CHAPTER 7
STRATEGIES FOR COMPETING
IN INTERNATIONAL MARKETS
WHY COMPANIES DECIDE TO
ENTER FOREIGN MARKETS
To gain access to To spread business
new customers risk across a wider
To exploit core market base
competencies
To achieve lower To access resources
costs and economies and capabilities in
of scale foreign markets
THE QUEST FOR COMPETITIVE ADVANTAGE
IN THE INTERNATIONAL ARENA
Build Competitive Advantage
in International Markets
Use international
Share resources, Gain cross-border
location to lower
competencies, coordination
cost or differentiate
and capabilities benefits
product
Using Cross-Border Tactics to Defend against
International Rivals
International International
Firm A Firm B
Profit Sanctuary
Firm A moves against Firm B in Country B
Firm B counters with a response in Country C
WHY COMPETING ACROSS NATIONAL
BORDERS MAKES STRATEGY MAKING MORE
COMPLEX
Industry competitiveness factors that
1. vary from country to country
Location-based advantages for
2. certain countries
Differences in government policies
3. and economic conditions
4. Currency exchange rate risks
Differences in cultural, demographic,
5. and market conditions
Cross-Country Differences in Demographic,
Cultural, and Market Conditions
To customize offerings in each
country market to match the tastes
and preferences of local buyers
Key Strategic
Considerations
To pursue a strategy of offering a
mostly standardized product
worldwide.
COMPETING INTERNATIONALLY:
THE THREE MAIN STRATEGIC APPROACHES
Competing
Internationally
Multidomestic Global Transnational
Strategy Strategy Strategy
7.1 Advantages and Disadvantages of Multidomestic,
Global, and Transnational Approaches
Multidomestic Approach
Advantages Disadvantages
• Can meet the specific needs of • Hinders resource and capability
each market more precisely sharing or cross-market transfers
• Can respond more swiftly to • Higher production and distribution
localized changes in demand costs
• Can target reactions to the • Not conducive to a worldwide
moves of local rivals competitive advantage
• Can respond more quickly to
local opportunities and threats
7.1 Advantages and Disadvantages of Multidomestic,
Global, and Transnational Approaches (cont’d)
Global Approach
Advantages Disadvantages
• Lower costs due to scale and • Unable to address local needs
scope economies precisely
• Greater efficiencies due to the • Less responsive to changes in
ability to transfer best practices local market conditions
across markets • Higher transportation costs and
• More innovation from tariffs
knowledge sharing and • Higher coordination and integration
capability transfer costs
• The benefit of a global brand
and reputation
7.1 Advantages and Disadvantages of Multidomestic,
Global, and Transnational Approaches (cont’d)
Transnational Approach
Advantages Disadvantages
• Offers the benefits of both local • More complex and harder to
responsiveness and global implement
integration • Conflicting goals may be difficult to
• Enables the transfer and reconcile and require trade-offs
sharing of resources and • Implementation more costly and
capabilities across borders time-consuming
• Provides the benefits of flexible
coordination
STRATEGIC OPTIONS FOR ENTERING
AND COMPETING IN INTERNATIONAL
MARKETS
Maintain a national (one-country) production base
and export goods to foreign markets.
License foreign firms to produce and distribute the
firm’s products abroad.
Employ an overseas franchising strategy.
Establish a wholly-owned subsidiary by either
acquiring a foreign company or through a
“greenfield” venture.
Form strategic alliances or joint ventures with
foreign companies.
Export Strategies
Advantages Disadvantages
Low capital Maintaining relative cost
requirements advantage of home-based
Economies of scale in production
utilizing existing Transportation and
production capacity shipping costs
No distribution risk Exchange rates risks
No direct investment Tariffs\import duties
risk Loss of channel control
Licensing and Franchising
Strategies
Advantages Disadvantages
Low resource Maintaining control of
requirements proprietary know-how
Income from royalties Loss of operational and
and franchising fees quality control
Rapid expansion into Adapting to local market
many markets tastes and expectations
Acquisition Strategies
Advantages Disadvantages
High level of control Costs of acquisition
Quick large-scale Complexity of acquisition
market entry process
Avoids entry barriers Integration of the firms’
Access to acquired structures, cultures,
firm’s skills operations and personnel
Greenfield Strategies
Advantages Disadvantages
High level of control Capital costs of initial
over venture development
“Learning by doing” Risks of loss due to
in the local market political instability or lack of
Direct transfer of the legal protection of
firm’s technology, ownership
skills, business Slowest form of entry due
practices, and culture to extended time required
to construct facility
Alliance and Joint Venture
Strategies
Advantages Disadvantages
Avoid entry barriers Cultural and language
Allow for resource barriers
and risk sharing Costs of establishing the
Partner’s knowledge of working arrangement
local market conditions Issues of joint control
Joint learning and sharing Protection of proprietary
Preservation of partner technology or competitive
independence advantage
