Table of Contents

Introduction...........................................................................................................................................2
Anticipating Foreign Competitions........................................................................................................3
1. The Strength of Globalisation Pressures: External Analysis......................................................3
PESTEL Analysis..........................................................................................................................3
Porter’s Five Forces That Shapes Competition..............................................................................7
2. Understanding Asset Transferability: Organisational Analysis................................................11
Strength.......................................................................................................................................11
Opportunities...............................................................................................................................12
Weaknesses.................................................................................................................................12
Threats.........................................................................................................................................12
Conclusion...........................................................................................................................................13
References...........................................................................................................................................15

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Introduction
The trend of globalisation has significant influence on how a domestic business shape
their strategy to compete with foreign forces. Government policies and regulations that
attracts foreign investments as well as abolishment of trade barriers encourages the flow of
business investments and penetrations into emerging markets.

Due to increasing inflow of foreign forces into emerging markets, domestic players
will definitely face threats from Multi-National Enterprises (MNEs). Although MNEs are big
and strong companies, domestic players are still capable of surviving the competition. By
making strategic decisions that counters the effect of competition from foreign forces, a
domestic player will be able to survive the competition.

In this article, we will examine the factors that influences the choice of strategy made
by domestic businesses in the presence of foreign competitions. The factors will be examined
using frameworks, PESTEL Analysis, Porter’s 5 Forces, as well as SWOT Analysis. Other
than that, this research also includes additional factors to enhance understanding of
globalisation and international competitions. The outcome of these analysis will bring us to
what decisions made by domestic players and how they position themselves that enables
them to succeed in a globalised market.

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Anticipating Foreign Competitions
Basically, there are two fundamental concepts in making strategic decisions when
competing with foreign forces. First, the company needs to determine the pressure of
globalisation in the operating market. Second, find out the degree of transferability of the
company’s assets. (Cavusgil et al. 2002)

1. The Strength of Globalisation Pressures: External Analysis

The current trend in global business is very much due to the liberalization of industries in
many parts of the world, for example, the trading blocs like NAFTA, EU and ASEAN. This
increases the flow of businesses from one part of the world to another. Hence, induces the
pressure for internationalisation of an industry in an emerging market. However, not all
industry and every country has the same level of pressure to globalise, it doesn’t mean the
end for domestic businesses either (Dawar & Frost 1999). With different degrees of
globalisation pressure comes different opportunities and strategic choices for domestic
managers to lead their businesses to prosper.

PESTEL Analysis
One of the form of external analysis that help shaping strategies is the PESTEL
framework. This framework categorizes strategies formation factors into 6 categories:
Political Factors, Economic Factors, Societal Factors, Technological Factors, Environmental
Factors, and Legal Factors. Through the understanding of the macro-environment a business
operates in, it provides a summary of questions to ask about key forces at work (Johnson and
Scholes 2002, p102).

Categories Factors Shaping Strategic Decisions

Political Changes in the government such as a new prime minister or the changes in
governing policies affects how a foreign force position itself in a market.
For example, President of USA, Barack Obama signed the Medic Bill,
which results in lowering liability of performing medical procedure on high
risk procedures and increases the insurance premium of health insurance.

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 Under the proposal, medical practitioners has lower liability to perform
surgeries, hence, increasing job appetite for physicians. Indirectly, it creates
competition among physicians in the market.

Similarly, government policies may also helps decreasing competition in a

domestic market. For instance, Malaysian government is very protective of
their automobile industry, by imposing high tax on imported automobile and
pricing local produced automobile slightly lower than the others helps the
industry to growth.

All in all, political factors affects competition in emerging markets,

governments tends to liberalize industries to attract foreign investment.
Domestic players have to be prepared and anticipate foreign competition.
Understanding the macro-environment is important before making strategic
choices.

Economic Economic factors that affects the market may include the spending
behaviour of consumers, interest or exchange rates, as well as climate of
business investment. A stable market economies contributes to the
incremental business investments. For instance, the Chinese government had
been reluctant to float its currency in accordance to market value. This is
due to the reason of lower currency rate attracts investor to invest. Lower
currency rate yields low capital investments and low labour costs.

On the other hand, the climate of business investments is another factor to

consider. When the global economic crisis occurred throughout 2007-2009,
business around the world had been going slow and business investors hold
back investments due to uncertainty of whether the economy will recover.
During this period, domestic players are less likely to face foreign entry
threats.

