Description
strategies for competing in globalized environment, benefits of international strategies, characteristics of multi country competition, how to increase Profitability and profit growth through global expansion.
Strategies for competing in
the Global Environment
Gain access to
new customers
Capitalize
on core
competencies
Help
achieve
lower costs
Spread
business risk across
wider
market base
Obtain access to
valuable natural
resources
International
Competitor
Global
Competitor
Company operates in a
select few foreign
countries, with modest
ambitions to expand
further
Company markets
products in 50 to 100
countries and is expanding
operations into additional
country markets annually
? Whether to customize a company’s 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 company’s production facilities,
distribution centers, and customer service operations
to realize the greatest locational advantages
? Whether and how to efficiently transfer a company’s
resource strengths and capabilities from
one country to another to secure competitive advantage
? Cultures and lifestyles differ among countries
? Differences in market demographics
? Variations in manufacturing and distribution
costs
? Fluctuating exchange rates
? Differences in host government economic and
political demands
Multi-country
Competition
Global
Competition
? 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 attributes
? Sellers vary from country to country
? Industry conditions and competitive forces in
each national market differ in important
respects
Rival firms battle for national championships –
winning in one country does not necessarily
signal the ability to fare well in other countries!
? Competitive conditions across country markets are
strongly linked
? Many of same rivals compete in many of the same
country markets
? A true international market exists
? A firm’s competitive position in one country is
affected by its position in other countries
? Competitive advantage is based on a firm’s world-
wide operations and overall global standing
Rival firms in globally competitive industries
vie for worldwide leadership!
? Expanding the market by leveraging products
? Taking goods or services developed at home and selling them internationally
? Utilizing the distinctive competencies that underlie the production and
marketing
? Cost economies from global volume
? Economies of scale from additional sales volume
? Lower unit costs and spreading of fixed costs
? Location economies
? Economic benefits from performing a value creation activity in the optimal
location
? Leveraging the skills of global subsidiaries
? Applying these skills to other operations within firm’s global network
Must also consider transportation costs, trade
barriers, as well as the political and economic risks.
The best strategy for a
company to pursue may
depend on the kinds of
pressures it must cope
with:
• Cost Reductions or
• Local Responsiveness
? Where differentiation on non-price factors is
difficult
? Where competitors are based in low-cost location
? Where consumers are powerful and face low
switching costs
? Where there is persistent excess capacity
? The liberalization of the world trade and investment
environment
Pressures for cost reductions are greatest in
industries producing commodity-type products
where price is the main competitive weapon:
? Differences in customer tastes and preferences
? Differences in infrastructure and traditional
practices
? Differences in distribution channels
? Host government demands
The greatest pressures for local responsiveness
arise from:
Dealing with these contradictory pressures is a
difficult strategic challenge, primarily because
being locally responsive tends to raise costs.
Companies typically
choose among the
four main global
strategic postures
when competing
internationally.
The appropriateness
of each strategy
varies with the extent
of pressures for cost
reduction versus
local responsiveness.
C
C
C
C
C Standard Globalization Strategy
? Reaping the cost reductions that come from economies of scale and
location economies
? Business model based on pursuing a low-cost strategy on a global
scale
Makes the most sense when there are strong pressures for cost reduction
and the demand for local responsiveness is minimal
CLocalization Strategy
• Customizing the company’s goods or services so that they provide a
good match to tastes and preferences in different national markets
Most appropriate when there are substantial differences across nations with
regard to consumer tastes and preferences and where cost pressures are not
too intense
CTransnational Strategy
? Difficult to pursue due to its conflicting demands
? Business model that simultaneously:
? Achieves low costs » Differentiates across markets
? Fosters a flow of skills between subsidiaries
Building an organization capable of supporting a transnational strategy is a
complex and challenging task.
CInternational Strategy
• Multinational companies that sell products that serve universal
needs (minimal need to differentiate) and do not face significant
competitors (low cost pressure).
In most international companies the head office retains tight control over
marketing and product strategy.
Over time, competitors inevitably
emerge. Companies that do not
take steps to reduce their cost
structure may be outflanked by
efficient global competitors.
As competition intensifies,
companies need to orientate
toward either a Standard
Globalization or a Transnational
strategy.
