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 achieve lower
costs and economies
of scale

To spread business
risk across a wider
market base

To access resources
and capabilities in
foreign markets

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WHY COMPETING ACROSS NATIONAL

BORDERS MAKES STRATEGY
MAKING MORE COMPLEX
1.

Industry competitiveness factors that

vary from country to country

2.

Location-based advantages for certain

countries

3.

Differences in government policies

and economic conditions

4.

Currency exchange rate risks

5.

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.

Economic Risks

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.

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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.

Global Competition

Exists when competitive conditions and

prices are strongly linked across many
different national markets.
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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

710

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.

711

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.

Cross-Market Subsidization

Is the diversion of resources and profits from

one market to support competitive offensives
in another different market.
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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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