Competitive Strategy may be defined as a long-term plan of action that is devised by an

organization to help it gain a competitive advantage gain an upper hand over its competition
or rivals (Johnson, Scholes and Whittington, 2008). Likewise, Porter (1980) defined competitive
strategy as the plan by which a firm or company may carry out their business and compete in the
marketplace, and that this plan is usually developed after the organization has evaluated its
strengths and weaknesses, in comparison to that of its competition. In a simplified form,
competitive strategy may be defined as the framework for making decisions that prioritizes the
actions that creates a desired result in a competitive market. Furthermore, Porter (1980) also
noted that competitive advantage which is an advantage that an organization has over its
competition that helps in succeed in the marketplace may be achieved through by the offering
of greater value to the consumer than the competition, by reaching a higher operational
efficiency compared to the competition, or both.
For organizations or firms which are either already in foreign markets, or are intending to enter a
foreign market, it is important for that they develop and adopt a strategy that will help them
compete successfully and thrive in the new markets they wish to enter. Many global businesses
are often faced with complexities of the global environment, which include differences in
political, legal, social, economic, and cultural environments. Therefore, it is important that these
businesses formulate competitive strategies based on the complexity of each of the foreign
markets they intend to enter (Johnson, Scholes & Whittington, 2008). Some of the common
competitive strategies adopted by firms going global include niche market exporting, licensing
and contract manufacturing, joint ventures, and wholly owned subsidiaries. These are discussed
in further details below:
A. Niche Market Exporting
A Niche market refers to a small, focused and targetable portion or part of a larger market. In
other words, a niche market is a narrowly defined group of potential customers that forms a part
of a larger market (Sraha, 2014). Niche markets are very unlikely to attract competition, and
therefore can be considered as a good competitive strategy for companies that wish to enter
foreign markets.
Furthermore, it has been noted that customers in niche markets have specific set of needs, and
this makes it easy and very possible for organizations focusing on them to provide well-suited

products and services that meets the needs, tastes, and satisfaction of that niche. Also, carving
out a niche can offer organizations the opportunity to charge premium prices on the products or
services they offer to such niche, however this is still dependent on the characteristics of the
niche (Sraha, 2014).
An organization or company that is entering into a foreign market by exporting its products or
services to the foreign market can utilize niche market exporting as its competitive strategy for
entry. By using this mode of entry (niche market exporting), a firm can eliminate the expenditure
for acquiring operational facilities in the new market, and also depend on its economies of scale.
However, the firm will not enjoy the advantages of being present locally in the foreign market or
host country. Furthermore, the organization may encounter difficulties in gaining knowledge
about the foreign market and the competitors therein. The firm may also (i) have to depend on
export intermediaries to get the goods to the new market; (ii) be exposed to import duties and
other trade barriers; (iii) spend a huge amount of funds on transporting its goods to the new
country.
An example a company that made use of niche market exporting is BMW automobile company
(a German automobile company). After identifying the American auto market as good market to
invest in, BMW automobiles started out by exporting its cars to America, and suffered high
transportation costs, and other cost due to trade barriers, BMW realized that to better compete
and expose itself fully to the American market, it had to set-up a manufacturing plant in America.

B. Licensing and Contract Manufacturing

Licensing or contract manufacturing basically has to do with an industrial property right being
transferred from a licensor to a willing and motivated licensee with the right to exploit an
invention, product formula, or resource in return for a share of the profits (Johnson, Scholes and
Whittington, 2008). Licensing and contract manufacturing involves a contractual agreement
between two or more organizations, in which one organization (the licensor) gives out its
property right (such as product formula, or invention or resource) to the other organizations (the

licensees) to develop and trade with, for a share of the income/profit. In this kind of arrangement,
the licensee pays out royalties a percentage of the accrued profit to the licensor.
Although licensing and contract manufacturing may represent a good mode of entry for
organizations wishing to enter foreign markets, just like other modes of entry, it has its own set
of demerits. Two of the major demerits or disadvantages of this mode of entry is:
-

The possibility that the licensee or foreign partner will turn against the licensor as a

competitor after the contract or licensing agreement expires.

The licensor not having full control over the production, marketing and distribution of the
product, which may in-turn put a dent on the licensors reputation.

An organization can adopt licensing and contract manufacturing as its strategic mode of entry
into a foreign market. This strategy can benefit the organization, by cutting down on the cost of
expansion and cost of entry. However, as mentioned above, this strategy can also pose challenges
to the organization in the event where the licensee becomes a competitor after gaining experience
and perhaps trade secrets of the licensor. A typical example of a licensing/contract manufacturing
can be seen in the product Minute Maid, which is a drink/product of Coca-Cola Company
(licensor). However, Coca Cola has given rights to the recipe for producing the drink, to local
companies (licensees) in countries where it operates, to produce and market the product (i.e.
Minute Maid).
C. Joint Ventures
A joint venture (JV) is a separate business entity whose shares are owned by two or more
business entities, and the parties (business entities) involved are, and remain independent but
together or jointly run the new business (i.e. the joint venture) for a purpose. As a competitive
strategy especially for entry into new markets, Joint Ventures provide a variety of benefits to
each of the partners or business entities involved. These benefits include:
i.

Opportunity to share management tasks as well as investment risks with the foreign
firm especially in cases where the local firm does not have the managerial and
financial assets needed to make a profitable independent impact on the foreign
market.

ii.

Combining of resources, data & information, and technical know-how of both firms,

iii.

thereby increasing its resource-base and enhancing its chances of success

Through a successful joint venture, an organization can accelerate its efforts geared
towards integration into the corporate, cultural, social and political infrastructures of
the foreign environment, at a lower cost as compared to the acquisition of a foreign
subsidiary.

However, challenges do exist with this strategy (i.e. joint venture). The challenges that can
confront the parties involved in a joint venture include:
i. Difficulty in maintaining and sustaining the relationship between the two organizations or
firms.
ii. Dealing with host company management requires the disclosure of proprietary
information and the potential loss of control over production and marketing quality
standards. Through this, a firm can lose its competitive advantage to the partner firm can
copies through imitation.
iii. Difficulty in finding a suitable partner, and when the partner is found, agreeing to
contractual terms may be difficult and take a long time.
iv. The compatibility of partners and their enduring commitments to mutually supportive
goals is critically important to a successful joint venture.
Airbus an aircraft manufacturing company, is an example of a joint venture between the
European Aeronautic Defense and Space (EADS) Company and British Aerospace (BAE)
Systems.
D. Wholly Owned Subsidiaries
A wholly owned subsidiary is one that is absolutely owned by another company (usually referred
to as the parent company) either organically, or through an acquisition. Usually, most
organizations adopt the wholly owned foreign subsidiary as a competitive strategy for entering
into new and foreign markets because it affords them the opportunity to completely retain control
and ownership over their technology and trade secrets, while operating in the new market.
However, it is very expensive mode of entry into new markets, because it involves high
investment commitments to the foreign (or new) market.

As a competitive strategy, entering into a foreign market this method (i.e. wholly owned
subsidiaries) gives the organization a competitive advantage by preserving the organizations
trade secrets, technology, and/or property right and therefore makes it impossible for a
competitor to acquire such secrets or technology and compete with the organization through
imitating the organizations product or service (as in the case of licensing/contract
manufacturing). However, the organization is likely to run the following risks to the current
mode of operations:
i.
ii.

The foreign country may expect a long-term commitment from the organization
The organization may be expected to employ local workforce in the foreign country as

iii.

a percentage of its total employees

The elimination of the identified niche due to the changing standards mandated by the
foreign country