Strategic Mgmt Sem_II 3

7/31/2019 Strategic Mgmt Sem_II 3

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MT301: STRATEGIC MANAGEMENT

Week 3


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SEMESTER II: MT301

AGENDA FOR TODAY

Learning Objectives

Strategy Options for Entering andCompeting in Foreign Markets


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Learning Objectives

1. Develop an understanding of why companies that haveachieved competitive advantage in their domesticmarket may opt to enter foreign markets.

2. Learn how and why differing market conditions indifferent countries influence a companys strategy forcompeting in foreign markets.

3. Gain familiarity with the major strategic options forentering and competing in foreign markets.

4. Understand the principal approaches used bymultinational companies in building competitiveadvantage in foreign markets.


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Strategies for Competing inForeign Markets


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Global Strategy

A global strategy assumes the world to be a single

market (as opposed to several regional markets)

permitting the firm to offer the same standard and

uniform designs in every international market in

which it competes
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The Four Big Strategic Issues inCompeting Multi-nationally

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

How to efficiently transfer a companys resource strengths and capabilities

from one country to another to secure competitive advantage


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Why Do Companies Expand intoForeign Markets?

Gain access tonew customers

Capitalizeon core

competencies

Achieve lowercosts and enhance

competitiveness

Spreadbusiness risk across

widermarket base

Obtain access tovaluable natural

resources

Source: Thompson, Strickland and Gamble, Crafting and Executing Strategy, 17 th Ed.


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Strategic Advantages of International Expansion

Growth opportunities

Increases the size of the potential market

E.g. Pepsi-Cola, Whirlpool expanding into developing countries

where markets are surging because of economic growth

Cost Advantages

Availability of cheaper inputs (e.g. labour/raw materials)

Tax incentives e.g. Irish corporation tax rate/IDA grants

Critical resources may only be available in certain parts of the

world e.g. software development in Bangalore in India, fashion

designing in Italy
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Differentiation Advantages

Canon, Japanese maker of premium copiers and cameras chose Silicon

Valley for its R&D activity because it offered access to a large pool of

talented researchers in digital technology

Preempt or match competitor actions

Failure to do so can leave a firm vulnerable to attack

E.g. US television manufacturers

Panasonic went global, used additional revenue to cross-subsidize its

US television businessZenith stayed domestic

Forced in to a price war

Zenith lost significant share of the US market to Panasonic
http://images.google.ie/imgres?imgurl=http://www.livingroom.org.au/photolog/canon-powershot-s2-is-02.jpg&imgrefurl=http://www.livingroom.org.au/photolog/reviews/canon/canon_powershot_s2_is.php&h=407&w=510&sz=47&hl=en&start=1&tbnid=bHsN2cG43iF9OM:&tbnh=105&tbnw=131&prev=/images%3Fq%3DCanon%26svnum%3D10%26hl%3Den


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Opportunities for worldwide learning

Exposed to diverse environments

Ability to gain new knowledge/skills

Different cultures = different ways of thinking

E.g. Proctor & Gamble used knowledge diversity arising from

global diversity to increase frequency of innovation

Volume production needs and capacity utilization

Larger market share helps a firm to run plants at full capacity

Companies with high fixed costs e.g. NIKE need to produce large

volumes to keep unit costs low


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Factors Shaping Strategy Choicesin Foreign Markets

Cross-country differences in cultural,demographic, and market conditions

Gaining competitive advantage basedon where activities are located

Risks of adverse shifts in

currency exchange ratesImpact of host government policieson the local business climate


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How Markets Differ from Countryto Country

Consumer tastes and preferences

Consumer buying habits

Market size and growth potential

Distribution channelsDriving forces

Competitive pressures

One of the biggest concerns of companies competing in foreign markets is whetherto 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.


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Different Countries Have DifferentLocational Appeal

Manufacturing costs vary from country to country based on

Wage rates

Worker productivity

Inflation ratesEnergy costs

Tax rates

Government regulations

Quality of business environment varies from country to countrySuppliers, trade associations, and makers of complementary products

often find it advantageous to cluster their operations in the same

general location


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Fluctuating Exchange Rates Affecta Companys Competitiveness

Currency exchange rates are unpredictable

Competitiveness of a companys operations partly depends on

whether exchange rate changes affect costs favorably or

unfavorably

Competitive impact of fluctuating exchange rates

Exporters always gain in competitiveness when the currency of the

country where goods are manufactured grows weakerExporters are disadvantaged when the currency of the country

where goods are manufactured grows stronger


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Two Primary Patterns of International Competition

Multi-country

Competition

GlobalCompetition

Source: Thompson, Strickland and Gamble, Crafting and Executing Strategy, 17 th Ed.


