Salah uddin 1

1. Introduction
2. Why Expand into Foreign Markets
3. Cultural, Demographic & Market differences
4. Potential for Local Advantages
5. Difference between competing Internationally and competing Globally
6. Strategy options for entering & competing in Foreign markets
7. Multi- country Vs Global competition
8. Achieving Locational Advantage
9. Strategies in Internet Era

Salah uddin 2
 Any company aspiring for industry leadership
must think in terms of global market leadership,
not domestic leadership

 Globalization of the world economy is a market

condition that demands bold offensive strategies
to carve out new positions and potent defensive
strategies to protect positions previously won.

Salah uddin 3
 Companies expand outside their domestic
market for any of 4 major reasons:
 To gain access to new customers: Foreign markets
offer potential for increased revenues, profits & long term
growth. E.g. Intel, Sony, Nokia & Toyota
 To achieve lower costs and enhance firm’s
competitiveness: Sales volume achieved in Domestic
market not large enough to capture economies of scales
& experience curve effects so as to improve cost
competitiveness. E.g. small country size in Europe for
Nestle

Salah uddin 4
 To capitalize on it’s core competencies:
competitively valuable competencies & capabilities lead
to competitive advantage in foreign markets e.g. Nokia
has global market leadership in mobile phone technology
 To spread it’s business risk across a wider
market base: If economies of certain countries go
down, a company may be sustained by buoyant sales in
other countries
 Companies in natural resource based industries viz. oil &
gas, minerals, rubber etc. operate internationally
because of raw material supplies located in foreign
countries

Salah uddin 5
 Strategies deployed in foreign markets have to be
situation-driven as cultural, demographic & market
conditions vary significantly:
 Culture & Life style: Consumers in Sri Lanka do not
have same tastes, preferences and buying habits as
consumers in Pakistan, or China & India
 Product Design: E.g. electrical devises in USA use 110
Volt system while in Pakistan 220 Volt, necessitating use of
different product design & components. North Europeans
want large Refrigerators compared to South Europeans

Salah uddin 6
 Market Growth potential: market growth varies from
country to country. E.g. emerging markets have higher
growth potential viz. China, Brazil , Malaysia, as
compared to mature economies of UK, France & Canada
 Strategic Dilemma to be resolved : Market pressure to
customize Vs competitive pressure to lower costs
Customizing product country by country to match tastes
& preferences may raise production & distribution costs
due to greater variety of designs & components. Greater
standardization on the other hand leads to scale
economies & experience curve effects thus achieving
low cost advantage

Salah uddin 7
 Differences in wage rates, workers productivity, inflation
rates, energy costs , tax rates create sizeable variations in
manufacturing costs from country to country
 Low cost countries become principal production sites, with
output being exported to markets in other countries
 E.g. Competitive advantage of low wage countries like
Taiwan, South Korea, Malaysia, Vietnam, Bangla Desh,
Mexico for goods with higher labor content
 Quality of Business climate: e.g. Ireland with low corporate
tax rate; Intel investment of $2.5 billion

Salah uddin 8
 Volatility of Exchange rates leads to geographic
cost advantages or otherwise
 Fluctuation of high magnitude can totally wipe
out a country’s low cost advantage
 A strong Euro makes it more attractive for
European companies to manufacture in foreign
countries

Salah uddin 9
 Local content requirements on goods made by
foreign-based countries
 Imposition of tariffs & quotas
 Restrictions on exports to ensure adequate
supplies domestically
 Regulations concerning product certification,
remittances abroad, minority or majority ownership
by locals
 Subsidies & loans to domestic companies to
compete against foreign companies
 Privileged market access to acquire new plants, jobs
etc.
Salah uddin 10
 International or Multinational Competition:
to compete internationally by entering just one or
a select few foreign markets
 Global Competition:
Competing on a truly global scale becomes
possible after the company has established
operations in several countries and is racing
against rivals for global market leadership.

Salah uddin 11
 Export strategies
 Licensing strategies
 Franchising strategies
 Global strategies
 Strategic alliances

Salah uddin 12
EXPORT STRATEGIES
 Excellent Initial Strategy: maintain a national or one
country production base & export goods to foreign markets
 Minimizes risk & capital requirements, conservative way to
test international waters
 Products are designed & produced at home base &
distributed thru local channels
 Examples: China, Korea and Italian companies
 Success depends on relative cost competitiveness of
home country production base & shipping costs

Salah uddin 13
LICENSING STRATEGIES
 Works well for manufacturers with valuable technical
know-how but having no resources to enter foreign
markets
 Helps avoiding risks of committing resources to country
markets which are unfamiliar, have uncertain economic
or political conditions
 By licensing production rights to foreign based firms,
income is generated from royalties without bearing costs
 Disadvantage: risk of providing valuable technical know-
how to foreign companies thereby losing control on firm’s
proprietary know-how
Salah uddin 14
FRANCHISING STRATEGIES
 Well suited to global expansion of Service & retail
enterprises
 Franchisee Bears cost & risks of establishing foreign
locations, franchiser has to expend only the resources to
recruit, train & support franchises
 E.g. McDonalds, KFC , Pizza Hut & Hilton Hotels used
franchising to build presence in foreign markets
 Disadvantages: Problem in maintaining quality control,
franchisees do not show consistency & standardization
because of local cultural differences

Salah uddin 15
 Multi-country Competition: No international or
global market, just a collection of self-contained
country markets. E.g: life insurance, apparel,
metal fabrication, many types of food products
and many types of retailing.
 Global Competition: where prices and
competitive conditions across country markets
are strongly linked together. E.g: automobiles,
television sets, tires, telecommunications,
commercial aircraft.