1. Which overseas markets to enter
? Assessment of long-run profit potential
? A function of the size of the market, purchasing power
of consumers, the likely future purchasing power of
consumers
? Balancing the benefits, costs, and risks associate with
doing business in a country
? A function of economic development and political
stability
2. Timing of entry
? First-mover advantages: preempt and build share
? First-mover disadvantages: pioneering costs
3. Scale of Entry and Strategic Commitments
? Entering on a large scale is a major strategic
commitment
? With long term impacts that may be difficult to reverse
? Benefits and drawbacks of small-scale entry
Exporting
×No need to establish operations in other nations.
×Establish distribution channels through contractual
relationships.
×May have high transportation costs.
×May encounter high import tariffs.
×May have less control on marketing and distribution.
×Difficult to customize product.
×Common way to enter new international markets.
Choice of International Entry Mode
_Licensing firm is paid a royalty on each unit
produced and sold.
_Licensee takes risks in manufacturing investments.
_Least risky way to enter a foreign market.
_Licensing firm loses control over product quality &
distribution.
_Relatively low profit potential.
_Firm authorizes another firm to
manufacture & sell its products -
Franchising
? Often is better suited to global expansion efforts
of service and retailing enterprises
? Advantages
? Franchisee bears most of costs and
risks of establishing foreign locations
? Franchisor has to expend only the
resources to recruit, train, and support
franchisees
? Disadvantage
? Maintaining cross-country quality control
Choice of International Entry Mode
wMost joint ventures (JVs) involve a foreign corp. with
a new product or technology & a host company with
access to distribution or knowledge of local customs,
norms or politics.
wMay experience difficulties in merging disparate
cultures.
wMay not understand the strategic intent of partners
or experience divergent goals.
wEnable firms to shares risks and
resources to expand into international ventures.
? Advantages
? Facilitate entry into
foreign markets.
? Enable partners to share
fixed costs and risks
associated with new
products and processes.
? Facilitate transfer of
complementary skills
between companies.
? Help establish
technological standards.
? Disadvantages
? Risk of giving away
technological know-
how.
? Risk of opening local
market access to foreign
alliance partner.
? Risk of not getting
anything in return.
Joint Ventures
Greenfield Venture
Choice of International Entry Mode
?Most costly & complex of entry alternatives.
?Achieves greatest degree of control.
?Potentially most profitable, if successful.
?Maintain control over technology, marketing and
distribution.
?May need to acquire expertise & knowledge that
is relevant to host country.
Could require hiring host country nationals or
consultants at high cost.
Choice of International Entry Mode
=Can be very costly.
=Legal and regulatory requirements may
present barriers to foreign ownership.
=Usually require complex and costly
negotiations.
=Potentially disparate corporate culture.
=Enable firms to make most rapid international
expansion.
? Distinctive Competencies and Entry Mode
To earn greater returns from differentiated products or where competitors lack
comparable products, the optimal mode of entry depends on the nature of the
company’s distinctive competency:
? Technological know-how
? Wholly-owned subsidiary is preferred over licensing and joint ventures to
minimize risk of losing control.
? Management know-how
? Franchising, joint ventures, or subsidiaries are preferred as risk is low of losing
management know-how.
? Pressures for Cost Reduction and Entry Mode
The greater the cost pressure, the more likely a company will want to pursue some
combination of exporting and wholly-owned subsidiary:
? Export finished goods from wholly-owned subsidiary
? Marketing subsidiaries for overseeing distribution
? Tight control over local operations allows company to use profits generated in
one market to improve position in other markets.
? Advantages
? Facilitate entry into a foreign market
? Share fixed costs and associated risks
? Bring together complementary skills and assets
? Set technological standards for its industry
? Disadvantages
? Give competitors a low-cost route to gain new technology and market access
Global Strategic Alliances are cooperative agreements between
companies from different countries that are actual or potential
competitors. They range from short-term contractual cooperative
arrangements to formal joint ventures with equity participation.
Some alliances benefit the company.
Beware, alliances can end up giving away technology
and market access with very little gained in return.
The failure rate for international strategic alliances is quite
high. Success seems to be a function of three main factors:
Successful partners view the alliance as an opportunity to
learn rather than purely as a cost- or risk-sharing device.
1. Partner selection – A good partner:
× Helps the company achieve strategic goals
× Shares the firm’s vision for the purpose of the alliance
× Is unlikely to try to exploit the alliance to its own ends
+ Conduct research on potential partners
2. Alliance structure
× Risk of giving too much away is at an acceptable level
× Guard against opportunism by partner in alliance agreement
3. Manner in which alliance is managed
× Sensitivity to cultural differences
× Build relationship capital through interpersonal relationships
doc_592077785.pptx
strategies for competing in globalized environment, benefits of international strategies, characteristics of multi country competition, how to increase Profitability and profit growth through global expansion.
