e

Strategies for
Competing in
International
,Markets

© Kenneth Bate/man / I on mage upe

Learning Objectives
THIS CHAPTER WILL HELP YOU UNDERSTAND:
in international mark ets.
LO 1 The primary reasons companies choose to compete

ries influence a company's strate gy choices in

LO 2 How and why differing market conditions across count
international markets.

n markets.
LO 3 The five major strategic options for entering foreig

internationally.
LO 4 The three main strategic approaches for competing

to improve overall competitiveness.

LO 5 How com panies are ab le to use international operations
-country markets.
LO 6 The unique characteristics of com peting in developing
 our key words now are globalization, new products and
A sharing of control with local partners will lead to a greater
businesses, and speed.
contribution from them, which can assist in coping with cir-
Tsutomu Kanai-Forme r chair and president of Hitachi cumstances that are unfamiliar to the foreign partner:
Yan ni Yan -Business author and academic
You have no choice but to operate in a world shaped by
globalization and the information revolution. There a re
. two options: Adapt or die. Always think out of the box and embrace opportunitie s
that appear, wherever they might be.
And y Grove - Former chair and CEO of Intel
Lakshmi N . Mi t tal - Cha/rman and CEO of ArcelorMittal

Any company t hat as pi res to industry leadership in the

21st century must t hink in terms of globa l, not domestic,
market leadershi p. The wor ld economy is global izing at an
accelerat ing pace as ambitious, growth-mi nded companies
race to build st ronger com petitive positions in the mar-
kets of more a nd more countries, as countries previously
closed t o foreign companies open up their markets, and
as informat ion technology shrinks the importance of geo-
graphic distance. The forces of globalizatio n are changing
t he competitive landscape in many industries, offering
companies attractive new opportunit ies and at the same
t ime introducing new competitiv e threats. Companies in
industries where these forces are greatest are therefore
under conside rable pressure to come up with a strategy
for competing s uccessfully in internation al markets .
This cha pter focuses on strategy options for expand-
ing beyond domestic boundaries and competing in the
markets of eit her a few or a great many countries. In the
process of ex ploring these options , we introduce such
concepts as mu lt idomestic, transnation al, and global strat-
egies; the Porter diamond of national competitive advan-
tage; and profit sanctuaries . The chapter also includes
sections on cross-cou ntry differences in cultural, demo-
graphic, and market conditions; strategy options for
entering foreign markets; the import ance of locating value
chain operations in the most advantageo us countries;
and t he specia l circ um sta nces of competing in developing
markets such as t hose in China, India , Brazil, Russia, and
eastern Europe .

A company may opt to expand outside its domestic market for any of five major reasons:
1. To gain access to new customers. Expanding into foreign markets offers potential for
increased revenues, profits, and long-term growth; it becomes an especially attractive The primary
reasons companies
option when a company encounters dwindling growth op~ortunities in its_ home market. choose to compete
Companies often expand internationally to extend the life cycle of t~eu_pro_ducts,_as in international
Honda has done with its classic 50-cc motorcycle, the Honda Cub (which is still selling markets .
well in developing markets, more than 50 years after it w?s first introduced in Japan).
A larger target market also offers compani~s the o~portumty _to earn a_ retur~ o~ large
investments more rapidly. This can be part1cular~y 1mpo_rtant _in R & _D-inten~1ve indus-
tries, where development is fast-paced or competitors imitate innovations rapidly.
2. To achieve tower costs through economies ofscale, experience, and increased purchasin~ power.
Many companies .are driven to sell in more than one cou_ntry becaus_e domestic sales
volume alone is not large enough to capture fully economies _of scale_in produ~t devel-
opment, manufacturing, or marketing. Similarly, firms expand mternattonally to increase
 C Hing and Execut ing Strategy
ts and Tec hniques fo r ra
PART 1 Concep
and move down the learning c
196
1 te experience
f
the rate at which they accua7s~ ower a company's input costs t?rough greater po~~e.
International expansion cfnI ly small size of country markets m Europe and lirn/d
purchasing power. The re at ~e companies like Michelin, BMW, and Nestle long, ect

began selling their products a

II
domestic volume explains w across Europe and then moved into markets in Nag~
on
America and Latin America. . 0,r roductton. Companies in industries based on natu
To gain access to low-co5t tnpuits JaPls rubber' and lumber)• often find it necessary to opral er-
3. ( ti and gas m ner , l supplies are 1ocated in different Parts
resources e.g., o · ' 5
Ince raw-materia
ate ln the International arena d more cost-effectively at the source. Other compani
of the world and can be accesse low-cost human resources; this is particularly true ~~
enter foreign markets to access ake up a high proportion of total production costs
I d t ies in which labor costs m . .
n us r etenctes. A company may be able to extend a market-lead-
4. To further ex~lott its core c~mp ket into a position of regional or global market leader-
st1
Ing position m_Its dome c ma~tencies fu rther. H&M is capitalizing on its considerable
ship by le~eragmg its c~r~n~ot~~xpand its reach internationally. By bringing its easy-to-
expertise m onlifn: redtla li'ne shopping to 23 different countries,cthe company hopes
mobile· nen Y on · •
use and fi tt' g up physical stores in these countnes. ompames can often
th
to pave ~ ~ay or s~e~internationally by replicating a successful business modeL
levera~e t ebr r~sob~~eprint for internationa l operations, as Starbucks and McDonald's
using 1t as a as1c .
have done. 1
and capabilities located in foreign markets. An increasingly
110 a•n access to resources
S. . go~ant motive for entering foreign markets is to acquire resources and capabilities .·
unp k t. Compames . oft e~ -~a ke acqms1-
that may be unavailable in a company's ~ome mar e_
tions abroad or enter into cross-border alliances to gam access to capab1ht1es that com-
2
plement their own or to learn from their partners. In other cases, companies choose to
establish operations in other countries to utilize local distribution networks, gain local
managerial or marketing expertise, or acquire technical knowledge.
In addition, companies that are the suppliers of other companies often expand interna-
tionally when their major customers do so, to meet their customers' needs abroad and retain
their position as a key supply chain partner. For example, when motor vehicle companies
have opened new plants in foreign locations, big automotive parts suppliers have frequently
opened new facilities nearby to permit timely delivery of their parts and components to the
plant. Similarly, Newell-Rubbermaid, one of Walmart's biggest suppliers of household prod-
ucts, has followed Walmart into foreign markets.

Crafting a, strategy · one or more countnes

to com pete m . of the world is inherently more
l.02 .
1 t d 'f' .
five reasons· us , 1 ierent countries have different home-countrv advantages
d'f' ex 1or. d .
comp p-
How and why l·n 1 ,erent 1n ustnes· comp t' f' . . J

differing market Second th . 1 ' . e mg e iective1Yrequues an .understan. ding of these differences.

. ..
, ere are ocat1on-based d tages to co??uctmg particular value chain acuv1ues
<.onditions acros~ in different parts of the w ~ va~
<.ountrie. influence
11 <.ompany•~
general business cl ' arid. Thud, different poht1cal and economic conditions make the
~trat.cgy choite~ nies face risk due t~m~e more favorable in some countries than in others. Fourth, compa·
in internalional markets. And fifth dif~ verse shifts in currency exchange rates when operating in foreign
rnarkets. , ,erences inv buyer tastes and. preferences present a challenge for com·
panies concerning customtzin
g ersus standardizing their products and services.
 CHAPTER 7 Strat egie s for Competing in Internatio 197
nal Markets

Ho me -Co un try Industry Advantag

es and the Diamond
Mo de l
certain countries are known for their strength
s in particular industries. For example, Chil
has competitive strengths in industries such e
as copper, fruit, fish products, paper and pulp
chemicals, and wine. Japan is known for ,
competitive strength in consumer electron
automobiles, semiconductors, .steel products ics,
, and
likely to develop competitive strength depend specialty steel. Where industries are more
s on a set of factors that describe the nature
of each country's business environment and
vary from country to country. Because stro
industries are made up of strong firms, the strat ng
egies of firms that expand internationally are
usually grounded in one or more of these facto
rs. The four major factors are summarized in
a framework developed by Michael Porter
and known as the Diamond of National Com
tive Advantage (see Figure 7.1). 3 peti-

Demand Conditions The demand con

ditions in an industry's home market include
relative size of the market, its growth pote the
ntial, and the nature of domestic buyers' need
and wants. Differing population sizes, inco s
me levels, and other demographic factors give

FIGURE 7 .1 The Diamond of National Competitive

Advantage

OUNTRY

inp_µts {e.g.,,
labo1;, materials}

. f N t ions • Harvard Business Review, March

Source: Adapt ed from Mi chael E. Porte r, MThe -April 1990 , pp. 73-9 3.
Comp etit ive Adva ntage O a '
 . or Crafting and Executing Strategy
198 PART 1 Concepts and Techniques f

k t size and growth rates from country to count

rise to considerable differences indmar e ·mportant in their home market tend to attrry.
Industry sectors t h at are larger an more
th rsl For example, owing to w1'd e ly d'" . Popact
iuenng
more resources and grow. faS er t~an ~ ~e~e is a far bigger market for luxury automobn u-
t
lation demographics and mcome ~ve si Argentina India, Mexico, and China. At the
in the United States and Germ~;y ~J~ ~hina, Brazil, and Malaysia, market growth poten~
sa;s
1
. time, in developing m,a~k7ts h e ore ~ature economies of Britain, Denmark, Canada, and
th
tial is far higher t~an it ism em wth in automobiles is explosive in China, where 20
15
Japan. The poten~1al for .marketft~ 26 .4 million, surpassing U.S. sales of 17.2 million and
sales of new vehicles a~ounte ket for the sixth year in a row. 4 Demanding domestic
st
maldng China the worlds large mar reater innovativeness and improvements in quality
buyers for ~~ induS ry's hro~~~:ip:e~t of stronger industries, with firms that are capabl~
t
Such con~itions foster t ek t d Intage into a competitive advantage in the international
of translating a home-mar e a v
arena.

'F C d't' Factor conditions describe the availability, quality, and cost of raw
actor on I ions h f · · d t ·
materials and other inputs (called factors ofproduction) t .at urns m an_ m us ry requ_ue for
·ng thei·r products and services. The relevant factors of production vary from mdus-
produc1 h . 1 a . l kn 1
try to industry but can include different types of labor, tee mca or man~&ena ow edge,
land, financial capital, and natural resources. Elements _of ~ country's m~rastructure may
be included as well, such as its transportation, commumcat10n, and banking systems. For
instance, in India there are efficient, well-developed national channels for distributing gro-
ceries, personal care items, and other packaged products to the country's 3 million retailers,
whereas in China distribution is primarily local and there is a limited national network for
distributing most products. Competitively strong industries and firms develop where rele-
vant factor conditions are favorable.

Related and Supporting Industries Robust industries often develop in locales where
there is a cluster of related industries, including others within the same value chain system
(e.g., suppliers of components and equipment, clistributors) and the makers of complemen·
tary products or those that are technologically related. The sports car makers Ferrari and
Maserati, for example, are located in an area of Italy known as the "engine technological
d~trict," which includes other firms involved in racing, such as Ducati Motorcycles, along
with hundreds of small suppliers. The advantage to firms that develop as part of a related-in-
dustry clu_ster comes from the close collaboration with key suppliers and the greater knowl-
edge shanng throughout the cluster, resulting in greater efficiency and innovativeness.

t
Firm S rate_gy, Structure, and Rivalry Different country environments foster the devel-
01P1~ent of different styles of management, organization and strategy For example strategic
.a tances are a mo · ' · ' ·
h' h h . re common st rategy for fums from Asian or Latin American countries,
~c . emphasiz~ tr~~t and cooperation in their organizations than for firms from North
enca, w ere md1v1dualism is more infl
the competitive rival of t . .
r 1 I dd '
. u~n Ia · n a ition, countries vary in terms
of
domestic firms' compZtitiveheir i~1~~tnes. Fierce rivalry in home markets tends to hone
For an industry in a art~a~a titles a nd ready them for competing internationally.
must be favorable for th~t i;~u ~r country to _become competitively strong, all four fa~tors
that are capable of competingus ry. w7en t~ey are, the industry is likely to contain flrrn;
framework can be used to r su cchess ully m the international arena Thus the diamon
evea 1 t e answers t
.
° 1 • · . t for
competing on an international b
fi 1 severa questions that are 1mportan .
an industry are most likely to com s. First, it can help predict where foreign entrants into
foreign competitors since the fra e rom. This can help managers prepare to cope with new
rivals' strengths. Se~ond it can mewlorhk also reveals something about the basis of the neW
w k d , revea t e countri . h' l to be
ea est an thus can help manage d .d es m w 1ch foreign rivals are like Y d
because it focuses on the attrib t rs f eci e which foreign markets to enter first. And thir '
to flourish, it reveals someth1' gu ebs o a country's business environment that allow firills
n a out the advant · ess
. . . ages of conducting particular busill
 CHAPTER 7 St ra t eg1t!!
· s for Competing
. .in In ternational
· M ar ke t 5 199

activities in that c?untr_y.?hus the diamond framework is an aid to deciding where to locate
different value chain activities most beneficially- a topic that we address next.

