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CHAPTER 7

STRATEGIES FOR COMPETING IN INTERNATIONAL MARKETS

Student Version
Copyright 2012 The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin

WHY COMPANIES DECIDE TO ENTER FOREIGN MARKETS

To gain access to new customers To exploit core competencies

To spread business risk across a wider market base

To achieve lower costs and economies of scale

To access resources and capabilities in foreign markets

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WHY COMPETING ACROSS NATIONAL BORDERS MAKES STRATEGY MAKING MORE COMPLEX
1.
2. 3. 4. 5.
Industry competitiveness factors that vary from country to country
Location-based advantages for certain countries Differences in government policies and economic conditions Currency exchange rate risks Differences in cultural, demographic, and market conditions
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Political and Economic Risks

Political Risks

Stem from instability or weaknesses in national governments and hostility to foreign business. Stem from the stability of a countrys monetary system, economic and regulatory policies, lack of property rights protections, and risks due to exchange rate fluctuation.

Economic Risks

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The Risks of Adverse Exchange Rate Shifts Effects of Exchange Rate Shifts:

Exporters experience a rising demand for their goods whenever their currency grows weaker relative to the importing countrys currency. Exporters experience a falling demand for their goods whenever their currency grows stronger relative to the importing countrys currency.

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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.

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THE CONCEPTS OF MULTIDOMESTIC COMPETITION AND GLOBAL COMPETITION


Multidomestic Competition

Exists when competition in each country market is localized and not closely connected to competition in other country markets.
Exists when competitive conditions and prices are strongly linked across many different national markets.
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Global Competition

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 firms 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.
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COMPETING INTERNATIONALLY: THE THREE MAIN STRATEGIC APPROACHES

Competing Internationally

Multidomestic Strategy

Global Strategy

Transnational Strategy

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THE QUEST FOR COMPETITIVE ADVANTAGE IN THE INTERNATIONAL ARENA

Build Competitive Advantage in International Markets

Use international location to lower cost or differentiate product

Share resources, competencies, and capabilities

Gain cross-border coordination benefits

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Using Location to Build Competitive Advantage

To customize offerings in each country market to match the tastes and preferences of local buyers Key Location Issues To pursue a strategy of offering a mostly standardized product worldwide.

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PROFIT SANCTUARIES AND CROSSBORDER STRATEGIC MOVES Profit Sanctuaries

Are country markets (or geographic regions) in which a firm derives substantial profits because of its protected market position or its competitive advantage. Is the diversion of resources and profits from one market to support competitive offensives in another different market.
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Cross-Market Subsidization

Dumping as a Strategy Dumping

Selling goods in foreign markets at prices that are either below normal home market prices or below the full costs per unit.

Why A Firm Engages in Dumping:

To reduce or avoid the high fixed costs of idle production capacity. To use below-cost pricing to gain market share and drive weak firms from the market.
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STRATEGIES FOR COMPETING IN THE MARKETS OF DEVELOPING COUNTRIES


Prepare to compete on the basis of low price.

Prepare to modify the firms business model or strategy to accommodate local circumstances.
Avoid developing markets where it is too costly to accommodate local circumstances. Try to change the local market to better match the way the firm does business elsewhere.
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DEFENDING AGAINST GLOBAL GIANTS: STRATEGIES FOR LOCAL COMPANIES IN DEVELOPING COUNTRIES
Develop a business model that exploits shortcomings in local distribution networks or infrastructure.
Utilize knowledge of local customer needs and preferences to create customized products or services. Take advantage of aspects of the local workforce with which large multinational firms may be unfamiliar. Use local acquisition and rapid-growth strategies to defend against expansion-minded internationals. Transfer the firms expertise to cross-border markets.
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