Salah uddin 16
KEY POINTS MULTI COUNTRY GLOBAL STRATEGY
STRATEGY
Strategic Arena Selected target countries Most countries where
& trading areas there is high demand

Business Strategy Custom strategies to fit Same basic strategy

circumstances worldwide
Product line strategy Adapted to local culture Standardized products
& needs of local buyers sold worldwide with
moderate customization
where necessary

Production Strategy Plants scattered along Plants located on the

many host countries , basis of max competitive
each producing versions advantage
suitable for surrounding
locale
Salah uddin 17
KEY POINTS MULTI -COUNTRY GLOBAL STRATEGY
STRATEGY

Source of Supply: raw Supply in host country Attractive suppliers from

materials & components preferred anywhere in the world

Marketing & Distribution Adapted to practices & Much more world wide
culture of each host coordination
country
Cross country strategy Transfer ideas, Use same technologies,
connections technologies, competencies in all
competencies, markets except new
successful in one strategic initiatives
country, to another successful in one country
country are transferred to other
markets

Company organization Form autonomous Global organization

Subsidiary companies structure used to unify
which operate as per operations globally
host country conditions
Salah uddin 18
1. Exploit ability to deploy R&D, parts manufacture,
assembly, distribution centers, customer service center
and other activities among various countries in a
manner that lowers costs or achieves greater product
differentiation
2. Efficient and effective transfer of competitively valuable
competencies and capabilities from domestic markets
to foreign markets
3. A multinational’s ability to broaden its resources
strengths and capabilities and to coordinate its
dispersed activities in ways that a domestic – only
competitor cannot

Salah uddin 19
 When the costs of manufacturing or other activities are
significantly lower in particular geographical locations than
others. E.g. Athletic footwear made in China & S. Korea
due low labor cost; PCs in Taiwan due low cost & high
caliber technical skills
 When there are significant scale economies in performing
the activity.
 When there is a steep learning or experience curve
associated with performing an activity in a single location.
E.g. Samsung leading in memory chip by establishing
R&D in Silicon valley
 When certain locations have superior resources,
resources allow
better coordination, of related activities, or offer other
valuable advantages
Salah uddin 20
 Profit sanctuaries are country markets in which a
company derives substantial profits because of its strong
or protected market position. E.g. Japan because of
trade barriers blocks foreign companies’ competition
 Generally, a company’s biggest and most strategically
crucial profit sanctuary is it’s home market, but multi-
country & global companies may also enjoy profit
sanctuary status in other nations where they have a
strong competitive position, big sales volume, and
attractive profit margins.

Salah uddin 21
 Cross- market subsidization: supporting competitive
offensives in one market with resources & profits
diverted from other markets
 Dumping goods at unreasonably low prices &
deliberately attempting to put domestic companies in dire
financial straits or drive them out of business

Salah uddin 22
 Strategic alliances can help companies in globally
competitive industries strengthen their competitive
positions while still preserving their independence.
 More recently, companies from different parts of the
world have formed strategic alliances and
partnership arrangements to strengthen their mutual
ability to serve whole continents and move toward
more global market participation.

Salah uddin 23
 Picking a good partner
 Being sensitive to cultural differences
 Recognition that the alliance must benefit both sides
 Ensuring that both parties live up to their
commitments
 Structuring the decision-making process so that
actions can be taken swiftly when needed
 Managing the learning process and then adjusting
the alliance agreement over time to fit new
circumstances

Salah uddin 24
 Impact on competitive rivalry
 Impact on barriers to entry
 Impact on buyer bargaining power
 Impact on supplier bargaining power & supplier
–seller collaboration
 Overall influence on an industry’s competitive
structure

Salah uddin 25
 Internet represents an important new technological tool
for companies to improve operating efficiency and
operating effectiveness
 New distribution channel that greatly extends a
company’s geographical market reach.
 Opens up opportunities for reconfiguring company and
industry value chains in ways that yield big gains in
supply chain efficiency, internal operating efficiency and
distribution channel efficiency.

Salah uddin 26
 2001: Estimated 400million people world wide used the
internet. 167million - North America, 105million –
Europe, 122million - Asia-Pacific region, 21 million - Latin
America, 7 million - rest of the world
 2003: Projections called for 600-700 million internet
users globally
 Volume of business done on-line estimated to – $120
million by 2001, exceed $6 trillion by end of 2005.

Salah uddin 27
 Many traditional retailers, threatened by the
potential of consumers using the internet as a
substitute for shopping at local stores, have opened
their own online shopping sites
 Combination brick-and-click strategies that give
customers the option of shopping either online or in
stores can be an effective way of combating
competition.
 Brick-and-click gives retailers cost advantage over
e-tailers.

Salah uddin 28
 Strategic issues for a traditional company:
 What specific internet applications to implement
 How to make the internet a fundamental part of strategy

Internet-related strategy initiatives:

 Operating a website that provides existing and potential
customers
 Using online sales as relatively minor distribution channel
 Employing brick-and-click strategy to sell directly
 Making greater use of build-to-order manufacturing
 Order fulfillment

Salah uddin 29
Salah uddin 30