CHAPTER 7

STRATEGIES FOR COMPETING IN

INTERNATIONAL MARKETS

Student Version
Copyright 2012 The McGraw-Hill Companies, Inc. McGraw-Hill/Irwin
 WHY COMPANIES DECIDE TO
ENTER FOREIGN MARKETS

To gain access to To spread business

new customers risk across a wider
To exploit core market base
competencies

To achieve lower To access resources

costs and economies and capabilities in
of scale foreign markets

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WHY COMPETING ACROSS NATIONAL
BORDERS MAKES STRATEGY
MAKING MORE COMPLEX
Industry competitiveness factors that
1. vary from country to country

Location-based advantages for

2. certain countries

Differences in government policies

3. and economic conditions

4. Currency exchange rate risks

Differences in cultural, demographic,

5. and market conditions

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 Political and Economic Risks

Political Risks
Stem from instability or weaknesses in
national governments and hostility to foreign
business.
Economic Risks
Stem from the stability of a countrys
monetary system, economic and regulatory
policies, lack of property rights protections,
and risks due to exchange rate fluctuation.

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The Risks of Adverse Exchange Rate Shifts

Effects of Exchange Rate Shifts:

Exporters experience a rising demand for
their goods whenever their currency grows
weaker relative to the importing countrys
currency.
Exporters experience a falling demand for
their goods whenever their currency grows
stronger relative to the importing countrys
currency.

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Cross-Country Differences in Demographic,
Cultural, and Market Conditions

To customize offerings in each

country market to match the tastes
and preferences of local buyers
Key Strategic
Considerations
To pursue a strategy of offering a
mostly standardized product
worldwide.

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 THE CONCEPTS OF MULTIDOMESTIC
COMPETITION AND GLOBAL
COMPETITION
Multidomestic Competition
Exists when competition in each country
market is localized and not closely connected
to competition in other country markets.
Global Competition
Exists when competitive conditions and
prices are strongly linked across many
different national markets.
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 STRATEGIC OPTIONS FOR ENTERING
AND COMPETING IN INTERNATIONAL
MARKETS
Maintain a national (one-country) production base and
export goods to foreign markets.
License foreign firms to produce and distribute the firms
products abroad.
Employ an overseas franchising strategy.
Establish a wholly-owned subsidiary by either acquiring
a foreign company or through a greenfield venture.
Form strategic alliances or joint ventures with foreign
companies.
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COMPETING INTERNATIONALLY:
THE THREE MAIN STRATEGIC
APPROACHES

Competing
Internationally

Multidomestic Global Transnational

Strategy Strategy Strategy

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THE QUEST FOR COMPETITIVE
ADVANTAGE IN THE INTERNATIONAL
ARENA

Build Competitive Advantage

in International Markets

Use international
Share resources, Gain cross-border
location to lower
competencies, coordination
cost or differentiate
and capabilities benefits
product

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 Using Location to Build
Competitive Advantage

To customize offerings in each

country market to match the tastes
and preferences of local buyers
Key Location
Issues
To pursue a strategy of offering a
mostly standardized product
worldwide.

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 PROFIT SANCTUARIES AND CROSS-
BORDER STRATEGIC MOVES

Profit Sanctuaries
Are country markets (or geographic regions)
in which a firm derives substantial profits
because of its protected market position or its
competitive advantage.
Cross-Market Subsidization
Is the diversion of resources and profits from
one market to support competitive offensives
in another different market.

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 Dumping as a Strategy

Dumping
Selling goods in foreign markets at prices
that are either below normal home market
prices or below the full costs per unit.
Why A Firm Engages in Dumping:
To reduce or avoid the high fixed costs of
idle production capacity.
To use below-cost pricing to gain market
share and drive weak firms from the market.

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 STRATEGIES FOR COMPETING IN THE
MARKETS OF DEVELOPING
COUNTRIES

Prepare to compete on the basis of low price.

Prepare to modify the firms business model or
strategy to accommodate local circumstances.
Avoid developing markets where it is too costly
to accommodate local circumstances.
Try to change the local market to better match
the way the firm does business elsewhere.

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 DEFENDING AGAINST GLOBAL GIANTS:
STRATEGIES FOR LOCAL COMPANIES IN
DEVELOPING COUNTRIES

Develop a business model that exploits shortcomings in

local distribution networks or infrastructure.
Utilize knowledge of local customer needs and
preferences to create customized products or services.
Take advantage of aspects of the local workforce with
which large multinational firms may be unfamiliar.
Use local acquisition and rapid-growth strategies to
defend against expansion-minded internationals.
Transfer the firms expertise to cross-border markets.

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