Competing in
Foreign Markets
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy State University-Florida and Western Region
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Chapter Roadmap
Why Companies Expand into Foreign Markets
Cross-Country Differences in Cultural, Demographic, and

Market Conditions
The Concepts of Multi-country Competition and Global
Competition
Strategy Options for Entering and Competing in Foreign
Markets
The Quest for Competitive Advantage in Foreign Markets
Profit Sanctuaries, Cross-Market Subsidization, and Global
Strategic Offensives
Strategic Alliances and Joint Ventures with Foreign Partners
Competing in Emerging Foreign Markets

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The Four Big Strategic Issues

in Competing Multinationally
Whether to customize a companys offerings in each different

country market to match preferences of local buyers or offer a

mostly standardized product worldwide
Whether to employ essentially the same

basic competitive strategy in all countries

or modify the strategy country by country
Where to locate a companys production facilities,

distribution centers, and customer service operations

to realize the greatest locational advantages
Whether and how to efficiently transfer a

companys resource strengths and capabilities from

one country to another to secure competitive advantage
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What Is the Motivation

for Competing Internationally?
Gain access to
new customers

Obtain access to
valuable natural
resources

Help
achieve
lower costs
Capitalize
on core
competencies
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Spread
business risk
across wider
market base

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International vs. Global

Competition
International
Competitor

Company operates in a select

few foreign countries, with
modest ambitions to expand
further

Global
Competitor

Company markets products in

50 to 100 countries and is
expanding operations into
additional country markets
annually

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Cross-Country Differences in Cultural,

Demographic, and Market Conditions
Cultures and lifestyles differ among countries
Differences in market demographics
Variations in manufacturing

and distribution costs

Fluctuating exchange rates
Differences in host government

economic and political demands

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Different Countries Have

Different Locational Appeal
Manufacturing costs vary from country to

country based on

Wage rates

Worker productivity

Natural resource availability

Inflation rates

Energy costs

Tax rates

Quality of the business environment varies from country to country

Suppliers, trade associations, and makers of complementary products

often find it advantageous to cluster their operations in the same

general location
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Fluctuating Exchange Rates Affect

a Companys Competitiveness
Currency exchange rates are unpredictable
Competitiveness

of a companys operations
partly depends on whether exchange rate
changes affect costs favorably or unfavorably

Lessons of fluctuating exchange rates

Exporters

always gain in competitiveness

when the currency of the country where
goods are manufactured grows weaker

Exporters

are disadvantaged when

the currency of the country where
goods are manufactured grows stronger

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Differences in Host
Government Trade Policies
Local content requirements

Restrictions on exports
Regulations on prices of imports
Import tariffs or quotas

Other regulations

Technical standards

Product certification

Prior approval of capital spending projects

Withdrawal of funds from country

Ownership (minority or majority) by local citizens

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Two Primary Patterns

of International Competition
Multi-country
Competition

Global
Competition
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Characteristics of
Multi-Country Competition
Market contest among rivals in one country not closely

connected to market contests in other countries

Buyers in different countries are
attracted to different product attributes
Sellers vary from country to country
Industry conditions and competitive forces in
each national market differ in important respects
Rival firms battle for national championships
winning in one country does not necessarily signal the
ability to fare well in other countries!
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Characteristics of
Global Competition
Competitive conditions across

country markets are strongly linked

Many

of same rivals compete in

many of the same country markets
A true international market exists
A firms competitive position in one country is affected

by its position in other countries

Competitive advantage is based on a firms world-wide
operations and overall global standing
Rival firms in globally competitive industries
vie for worldwide leadership!
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Strategy Options for

Competing in Foreign Markets
Exporting
Licensing
Franchising strategy
Multi-country strategy
Global strategy