Opportunities for Location-Based Advantages

Increasingly, comp_anies ~re locating different value chain activities in different parts of
the ~orld to e~ploit lo~ation-based advantages that vary from country to country. This is
particularly evident with resp~~t to the location of manufacturing activities. Differences
in wage rates, worker productivity, energy costs, and the like create sizable variations in
manu~acturing. costs f~om country to country. By locating its plants in certain countries,
firms m some md~stnes can reap major manufacturing cost advantages because of lower
input costs (es_pec1ally labor), relaxed government regulations, the proximity of suppliers
and technologically related industries, or unique natural resources. In such cases, the low-
cost countr~es become principal production sites, with most of the output being exported
to markets m other parts of the world. Companies that build production facilities in low-
cost countries (or that source their products from contract manufacturers in these countries)
gain a competitive advantage over rivals with plants in countries where costs are higher.
The competitive role of low manufacturing costs is most evident in low-wage countries
like China, India, Pakistan, Cambodia, Vietnam, Mexico, Brazil, Guatemala, the Philippines,
and several countries in Africa and eastern Europe that have become production havens
for manufactured goods w ith high labor content (especially textiles and apparel). Hourly
compensation for manufacturing workers in 2013 averaged about $1.46 in India, $2.12 in
the Philippines, $3.07 in China, $6.82 in Mexico, $9.37 in Taiwan, $9.44 in Hungary, $10.69
in Brazil, $12.90 in Portugal, $21.96 in South Korea, $25.85 in New Zealand, $29.13 in Japan,
$36.33 in Canada, $36.34 in the United States, $48.98 in Germany, and $65.86 in Norway. 5
China emerged as the manufacturing capital of the world in large part because of its low
wages-virtually all of the world's major manufacturing companies now have facilities ~n
China. This in turn has driven up their wages to nearly double the average wage offered m
2012. .
For other types of value chain activities, input quality or availability are more 1~portant
considerations. Tiffany & Co. entered the mining industry in Canada to acc~ss d1am~nds
that could be certified as "conflict free" and not associated with either the fund1~g of Afnc~n
wars or unethical mining conditions. Many U.S. companies locate call ce~ters m countnes
such as India and Ireland, where English is spoken and the workforce 1s -~ell educated.
Other companies locate R & D activities in countries ~ her~ there are prest1g1ous resear~~
institutions and well-trained scientists and engineers. Likewise, concer?s ab~ut sho: delr
ery times and low shipping costs make some countries better locations t an ot ers or
establishing distribution centers.

The Impact of Government Policies and Economic Conditions in

Host Countries .. h
1· . s and economic cond1t1ons affect bot
Cross-country variations in govern?1ent po icie d the risks of operating within the host
the opportunities available to a foreign entra_nt a;e eager to attract foreign investments,
country. The governments of some c~untnes_ mate that outsiders will view as favorable.
and thus they go all out to create a ?u s mes;hcl~reate more jobs, and raise living standa~ds
Governments eager to spur econ~n:iic g_row ~t stimulating business innovation and capital
for their citizens usually enact pohcies aimed 'de such incentives as reduced taxes,
investment; Ireland is a good example. They may provi. t nee and government-sponsored
l d ·t development ass1s a , . f T
ow-cost loans, site location an s1 e . t t production and distribution aci 1-
f
training for workers to encourage companies to ons ru;s arise "pro-business" government~
ties. When new business-relate? issues or de:~ fr~:e~usiness' leaders. When tough~~ bu s1-
make a practice of seeking advice and couns_ te the endeavor to make the transitlo~ to
ness-related regulations are dee~ed appropr~at 'busi~ess-friendly rather than adversanal.
more costly and stringent regulations somew
 . d Executing Strategy .,
200 PART 1 Concepts and Techniques for Crafting an

nts sometimes enact policies that, from a bu .

On the other ha~d, go~:r.nme . hin a country's borders less attractive. For e s1ness Per-
spective, make locating facihtt:s wit make it particularly costly to achieve xarnple,the
nature of a company'~ operatlot n1\:g~ations. Some governments provide su~~tdn_Pliance
with a country's environmen a l
. 1 d tic companies to enab e them to better compete againsties a
fi nd
low-interest oans to omes ts may enact d l'b oreign
com anies To discourage foreign imports, governmen . . e i erately burde
p ·d d uirements regarding customs inspection for foreign good n•
some proce ures an req dd. .
may impose tariffs or quotas on imports. A ittona 11y, they. may spec·1fYthat a certains and pe .
centage of the parts and components used in manu!actun~g a p~od_uct _be obtained fro~
local suppliers, require prior approval of capital ~pe nd ing ~ro1ects, hmit withdr~wal of funds
from the country, and require partial ownership of foreign company operations by local
companies or investors. There are times when a governme~t may _place restrictions on
exports to ensure adequate local supplies and regulate th ~ pnc:s of i~ported and locally
produced goods. Such government actions make a coun~ry s business chmate less attractive
and in some cases may be sufficiently onerous as to discourage a company from locating
facilities in that country or even selling its products there. ..
A country's business climate is also a functi~1: of t~e political and ec?nomic risks
associated with operating within its borders. Pobt1cal nsk.s have to do with the insta·
CORE CONCEPT bility of weak governments, growing possibilities that a country's citizenry will revolt
Political risks stem fro m against dictatorial government leaders, the likelihood of new onerous legislation or reg-
instability or weakness ulations on foreign-owned businesses, and the potential for future elections to produce
in natio nal governments corrupt or tyrannical government leaders. In industries that a government deems critical
and hosti lit y to fo reign to the national welfare, there is sometimes a risk that the government will nationalize the
busi ness. industry and expropriate the assets of foreign companies. In 2012, for example, Argentina
Economic risks stem from nationalized the country's top oil producer, YPF, which was owned by Spanish oil major
inst ability in a count ry's Repsol. Other political risks include the loss of investments due to war or political unrest,
monetary system, econom ic regulatory changes that create operating uncertainties, security risks due to terrorism,
an d regulat ory polic ies, and and corruption. Economic risks have to do with instability of a country's economy and
the lack of property ri ghts monetary system-whether inflation rates might skyrocket or whether uncontrolled defi·
protection s. cit spending on the part of government or risky bank lending practices could lead to a
breakdown of the country's monetary system and prolonged economic distress. In some
countries, the threat of piracy and lack of protection for intellectual property are also
sources of economic risk. Another is fluctuations in the value of different currencies-a fac·
tor that we discuss in more detail next.

The Risks of Adverse Exchange Rate Shifts

When companies produce and market their products and services in many different coun-
tries, they are subject to the impacts of sometimes favorable and sometimes unfavorable
changes in currency exchange rates. The rates of exchange between different currencies
can vary by as muc~ as 20 t~ 40 p~rcent annually, with the changes occurring sometimes
gradually and sometimes swiftly. Sizable shifts in exchange rates pose significant risks for two
reasons:
1. They are hard to predict because of the variety of factors involved and the uncertainties
surrounding when and by how much these factors will change.
2. !hey cre~te uncertai~ty r~garding which countries represent the low-cost manufactur-
ing locations and which nvals have the upper hand in the marketplace.
To illus~rate the economic and competitive risks associated with fluctuating exchan~e
rates: consider the case of ? U.S. company that has located manufacturing facilities in
Braz~l. (where the currency is reals- pronounced "ray-alls") and that exports most of the
Brazihan-made goods to markets in the European Union (where the currency is euros).
To keep the numbers sil~ple, assu~e that the exchange rate is 4 Brazilian reals for 1 euro
and that the product bemg made m Brazil has a manufacturing cost of 4 Brazilian reals
(or 1 euro). Now suppose that the exchange rate shifts from 4 reals per euro to 5 reals per
 CHAPTER 7 St.r.ilegies for Compel 111 ~1 In lnter nationill Markets 20 1

euro (meaning that the real has declined in value and that the euro Is stronger). Making the
product in Brazil is now more cost-competitive because a Brazilian good costing 4 reals
to produce has fallen t? only 0.8 euro at the new exchange rate (4 reals divided by 5 reals
per euro = 0.8 euro)_. This clearly puts the producer of the Brazilian-made good in a better posi-
tion to compete against the European makers of the same good. On the other hand, should
the value of the Brazilian real grow stronger in relation to the euro- resultlng ln an exchange
rate of 3 reals to 1 euro- the same Brazilian-made good formerly costing 4 reals (or 1 euro)
to produce now has a cost of 1.33 euros (4 reals divided by 3 reals per euro = 1.33 euros),
putting the producer of the Brazilian-made good in a weaker competitive position vis-a-vis
the Europea~ producers. Plainly, the attraction of manufacturing a good In Brazil and selling
it in Europe is far greater when the euro is strong (an exchange rate of 1 euro for 5 Brazllian
reals) than when the euro is weak and exchanges for only 3 Brazilian reals.
· But there is one more piece to the story. When the exchange rate changes from 4 reals
per euro to S reals per euro. not only is the cost-competitiveness of the Brazilian manufac-
turer stronger relative to European manufacturers of the same item but the Brazilian-made
good that formerly cost 1 euro and now costs only 0.8 euro can also be sold to consumers
in the European Union for a lower euro price than before. In other words, the combina-
tion of a stronger euro and a weaker real acts to lower the price of Brazilian -made goods in
all the countries that are members of the European Union, which is likely to spur sales of
the Brazilian -made good in Europe and boost Brazilian exports to Europe. Conversely, should
the exchange rate shift from 4 reals per euro to 3 reals per euro.:..which makes the Brazil-
ian manufacturer less cost-competitive with European manufacturers of the same item-the
Brazilian-made good that formerly cost 1 euro and now costs 1.33 euros will sell for a
higher price in euros than before, thus weakening the demand of European consumers for
Brazilian-made goods and acting to reduce Brazilian exports to Europe. Brazilian exporters
are likely to experience (1) rising demand for their goods in Europe whenever the Brazilian
real grows weaker relative to the euro and (2) falling demand for their goods in Europe
whenever the real grows stronger relative to the euro. Consequently, from the standpoint
of a company with Brazilian manufacturing plants, a weaker Brazilian real is a favorable
exchange rate shift and a stronger Brazilian real is an unfavorable exchange rate shift.. .
It follows from the previous discussion that shifting exchange rates have a big impact
on the ability of domestic manufacturers to compete with fore~gn rivals. For ex_am~le, U.S.·
based manufacturers locked in a fierce competitive battle with low-cost foreign imports
benefit from a weaker U.S. dollar. There are several reasons why this is so:
• Declines in the value of the U.S. dollar against foreign currencies raise the U.S. dollar
costs of goods manufactured by foreign rivals at plants located in the countries whose
currencies have grown stronger relative to the U.S. dollar. A weaker dollar acts to reduce
or eliminate whatever cost advantage foreign manufacturers may have had over U.S.
manufacturers (and helps protect the manufacturing jobs of U.S. workers).
• A weaker dollar makes foreign-made goods more expensive in dollar term~ to U.S.
. rtails u s buyer demand for foreign-made goods, stimulates Fluctuatin g exchange rates
consumers-th is cu ··
greater demand on the part of U.S. consumers for U.S.-ma de goo ds· an d reduces U·S· pose significan t economic
risks to a company's
imports of foreign-made goods. . competitiv e ness in foreign
• A weaker U.S. dollar enables the U.~.-made go~o~~ost~~o!~ :: ~~;:rtJ~~=sJ.~_cJ~~ markets . Exporters are
sumers in countri~s whose curre~ctes h~~ed!mand for tte now 1 disadvanta ged when the
relatively cheaper currency of the country
lar-such lower pnces boost forei~n buy f U S -made goods to foreign countries
U.S.·made goods, thereby stimulating exports O . · · where goods are being
. . b . U S -based manufactunng p1ants. manufactu red grows
and creating more JO s in · · . . the dollar value of profits a company stronger relative to the
• A weaker dollar has the effect of increasin1 currency is stronger relative to the currency of the importing
earns in foreign-country markets where thf e oca 1 arns a profit of €1 o million on its country.
do11ar. For examp1e, i'f a U.S.· based manu acturer e
rger number of dollars when the
sales in Europe, those €10 million convert to a 1a
dollar grows weaker against the euro.
 . Craf tin and Exe cuti ng Stra tegy
Conc epts and Techniqu es for 9
20 2 PART 1
omical[y favorable exchange rate shift for manUfi
an 1°:eclinein the valu e of the U.S. dollar
ngth e~-
stre
A weaker U.S. d~l/ar is th_erefore and i s
Dom esti c com pani es fa cing g plants based in the United State~ nufa cturing plan ts and boo sts buy er dem
turin ar is exp ecte d to rem ain wea k for 80; ;
U.S. doll
com petit ive pres su re from the cost-competitiveness of U.S.·bas~ t::;a in the
ince ntiv e to build man ufac turi ng facilities
lo wer-cost impo r ts bene fit u.s.-made goods. Wh en the v?lu~~ve an ds to th
whe n their gove rnme nt's time to com e, foreign com pan ies S sum ers rath er than exp ort the sam e goo
drive~
cu r renc y grow s weaker in h
United States to mak e goods for U. co~ rodu
ctio n cost s in doll ar term s hav e been
an unja.
relat ion to the cu r renci es Jar. Con vers ely, a stronger U.S. dollar is
United States fr?m ~oreign plants0 7th~~o1 es such plants
of t he coun tries wher e t he ufac turi ng plan ts bec ause it mak
up by the declme m ~e val~es ·b ed man
ken s foreign dem and for U.S.·mad e gOOds.
lowe r-cos t impo rts are
vorable exchange_~ate shift ffr ei. ~ ~~nts and wea turing
being made . e of foreign com pan ies to loca te manufac
less cost-competitiVe wi t or tt ~ce ntiv e reas onin g applies to
A strong dollar _also wea ens ke goods for U.S. con sum ers. The sam
local cur-
t the European Union whe re euros are the
facilities_in the Uruted S ates_to ma n~ies in of companies
enh anc es the cost-com petitivetness
comparues that have plantsoithn ec~~urrencies . . . • · h
w • ose curren-
rency.. A weak eurod.vers us foreign nva ls with p 1ants m cou n nes
. . Europe vis-a-vis· th
manufactunng goo s m to the euro ·· a stro.ng euro vers us ou er curr ena es weakens
r1< elati·ve · · ·
c1es have grown stronber r
•
plan ts m the European ruon .
the cost-competitiveness of compan ies with

