Competing in Foreign Markets

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Competing inForeign Markets
Chapter
2
Chapter Outline

• Why Companies Expand into Foreign Markets
• Cross-Country Differences in Cultural,
  Demographic, and Market Conditions
• Multi-country Strategy vs. Global Strategy
• Strategy Options for Entering and Competing in
  Foreign Markets
• Exporting
• Licensing/Franchising
• Strategic Alliances/Joint Ventures

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Why is the World Economy Globalizing?

• Previously closed national economies are opening
  up their markets to foreign companies
• Privatization of formerly communist markets
• The reduction of trade barriers worldwide
• Importance of geographic distance is shrinking
  due to the Internet
• Communication and the transfer of information are
  easier than they have ever been
• The Internet and television are causing a
  convergence of customer tastes and lifestyles
  throughout the world

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What Is the Motivationfor Competing
Internationally?
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How Markets Differ from Country to Country

• Consumer tastes and preferences
• Consumer buying habits and demographics
• Market size and growth potential
• Government regulations and trade policies
• Driving forces
• Competitive pressures

One of the biggest concerns of companies
competing in foreignmarkets is whether to
customize their product offerings in
eachdifferent country market to match the tastes
and preferences of local buyers or whether to
offer a mostly standardized product worldwide.
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Two Primary Patternsof International Strategy
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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
  differentfrom buyers in another country
• Host government regulations are diverse and
  complicated
• Two drawbacks
• 1. More costly than a global strategy
• 2. Works against building a unified competitive
  advantage

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Global Strategy

• Strategy for competing is similar or standardized
  in all country markets
• Involves coordinating strategic moves globally
• 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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Strategy Options for Competing in Foreign
Markets

• Multi-country Strategy
• Global strategy based on
• Low cost
• Differentiation
• Focusing
• Exporting
• Licensing/Franchising
• 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
  higherthan in foreign countries where rivals
  have plants
• High shipping costs are involved

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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/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

• Advantages
• Franchisee bears most of costs andrisks of
  establishing foreign locations
• Franchisor has to expend only theresources to
  recruit, train, and support franchisees
• Disadvantage
• Maintaining cross-country quality control

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Benefits of Global Alliances

• Gain scale economies in productionand/or
  marketing
• Fill gaps in technical expertiseor 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

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Pitfalls of Global Alliances

• Language and cultural barriers
• Different motives and conflicting objectives
• Time consuming slows decision-making
• 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