Strategic alliances or joint ventures

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Export Strategies
Involve using domestic plants as a production base for

exporting to foreign markets

Excellent initial strategy to pursue international sales
Advantages
Conservative

way to test international waters

Minimizes both risk and capital requirements
Minimizes direct investments in foreign countries
An export strategy is vulnerable when
Manufacturing

costs in home country are higher

than in foreign countries where rivals have plants
High shipping costs are involved
Adverse fluctuations in currency exchange rates
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Licensing Strategies
Licensing makes sense when a firm
Has

valuable technical know-how or a patented product

but does not have international capabilities to enter foreign
markets
Desires to avoid risks of committing resources to markets
which are
Unfamiliar
Politically volatile
Economically unstable

Disadvantage
Risk

of providing valuable technical know-how to foreign

firms and losing some control over its use

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Franchising Strategies
Often is better suited to global expansion efforts

of service and retailing enterprises

Advantages
Franchisee

bears most of costs and

risks of establishing foreign locations

Franchisor

has to expend only the

resources to recruit, train, and support franchisees

Disadvantage
Maintaining
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cross-country quality control

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Multi-Country Strategy
Strategy is matched to local market needs
Different country strategies are called for when
Significant

country-to-country differences in customers

needs exist
Buyers in one country want a product different
from buyers in another country
Host government regulations preclude
uniform global approach
Two drawbacks

1. Poses problems of transferring

competencies across borders
2. Works against building a unified competitive advantage
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Global Strategy
Strategy for competing is similar in all country markets
Involves
Coordinating

strategic moves globally

Selling

in many, if not all, nations where a significant

market exists

Works best when products

and buyer requirements are

similar from country to country
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Fig. 7.1: How a Multicountry Strategy Differs from a Global Strategy

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The Quest for Competitive

Advantage in Foreign Markets
Three ways to gain competitive advantage

1. Locating activities among nations in ways that lower

costs or achieve greater product differentiation
2. Efficient/effective transfer of competitively
valuable competencies and capabilities from
company operations in one country to
company operations in another country
3. Coordinating dispersed activities in
ways a domestic-only competitor cannot
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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

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Coordinating Cross-Border Activities to

Build a Global Competitive Advantage
Aligning activities located in different countries

contributes to competitive advantage in several ways

Choose

where and how to challenge rivals

Shift production from one location to another to take
advantage of most favorable cost or trade conditions or
exchange rates
Use Internet technology to collect ideas for new
or improved products and to determine which
products should be standardized or customized
Enhance brand reputation by incorporating
same differentiating attributes in its
products in all markets where it competes
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What Are Profit Sanctuaries?

Profit sanctuaries are country

markets where a firm

Has

a strong, protected market

position and

Derives

substantial profits

Generally, a firms most strategically

crucial profit sanctuary is its home market

Profit sanctuaries are a valuable

competitive asset in global industries!
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Fig. 5.2: Profit Sanctuary Potential of

Various Competitive Approaches

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What Is Cross-Market
Subsidization?
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 firms 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
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Global Strategic Offensives

Three Options
1. Direct onslaught

Objective Capture a major slice of market share, forcing rival to

retreat
Involves

Price cutting
Heavy expenditures on marketing, advertising, and promotion
Efforts to gain upper hand in one or more distribution channels

2. Contest

More subtle and focused than an onslaught

Focuses on a particular market segment
unsuited to defenders capabilities and in
which attacker has a new next-generation product
3. Feint
Move designed to divert the defenders attention away from
attackers main target
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Achieving Global
Competitiveness via Cooperation
Cooperative agreements / strategic alliances with foreign

companies are a means to

Enter a foreign market or

Strengthen a firms competitiveness

in world markets

Purpose of alliances

Joint research efforts

Technology-sharing

Joint use of production or distribution facilities

Marketing / promoting one anothers products

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Characteristics of Competing in
Emerging Foreign Markets
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 wit

bargain prices as well as better products

Specially designed and/or specially
packaged products may be needed to
accommodate local market circumstances
Management team must usually consist
of a mix of expatriate and local managers
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Fig. 5.3: Strategy Options for Local Companies

in Competing Against Global Challengers

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