ph ic, Cultural, and

Cross-Country Differences in De mo gra
Market Conditions r s_u bsta ntia lly fr~m country to
ice som etim_es diffe
Buyer tastes for a particular product or serv t other
try In Fran ce, con sum ers prefer top-load in~ wash mg_ mac hines. ,,~here as m mos
coun g prefer
t-loa ding mac hines. People m Hon~ Kon
European countries consumers prefer fron ice crea m fla-
ianc es are mor e popula_r. Novelty
compact appliances, but in Taiwan large appl they
more appeal to East Asian cus tomers than
vors like eel, shark fin, and dried shrimp have suitable
in Euro pe. Som etimes. prod uct designs
have for customers in the United States and stan da rds- for exam ple,
because of differing local
in one country are inapprop riate in ano ther e Euro pean
110-volt electric 5\·stem s. bu t in som
in the United States electrica l devices run on elec trica l
system. necessl!Jtm·g the use of di ffere nt
countries the standard is a 240 -volt electric product.
s can also affect con sum er dem a nd fo r a
designs and components . Cu ltu ral innu ence eve n whe n they can
are reluctant to pu rcha se PCs
For instance, in South Korea many pare nts r scho olwo rk
chfldren will be d, ,.trac ted from thei
afford them because of concern s th at their "'6
o games. and beco min g Internet ·add icts.
by surfing the Web, play ing PC-based vide with
international rraik etpl ace hav e to wrestle
Consequently, compani es ope ratin g in an ry market to matc h loca l buye rs'
in each coum
whether and how much to customize their offerings
tegy of offinng a mostly stan dardized product
tastes and preferences or whether to pursue a stra more
ely rrut ched to local taste s makes them
worldwide. While making products that are clos s cou ntry by cou ntry may raise
pan y's prcxiuct
appealing to local buyers, customizing a com ter
grea ter variety of designs and com ponents. shor
production and distribution costs due to the tion logis tics.
d im·e ntory han dlin g and distribu
production runs, and the complications of adde lead to
's product offering, on the othe r han d, can
Greater standardization of a global company con·
thus redu cing per-unit production costs and
s~ale _economies and learning-c urve effects, een the mar ket pres sure s
ntage. The tension betw
tnbutmg to the achievement of a low-cost adva pressure s to towe r
try and the competit ive
ize a compa~y's product offerings coun try by coun
to loc~l
nts in f oreign markets have to reso lve.
costs is one ofthe big strategic issues that partidpa

t £ ·. a 4 • • D

~ • •V - ,.. - • • , ~ - - 0 - -

-
L03 Once a company deci des to db estic bord ers, it mus t con side r the ques
eyo nd its dom
tion of how to ent fi . exp an strategic options for doin g so:
The five majo r er oreign markets . There are five prim ary
strategic options 1. Maintain a home-co try prod ucti. on base and export goods to fore ign mar kets.
fo r entering foreign 2 L. fi . un
the com pany's prod ucts abro ad.
markets . · icense oreign firms to produce and distribute
 203
CHAPTER 7 Strategies for Competing in International Markets

3. Employ a.franchising strategy in foreign markets.

4. Establish a sub~idia?' in a foreign market via acquisition or internal development.
s. Rely on strategic alliances or joint ventures with foreign companies.
Which o~tion. to ~mploy depends on a variety of factors, including the nature of the
firm's strategic ob1ec_t~v:es, the firm's position in terms of whether it has the full range of
resources and capabilities_ needed to operate abroad, country-specific factors such as trade
barriers, an~ the transaction costs involved (the costs of contracting with a partner and
mon~toring its com~liance with th~ terms of the contract, for example). The options vary
cons1der~bly regarding the_level of investment required and the associated risks- but higher
levels of investment and nsk generally provide the firm with the benefits of greater owner-
ship and control.

Export Strategies
Using do~e~~ic plants as a production base for exporting goods to foreign markets is an
excellent m1t1al strategy for pursuing international sales. It is a conservative way to test
the international waters. The amount of capital needed to begin exporting is often mini·
mal; existing production capacity may well be sufficient to make goods for export. With an
export-based entry strategy, a manufacturer can limit its involvement in foreign markets by
contracting with foreign wholesalers experienced in importing to handle the entire distri-
bution and marketing function in their countries or regions of the world. If it is more advan-
tageous to maintain control over these functions, however, a manufacturer can establish its
own distribution and sales organizations in some or all of the target foreign markets. Either
way, a home-based production and export strategy helps the firm minimize its direct invest-
ments in foreign countries. Such strategies are commonly favored by Chinese, Korean, and
Italian companies-produ cts are designed and manufactured at home and then distributed
through local channels in the importing countries. The primary functions performed abroad
relate chiefly to establishing a network of distributors and perhaps conducting sales promo-
tion and brand-awareness activities.
Whether an export strategy can be pursued successfully over the long run depends
on the relative cost-competitiveness of the home-country production ~ase. In some i~d~s-
tries, firms gain additional scale economies and learning-curv~ benefits from centrahzm~
production in plants whose output capability exceeds demand m any one country °:arket,
exporting enables a firm to capture such economies. However, an ex~ort st~ategy is v~l-
nerable when (1) manufacturing costs in the home country are substantially higher th_an m
foreign countries where rivals have plants, (2) the costs of shipping the product to distant
foreign markets are relatively high, (3) adverse shifts occur in currency exchange rates, and
(4) importing countries impose tariffs or erect other trade barriers. Unless an ;xporte; ca~
· · d h · · g costs competitive with rivals' costs, secure a equate oca
keep its production an s ippm . d f£ r I hedge against unfavorable
distribution and marketing support of its products, ~n e _ec. ive Y
changes in currency exchange rates, its success will be limited.

Licensing Strategies .
. h n a firm with valuable techmcal know-how,
Licensing as an entry strateg~ makes sense w ~uct has neither the internal organizational
an appealing brand, or a unique patente~ pro k ts Licensing also has the advantage of
capability nor the resources to enter foreign mar e t. y markets that are unfamiliar, politi-
avoiding the risks of committing resources to ~ou~ ~ By licensing the technology, trade-
cally volatile economically unstable, or 0ther~ise ns y.mpany can generate income from
' . . t ·g -based firms, .a coforeign markets to the 1·1censee. The
mark, or production nghts to 1ore1 n .
royalties while shifting the costs and nsks of ente~di~gg valuable technological know-how
. .
big . h · k of prov1 m of control over its use; momtonn · · g
disadvantage of licensing 1s t e ns d
to foreign companies and thereby losing some . egree k ow-how can prove quite difficult
licensees and safeguarding the company's propn~tal ~y connsiderable and the companies to
· lty potentta is
in some circumstances. But if the roya
 204 . and Exe cutin g Stra tegy
PART 1 h . ues for Craf t ing
Conc epts and Tee n1q
.
·ch the licenses are being granted are trus tworthy and . 1
reputable, then licensing
w h d pha rma ceut •
ica com pan ies . can b
veryi attractive option. Many softwar . e an use hcensing ea
strat
gies to part1.c1pa
. te . 'orei
m ' 6
1 · dn markets . . e-

Franchising Strategies f rs and own ers of proprietary technology f

While licensing works well for man~:e~~:~o
1 nal exp ansi on efforts of service and retai~
chising is often better ~uited to the ds (the parent of Pizza Hut, KFC, Taco Bell, anct ~n-
enterprises. McDonald s, Yum! Bran El en Wing
and Hilton Hotels have all used franch· ~g-
Street), the UPS Store, Roto -Rooter, 7· e;ad
chis ing has man y of the same advantag~:ing
to build a presence i_n foreign marke~~-the
costs and risks of establishing foreign loca
licensing. The franchisee bears mo st urces to recruit, train, support, and monitor s
uo;~
a franchisor has to expend on~y t~e res~s fr ,
maintaining quality control; foreign franchis:n
chisees. The probl~~ a franchisor ~~ :;n t -
to consistency and standardization, especial1
do not always exhibit strong com h me kinds of quality concerns. A question thys
whe n the local culture does not s~ressf t e ~?
can arise is whether to allow foreign ranc
isee
s to make modifications in the franchis
. f
:t
' .
product of1enng so as o t bett er satisfy the tastes and exp ecta tion 1 1 buyers. ShouOlds
McDonald's give franchisees in each nation • h s od oca
some leeway m w at pro_ uc ts th. ey put on
menus? Shou ld franc h1sed KFC uni·ts in China be permitted to substitute spices that their
.
to Chinese consumers? Or should the sam . • appe
. al
e men u offenngs be ngorous1Y an d unvarying
required of all franchisees worldwide? ly

Foreign Subsidiary Str ate gie s · ·

Very often companies electing to compete
internat ionally or glo?ally !?refer to ha~e
control over all aspects of operating in a fore direct
ign market. Com pan ies that wan t to direct
formance of all essential value chain activ per-
ities typi call y establish a who lly own ed subs
ary, either by acquiring a local compan idi-
y or b~ establish_ing its ?wn ?ew oper
organization from the ground up. A subsidia ating
ry bus mes s that is esta blis hed mternally
scratch is called an internal startup or a gree from
nfield venture.
Acquiring a local business is the quicker of
COR E CON CEP T the two opti ons; it may be the least risky
and most cost-efficient means of hurdling
such entr y barriers as gaining access to local
distribution channels, building supplier
A gree nfiel d venture (o r relationships, and establishing working
tionships with government officials and rela-
inter na l s t a rtu p) is a other key con stitu enc ies. Buying an ongo
operation allows the acquirer to move dire ing
s ubsid ia ry busi ne ss that is ctly to the task of transferring resources and
personnel to the newly acquired business,
est ablis hed by setti ng up redirecting and integrating the activities of
t he e nt ire operatio n from acquired business into its own operation, putt the
ing its own strategy into place, and acceler-
fI the grou nd up . ating efforts to build a strong market position
. ·
One thin g an acquisition-minded firm mus
t consider is whe ther to pay a premium
price for a successful local company or to
buy a struggling competitor at a bargain price
If the buying firm has little knowledge of the .
local market but ample capital, it is often
better off purchasing a capable, strongly posi
tioned firm. How eve r, whe n the acquirer
promising ways to transform a weak firm sees
into a strong one and has the resources and
agerial know-how to do so, a struggling com man-
pan y can be the better long-term investme
Entering a new foreign country via a gree nt.
nfield ven ture mak es sen se whe n a company
already operates in a number of countries,
has exp erie nce in esta blis hing new subsidiar
and overseeing their operations, and has ies
a sufficiently large poo l of resources and
bilities to rapidly equip a new subsidiary capa-
with the pers onn el and com pete ncie s it
to com pete successfully and profitably. Fou needs
strategy appealing: r othe r con ditio ns mak e a greenfield vent
ure
• Wh en creating an internal startup is che
ape r than mak ing an acq uisi tion .
• Wh en add ing new production capacity
balance in the local market. will not adversely imp act the supply-dema
nd
 CHAPTER 7 Strategies fo r Competing in International Markets 205

• When a startup subsidiary has the ability to gain good distribution access (perhaps
because of the company's recognized brand name).
• When a startup subsidiary will have the size, cost structure. and capabilities to compete
head-to-head against local rivals.
Greenfield ventures in foreign markets can also pose problems, just as other entry strat-
egies do. They represent a costly capital investment, subject to a high level of risk. They
require numerous ~ther co~pany _resources as well. diverting them from other uses. They
do not work wel~ m countn~s ~ ithout strong, well-functioning markets and institutions
that protect the_nghts of foreign investors and provide other legal protections. Moreover,
an important disadvantage of greenfield ventures relative to other means of international
e>,.,pansion is that they are the slowest entry route-particularly if the objective is to achieve
a sizable marl-et share. On the other hand, successful greenfield ventures may offer higher
returns to compensate for their high risk and slower path.