Thirdly, consumer spending power have positive relations with market

competition. The higher consumer spending is, the stronger competition it is
in the market. As buyers are willing to spend more to satisfy their own

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 demand, businesses have to compete with more reputable foreign companies
to fulfil consumer needs.

Societal Social factors such as buying behaviour, lifestyle improvements,

demographic changes, and culture of the society in the market. These factors
have to be paid attention to as it can be used to form strategic positioning to
capture niche markets based on different consumer preference.

One of the significant example of positioning businesses basing on societal

factors is the computer manufacturing company from Russia, Vist (Harvard
Business Review March-April 1999). The Russian computer market was
still on early stage, and Russians needed more information and reassurance
of the computer they are buying. Vist’s approach satisfies consumers need,
by providing lengthy warranties and local language manuals.

The ability to understand cultural and what Russian electronics consumers

demand has given Vist competitive advantages over its multinational rivals.

Technological Technological advancement means more extensive line of product variety, a

new approach to research and development activity. Companies that has
proprietary technology will have an edge over other rivals.

For example, Kyocera, a Korean electronics company that produce a wide

range of electronics from chips to mobile phones. Over years of research,
they gain technological advantage by becoming an industry leader in the
Solar Energy sector. They have been the main provider of solar panels for
Toyota (FarEastGizmo.com 2010). They also promote eco-awareness to
reduce carbon footprint through the use of solar energy. Since then Kyocera
had been focusing on their solar panel business it is there core competence,
and it allows them to remain a substantial force in the Korean market.

This shows that technological factors and its application can help a company
in becoming more efficient and sustaining competitive advantage in the

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 market.
Environmenta Nowadays, rising awareness of eco-knowledge had move the global trend in
l business operation towards minimising pollution and the effects of climate
change. The implication of environmental factors causes many global
businesses to adopt “Green Policies”.

Environmental concerns not only domestically, the entire global is affected

by pollution. With the forming of Corporate Social Responsibility
watchdog, companies cannot get away with their exploitations of the
environment. For instance, BP oil spill at Gulf of Mexico had been a major
discussion for environmentalists angered by the incident. “BP wasted no
time preparing for oil spill lawsuits, a legal fight that may embroil hundreds
of attorney, span five states and last more than a decade” (Nation AP 2010).

There is no doubt that companies will face repercussions for causing harm
to the environment. Companies might have to hire laboratories scientist or
large amount of capital to work with environmental restore activities. All in
all, domestic players should incorporate environmental factors into their
decisions making. This will not only captures the rising niche market of
environmental friendly consumers, it also prepares a company for
globalisation.
Legal Lastly, the legal factors may include new legislation such as product
licensing, new business contract agreement terms, and new contraband
items.

Companies has no other choice than to adhere strictly to the legislation made
by local government in the market they operates in. Companies may face
risks of conviction and in some cases the retraction of operating licence in
the market if they goes beyond the legislations.

Legal factor may be an advantage for domestic players as they understand

the legislation of the market better than any foreign companies.

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Porter’s Five Forces That Shapes Competition
Understanding the five forces in the industry help a company to position itself in a
position that is less vulnerable and more profitable in compare to other rivals (Porter, 2008).
The five forces mentioned are: (1) Threats of New Entrants, (2) Threats of Substitute
Products or Services, (3) Bargaining Powers of Suppliers, (4) Bargaining Power of Buyers,
and (5) Rivalry Among Existing Competitors.

This framework can be applied into determining the severity of globalisation pressure
in an industry, one of the two fundamental concept of competing with multinational giants.
The following is a diagram of the Porter’s 5 Forces framework and it is explained in co-
relation to the factors of strategic decision making.

[Adapted from: Harvard Business Review January 2008, Michael E. Porter, The Five
Competitive Forces That Shape Strategy.]

