Competition in Global

Industries

You have no choice but to

operate in a world shaped by

globalization and information

revolution. There are two
options: Adapt or die.
Andrew S. Grove

The 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

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

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

Spread
business risk
across wider
market base

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

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

How Markets Differ from

Country to Country
Consumer tastes and preferences

Consumer buying habits

Market size and growth potential

Distribution channels
Driving forces
One of the biggest
concerns of companies competing in foreign
Competitive
pressures
markets is whether to customize their product offerings in each
different country market to match the tastes and preferences of local
buyers or whether to offer a mostly standardized product worldwide.

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

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

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

Two Primary Patterns

of International Competition

Multi-country
Competition

Global
Competition

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

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 worldwide operations and overall global standing
Rival firms in globally competitive industries
vie for worldwide leadership!

Strategy Options for

Competing in Foreign Markets
Exporting

Licensing
Franchising strategy
Multi-country strategy
Global strategy
Strategic alliances or joint ventures

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

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

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 cross-country quality control

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

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

How a Multicounty Strategy Differs from a Global Strategy

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

Locating Activities to Build a

Global Competitive Advantage
Two issues
Whether to
Concentrate each activity in a
few countries or
Disperse activities to many
different nations

Where to locate activities

Which country is best
location for which activity?

Concentrating Activities to Build a Global

Competitive Advantage
Activities should be concentrated when
Costs of manufacturing or other value chain activities
are meaningfully lower in certain locations than in
others
There are sizable scale economies
in performing the activity
There is a steep learning curve associated
with performing an activity in a single location
Certain locations have
Superior resources
Allow better coordination of related activities or
Offer other valuable advantages

Dispersing Activities to Build a

Global Competitive Advantage
Activities should be dispersed when
They need to be performed close to buyers
Transportation costs, scale diseconomies, or
trade barriers make centralization expensive
Buffers for fluctuating exchange rates, supply
interruptions, and adverse politics are needed

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

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

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!

Profit Sanctuary Potential of Various Competitive

Approaches

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

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

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

Benefits of Strategic Alliances

Gain scale economies 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 partners local market knowledge and working
relationships with key government officials in host country
Useful way to gain agreement on important technical standards

Pitfalls of Strategic Alliances

Different motives and conflicting objectives

Time consuming; slows decision-making

Language and cultural barriers

Mistrust when collaborating in

competitively sensitive areas
Clash of egos and company cultures

Becoming too dependent on another firm for

essential expertise over the long-term

Guidelines in Forming
Strategic Alliances
Pick a good partner, one that shares
a common vision
Be sensitive to cultural differences
Recognize alliance must benefit both sides
Ensure both parties deliver on their
commitments in agreement
Structure decision-making process so actions can
be taken swiftly when needed
Manage the learning process, adjusting the alliance
agreement over time to fit new circumstances

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

Strategies for Local Companies

in Emerging Markets
Optimal strategic approach hinges on
Whether a firms competitive
assets are suitable only for the
home market or can be
transferred abroad
Whether industry pressures to
move toward global competition
are strong or weak

Strategy Options for Local Companies in Competing

Against Global Challengers