Alliance and Joint Venture Strategi es

Strategic allian~es, joint ventures, and other cooperative agreements with foreign com-
panies are a w idely us:d means of entering foreign markets.7 A company can benefit Collaborative strategies
immensely from a foreign partner's familiarity with local government regulations, its involving alliances or joi nt
knowledge of the buying habits and product preferences of consumers, its ventures with fo reig n
distribution-channel relationships, and so on. Both Japanese and American companies
8 part ners are a pop ular way
are actively forming alliances with European companies to better compete in the for companies to edge their
27-nation European Union (and the five countries that are candidates to become EU way into the markets of
members). Many U.S. and European companies are allying with Asian companies in foreign countries.
their efforts to enter markets in China, India, Thailand, Indonesia, and other Asian
countries..
Another reason for cross-border alliances is to capture economies of scale in produc-
tion and/or marketing. By joining forces in producing components, assembling models, Cross-bo rder alliances
and marketing their products, companies can realize cost savings not achievable with ena ble a growth-mind ed
their own small volumes. A third reason to employ a collaborative strategy is to share dis- company to widen its
tribution facilities and dealer networks, thus mutually strengthening each partner's access geographic coverage
to buyers. A fourth benefit of a collaborative strategy is the learning and. added expertise and strengthen its
that comes from performing joint research, sharing technological know-how, studying
one another's manufacturing methods, and understanding how to tailor sales and market-
ll
I
competitiven ess in foreign
markets; at the same time,
ing approaches to fit local cultures and traditions. A fifth benefit is that cros~-border allies ~~ they offer flexibility and
C2Il direct their competitiv e energies more toward mutual rivals and less toward one I allow a company to retain
another; teaming up may help them close the gap on leading companies. And, finally, alli- I
some degree of aut o nomy
I
ances can be a particularly useful way for companies across the world to gain agreement ll and operating control.
on important technical standards- they have been used to arrive at standards for assorted
PC devices, Internet-related technologi es, high-definition televisions, and mobile phones.
Cross-borde r alliances are an attractive means of gaining the aforementioned types of
benefits (as compared to merging with or acquiring foreign-based companies) because they
allow a company to preserve its independe nce (which is not the case with a merger) and
avoid using scarce financial resources to fund acquisitions. Furthermore, an alliance offers
the flexibility to readily disengage once its purpose has been served or if the benefits prove
elusive, whereas mergers and acquisition s are more permanent arrangements.9
Alliances may also be used to pave the way for an intended merger; they offer a way to
~est the value and viability of a cooperativ e arrangeme nt with a foreign partner before mak-
mg a more permanent commitme nt. Illustration Capsule 7.1 shows how Walgreens pursued
this strategy with Alliance Boots in order to facilitate its expansion abroad.

~e Risks of Strategic Alliances with Foreign Partners Alliances and joint ventures ·

:d
With foreign partners have their pitfalls, however. Sometimes a local partner's ~owledge
expertise turns out to be less valuable than expected (because its knowl~dge is render_ed
bsolete by fast-changi ng market conditions or because its operating practices are archaic).
 Walgreens Boots Alliance, l~c.:
ILLU STR ATIO N
CAPSULE 7.1 Entering Foreign Mar ket s via
Alliance Followed by Mer ger

Walg reens pharm acy began •in 1 901 as a single store on

I
the South Side of Chica go , and grew to becom e th
e arg-
est chain of pharm acy reta1.1ers in · Ame rica Walg reens
· d
was an early pione er of the "self- service" pharm
acy an
found succe ss by moving quickly to b u1"Id a vas t dome s-
.
ti c netwo rk of store s after the Secon d World War.
Thi~
g rowth -focu sed strate gy serve d Walg reens well
u~ until
the begin ning of t he 21st centu ry, by wh ich time
it had
nearly satur ated the U.S . mark et. By 2014 , 75
perce nt
of Amer icans lived within five miles of a Walg reens
. The
comp any was also facing threa ts to its core
busin ~ss
mode l. Walg reens relies heavily on pharm acy sales
, w_h ,ch
gener ally are paid for by some one other than the
patie nt ,
usually the gover nmen t or an insur ance comp any.
As the © M ich ael Nagfe 1Bfoom~a g via Gert y lm,,ges
gover nmen t and insur ers starte d to make a more
sus-
tained effor t to cut costs , Walg reens 's core profit mark et posi tion a nd th erefo re barga ining power
cente r with
was at risk . To mitig ate these threa ts, Walg reens d r ug comp an ies. In light of these advan tages ,
looke d Walgreens
to enter foreig n mark ets . move d qu ickly to part ner with and later acquire
Alliance
Walg reens found an ideal intern ation al part ne Boots a nd merg ed both comp anies in 2014 to
r in become
Alliance Boots . Based in the UK , All iance Boot Walg reens Boots All ia nce . Walg reens Boots Allianc
s had a e, Inc.
global footp rint with 3 ,300 store s acros s 10 co is now one of the wor ld's large st drug purch asers,
untri es . able
A partn ershi p with Alliance Boots had sever al strate to nego tiate from a stro ng posi t ion with drug compa
g ic nies
advan tages , allowing Walg reens to gain swift entry and other supp li ers to rea li ze econo mies of scale
into in its
fore ign mark ets as well as comp lemen t ary asset curre nt busin esses .
s and
exper tise . First , it gave Walgr eens acces s to new
mar- The mark et has thus fa r res pond ed favorably to
kets beyond the satur at ed Un ited State s for its the
retail merg er. Walg re e ns Boot s Alli a nce's stock has more
pharm acies . Secon d , it provi ded Walgr e ens with than
a new doubl ed in va lu e s in ce t he fi r s t news of the partne
reven ue stream in whole sale d rug s . All iance Boot rship
s held in 2012 . Howe ver, the co m pany is still strugg ling
a vast Europ ean distri bution net work for whol esale to inte-
drug grate and faces ne w r isks suc h as curre ncy fluctua
sales; Walg reens could leverage t hat netwo rk and tion
exper- in its new co mbin ed pos iti o n. Yet as the pharm
tise to build a similar model in the Un ited State s aceuti-
. Finally, ca l indus try conti nu es to co nsolid ate , Walgreens
a merg er with Alliance Boots wou ld stren gthen is in an
Wal - undou btedl y stron ger pos it ion to conti nue to grow
green s's existi ng business by in creasi ng the comp in the
any's futur e thank s to its s trateg ic inte rnatio nal acquis
ition .
Note: Deve lo ped wi t h Ka therine Coster.

Sources: Compa ny 1 0 -K For m , 2015 , investo

r.walgr eensbo otsall
iance .com/ secfi ling .cfm ?filing ID=l 1 40361 _1 5
and~- Mit chell , "When t~ Change a Winning Strat~g -38 791&C IK =l6189 21; L. Capron
y," Ha rva~d Business Review, july 25 , 2012, hbr.org
Martin and R. Dezem ber, Walgre en Spe nd s $ 6 /201 2 /07 /whe n-to-change-a-winning-strat;T.
.7 B1ll1on on Al liance Boots Stake ," The Wall Street
Journal , June 20 , 2 01 2 .

Cross-border allies_ typ~cally must overc ome langu

age and cultural barriers and figure
out h_o w to deal with diverse (or conflicting) oper ating
practices. The transaction costs_ of
working out a mutually agreeable arrangement and
mon itorin g partn er compliance W1~
t~e t~rms of the arrangement can be high . The comm
unic ation trust building, and c~r
dmat1on costs are not_ tr~vial ~ te~ms of mana geme
nt time _10 'often , partners soon dis·
cover they have co~i ctmg ob1~ctives and strategies,
deep differences of opinion aboU~
h_o w to ~roceed, ~r impo ~ant d~er ence s in corporate
s1~ns build, working relationships cool, and the hope value s and ethical standards._Ter,
d-for benefits never materiaU.ze.
It is not unusual for there to be little personal chem
istry amon g some of the key people

206
 '-"'"'r, Lr<., .:>Lr,neg1es ror Lompetmg in mcerr1dL1u 110 • , .. ~. · · - - ·

on whom the success or failure of the alliance depends-the rapport such personnel n~ed
to work well together may never emerge. And even if allies are able to develop productive
personal relationships, they can still have trouble reaching mutually agreeable ways to deal
with key issues or launching new initiatives fast enough to stay abreast of rapid advances in
technology or shifting market conditions.
One worrisome problem with alliances or joint ventures is that a firm may risk losing
some of its competitive advantage if an alliance partner is given full access to its proprietary
technological expertise or other competitively valuable capabilities. There is a natural ten-
dency for allies to struggle to collaborate effectively in competitively sensitive areas, thus
spawning suspicions on both sides about forthright exchanges of information and exper-
tise. It requires many meetings of many people working in good faith over a period of time
to iron out what is to be shared, what is to remain proprietary, and how the cooperative
arrangements will work.
Even if the alliance proves to be a win-win proposition for both parties, there is the
danger of becoming overly dependent on foreign partners for essential expertise and com-
petitive capabilities. Companies aiming for global market leadership need to develop their
own resource capabilities in order to be masters of their destiny. Frequently, experienced
international companies operating in SO or more countries across the world find less need
for entering into cross-border alliances than do companies in the early stages of globaliz-
ing their operations.12 Companies with global operations make it a point to develop senior
managers who understand how "the system" works in different countries, plus they can
avail themselves of local managerial talent and know-how by simply hiring experienced
local managers and thereby detouring the hazards of collaborative alliances with local com-
panies. One of the lessons about cross-border partnerships is that they are more effective in
helping a company establish a beachhead of new opportunity in world markets than they
are in enabling a company to achieve and sustain global market leadership.

..
Broadly speaking, a firm's international strategy is simply its strategy for competing in two --·.... ··;--~ '

or more countries simultaneously. Typically, a company will start to compete internation-

ally by entering one or perhaps aselect few foreign markets-selling its products or services The three
in countries where there is a ready market for them. But as it expands further internationally, ma in strateg ic
it will have to confront head-on two conflicting pressures: the demand for responsiveness ·approaches ·
to local needs versus the prospect of efficiency gains from offering a standardized product fo r competing
globally. Deciding on the degree to vary its competitive approach to fit the specific mar- internationally.
ket conditions and buyer preferences in each host country is perhaps the foremost stra-
tegic issue that must be addressed when a company is operating in two or more foreign
markets.13 Figure 7.2 shows a company's three options for resolving this issue: choosing
a multidomestic, global, or transnational strategy.
CO RE CO NCEPT

I An international strategy is
I
I a strateg y fo r competing
I
in two or more countries
Multidomestic Strategie s-a "Think-Local, Act-Local" si multaneous ly.
Approach
A rnultidomestic strategy is one in w_hich a company varies its product offering and
competitive approach from country to country in an effort to meet differing buyer
needs and to address divergent local-market conditions. It involves having plants pro-
d~ce_different product versions for different local markets and adapting marketing and
di st nbution to fit local customs, cultures, regulations, and market requirements. Cas-
trol, a specialist in oil lubricants, produces over 3,000 different formulas of lubricants
~o m~et ~he requirements of different climates, vehicle types and uses, and equipment
PPhcations that characterize different country markets. In the food products industry,

b
 • Internationally
m:p~e~t,~ng:. .~~.....,,,...___..- - - - - - ~ - ~ . . . _ _
FF ll~G~U~R~E~7: -~2~ T~h:r:ee~A~p~pr~o~a~ch:e:s~f~o~r _::C:o::_
- High
~ "

C:
0
iN
t Ill
~
C:

J5
~
C:
"'
C:
0
iL.
tl0
Q)

l
"iij
..0
0
t5
E
!
!l I

..::
,Q)
C:
Q) I

CD

low
High
low
Need for local Respo nsiven ess

their prod ucts and sell the

CORE CON CEPT
A multidomestic strategy
is one in which a compa ny
varies its produ ct
offering and compe titive
approa ch from countr y
to countr y in an effort to
be respon sive to differing
buyer prefer ences and
marke t condit ions. It is a
think-local, act-local type
of intern ationa l strateg y,
facilit ated by decisi on
makin g decen tralize d t o the
local level.
managers decision-making authority allows them to addr
a respo swiftly to local chan ges in dema
it is comm on for comp anies to vary the ingre dient s in
to country-specific tastes
localized versions unde r local bran d name s to cater
gaso line additives that help
and eating preferences. Gove rnme nt requ irem ents for
are almo st neve r the sa~e
reduce carbon monoxide, smog, and other emis sions
in its gaso line and service
from coun try to country. BP utilizes local ized strate gies form ulati on differences
station business segment beca use of these cross -cou ntry
s. For example, the com-
and because of customer familiarity with local bran d name
and Arco brands, but mar·
pany markets gasoline in the United States unde r its BP
the Czec h Republic under
kets gasoline in Germany, Belgium, Poland, Hung ary, and
the Aral brand. .
:n
to international strategy. A think-local, act-local appr oach
to
l, act-local app_roac_~
esse~ce, a multidomestic strate gy repre sents a think-loca strate gy making_ 1.
nsive ness is high due to signifi-
most appropriate when the need for local respo et condition~ and
and mark
cant cross -count~y differences in demographic, cultural,
ation is limited, as depicte~
:Vhe_n th e potential for efficiency gains from stand ardiz
only when decision mak
~n F~gure 7-2 -A think-local, act-local appro ach is poss ible
15 latitu de for cr_a~ting anj
mg ?ecentralized, giving local managers cons idera ble nsibl e for. G1vmg Joe
executing s~r~tegies for the coun try markets they are respo specific market nee~s
ess
nd nd nd. It also enab les them to focus their
 CHAPTER 7 Strategies for Competing in International Markets 209

competitive e~fort~, stake ?ut a_ttractive market positions vis-a-vis local competi-
tors, rea~t to nvals moves m a timely fashion, and target new opportunities as they
emerge.
Despite their bbvious benefits, think-local, act-local strategies have three big
drawbacks:

1. They hinder transfer o~ a c?mpany's capabilities, knowledge, and other resources

across country boundaries, smce the company's efforts are not integrated or coordi-
nated across country boundaries. This can make the company less innovative overall.
2. They raise production and distribution costs due to the greater variety of designs and
compo_nents, shorter production runs for each product version, and complications of
added inventory handling and distribution logistics.
3. They are not conduc~~e to building a single, worldwide competitive advantage. When
a company's cm~petltive approach and product offering vary from country to country,
the ~ature a~d size o~ any resulting competitive edge also tends to vary. At the most,
multidomesttc strategies are capable of producing a group of local competitive advan-
tages of varying types and degrees of strength.