Threat of Entry

First of all, when foreign forces enters an emerging market, they aim to fight for more
market share and the also increases the capacity in the market. All of these enhances pressure
on an already intense competition in terms of prices, costs, and investments in the emerging
market. For example, when Pepsi enter the bottled water business, when Microsoft ventures
into internet browser provider, and Apple entered the music distribution business.
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 Barriers of entry for foreign companies are listed as follows:

 Supply side economies of scale- when new entrant has to come into the industry either
in large scale or accept a cost disadvantage
 Demand side benefits of scale- willingness of consumer to buy from new entrant
 Customer switching cost- costs arise from switching vendor/ supplier
 Capital requirements- financial resources needed to enter a market
 Access to distribution channel- the ability of new entrant to secure distribution for its
products or services
 Restrictive government policy- government interventions amplifying trade barriers

Domestic businesses face higher threat of new entry if entry barriers are low, lower
threat of entry means higher pressure to globalise for domestic businesses; and vice versa.
When pressure of globalisation in the industry is low, domestic players can choose to either
defend their business or to extend their business. On the other hand, if pressure to globalise is
high, domestic players have the option of dodging the competition or to compete with MNEs.
Each of the mentioned strategies will be further elaborated on the conclusion part of this
paper.

Threat of Substitute Products/ Services

The advancement of technologies and communications had created opportunities and

new ways of doing business, not only it opens up markets to globalisations, substitute
products or services are also constantly being added into the market. An example of
substitution of product is plastic being substitution for aluminium; while for services, E-mail
had been a substitute for express mail.

When product substitution threat is low in the market, it forms an encouragement for
foreign forces to penetrate the market because of higher profitability rather than to constantly
compete with a new substitute product. Hence, low substitution threat increases globalisation
pressure and vice versa.

Bargaining Power of Suppliers

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 The more powerful suppliers in an industry, the less likely domestic players will face
pressure of globalisation. As powerful suppliers charge higher price for labour and raw
materials, it causes the erosion of profitability. Microsoft, for instance, robs industrial
computer makers of profits by raising prices on their operating systems. In the end, foreign
investors will be reluctant to invest in the market.

Strong supplier powers may seem as an advantage for domestic players to fend off
foreign forces, but it may also pose threat to them if profit margin becomes lower. Domestic
players will be forced to go global in order to source for lower cost supplies.

Bargaining Power of Buyers

Another factor that affects domestic businesses in presence of foreign players is the
bargaining power of buyers. Consumers plays industry players against each other by
demanding better quality or more service, thereby, driving up costs. Generally, multinational
giants have more financial resources compares to small domestic business, therefore, small
companies might be obsolete in such environment. For instance, after the open of eastern
Europe markets, Skoda were sold to Volkswagen as they are unable to compete with their
inferior automobile products and inefficient operation (Dawar & Frost 1999)

Although foreign forces are strong, domestic players also have their own competitive
advantage in order to prosper in the competition of globalisation. Take the case of Bajaj, an
motorcycle manufacturer that face the competition from Honda, a multinational giant. They
exploit the customer preference for a rugged motorcycle with services shops widely
available. From this strategic decision made by Bajaj, it becomes the number one choice for
consumers in India, driving Honda out of the market.

Rivalry Among Existing Competitors

The intensity of rivalry affect profitability of industry players. It would be destructive

for profitability of industry participants if rivalry is based upon price wars. The result is the
transfer of profitability from industry players towards consumers. Other than price
competitions, rivalry may also be in the form of service improvements, advertising, and new
product introductions.

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 An example of rivalry in Malaysia is the competition in telecommunications industry.
DiGi, a Swedish company that deploys price wars against Maxis and Celcom (Malaysian
companies) because they have the efficiency. However, Maxis and Celcom competes by
introducing new products, Apple iPhones and Blackberry into their subscription plan. This
enables them to compete and retain profitability in the industry.

Industry Structure: The Factors Shaping Strategic Decisions

As shown above, Porter’s 5 Forces helps analyses industry factors and determines
how profitable an industry is in the long-run (Porter 2008). When combining all of the five
forces, strategist can decide if the industry is attractive to foreign forces or not. If the industry
attracts high amount of new entrant, it is a sign of high globalisation pressure. On the other
hand, if the market is saturated, domestics player have to consider internationalisation to
search for new profitable markets. In terms of supplier and consumer power variables, the
more power they have, the higher pressure it is on domestic business to globalise in order to
source competitive suppliers and products that satisfies consumer demands.

All in all, Porter’s framework helps strategists indentifies globalisation pressure level
before making decisions. It is the first fundamental concept of competing with international
companies.