Strategies for competing in
the Global Environment
Gain access to
new customers
Capitalize
on core
competencies
Help
achieve
lower costs
Spread
business risk across
wider
market base
Obtain access to
valuable natural
resources
International
Competitor
Global
Competitor
Company operates in a
select few foreign
countries, with modest
ambitions to expand
further
Company markets
products in 50 to 100
countries and is expanding
operations into additional
country markets annually
? Whether to customize a company’s 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 company’s production facilities,
distribution centers, and customer service operations
to realize the greatest locational advantages
? Whether and how to efficiently transfer a company’s
resource strengths and capabilities from
one country to another to secure competitive advantage
? Cultures and lifestyles differ among countries
? Differences in market demographics
? Variations in manufacturing and distribution
costs
? Fluctuating exchange rates
? Differences in host government economic and
political demands
Multi-country
Competition
Global
Competition
? 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 attributes
? Sellers vary from country to country
? Industry conditions and competitive forces in
each national market differ in important
respects
Rival firms battle for national championships –
winning in one country does not necessarily
signal the ability to fare well in other countries!
? Competitive conditions across country markets are
strongly linked
? Many of same rivals compete in many of the same
country markets
? A true international market exists
? A firm’s competitive position in one country is
affected by its position in other countries
? Competitive advantage is based on a firm’s world-
wide operations and overall global standing
Rival firms in globally competitive industries
vie for worldwide leadership!
? Expanding the market by leveraging products
? Taking goods or services developed at home and selling them internationally
? Utilizing the distinctive competencies that underlie the production and
marketing
? Cost economies from global volume
? Economies of scale from additional sales volume
? Lower unit costs and spreading of fixed costs
? Location economies
? Economic benefits from performing a value creation activity in the optimal
location
? Leveraging the skills of global subsidiaries
? Applying these skills to other operations within firm’s global network
Must also consider transportation costs, trade
barriers, as well as the political and economic risks.
The best strategy for a
company to pursue may
depend on the kinds of
pressures it must cope
with:
• Cost Reductions or
• Local Responsiveness
? Where differentiation on non-price factors is
difficult
? Where competitors are based in low-cost location
? Where consumers are powerful and face low
switching costs
? Where there is persistent excess capacity
? The liberalization of the world trade and investment
environment
Pressures for cost reductions are greatest in
industries producing commodity-type products
where price is the main competitive weapon:
? Differences in customer tastes and preferences
? Differences in infrastructure and traditional
practices
? Differences in distribution channels
? Host government demands
The greatest pressures for local responsiveness
arise from:
Dealing with these contradictory pressures is a
difficult strategic challenge, primarily because
being locally responsive tends to raise costs.
Companies typically
choose among the
four main global
strategic postures
when competing
internationally.
The appropriateness
of each strategy
varies with the extent
of pressures for cost
reduction versus
local responsiveness.
C
C
C
C
C Standard Globalization Strategy
? Reaping the cost reductions that come from economies of scale and
location economies
? Business model based on pursuing a low-cost strategy on a global
scale
Makes the most sense when there are strong pressures for cost reduction
and the demand for local responsiveness is minimal
CLocalization Strategy
• Customizing the company’s goods or services so that they provide a
good match to tastes and preferences in different national markets
Most appropriate when there are substantial differences across nations with
regard to consumer tastes and preferences and where cost pressures are not
too intense
CTransnational Strategy
? Difficult to pursue due to its conflicting demands
? Business model that simultaneously:
? Achieves low costs » Differentiates across markets
? Fosters a flow of skills between subsidiaries
Building an organization capable of supporting a transnational strategy is a
complex and challenging task.
CInternational Strategy
• Multinational companies that sell products that serve universal
needs (minimal need to differentiate) and do not face significant
competitors (low cost pressure).
In most international companies the head office retains tight control over
marketing and product strategy.
Over time, competitors inevitably
emerge. Companies that do not
take steps to reduce their cost
structure may be outflanked by
efficient global competitors.
As competition intensifies,
companies need to orientate
toward either a Standard
Globalization or a Transnational
strategy.