Global Strategies-a "Think-Global, Act-Global" Approach

A global strategy contrasts sharply with a multidomestic strategy in that it takes a stand-
ardized, globally integrated approach to producing, packaging, selling, and delivering the
company's products and services worldwide. Companies employing a global strategy
sell the same products under the same brand names everywhere, utilize much the same
distribution channels in all countries, and compete on the basis of the same capabilities
and marketing approaches worldwide. Although the company's strategy or product offer-
ing may be adapted in minor ways to accommodate specific situations in a few host
countries, the company's fundamental competitive approach (low cost, differentiation,
best cost, or focused) remains very much intact worldwide and local managers stick
close to the global strategy.
A think-global, act-global approach prompts company managers to integrate and
coordinate the company's strategic moves worldwide and to expand into most, if not CORE CONCEPT
all, nations where there is significant buyer demand. It puts considerable strategic A global strategy is one
emphasis on building a global brand name and aggressively pursuing opportunities in which a company
to transfer ideas, new products, and capabilities from one country to another. Global employs the same basic
strategies are characterized by relatively centralized value chain activities, such as competitive approach
production and distribution. While there may be more than one manufacturing plant in all countries where it
and distribution center to minimize transportation costs, for example, they tend to operates, sells standardized
be few in number. Achieving the efficiency potential of a global strategy requires products globally, strives
that resources and best practices be shared, value chain activities be integrated, and to build global brands, and
capabilities be transferred from one location to another as they are developed. These coordinates its actions
objectives are best facilitated through centralized decision making and strong head-
quarters control. IBS, illustrated in Illustration Capsule 7.2, is one of the best examples
for this strategy.
I
worldwide with strong
headquarters control. It
represents a think-global,
act-global approach .
Because a global strategy cannot accommodate varying local needs, it is an appro-
priate strategic choice when there are pronounced efficiency benefits from stand-
ardization and when buyer needs are relatively homogeneous across countries and
regions. A globally standardized and integrated approach is especially beneficial when
high volumes significantly lower costs due to economies of scale or added experience
(moving the company further down a learning curve). It can also be advantageous if it
allows the firm to replicate a successful business model on a global basis efficiently or
engage in higher levels of R & D by spreading the fixed costs and risks over a higher-vol-
ume output. It is a fitting response to industry conditions marked by global competition.
 ILLUSTR ATION
CAPSULE 7.2
IBS: Strategies for
International Market
One of the landm ark strate gic steps was th
.
,,
, I •
tion of Hote.l Book rn~ So ut1on~ ln.c. (HBSi ) intoe 1nter,r
the c~ a-
any's grow ing doma rn of hosp itality and travel
p pr Od l"rl-
Since Octo ber 201 6 , HB S 1, ' h' h
w 1c was acqui red b uct' ·
the year 2012 , 1·s opera t ·rng as 185' Hosp1t· ality Sty 1BS n 1

. U) .
Busin ess Unit (SB · rate91c
HBSi , based in Atlan ta, work s with both
h
. 'b
comp anies an d trave I d 1strr utors , and it ffotel
. . I O
real -time B2B conn ect1v 1ty p atfor m. HBSi h ers
custo mer base !n more than. 37 coun tries . Some of
as a
the big name s inclu de Marr ro~t: ~aes ars
Entertain-
ment , Fairm ont, etc. The acqu1s1t1on of HBSi
back .
the year 2012 was a signi fican t step in IBS'
appro ach for expa nding IBS' reach in the
strate t
165 S,,fr,,ore l"'JO, coortesy: 185 5oft'Nore hospita1T/
busin ess. The re-br andin g of HBSi as IBS'
Hospita~
ity Strat egic Busi ness Unit will help IBS
The logo presen t in given figure is an imitation
of the
to enhance
origina l logo . Studen ts are advised to refer to and exten d its footp rint in the globa l hospi
OLC to tality and
see the Ol"iginal logo. trave l doma in.
IBS is now plann ing to domi nate in the global
airline
indus try. It has enter ed into an agree ment
with Kronos
The IBS Softw are servic es is a leading provi der Incor porat ion to acqui re AD OPT. AD OPT
of new- is the lead-
gener ation IT soluti ons to the global Travel, ing aviation softw are that provi des crew
Trans por- management
tation , and Logistics (TTL) indus tries. The soluti ons to some of the bigge st intern ationa
comp any l airlines
completed its 20 years in busin ess in Septe mber including Emir ates , Air Cana da, FedEx, and
201 7. In Qantas. Th~
these 20 years , IBS has grown to a multination
al corpo - exper tise of AD OPT will help IBS to provi
ration , opera ting from more than ten global locati de the most
ons . It advan ced solut ions for the comp licate d task
offers a range of servic es and produ cts that mana of flight and
ge crit- crew mana geme nt.
ical opera tions of some of the world's best airlin
es, major More over, this acqu isitio n will add more
airpo rts , cruise lines, tour opera tors and oil & than
gas com- 20 airlin e custo mers to IBS . It will also provi
panie s . IBS helps its custo mers to maximize de depth
efficiency, to IBS ' mana geria l band width by bring ing
impro ve reven ue, and reduc e opera ting costs AD OPT's
. Over the team of highl y skille d profe ssion als, who
past 20 years , IBS has acquired seven overs eas have more
comp a- than 25 years of e x perie nce in this secto
nies to expan d its busin ess in the intern ationa r. The acqui-
l mark et. sition of AD OPT is IBS ' strat egic step to
IBS believes in strate gic acqui sition s to add bread becom e the
th and leadin g techn ology prov ider to the airlin
depth to its servic es . e indus try
world wide .
Note: Developed with Ayush Kumar

. F~r?'s gliba~ design st rategy is a move toward

a think-global act-global strategy,
mvo .vf_mg td~t· e~elopr:ne~t and production of stand
spec1 1c mo 1 1cat1ons limited to wh t • ardized m~dels with country-
safety standards The F . d
d F' a is requ ire to meet local country emission and
global design m~dels 2010
to b or k ies~a. and 2011 Ford Focus were the com
Whenever country-to -cou~t~a~i~te m Europe, Nort pany's first
h America, Asia, and Australia.
within the framework of a glohal st~~~:nces are smal
pany can more readily unify its l eno_ugh to be accommodated
.gy, a global st rategy 1s preferable because a com-
reputation that are uniform fro operations au d focus
on establishing a brand image and
a company ls better able to foe: c_~ ut? to country.
Moreover, with a global strategy
or differentiation-based cornpet':. 1 s ~ 1 resources on
securing a sustainable
rivals. 1
ive a vantage over both domestic rivals andlow-c ost
global

210
 CHAPTER 7 Strategie s for Competing in International Markets 211

There are, however, severa~ drawbacks to global strategies: (1) They do not enable firms
to address local needs as precisely as locally based rivals can; (2) they are less responsive
to changes in local ma~ket condition~, in the form of either new opportunities or compet-
itive thre~ts; (3) they ~ais~ transportation costs and may involve higher tariffs; and (4) they
involve higher co_ordmation costs due to the more complex task of managing a globally
integrated enterpnse.

Transnational Strat egies -a "Think-Global, Act-Local"

CORE CONCE PT
Approach
A transnational strat~gy (sometimes called glocalization) incorporates ele- A transnational strategy
is a think-global, act-local
ments of b_oth a globahzed and a_ localized approach to strategy making. This
approach that incorpora tes
type of middle-ground _strategy is called for when there are relatively high
ele ments of bot h
needs for local responsiveness as well as appreciable benefits to be realized
multidom estic and global
from standardization, as Figure 7.2 suggests. A transnational strategy encour-
strategie s .
ages a company to use a think-global, act-local approach to balance these com-
peting objectives.
Often, companies implement a transnational strategy with mass-customization tech-
niques that enable them to address local preferences in an efficient, semi-standardized
manner. McDonald's, KFC, and Starbucks have discovered ways to customize their menu
offerings in various countries without compromising costs, product quality, and operating
effectiveness. Unilever is responsive to local market needs regarding its consumer products,
while realizing global economies of scale in certain functions. Otis Elevator found that a
transnational strategy delivers better results than a global strategy when it is competing in
countries like China, where local needs are highly differentiated. By switching from its cus-
tomary single-brand approach to a multibra nd strategy .aimed at serving different segments
of the market, Otis was able to double its market share in China and increased its revenues
sixfold over a nine-year period.18
As a rule, most companies that operate internationally endeavor to employ as global
a strategy as custome r needs and market conditions permit. Electronic Arts (EA) has two
major design studios-one in Vancouver, British Columbia, and one in Los Angeles-and
smaller design studio's in locations including San Francisco, Orlando, London, and Tokyo.
This dispersion of design studios helps EA design games that are specific to different cul-
tures-for example, the London studio took the lead in designing the popular FIFA Soccer
game to suit Europea n tastes and to replicate the stadiums, signage, and team rosters; the
U.S. studio took the lead in designing games involving NFL football, NBA basketball, and
NASCAR racing.
A transnational strategy is far more conducive than other strategies to transferr ing and
leveraging subsidiary skills and capabilities. But, like other approaches to competing inter-
nationally, transnational strategie s also have significant drawbacks:
1. They are the most difficult of all international strategies to implement due to the added
complexity of varying the elements of the strategy to situational conditions.
2. They place large demands on the organization due to the need to pursue conflicting
objectives simultaneously.
3. Implementing the strategy is likely to be a costly and time-consuming enterprise, with
an uncertai n outcome.
Illustration Capsule 7.3 explains how Four Seasons Hotels has been able to compete
successfully on the basis of a transnational strategy.
 CHAPTER 7 Strategies for Competing in lnternal:ion.:il Market:!! 213

Table 7.1 provides a summary of the pluses and minuses of the three approaches to com·
peting' internationally.
TABLE 7.1 Advantages and Disadvantages of Multidomestic, Global, and Transnational Strategies

Multidomestic • Can meet the specific needs of each market • Hinders resource and capability sharing or
(think local, act more precisely cross-market transfers
local) • Can respond more swiftly to localized changes • Has higher production and distribution
in demand costs
• Can target reactions to the moves of local rivals • Is not conducive to a worldwide
• Can respond more quickly to local opportunities competitive advantage
and threats

Global • Has lower costs due to scale and scope • Cannot address local needs precisely
(think global, economies
• Is less responsive to changes in local
act global) • Can lead to greater efficiencies due to the ability market conditions
to transfer best practices across markets
• Involves higher transportation costs and
• Increases innovation from knowledge sharing tariffs
and capability transfer
• Has higher coordination and integration costs
• Offers the benefit of a global brand and
reputation

Transnational • Offers the benefits of both local responsiveness • Is more complex and harder to i~plement
(think global, and global integration
• Entails conflicting goals, which may be
act local) • Enables the transfer and sharing of resources difficult to reconcile and require trade:..offs
and capabilities across borders • Involves more costly and time-consuming
• Provides the benefits of flexible coordination implementation

There are three important ways in which a firm can gain competitive advantage (or offset
domestic disadvantages) by expanding outside its domestic market. First, it can use location
to lower costs or achieve greater product differentiation. Second, it can transfer competi- How companies
tively valuable resources and capabilities from one country to another or share them across are able to use
international borders to extend its competitive advantages. And third, it can benefit from international
cross-border coordination opportunities that are not open to domestic-only competitors. operations to
improve overall
competitive ness .
Using Location to Build Competitive Advantage
To use location to build competitive advantage, a company must consider two issues:
(1) whether to concentrate each activity it performs in a few select countries or to disperse
Co mpanies that compete
internationally can pursue
I
performance of the activity to many nations, and (2) in which countries to locate particu-
lar activities.
competitive advantage in
world markets by locating I
l
thei r value chain activities
When to Concentrate Activities in a Few Locations It is advantageous for a com- in whatever nations prove
pany to concentrate its activities in a limited number of locations when: most advantageous.