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International vs. Global Competition

InternationalCompetitor

GlobalCompetitor

Company operates in aselected few foreign

countries, with modestambitions to expand further

Company markets products in

50 to 100 countries andis expanding operations intoadditional country markets

annually


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Characteristics of Multi-CountryCompetition

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

attributesSellers vary from country to country

Industry conditions and competitive forces in each national market

differ in important respects


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Characteristics of GlobalCompetition

Competitive conditions across country markets are strongly linked

Many of same rivals compete in

many of the same country markets

A true international market existsA firms competitive position in one country is affected by its position in

other countries

Competitive advantage is based on a firms world -wide operations and

overall global standing


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Strategy Options for Competing inForeign Markets

Exporting

Licensing

Franchising strategy

Strategic alliances or joint ventures

Multi-country strategy

Global strategy


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Ownership/ control

risk

exporting

licensing

franchising

Strategic alliance

Joint venture

Wholly ownedsubsidiary

Modes of entry to international markets


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Export StrategiesInvolve using domestic plants as a production base for exporting to foreign marketsExcellent initial strategy to pursue international sales

AdvantagesConservative way to test international watersMinimizes both risk and capital requirementsMinimizes direct investments in foreign countries

An export strategy is vulnerable when

Manufacturing costs in home country are higherthan in foreign countries where rivals have plantsHigh shipping costs are involvedAdverse fluctuations in currency exchange ratesoccur


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Heineken110 breweries in 50different countries

Exports to over 170countries

Heineken is the worldnumber 1 beerexporter
http://images.google.ie/imgres?imgurl=http://www.laurabeamer.com/bottle_caps/caps/large/heineken.jpg&imgrefurl=http://www.laurabeamer.com/bottle_caps/caps.html&h=495&w=495&sz=45&hl=en&start=5&tbnid=Qxgna2DmpG6j-M:&tbnh=130&tbnw=130&prev=/images%3Fq%3Dheineken%26svnum%3D10%26hl%3Den


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Licensing StrategiesLicensing makes sense when a firm

Has valuable technical know-how or a patentedproduct but does not have international capabilitiesto enter foreign markets

Desires to avoid risks of committing resources tomarkets which are

UnfamiliarPolitically volatileEconomically unstable

DisadvantageRisk of providing valuable technical know-how toforeign firms and losing some control over its use


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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 foreignlocations

Franchisor has to expend only the resources to recruit, train, and

support franchisees

Disadvantage

Maintaining cross-country quality control

Example: generally service firms e.g. Benetton


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Licensing/ Franchising

skill/ product licensed to

foreign firm

income from royalties

McDonalds Ireland

1st restaurant 1977

now 74 outlets

adding 3/ 4 outlets each year

40% company owned

60% owned by franchisees


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Achieving Global Competitivenessvia Cooperative Agreements

Cooperative agreements with

foreign companies are a means to

Enter a foreign market or

Strengthen a firms

competitiveness in world markets

Purpose of alliances / joint ventures

Joint research efforts

Technology-sharing

Joint use of production or distribution facilities

Marketing / promoting one anothers products

Example: A joint venture between Microsoft + Accenture = Avanade


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What Is a Think -Local, Act- Local Approach to Strategy Making?

A company varies its product

offerings and basic competitive

strategy from country to country

in an effort to be responsive to

differing buyer preferencesand market conditions.


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Characteristics of a Think -Local,Act- Local Approach to Strategy Making

Business approaches are deliberately crafted to

Accommodate differing tastes and expectations of buyers in each

country

Stake out the most attractive market positions vis--vis local

competitors

Local managers are given considerable strategy-making latitude

Plants produce different products for different local markets

Marketing and distribution are adapted to fit local customs and cultures


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What Is a Think -Global, Act- Global Approach to Strategy Making?

A company employs the same

basic competitive approach in all

countries where it operates.


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Characteristics of a Think -Global, Act-Global Approach to Strategy Making

Same products under the same brand names are sold everywhere

Same distribution channels are used in all countries

Competition is based on the same capabilities and marketing approaches

worldwide

Strategic moves are integrated and coordinated worldwide

Expansion occurs in most nations where significant buyer demand exists

Strategic emphasis is placed on building a global brand name

Opportunities to transfer ideas, new products, and capabilities from one

country to another are aggressively pursued


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What Is a Think -Global, Act- Local Approach to Strategy Making?

A company uses the same basic competitive theme ineach country but gives local managers the latitude to

1. Incorporate whatever country-specific variations inproduct attributes are needed to best satisfy local buyersand 2. Make whatever adjustments in production, distribution,

and marketing are needed to compete under localmarket conditions.


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Strategies for Local Companies inEmerging Markets

Develop business models that exploit shortcomingsin local distribution networks or infrastructure.

Utilize keen understanding of local customer needs andpreferences to create customized products or services.

Take advantage of low-cost labor and othercompetitively important local workforce qualities.

Use economies of scope and scale to betterdefend against expansion-minded multinationals.

Transfer company expertise to cross-border marketsand initiate actions to contend on a global level.


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The Quest for Competitive Advantage inForeign Markets

Three ways to gain competitive advantage

1. Locating activities among nations in ways that lower costs orachieve greater product differentiation

2. Efficient/effective transfer of competitively valuablecompetencies and capabilities from company operations in onecountry to company operations in another country

3. Coordinating dispersed activities in ways a domestic-onlycompetitor cannot


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Self Assessment

Identify Irish companies that have

expandedInternationallyConsider what approach each of themtookWere they successful or unsuccessful?

Why?


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NEXT LECTURE

When to DiversifyBuilding Shareholder Value: The Ultimate Justificationfor Diversifying

Strategies for Entering New BusinessesAnsoffs Matrix Choosing the Diversification Path: Related versusUnrelated Businesses

Combination Related-Unrelated Diversification StrategiesEvaluating the Strategy of a Diversified CompanyPortfolio Management


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THANKS

Documents

Strategic Mgmt Sem_II 3