Competing in International Markets

1
Competing in International Markets
2
Overview

• Key question Should our firm enter the
  international market with our product or service?
• We need to consider the following
• Company Influences
• Industry Influences
• Market Influences

3
Company

• Firm growth objectives and strategy
• Advantages of going international
• Challenges of going international

4
How will the firm grow?

• Acquisition buy a smaller company
• Diversification add a new type of business
• Vertical Integration - take on greater ownership
  and control of the various parts of its
  production supply chain.

5
How will the firm grow?

• Geographic Expansion finding new customers in
  new countries.
• Three billion new people are anticipated to join
  the global middle class in the next two decades,
  mostly located in the developing world.

6
Advantages of Internationalization

• More customers
• Economies of scale
• Economies of scope
• Transfer of skill and technology
• A widely known brand name
• Find new strengths
• Diversification

7
Definition

• Economies of Scope - The average total cost of
  production decreases as a result of increasing
  the number of different goods produced.
• E.g. PG, They can afford to hire expensive
  graphic designers who will work across the
  product lines.

8
Challenges of Internationalization

• Communication
• Logistics
• Finance
• Management culture

9
Do firms improve performance at home by investing
abroad?

• Paper on Manufacturing firms in Italy
• Studied changes to firms following setting up
  foreign subsidiaries
• Focused on firms investing abroad for the first
  time.

10
Conclusion of study

• Compared long-term MNEs, new MNEs and National
  firms
• MNEs always performed better than nationals
• Investing abroad significantly boosts performance
  at home.
• Growth, productivity and output all accelerate
  after investment.

11
Discussion

• What are the main advantages and
  disadvantages for a firm expanding
  internationally?

12
Competing in International Markets - Industry
13
Overview

• Competitive Advantage
• National brand preferences
• Strategy

14
Discussion

• What is a competitive advantage?
• How can you create one?

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Sources of Competitive Advantage
COST ADVANTAGE
Similar product
at lower cost
COMPETITIVE ADVANTAGE
Price premium
from unique product
DIFFERENTIATION ADVANTAGE
16
Product Positioning Map
17
The Porter Value Chain
SUPPORT ACTIVITIES
FIRM INFRASTRUCTURE HUMAN RESOURCE
MANAGEMENT TECHNOLOGY DEVELOPMENT PROCUREMENT IN
BOUND OPERATIONS OUTBOUND MARKETING SERVICE LOGIST
ICS LOGISTICS SALES
PRIMARY ACTIVITIES
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Using the Value Chain to Identify Differentiation
Potential on the Supply Side
IS that supports fast response capabilities
Training to support customer service excellence
FIRM INFRASTRUCTURE HUMAN RESOURCE
MANAGEMENT TECHNOLOGY DEVELOPMENT INBOUND
OPERATIONS OUTBOUND MARKETING SERVICE LOG
ISTICS LOGISTICS SALES
Unique product features. Fast new product
development
Customer technical support. Consumer credit.
Availability of spares
Quality of components materials
Defect free products. Wide variety
Fast delivery. Efficient order processing
Building brand reputation
19
The Evolution of Competitive Advantage
How does competitive advantage evolve?

• External sources of
• change e.g.
• Changing customer demand
• Changing prices
• Technological change

Internal sources of change
Some firms have greater creative and
innovative capability
Resource heterogeneity among firms means
differential impact
Some firms faster and more effective in
exploiting change
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Identifying Differentiation Potential The
Demand Side
What needs does it satisfy?
THE PRODUCT
What are key attributes?

• FORMULATE DIFFERENTIATION STRATEGY
• Select product positioning in relation to
  product attributes
• Select target customer group
• Ensure customer / product compatibility
• Evaluate costs and benefits of differentiation

Relate patterns of customer preferences to
product attributes
By what criteria do they choose?
THE CUSTOMER
What price premiums do product attributes command?
What motivates them?
What are demographic, sociological, psychological
correlates of customer behavior?
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Resources, Capabilities and Competitive Advantage
INDUSTRY KEY SUCCESS FACTORS
COMPETITIVE ADVANTAGE
STRATEGY
ORGANIZATIONAL CAPABILITIES

• RESOURCES
• TANGIBLE INTANGIBLE HUMAN
• Financial
• Physical

• Specialized skills
• and knowledge
• Communication
• interactive abilities
• Motivation

• Technology
• Reputation
• Culture

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Discussion

• Do firms always have the same
  competitive advantage in different
  countries?
• Can you give an example?

23
Discussion

• Does your national brand or made in your
  country affect your decision to purchase? If so
  on what kind of products or services?

24
Competitive Strategy

• Porters 5 forces
• Direct competitors
• Customers
• Suppliers
• New entrants
• Substitutes

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Barriers to entry

• Supply side economies of scale E.g.
  Microprocessors
• Demand side benefits of scale E.g. IBM
• Customer switching costs E.g. SAP
• Capital requirements

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Barriers to entry

• 5. Other advantages of current companies, e.g.
  access to raw materials
• 6. Distribution channels
• 7. Government Policy

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Discussion

• Does coffee retailing have a high barrier to
  entry?
• How did star bucks deter new competitors after it
  entered Korea?

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3 strategies

• Position company where the forces are weak
• Take advantage of changes in the forces
• Reshape the forces in your favor

29
Position company where the forces are weak

• In the truck industry Paccar focuses on luxurious
  sleeper cabins for individual buyers.
• Direct competitors Lower prices
• Customers Buy large amounts
• Suppliers Unions are strong
• Substitutes Train

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Take advantage of changes in the forces

• Record companies - customers were using illegal
  downloading of music making a substitute for
  their services.
• Apple took advantage of this situation by making
  a deal with the record companies to sell their
  music on iTunes.

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Reshape the forces in your favor

• Direct competitors Differentiate your product
• Customers Expand your services
• Suppliers Make you specifications more
  standardized.

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Reshape the forces in your favor

• New entrants Try to raise the fixed costs of
  competing.
• Substitutes Make your product more available.

33
Discussion Question

• How should companies use porters 5 forces
  strategy when deciding to sell internationally?