• The costs of manufacturing or other activities are significantly lower in some geographic
locations than in others. For example, much of the world's athletic footwear is manufac-
tured in Asia (China and Korea) because of low labor costs; much of the production of
 PART 1 LoncepL:. dll U ·- - · • • because of both low costs and the high-
1 t d in Taiwan ca-
ircuit boards for PCs is oca e nese labor force. .
~ber technical skills of the T~i~a roduction or distribution. The presence of significant
. ifi nt scale economies exist in p oduction or final assembly means that a compan
• Sigm ca. of scale in components pr ting a few super-efficient plants as opposed toy
1
econ°?1 :ajor cost savings from ope~ world Makers of digital cameras and LED "r'V:a
~:tg~;~mall plants scattered ~~~~a~w:n hav~ used their scale economies to establis~
in
Iocated Japan, south. Kor~a, A hieving low-cost provider status often requires
this way c . h ( d' t· f
a low-cost advantage m t wo~ldwide manufacturing s are as i~ met rom branda
company to have the lar~es roduction centralized in one or a few giant plants. Some
share or market share), with P manufacture units sold under the brand names of
companies even use such pla~ts ~o lated scale economies. Likewise, a company may
rivals to further b_oos~ pr?du~ ~~;s~s by establishing large-scale distribution centers to
be able t~ reduce its d~st nb~~~s of the world market (e.g., North America, Latin America,
serve maJodr gheogrM~dpdhliec ~:~ and the Asia-Pacific region).
Europe an t e 1 . ' benefits are associated wit· h peTjorming
,,.r, • an acttvtry.
· · In some
nd
• ~izable _learning ~ _expene:~! cts can allow a manufacturer to lower unit costs, boost
mdu_stnes, learning curv:echnology more quick{y by concentrat ing production in a few
quality or master a new . d .
locatio~s. The key to riding down the learning curve 1s to c(on~e~trat~pro uct_1on in a
few locations to increase the cumulative volume at a p1ant an t us t e expenence of
the plant's workforce) as rapidly as possible. . . . ..
• Certain locations have superior resources, allow better coordinatio n of related activities, or
offer other valuable advantages. Companies often locate a research _u nit or a sophisti~ated
production facility in a particular country to take advantage of its pool of technically
.trained personnel. Samsung became a leader in memory chip technology by estab-
lishing a major R & D facility in Silicon Valley and transferring the know-how it gained
back to its operations in South Korea. Where just-in-time inventory practices yield big
cost savings and/or where an assembly firm has long-term partnering arrangements
with its key suppliers, parts manufacturing plants may be clustered around final-as-
sembly plants. A customer service center or sales office may be opened in a particular
country to help cultivate strong relationships with pivotal customers located nearby.

When to Disperse Activities across Many Locations In some instances, dispersing

activities across locations is more advantageous than concentrating them. Buyer-related
activities-such as distribution, marketi~g, and after-sale service-us ually must take place
close to . b_uyer~. This makes it necessary to physically locate the capability to perform
s_uch activities m ~v:ry country or region where a firm has major customers. For example,
firms that make mmmg and oil-drilling equipment maintain operations in many locations
around. the world to support cust
cal . omers' nee d s 1or
' speedy eqmpment· repair and techm··
;5s~tance. La~ge pubhc accounting firms have offices in numerous countries to serve
the iore1gn operations of thei . t . 1
locations is also comp rr { i? ernationa corpo:ate clients. Dispersing activities to many
large size, and trade ba:r!e~:e;a :~;rtant when_ high transportation costs, diseconom ies of
companies distribute their p d t~o expensive to operate from a central location. Many
customers. In addition dis :~si~cts r?~. multiple locations to shorten delivery times to
exchange rates, supply int~rru ti~iitl;~ie s hel~s hedge against the risks of fluctuating
delays), and adverse political d p ( e to st nkes,
eve 1opments Such i k natural disasters ' or transportat . .
ion
•
are concentrated in a single locat' · r s s are usually greater when activities
Ev~n thou~h global firms h;~~-stron .
many international locations such i g. reason to disperse buyer-related activities to
ture, finished-goods assembly, tech at vities as materials procureme nt parts manufac·
~equently be decoupled fro~ buy;oi°gy _research, and new product developme nt can

s~:~h
d omfonents can be made in Mexico· te~~ati~ns and performed wherever advantage lies.
oped ~nd tested in Phoenix; a~d ass~~~r research done in Frankfurt; new products
Carolina, for example. Capital can be raisld plants loc~te_d in Spain, Brazil, Taiwan, or
wherever it is available on the best terms.
Sharing and Transferring Resources and Capabilities acr
oss
Borders to Build Competitive Advantage
When a company has competitively valuable resources and
capabilities, it may be able to
leverage them further by expanding internationally. If its resou
rces retain their value in for-
eign contexts, then entering new foreign markets can exten
d the company's resource-based
competitive advantage over a broader domain. For example,
companies like Hermes, Prada,
and Gucci have utilized their powerful brand names to exten
d their differentiation-based
competitive advantages into markets far beyond their home
-country origins. In each of
these cases, the luxury brand name represents a valuable comp
etitive asset that can readily
be shared by all of the company's international stores, enab
ling them to attract buyers and
gain a higher degree of market penetration over a wider geog
wise be possible. raphic area than would other~
Another way for a company to extend its competitive advan
transfer technological know-how or other important resources tage internationally is to
and capabilities from its
operations in one country to its operations in other coun
tries. For instance, if a company
discovers ways to assemble a product faster and more cost-e
ffectively at one plant, then
that know-how can be transferred to its assembly plants in
other countries. Whirlpool, the
leading global manufacturer of home appliances, with 70
manufacturing and technology
research centers around the world, uses an online globa
l information technology plat-
form to quickly and effectively transfer key product innov
ations and improved production
techniques both across national borders and across vario
us appliance brands. Walmart is
expanding its international operations with a strategy that
involves transferring its con-
siderable resource capabilities in distribution and discount
retailing to its retail units in 28
foreign countries.
Cross-border sharing or transferring resources and capabilities
way for a company to leverage its core competencies more provides a cost-effective
fully and extend its competitive
advantages into a wider array of geographic markets. The
cost of sharing or transferring
already developed resources and capabilities across couritry
borders is low in comparison
to the time and considerable expense it takes to create them
. Moreover, deploying them
abroad spreads the fixed q.evelopment costs over a greater
volume of unit sales, thus con-
tributing to low unit costs ,and a potential cost-based comp
et}tive advantage in recently
entered geographic markets. Even if the shared or transferred
resources or capabilities have
to be adapted to local-market conditions, this can usually be
done at low additional cost.
Consider the case of Walt Disney's theme parks as an exam
ple. The success of the theme
parks in the United States derives in part from core resou
rces such as the Disney brand
name and characters like Mickey Mouse that have universal
appeal and worldwide recogni-
tion. These resources can be freely shared with new them
e parks as Disney expands inter-
nationally. Disney can also replicate its theme parks in new
countries cost-effectively since
it has already borne the costs of developing its core resou
rces, park attractions, basic park
design, and operating capabilities. The cost of replicating its
theme parks abroad should be
relatively low, even if the parks need to be adapted to a varie
ty of local country conditions .
By expanding internationally, Disney is able to enhance
its competitive advantage over
local theme park rivals. It does so by leveraging the differentiat
ion advantage conferred by
resources such as the Disney name and the park attractions
. And by moving into new for-
eign markets, it augments its competitive advantage worldwide
that come from cross-border resource sharing and low-cost th~~ugh the efficiency ~ains
capability transfer and busmess
model replication.
·
Sharing and transferring resources and capabilities across ~oun
tribute to the development of broader or deeper co~petenc try horde~~ ~ay also_con-
1es and capabihties-helpmg a
company achieve dominating depth in some competitively
valuable area. For example, the
reputation for quality that Honda established worldwid~ began
in motorcycles but e?abled
:he company to command a position in both automobiles.
and outdoor power eqmpment
m multiple-country markets. A one-country custom_er _base
1~ often too s1:1an to supp~rt the
resource buildup needed to achieve such depth ; this 1s partic
ularly true ~n a developm~ or
protected market, where competitively powerful resources
are not reqmred. By deploymg
 . and Executing Strategy
h . ues for Crafting
216 PART 1 Concepts and Tee n1q .
d ain a company can gam the experience
·t·t·es across a larger internationa l omtand~rd And by facing a more challenginngeedect
capab111 . h erformance s · d - t
to upgrade them to a h1g er p ma be spurred to eve1op a s ronger set of cornset of.
international competitors, a compa~~ iniernational markets, fir~s may be able to aug~:1-
?Y
tive capabilities. Moreover, ente . ~ernational rivals, cooperative partners, or acquisiti nt
their capability set by learning from m . on
targets. h . g and transfers of capabilities are not guarant
However, cross-border resources armple whether a resource or capability can cone;d
. . success For exam , . f . .
recipes for competitive
. . d t d'e
· d on the conditions o nva1ry m eac h particuJ1er
abroad depen s .
a compet1t1ve a van a6 . market have supenor resources and capabiliti ar
market. If the_ rivals in a fo~eig?-~~f;t;competi tive disadvantage even if it has ~ resour~!:
then an entenng firm ma! fmd itsd t ansfer the resources at low cost. In addition, since
based advantage ~omesti~ally_;nr i~:;n~tionally, resources and capabilities that are valua-
lifestyles and buymg habits di e in another. Sometimes a popular or well-regarded
ble in one country may not havehva1~~ittle competitive clout against local brands in other
brand in one country turns out to av
countri~s. h d -based Royal Philips Electronics, with 2012 sales of about
To illustrate Net er1an s
€25 billion in ~ore than 60 countries, is a leading seller o fhe1ectnc
· h 1· h ·
s davers, I1ghtmg prod-
.
ucts sma11 app11ances, televi·sions DVD players and healt care pro ucts. t as proven
, ' • dh b ·
' · · capa b·t·t·
compet1t1ve 111es 1·n a number of businesses and countnes an bas deen consistently
profitable on a global basis. But the company's Philips a~d ~agnavox ran ~ames and t~e
resources it has invested in its North American organization have pro~e? mad~quate m
changing its image as a provider of low-end TVs a~~ DVD players, recru1t~~g retailers that
can effectively merchandise its Magnavox and Phillps produ~ts, and exc1t1~g consumers
with the quality and features of its products. It has lost money m North Amenca every year
since 1988.

Benefiting from Cross-Border Coordin ation

Companies that compete on an international basis have another source of competitive
advantage relative to their purely domestic rivals: They are able to benefit from coordinating
activities across different countries' domains. 19 For example, an internation al manufacturer
can shift production from a plant in one country to a plant in another to take advantage of
exchange rate fluctuations, to cope with components shortages, or to profit from changing
wage rates or _energy costs. Production schedules can be coordinate d worldwide; shipments
can be diverted from one distribution center to another if sales rise unexpected ly in one
place and fall in another. By coordinating their activities, internation al companies may also
be able t~ enh~nce their leverag~ :Vith_host-country governmen ts or respond adaptively to
changes m tanffs and quotas. Effic1enc1es can also be achieved by shifting workloads from
where they are unusually heavy to locations where personnel are underutilized.

While international competitors can em 1 f ·

cussed in Chapter 6 there are tw t p oj
any O the offensive and defensive moves dis-
companies competi~g internation~ll YP:\~ .
st rategic
moves that are particularly suited for
Profit sanctuaries are country ~a ~ t involve the us_e of "profit sanctuaries."
t
derives substantial profits because of a r s (or geographic regions) in which a company
a company's biggest and most strate ic s rong 0 ~ prote~ted market position. In most cases,
international and global companies !a ~ cruc~al profit sanctuary is its home market, but
11
where they have a strong position ba ayda so en1oy profit sanctuary status in other nations
· t hat
mes compete globally are likely tse h on some t ype o f competitiv e advantage.
·
Compa-
compete in just a few country marke~; :~:more profit sanctuaries than companies that
mestic-only competitor, of course, can have
 LHAl-'TER 7 Strategies for Competing in International Markets 217

only one profit_ sanctuary. Nike: which markets it~ products in 190 countries, has two major
profit sanctuaries: North Amenca and Greater Chma (where it earned $13.7 billion and $3.1
billion, respectively, in revenues in 2015).

Using Profit Sanctua ries to Wage a Strategic Offensiv e

profit sanctuaries are valuable competitive assets, providing the financial strength to sup-
port strategic offensi~es in selected country markets and fuel a company's race for
world-market !eaders~1p. The added financial capability afforded by multiple profit sanctuar-
ies gives an mt~rnational. competitor the financial strength to wage a market offensive
against a domestic competitor whose only profit sanctuary is its home market. The interna-
tional company has the flexibility of lowballing its prices or launching high-cost marketing
campaigns in the domestic company's home market and grabbing market share at the
domestic company's expense. Razor-thin margins or even losses in these markets can be
subsidized with the healthy profits earned in its profit sanctuaries-a practice called
cross-market subsidization. The international company can adjust the depth of its price
cutting to move in and capture market share quickly, or it can shave prices slightly to make
gradual market inroads (perhaps over a decade or more) so as not to threaten domestic firms
precipitously and trigger protectionist government actions. If the domestic company retali-
ates with matching price cuts or increased marketing expenses, it thereby exposes its entire
revenue stream and profit base to erosion; its profits can be squeezed substantially and its
competitive strength sapped, even if it is the domestic market leader.
When taken to the extreme, cut-rate pricing attacks by international competitors may I
draw charges of unfair "dumping." A company is said to be dumping when it sells its goods
in foreign markets at prices that are (1) well below the prices at which it normally sells I!
I
CORE CONCEPT

them in its home market or (2) well below its full costs per unit. Almost all governments Cross-market
can be expected to retaliate against perceived dumping practices by imposing special tar- subsidization -supporting
iffs on goods being imported from the countries of the guilty companies. Indeed, as the competitive offensives in
trade among nations has mushroomed over the past 10 years, most governments have one market with resources
joined the World Trade Organization (WTO), which promotes fair trade practices among and profits diverted from
nations and actively polices dumping. Companies deemed guilty of dumping frequently operations in another
market-can he a powerful
come under pressure from their own government to cease and desist, especially if the
competitive weapon.
tariffs adversely affect innocent companies based in the same country or if the advent of
special tariffs raises the specter of an international trade war.

