CHAPTER 7-

STRATEGIES FOR
COMPETING IN
INTERNATIONAL
MARKETS
Learning Objectives:
This chapter will help you understand:

•The primary reasons companies choose to compete in

international markets.
•How and why differing market conditions across countries
influence a company’s strategy choices in international
markets.
•The five major strategic options for entering foreign markets.
•The three main strategic approaches for competing
internationally.
•How companies are able to use international operations to
improve overall competitiveness.
• Any company that aspires to industry
leadership in the 21st century must think in
terms of global, not domestic, market
leadership.
WHY COMPANIES DECIDE TO ENTER
FOREIGN MARKETS

• To gain access to new customers.

• To achieve lower costs through economies
of scale, experience, and increased
purchasing power.
• To gain access to low-cost inputs of
production.
• To further exploit its core competencies.
• To gain access to resources and capabilities
located in foreign markets.
 WHY COMPETING ACROSS
NATIONAL BORDERS MAKES
STRATEGY MAKING MORE COMPLEX
• Different countries have different home-country advantages in
different industries; competing effectively requires an
understanding of these differences.
• There are location-based advantages to conducting particular
value chain activities in different parts of the world.
• Different political and economic conditions make the general
business climate more favorable in some countries than in
others.
• Companies face risk due to adverse shifts in currency exchange
rates when operating in foreign markets.
• Differences in buyer tastes and preferences present a
challenge for companies concerning customizing versus
standardizing their products and services.
• First, it can help predict where foreign entrants
into an industry are most likely to come from.
• Second, it can reveal the countries in which
foreign rivals are likely to be weakest and thus
can help managers decide which foreign
markets to enter first
• Third, the diamond framework is an aid to
deciding where to locate different value chain
activities most beneficially.
STRATEGIC OPTIONS FOR
ENTERING INTERNATIONAL
MARKETS
1. Maintain a home-country production base and
export goods to foreign markets.
2. License foreign firms to produce and distribute
the company’s products abroad.
3. Employ a franchising strategy in foreign
markets.
4. Establish a subsidiary in a foreign market via
acquisition or internal development.
5. Rely on strategic alliances or joint ventures
with foreign companies.
 Export Strategies

• Using domestic plants as a production

base for exporting goods to foreign
markets is an excellent initial strategy for
pursuing international sales.
• It is a conservative way to test the
international waters.
However, an export strategy is
vulnerable when:

(1) manufacturing costs in the home country

are substantially higher than in 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.
Licensing Strategies

• Licensing as an entry strategy makes

sense when a firm with valuable technical
know-how, an appealing brand, or a
unique patented product has neither the
internal organizational capability nor the
resources to enter foreign markets.
Licensing Strategies

• By licensing the technology, trademark, or

production rights to foreign-based firms,
the firm can generate income from
royalties while shifting the costs and risks
of entering foreign markets to the licensee.
Licensing Strategies

• The big disadvantage of licensing is the

risk of providing valuable technological
know-how to foreign companies and
thereby losing some degree of control over
its use; monitoring licensees and
safeguarding the company’s proprietary
know-how can prove quite difficult in some
circumstances.
Franchising Strategies

• While licensing works well for

manufacturers and owners of proprietary
technology, franchising is often better
suited to the international expansion
efforts of service and retailing enterprises.
Franchising Strategies

• The franchisee bears most of the costs

and risks of establishing foreign locations;
a franchisor has to expend only the
resources to recruit, train, support, and
monitor franchisees.
Franchising Strategies

• The problem a franchisor faces is

maintaining quality control; foreign
franchisees do not always exhibit strong
commitment to consistency and
standardization, especially when the local
culture does not stress the same kinds of
quality concerns.
 Foreign Subsidiary
Strategies
• Companies that prefer direct control over
all aspects of operating in a foreign market
can establish a wholly owned subsidiary,
either by acquiring a foreign company or
by establishing operations from the ground
up.
• A greenfield venture is a subsidiary
business that is established by setting up
the entire operation from the ground up.
 Alliance and Joint
Venture Strategies
• Collaborative strategies involving alliances
or joint ventures with foreign partners are
a popular way for companies to edge their
way into the markets of foreign countries.
 Alliance and Joint
Venture Strategies
• A company can benefit immensely from a
foreign partner’s familiarity with local
government regulations, its knowledge of
the buying habits and product preferences
of consumers, its distribution-channel
relationships, and so on.
 Alliance and Joint
Venture Strategies
• Another reason for cross-border alliances is to
capture economies of scale in production
and/or marketing.
• Cross-border alliances enable a growth-
minded company to widen its geographic
coverage and strengthen its competitiveness
in foreign markets; at the same time, they offer
flexibility and allow a company to retain some
degree of autonomy and operating control.
 INTERNATIONAL STRATEGY:
THE THREE MAIN APPROACHES

• A firm’s international strategy is simply its

strategy for competing in two or more
countries simultaneously.
Multidomestic Strategies—A “Think-
Local, Act-Local” Approach
• A multidomestic strategy is one in which a
company varies its product offering and
competitive approach from country to country
in an effort to be responsive to differing
buyer preferences and market conditions.
• It is a think-local, act-local type of
international strategy, facilitated by decision
making decentralized to the local level.
Global Strategies—A “Think-
Global, Act-Global” Approach

• A global strategy contrasts sharply with a

multidomestic strategy in that it takes a
standardized, globally integrated approach
to producing, packaging, selling, and
delivering the company’s products and
services worldwide.
Global Strategies—A “Think-
Global, Act-Global” Approach

• 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 all, nations where there is significant
buyer demand.
 Transnational Strategies—A
“Think-Global, Act-Local”
Approach
• A transnational strategy (sometimes called
glocalization ) incorporates elements of
both a globalized and a localized approach
to strategy making. This type of middle-
ground strategy is called for when there
are relatively high needs for local
responsiveness as well as appreciable
benefits to be realized from
standardization.