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2. Understanding Asset Transferability: Organisational Analysis

The second major factor to be considered when competing with foreign forces is the
transferability of company assets. In order to determine what is the assets of the company,
SWOT Analysis will be used to point out the performance of the company. The analysis
measures on the strength, weakness, opportunities, and the threats faced by the company
(Managerial Auditing Journal, August 2000).

High transferability assets are good for a local company when facing globalisation as
they can transfer and penetrate their business into new markets. To have high transferability
assets, the company must be strong at something that, foreign forces do not have or
inefficient at. Being strong in a market brings opportunities to the company, and being weak
in the market may cause threat. Small local players has to determine their core competences
and use it to compete with foreign forces.

Strength
The strength of a company is their competence in one or many area of their business
operation. It may be form internally through efficient operation or externally through loyal
customer base.

For instance, an already presence company in an emerging market may have a huge
resources of distribution network compared to a penetrating foreign company which still
struggling to set up its distribution network in the market. This help the local player to
respond to its customer more quickly than others. Hence, they may exploit on this strength
when responsive time is important in an industry. This shows that in order for one company
to go international, not only it must have its own strength, it must also have higher assets
transferability in order to compete with local already established companies.

The importance of having core competencies and strength is to counter the

competition threat of foreign forces which has huge capital financing. The strength of a
company gives it opportunities to expand.

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Opportunities
Once strengths is determined, companies will be able to explore the external factors
that may allows the continual growth of business in its marketplace. Opportunities can be
related to PESTEL framework because opportunities arise from the changes in the
environment.

An example of opportunities is operating in markets with similar cultural and spoken

language. Televisa, Mexico’s largest media demonstrates this well, they produce Spanish
entertainments media and targets Spanish-speaking communities outside Mexico (Dawar and
Frost 1999). This method is known as operating in analogous market, where company reach
out to similar niche market outside of their own domestic market.

Grabbing every opportunities out there allows small domestic player to compete in
directly and globally with big foreign companies.

Weaknesses
Most companies had failed to acknowledge their own weaknesses. It is no doubt that
it’s not easy to identify a company’s own weaknesses because they lack outsider perspective.
Therefore, it is important to combine the view of customers and the company’s own
perspective when determining weaknesses.

Decision makers needs to deal with their company’s weakness quick and accurately.
If things are done correctly, it can reduce the risks or being attacked by competitors. Less
weakness means less prone to threats.

Threats
Other than weakness, threats is the external factors of an environment that could
affect how a domestic player positions itself in a globalised market. Threats, the opposite of
opportunities can also be related to the PESTEL Analysis.

External factors such as industry liberalization and demand fluctuations affects market
standing of local companies among global competition. Strategist have to look far into the
future to anticipate changes that threatens the company when competing with global giants.

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Conclusion
To conclude, this paper had covered the factors affecting decision making for
domestic company in a globalised market. However, the factors are ever-changing and it’s
also subjective to the market and industry a company operates in. Business managers must
take into account of the extensive factors based on two dimensions: (1) Pressure to globalise
and (2) Transferability of assets when making decisions.

The following Matrix can be used as a guide for decision makers when their market is
opened up for foreign competitions.

[Adapted from: Harvard Business Review March-April 1999, Competing With Giants by
Niraj Dawar and Tony Frost]

Based on the analysis in this paper, Porter’s 5 Forces and PESTEL framework can be
used to determine pressures to globalise in a market, while SWOT analysis will be
appropriate for determining transferability of competitive assets.

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 When the pressure to globalise is high, local business can either be a dodger or a
contender towards foreign competitions. Dodger avoids competition by giving up production
and focus on core competencies because they lack of transferable assets. For example, a local
manufacturer whom already have a distribution network focus on distribution for foreign
giants whom has more efficient production in the local market. On the other hand, a
contender will complete directly with foreign forces because they have extra capacity to
improve their operation. They might have chance in winning the competition, and they must
have transferable assets in order to be a contender.

In terms of low pressure to globalise, companies may adopt the extender and defender
approach in positioning their company. Defender, being lack of transferable assets have to
stay in the market and fight for market leadership. Unlike extender that has sufficient
transferable assets can extend into new markets to enhance business opportunities, hence,
lowering competition through diversified markets.

All in all, the dynamics affecting strategic decisions is will is too broad to be listed
and explained thoroughly based on a single framework. Future researchers are encouraged to
use additional methods such as Ansoff Matrix and BCG Analysis for a better strategic
decision making.

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