Using Profit Sanctua ries to Defend against International Rivals

Cross-border tactics involving profit sanctuaries can also be used as a means of defending
against the strategic moves of rivals with multiple profit sanctuaries of their own. If a com-
pany finds itself under competitive attack by an international rival in one country market,
one way to respond is to conduct a counterattack against the rival in one of its key markets
in a different country-preferably where the rival is least protected and has the most to lose.
This is a possible option when rivals. compete against one another in much the same
markets around the world.
For companies with at least one profit sanctuary, having a presence in a rival's key CORE CONCEPT
markets can be enough to deter the rival from making aggressive attacks. The reason for Wh en t he same companies
this is that the combination of market presence in the rival's key markets and a profit compete against one
sanctuary elsewhere can send a signal to the rival that the company could quickly ramp another in multiple
up production (funded by the profit sanctuary) to mount a competitive counterattack if geographic markets, the
the rival attacks one of the company's key markets. t hreat of cross-border
. When international rivals compete against one another_ in multipl~-count~y mar~ets, counterattack s may be
this type of deterrence effect can restrain them from taking aggressive action against . enough to deter aggressive
one another, due to the fear of a retaliatory response that might escalate the battle into a competitive moves and
~~ass-border competitive war. Mutual restraint of this sort tends ~o ~tabilize the compet- encourage mutual restraint
itive position of multirnarket rivals against one another. And while 1t may prevent each among international rivals.
 . f Craft ing and Exec uting Strat egy
218 PART 1 Conc epts and Techniques or

. . arket share
firm from makmg an~ ~a1or ml th t wouldgain be
s at the expense of its rival, it also
against costly competitive batt es a. likely to erode the profitability of b phroteqs
panies without any compensating gam. ot corn.

Companies racing for global leadership ha~e to

co?sider competing i~ developing-~conomy
markets l1.ke Ch'ma, Indi'a, Brazil, Indonesia, Thailand, Poland, Mexico, and Russia-coun-
tries where the business risks are considerable h h
The unique but "':". ere t e opport~m·ties
· ,10
r growth are
chara cteri stics huge, especially as their economies develop and
hvmg standa!ds ch~ b tow~rd levels in
of comp eting in the industrialized world. 20 In today's world, a com
deve lopin g-cou ntry pany that aspires to mternational market
leadership (or to sustained rapid growth) canno_t
mark ets. ignore the market op~ortunities_or the base
of technical and managerial talent such countm~s
offer. For example, m 2015 ~hma was the
world's second-largest economy (behind the Umt
ed States), based on purchasing power and
its population of over 1.6 billion people. China's
growth in demand for consumer goods has
made it the fifth largest market for luxury good
s, with sales greater than those in developed
markets such as Germany, Spain, and the Unit
ed Kingdom. Thus, no company that aspires
to global market leadership can afford to ignore
the strategic importance of establishing com-
petitive market positions in the so-called BRIC
countries (Brazil, Russia, India, and China),
as well as in other parts of the Asia-Pacific regio
n, Latin America, and eastern Europe.
Tailoring products to fit market conditions in
developing countries, however, often
involves more than making minor product chan
ges and becoming more familiar with local
cultures. McDonald's has had to offer vegetable
burgers in parts of Asia and to rethink its
prices, which are often high by local standard
s and affordable only by the well-to-do. Kel-
logg has struggled to introduce its cereals succ
essfully because consumers in many less
developed countries do not eat cereal for brea
kfast. Single-serving packages of detergents,
shampoos, pickles, cough syrup, and cooking
oils are very popular in India because they
allow buyers to conserve cash by purchasing
only what they need immediately. Thus,
many companies find that trying to employ a
strategy akin to that used in the markets of
developed countries is hazardous. 21 Experimentin
g with some, perhaps many, local twists
is usually necessary tp find a strategy combina
tion that works.

Strategy Options for Competing in Developi

ng-Country
Markets
There ar~ sev~ral options for tailoring a company
challengmg cucumstances presented in developi's strategy to fit the sometimes unusual or
ng-country markets:
• f:epare to compete on _the basis of low price. Con
sumers in developing markets are often
highly focused_ on pnce, which can give low-cost
local competitors the edge unless a
company can _fmd ways to attract buyers with
bargain prices as well as better products.
For example, m order to enter the market for laun
dry detergents in India, Unilever had
to ?~~elop a low-cost detergent (named Whe
el), construct new low-cost production
facihtle~, p~ckag~ t~e detergent in single-use amo
unts so that it could be sold at a very
low ~mt pnce, ~ist nbute t~e product to local mer
chants by handcarts, and craft an eco-
~omical marketing campaign that included pain
ted signs on buildings and demonstra·
tlons near stores. The new b_rand quickly capt
ured$ lO0 million in sales and by 2014
:_~ :~~ t:~~tergen~ brand m India based dolla
r sales. Unilever
.h d ow-pnced packets of shampoos and deodoran replicated the strategy
wit a etergent brand-named Ala. ts and in South America
• Modify aspects or the compa ' b ·
t ifd 'J ny s u5iness model to accommodate the unique
s ances o eve1oping countries. For insta nce, Honeywell had sold industrial prodlocal circum·
ucts and
 services for more than 100 yea~s outside the United States and Europe using
a foreign
subsidiary model that focused international activities on sales only. When Honey
well
entered China, it discovered that industrial customers in that country consid
ered how
many key jobs foreign_ companies created in China, in addition to the quality
and price
of the product or serv1~e when making purchasing decisions. Honeywell added
about
150 engineers, strategists, and marketers in China to demonstrate its comm
itment to
bolstering the Chinese economy. Honeywell replicated its «East for East" strateg
y when
it entered the market for industrial products and services in India. Within 10
years of
Honeywell establishing operations in China and three years of expanding into
India,
the two emerging markets accounted for 30 percent of the firm's worldwide growth
.
• Try to change the local market to better match the way the company does
business elsewhere.
An international company often has enough market clout to drive major change
s in the
way a local country market operates. When Japan's Suzuki entered India, it trigger
ed a
quality revolution among Indian auto parts manufacturers. Local component
suppliers
teamed up with Suzuki's vendors in Japan and worked with Japanese expert
s to pro-
duce higher-quality products. Over the next two decades, Indian companies
became
proficient in making top-notch components for vehicles, won more prizes for
quality
than companies in any country other than Japan, and broke into the global
market
as suppliers to many automakers in Asia and other parts of the world. Mahin
dra and
Mahindra, one of India's premier automobile manufacturers, has been recogn
ized by
a numbe r of organi zations for its product quality. Among its most noteworthy
awards
was its number-one ranking by J.D. Power Asia Pacific for new-vehicle overall
quality.
• Stay away from developing markets where it is impractical or uneconomical to modify
the
company's business model to accommodate local circum stances. Home Depot' s execut
ive
vice president and CFO, Carol Tome, argues that there are few developing countr
ies
where Home Depot can operate successfully.22 The company expanded succes
sfully
into Mexico, but it has avoided entry into other develo ping countries because
its value
propos ition of good quality, low prices, and attentive customer service relies
on (1)
good highways and logistical systems to minimize store inventory costs, (2) emplo
yee
stock ownership to help motivate store personnel to provide good customer
service,
and (3) high labor costs for housing construction and home repairs that encou
rage
homeowners to engage in do-it-yourself projects. Relying on these factors
in North
American markets has worked spectacularly for Home Depot, but the company
found
that it could not count on these factors in China, from which it withdrew in 2012.
Company experi ences in entering developing markets like Argentina, Vietna
Malaysia, and Brazil indicate that profitability seldom comes quickly or easily. Buildin m,
ga i
I Profitability in develop ing
market s rarely comes
market for the company's products can often tum into a long-term process that
reeducation of consumers, sizable investments in advertising to alter tastes and
involves
buying I
I quickly or eas ily-new
entrant s have t o adapt the,
habits, and upgrades of the local infrastructure (transportatio~ s~stems, distrib uti~n
chan- I bus iness mode ls to local
nels, etc.). In such cases, a compa ny must be patient, work w1thm the system to
l~prove I conditio ns, which may not
the infrastructure, and lay the foundation for generating sizable rev~nues and profits
conditions are ripe for market takeoff. 1
once I always be possible .

I
~f opportunity-seeking resource-rich international companies are looking
to _enter d~velop-
ing-country markets; ~hat strategy options can local companies use to surv1ve?_As
1t tur_ns
out, the prospects for local companies facing global giants ~re by no ~ eans gnm.
Studies
~~ local companies in developing markets have ?~sclosed f1v~ st~~teg1es that have proved
ernselves in defending against globally compet1t1ve companies.
 . d Executing Strategy
T h i ues for Crafting an
PART 1 Concepts and ,ec n q
. hortcomings in local distribution networks or inf~
1
evelo,, business models that exp ott ~ensive collection of resources possessed by tha-
1. D . tances the ex . d l . k
eve opmg mar ets. The lacke
r-
structure In many ms ' b 'lding a presence m
global giants is of little help :n t~ and distributor networks, telecommunication sys-
of well-established lo~al w!°m~;i: necessary for advertising makes it difficult for large
tems consumer banking, . s models proved in developed markets to emerging
•
intemationa 1s to mi·grate busmesetimes favor local companies w hose managers are
markets. Eme•o· raing markets. somge and culture and are ski11ed m · se lectmg
· large num-
1
familiar with _the_ loca~~nl~:es to carry out labor-intensive tasks. Shanda, a Chinese
bers of conscienti_ou~ P rYlayer online role-playing games (MMORPGs), overcame
1
producer of massive Y mbl~ hiped credit card network by selling prepaid access cards
.
Chma 5 , lack of an esta is . l
h t The company's focus on on1me games a so protects it from
1
through ?cal ~e~h ~n ,:· software piracy laws. An India-based electronics company
shortcomings m k tmnai·che for itself by developing an all-in-one business machine
carved out a mar e h 1 '
. ed · lly
design especia for India's millions of small shopkeepers, t at to erates the coun-
try's frequent power outages.
2
Utilize keen understanding of local customer needs and preferences to create customized
· products or seroices. When developing-country markets are largely made up of cus-
tomers with strong local needs, a good strategy option is to concentrate on customers
who prefer a local touch and to accept the loss of the cus~or:ners attrac~ed to_global
brands.24 A local company may be able to astutely exploit its local onentatlon-its
familiarity with local preferences, its expertise in traditional products, its long-stand-
ing customer relationships. A small Middle Eastern cell phone manufacturer competes
successfully against industry giants Samsung, Apple, Nokia, and Motorola by selling
a model designed especially for Muslims-it is loaded with the Koran, alerts people at
prayer times, and is equipped with a compass that points them toward Mecca. Shen-
zhen-based Tencent has become the leader in instant messaging in China through its
unique understanding of Chinese behavior and culture.
3. Take advantag~ _of aspects of the local workforce with which large international companies
may be unfamiliar. Local companies that lack the techr:iological capabilities of foreign
entrants may be able to rely on their better understanding of the local labor force to
offset °:11Y disadvantage. Focus Media is China's largest outdoor advertising firm and
~as reli~ on low-c?~t labor to update its more than 170,000 LCD displays and bill-
f
; ; :c~·over 90 ities in a low-tech manner, while international companies operat-
remotely ~~:: e ectronically networked screens that allow messages to be changed
. uses an army of employees h .d h
change advertisements with ro . w ~ n e to eac display by bicycle to
Indian information technolo p f grammmg contamed on a USB flash drive or DVD.
1
puter Services have been abl~ ~ms such_ as Infosys Technologies and Satyam Com·
national competitors EDS and 1 eep th eu personnel costs lower than those of inter-
~arkets. While the large intema/ce~tu~e because of their familiarity with local labor
like Bangalore and Delhi' dri·v· iona s . ave focused recruiting efforts in urban centers
·· , mgupengme · d
ci~i~s, 1ocal c?mpanies have shifted recr . _ermg an computer science salaries in such
mihar to foreign firms. uitmg efforts to second-tier cities that are unfa-
4. Use acqutsttion and rapid-growth t .
nationals. With the growth pote~;?tf gtf~ to better defend against expansion-minded inter-
aod Brazil obvious to the world a ~ eveloping markets such as China Indonesia,
1
1
~fr!~ade ~heir co~petitive capa,bi~~~sc:mpa?ies must attempt to devel;p scale and
. ger mternattonal's arsenal of s quickly as possible to defend against the
~1a:rke~s have pursued merger::siurces. ~~st successful companies in develop·
1
produ nw~e and then an internation acquisitions at a rapid-fire pace to build first
By ac~~~·. as followed just such a pat~ tprese?ce. ~indalco, India's largest aluminurn
to event~~~f com~anies in India first i~ ac~1eve its ambitions for global dominance.
When Chin! ~cquue m~ch larger for~igngamed e~oug~ experience and confidenc~
· egan to liberalize its fo . companies with world-class capabilities.2
reign trade policies, Lenovo (the Chinese PC
 CHAPTER 7 Strateg ies for Competing in lnternat.ion,11 M,1rkiJI~ II,
maker) realized that its long-held position of market dominance
in China could notwlth#
stand the onslaught of new international entrants such as Dell
and HP. Its acquisition
of IBM's PC bus~ness allowed Lenovo to gain rapid access
to IBM's globally recog-
nized PC brand , its R & D capability, and its existing distribution
in developed coun·
tries. This has allowed Lenovo not only to hold its own again
st the incursion of
global 2~iants into its home market but also to expand into new
world. marke ts around the
5 Transfer company expertise to er-ass-border markets and initiat
e actions to contend on an
· international l~vel. When a company from a developing
country has resources and
capabilities suitable for competing in other country markets,
launching initiatives to
transfer its expertise to foreign markets becomes a viable strateg
ic option. Televisa,
Mexico's largest media company, used its expertise in Spanish
culture and linguistics
to become the world 's most prolific producer of Spanish-language
soap operas. By con-
tinuing to upgrade its capabilities and learn from its experience
in foreign markets, a
company can sometimes transform itself into one capable of
competing on a world -
wide basis, as an emerging global giant. Sundaram Fasteners
of India began its foray
into foreign markets as a supplier of radiator caps to General Motor
s- an opportunity it
pursued when GM first decided to outsource the production
of this part. As a partici-
pant in GM's supplier network, the company learned about emerg
ing technical stand -
ards, built its capabilities, and became one of the first Indian comp
anies to achieve ~
9000 quality certification. With the expertise it gained and
its recognition for meeting
quality standards, Sundaram was then able to pursue opportunitie
tive parts in Japan and Europe. s to supply automo-