1. Which overseas markets to enter
? Assessment of long-run profit potential
? A function of the size of the market, purchasing power
of consumers, the likely future purchasing power of
consumers
? Balancing the benefits, costs, and risks associate with
doing business in a country
? A function of economic development and political
stability
2. Timing of entry
? First-mover advantages: preempt and build share
? First-mover disadvantages: pioneering costs
3. Scale of Entry and Strategic Commitments
? Entering on a large scale is a major strategic
commitment
? With long term impacts that may be difficult to reverse
? Benefits and drawbacks of small-scale entry
Exporting
×No need to establish operations in other nations.
×Establish distribution channels through contractual
relationships.
×May have high transportation costs.
×May encounter high import tariffs.
×May have less control on marketing and distribution.
×Difficult to customize product.
×Common way to enter new international markets.
Choice of International Entry Mode
_Licensing firm is paid a royalty on each unit
produced and sold.
_Licensee takes risks in manufacturing investments.
_Least risky way to enter a foreign market.
_Licensing firm loses control over product quality &
distribution.
_Relatively low profit potential.
_Firm authorizes another firm to
manufacture & sell its products -
Franchising
? Often is better suited to global expansion efforts
of service and retailing enterprises
? Advantages
? Franchisee bears most of costs and
risks of establishing foreign locations
? Franchisor has to expend only the
resources to recruit, train, and support
franchisees
? Disadvantage
? Maintaining cross-country quality control
Choice of International Entry Mode
wMost joint ventures (JVs) involve a foreign corp. with
a new product or technology & a host company with
access to distribution or knowledge of local customs,
norms or politics.
wMay experience difficulties in merging disparate
cultures.
wMay not understand the strategic intent of partners
or experience divergent goals.
wEnable firms to shares risks and
resources to expand into international ventures.
? Advantages
? Facilitate entry into
foreign markets.
? Enable partners to share
fixed costs and risks
associated with new
products and processes.
? Facilitate transfer of
complementary skills
between companies.
? Help establish
technological standards.
? Disadvantages
? Risk of giving away
technological know-
how.
? Risk of opening local
market access to foreign
alliance partner.
? Risk of not getting
anything in return.
Joint Ventures
Greenfield Venture
Choice of International Entry Mode
?Most costly & complex of entry alternatives.
?Achieves greatest degree of control.
?Potentially most profitable, if successful.
?Maintain control over technology, marketing and
distribution.
?May need to acquire expertise & knowledge that
is relevant to host country.
Could require hiring host country nationals or
consultants at high cost.
Choice of International Entry Mode
=Can be very costly.
=Legal and regulatory requirements may
present barriers to foreign ownership.
=Usually require complex and costly
negotiations.
=Potentially disparate corporate culture.
=Enable firms to make most rapid international
expansion.
? Distinctive Competencies and Entry Mode
To earn greater returns from differentiated products or where competitors lack
comparable products, the optimal mode of entry depends on the nature of the
company’s distinctive competency:
? Technological know-how
? Wholly-owned subsidiary is preferred over licensing and joint ventures to
minimize risk of losing control.
? Management know-how
? Franchising, joint ventures, or subsidiaries are preferred as risk is low of losing
management know-how.
? Pressures for Cost Reduction and Entry Mode
The greater the cost pressure, the more likely a company will want to pursue some
combination of exporting and wholly-owned subsidiary:
? Export finished goods from wholly-owned subsidiary
? Marketing subsidiaries for overseeing distribution
? Tight control over local operations allows company to use profits generated in
one market to improve position in other markets.
? Advantages
? Facilitate entry into a foreign market
? Share fixed costs and associated risks
? Bring together complementary skills and assets
? Set technological standards for its industry
? Disadvantages
? Give competitors a low-cost route to gain new technology and market access
Global Strategic Alliances are cooperative agreements between
companies from different countries that are actual or potential
competitors. They range from short-term contractual cooperative
arrangements to formal joint ventures with equity participation.
Some alliances benefit the company.
Beware, alliances can end up giving away technology
and market access with very little gained in return.
The failure rate for international strategic alliances is quite
high. Success seems to be a function of three main factors:
Successful partners view the alliance as an opportunity to
learn rather than purely as a cost- or risk-sharing device.
1. Partner selection – A good partner:
× Helps the company achieve strategic goals
× Shares the firm’s vision for the purpose of the alliance
× Is unlikely to try to exploit the alliance to its own ends
+ Conduct research on potential partners
2. Alliance structure
× Risk of giving too much away is at an acceptable level
× Guard against opportunism by partner in alliance agreement
3. Manner in which alliance is managed
× Sensitivity to cultural differences
× Build relationship capital through interpersonal relationships
doc_592077785.pptx