Illustration Capsule 7.4 discusses how a travel agency in China

used a combination
of these strategies to become that country's largest travel
consolidator and online travel
agent.

Organizational Capability Profile

An organizational Capability Profile (OCP) depicts the ski~l, know
ledge, and resources that
enable the company to produce quality products and services.
.
Acompany's capabilities are often developed in specific fu~ctional
areas such as market-
ing or financ e. Organizational capability factors are the_ str~tegi~
_strengths ~nd weaknes~es
in different functional areas inside an organization which is cntl~a
l to the_ 1mplementat1on
of a strategy. Each functional area can be separately evaluated,
which constitutes to form the
Organizational Capability Profile of that company.
It is drawn in the form of a chart in Figure 7.3.

FIGURE 7 .3 OCP Cha rt

Weakness (- 5) Normal (0) Strength ( 5)

-5

-5

0
 f II y Defen ded
ILLUS TRATI ON
CAPSU LE 7 .4
Ho w Ctrip Succe. ss uI R'
against lnternat1on~ ~ vel Agen cy
China's Large st Onlin e ra
B
als to eco
me

100 000 custome rs per day. Because most of its trans-

I
. ' were not done over the Internet
actions . . . at. the start , th e
couriers in all ma1or c1t1es in China to rid e
compan y h ·red I •
. Ie or scooter to collect paymen ts
. and deliver tick -
by b1cyc
Ctrip's corpora te custome rs. Ctnp also initiated a
ets to "d e d 91'ft s an d .incentive . s to th
that prov1
loya Ity pro gra m . e
. . t ra ti've personn el who .arrange d travel .for business
a d minis
.
execu t 1ves, who were more likely to use onhne . services
, •
By 201 1, Ctrip.co m held 60 percent of Chinas online
every year since
trave I mar ket , having grown 40 percent .
co~ing close to those of
1999, leading to a market cap
some m al.or u· · 5 online travel agencie s.
How ever' the phenom enal growth of the Chinese mar-
. I .h
ket for such travel agency services , a ong wit changing
© Nelson Ching/ Bloomberg via Getty Images
t hnological ability and preferen ces, has led to a new type
0 ~\ompe tition: online,
and mo~e pivotally, mobile trav~I
Ctrip has utilized a business model tailored to th_e Chi~ese booking. Domina nce in the mobile space _drove a competi-
travel market its access to low-cost labor, and its unique tor Qunar, to experien ce a huge surge in growth. While
understa ndin~ of custome r preferen ces and buying hab- thi; competi tion was a negative in the traditional finan-
its to build scale rapidly and defeat foreign rivals such as cial sense for Ctrip, analysts believe that new technology
Expedia and Travelocity in becoming the largest tra~el has ended up benefiti ng the entire industry . Additionally,
agency in China. The company was founded in 1999 with this has provided the two compan ies with the opportu-
a focus on business traveler s, since corpora te travel nity to utilize another importa nt local strategy to grow
account s for the majority of China's travel bookings. The and remain competi tive against global firms-a partner-
compan y initially placed little emphasi s on online ~rans~c- ship , which Ctrip and Qunar underto ok in 2013, combin-
tions because at the time there was no national ticketing ing their unique advanta ges to cross-se ll travel products.
system in China, most hotels did not belong to a national The solidity of this partner ship was furthere d in late 2015,
or international chain, and most consum ers preferre d when the two compan ies agreed to an alliance through the
paper tickets to electron ic tickets. To overcome this infra- exchang e of shares in one another 's compan ies. Togethe:,
structur e shortcom ing and enter the online market, the the two compan ies control more than 80 percent of Chi-
company establish ed its own central database of 5,600 na's hotel and air ticket markets . The long-ter m effects of
hotels located through out China and flight informa tion
the new agreem ent still have yet to be seen, but the suc-
for all major airlines operatin g in China. Ctrip set up a call
cess of Ctrip has demons trated the potentia l benefits of
center of 3 ,000 represen tatives that could use its pro-
an effectiv e local-m arket strategy .
prietary databas e to provide travel information for up to

Note: Developed with Harold W. Greenston e.

s Keep Multinatio nals at Bay," Harvard Business Review 86 , no. 3 (March
Sources: Arindam K. Bhattacha rya and David C. Michael , "How Local Companie
to Gain More Business from Stronger Ounar Platform ." South China Morning Press online , October~ • 20l 3
2008), pp. 85-95; B. Perez, "Ctrip Likely
as Ctrip Tumbles ," Bloomberg online, January 5 , 2014 (accessed Apnl 3,
(accessed April 3 , 2014); B. Cao, "Quna r Jumps on Mobile User Growth
/article/de tail/480/a- journey-w ith-ctrip; money.cn n.com/qu ote/quote .html?symbSEXPE (accessed March 28 •
2014); www.thatsmags.com/shanghai
2012).

nal areas.
The organization can be divided into the following six commo nly accepted functio
1. Operations capability: It relates to the use of material and produc tion
of products ~d
services. Some factors which influence the operati ons capabil ity of any organization
are as follows :
a. Produc_tion system: degree of automation, location, layout, capacity
b. Operations and control system: quality control, material supply, inventory
c. R & D system : personnel, patent rights, technic al suppor t
 CHAPTER 7 Strategies for Competin g in Internatio nal Markets

Financial capability: It relates to the availability, usage, and management of an organ-

2. ization's
funds. Factors influencing the financial capability of an organization are as
follows:
a. Procurement of capital, relationship with banks and financial institutions
b. Current assets, relationship with shareholders
c. Management of funds, accounting systems
3, Marketing capability: It relates to the distribution, pricing, and promotion of products
and services of a company. Factors affecting marketing capability are
a. Product-related: differentiation, variety, etc.
b. Place related: marketing channels, distribution, etc.
c. Promotion-related: advertising, public relations, etc.
d. Price related: pricing policy, advantages, etc.
4. HR capability: It relates to the human resources and skills that a company possesses.
Factors influencing a company's HR capability are
a. Personnel system: systems for manpower planning, development, compensation,
etc.
b. Organizational and employee characteristics: working conditions, corporate image,
etc.
c. Industrial relations: safety, employee satisfaction, etc.
5. Information management capability: It relates to the management of information
within an organization as well as from the outside into the company for decision-mak-
ing purposes. Some factors affecting the Information management capability are
a. Acquiring and retaining information: sources, quantity, quality, etc.
b. Processing information: database management, computer systems
c. Using and retrieving information: availability of information, capacity to use
information
6. General management capability: It relates to the integration, coordination, and direc-
tion of all the functional capabilities towards a common goal. Some factors which affect
the general management capability of a company are
a. General management system: corporate planning system, rewards, and incentives,
etc.
b. General managers: orientation, balance of functional experience, etc.
c. External relations: rapport with the government, philanthropy

How to draft your company's Organizational Capability Profile?

Your organizational capability profile can be used to win contracts. So before drafting the
profile, it is important for the company to recognize capabilities that differentiate you from
the competitors and are important to the customers.
1. Putting the customer first: The OCP must incorporate the data prospect customers need
when they are evaluating a company as a business partner. Customers generally need
to know about the current capability and direction of future growth. The customers
must be convinced that the company is capable of meeting their requirements over the
longterm.
2. List out your HR capability: The knowledge, experi:nc~, and skill~ of the people in a
company represen~ a vital part of a company's organizational capacity.
3. Tell about your resources: Product portfolio, patents, manufacturing capacities, and
many other assets have a huge contribution to the organizational capability profile.
These assets help a company to differentiate it from its competitors.
 PART 1 Concepts and Techniques for Crafti ng and Execu ting Strate
:4 gy
.. . b b 'lt in your client by
depicting that you h
4. Depict your stability: Confidence ~~nan~taf ~tability
should also be demonstrated w~~~
a very stable ma?a~ement teab~l·
the help of contmumg pro6ita i i·tYmand growth recor. d. All these contribute to a com
pany having an image of a reliable and trusted supplier. .

EY POINTS

1. Competing in international markets allows a company tof(l) gain

acce_ssgto ned~ custom·
ers; (2) achieve lower costs through greater economies O sea1e'. 1
earnm , an increased
purchasing power; (3) gain access to low-cost inputs of produc~1
?~;
core competencies; and (5) gain access to resources and capab1ht1e (4) further ex~Ioit its
s located outside the
company's domestic market.
2. Strategy making is more complex for five reasons: (1) Diff~
home-country advantages in different industries; (2) there are locat rent countries have
ion-based advantages
to performing different value chain activities in different parts
of the world; (3) vary-
ing political and economic risks make the business climate
of some countries more
favorable than others; (4) companies face the risk of adverse
shifts in exchange rates
when operating in foreign countries; and (5) differences in buye
r tastes
present a conundrum concerning the trade•off between customizin and preferences
g and standardizing
products and services. . , ,
3. The strat~gies of.firms that expand internationally are usually grou
nded in home-coun-
~ry ~dvanta_ges conc_eming de111and conditions; factor cond
itions;
mg :ndustnes;' an?_ fi~ strategy, structure, and rivalry, as descr related and support-
ibed by the Diamond of
National Compet1t1ve Adyantage framework.
4. There are five strategic o~tions for entering foreign markets. Thes
einclude maintaining
a_ho~e-countryprodu~~ion base and exporting goods to foreig
n markets, licensing for-
e1~~ fums to produce ~n~ distribut~ the co~pany's products abroa
cht5ing _strat~gy, e_stal;>~ishmg a foreign subsiqiary via an acquisition d, employing afran-
and usmg strategic aUtances or other collaborative partnerships. or greenfield venture,
5· ~ co~~ af) mu st ~hoose _among three alternative approaches
for competing intema-
~~:~n:i :tra~e';;!t~~~:est ~c :trat:gy-a th ink-~ocal, act-local appro
ach to crafting inter-
combination think-globala~t~oc:F:tegy-a ~hmk-global, act-global
approach; and (3) a
f
domestic strategy (think local t pr~~~ ' known _as a transnatio
their product offerings and cd~i eti~~ : ais appr~pnate for comp
nal strategy. A multi-
to accommodate different buyer ref anies that m~st vary
pproac es from country to country m order
egy (think global, act global) worfs ber:nc~s and market cond
itions. The global strat-
gained from taking a standardized gl e~ ; _en th ere are substantia
l cost benefits to be
for local responsiveness A trans~ati~ a Yintegrated approach
and there is little need
when there is a high ne~d for local na 1 st.rategy (think globa
l, act local) is called for
taking a glob~lly integrated approa~~~~~~~~e~ess as well as subst
antial benefits from
~he same basic competitive strategy in all mar pproach,_ a comp
any strives to employ
ing and some aspect of its operations to ft 1 kets but still custo
mizes its product offer·
6. There are three general ways in h" h i_ ocal market circumsta
domest'ic .d'isad nces.
vantages) in intern w atio
ic a furn can g ·
ta am
value cha~n activities among nations 1 markets. One wayetitiv
comp
product_differentiation. A second way nd a manner that lowers costs
e advantage (or offset
involves locating various
exten or achieves greater
·t d its comp 1 ert· 1 ive advantage by costraws on
" . an i t ·
n ernat
is most va uable resou
from cross-ho d ·euectively shari ional competitor's ability. tog
r_ces and capabilities ac b ng, rep1icating, or transfernn .
r er coordination that are unavan~~~! t orders. A_ third looks
0
for benefits
domestic-only competitors.