Global Competition
• Why Companies Decide to Enter Foreign Markets
• Why Competing across National Borders Makes
Strategy-Making More Complex
• The Concepts of Multi-country Competition and
Global Competition
• Strategy Options for Entering and Competing in
International and Global Markets
• The Quest for Competitive Advantage in Global
Markets
• Profit Sanctuaries and Global Strategic Offensives
Whether to customize the firm’s offerings in
each country market or to offer a mostly
standardized product worldwide
Employ the same basic
competitive strategy in all
countries or modify the
strategy
country by country
Strategic Issues Unique
To Competing Across
National Borders
Transferring the firm’s resource strengths
and capabilities from one country to another
in an effort to secure competitive advantage
Where to locate the firm’s
operations
to realize the greatest
location-related
advantages.
Why Do Companies Expand Into
Foreign Markets?
To gain access to
new customers
To obtain access to
valuable natural
resources
To further capitalize on
resource strengths
and capabilities
To achieve lower
costs and enhance
competitiveness
To spread business
risk across a wider
market base
Factors Complicating International
Competition
1. Important cross-country differences in buyer
tastes, market sizes, and growth potential
2. Cross-country differences in wages, worker
productivity, inflation rates, energy costs, taxes,
and other factors that impact a firm’s costs and
profit prospects
3. Governmental policies and regulations that make
the business climate more favorable in some
countries than others
4. The risks of adverse shifts in currency exchange
rates
International Competition Issues
• Localized products vs. scale economies with standard
products
• Cost advantages locating operations in countries with:
– Lower wage rates, less costly government regulations, lower taxes,
lower energy costs, cheaper natural resources
• Host country business / political risks
– Protectionist tariffs, quotas, rules, etc.
– Political, economic, monetary stability
• Currency exchange rate shifts
– Ex on next slide
Effect of Exchange Rate Shift
• Consider the case of a firm with manufacturing facilities in Brazil (where the currency is reals) that
exports its Brazilian-made goods to European Union markets (where the currency is euros).
– Assume that the current exchange rate is 4 Brazilian reals for 1 euro and that the product made
in Brazil has a manufacturing cost of 4 Brazilian reals (or 1 euro).
– Now suppose that for some reason the exchange rate shifts from 4 reals per euro to 5 reals per
euro (meaning that the real has declined in value and that the euro is stronger).
– The Brazilian-made product is now more cost-competitive because a Brazilian-made good costing
4 reals has fallen to only 0.8 euros at the new exchange rate (4 reals divided by 5 reals per euro =
0.8 euros). This puts a producer of the Brazilian-made good in a better position to compete
against the European makers of the same good.
– On the other hand, if the value of the real grows stronger in relation to the euro—resulting in an
exchange rate of 3 reals to 1 euro—the same Brazilian-made good formerly costing 4 reals (or 1
euro) now has a cost of 1.33 euros (4 reals divided by 3 reals per euro = 1.33), This puts a
producer of the Brazilian-made good in a weaker competitive position versus European
producers of the same good.
• Thus, the attraction of manufacturing in Brazil and selling in Europe is greater when the euro is
strong (a rate of 1 euro for 5 reals) than when it is weak and 1 euro exchanges for 3 reals.
• Question: If the Euro grows weaker will demand for Brazilian-made shoes increase or decrease?
Exchange Rate Effects
• Currency history charts
Question for Simulation Managers
• When your simulation company is facing an unfavorable exchange
rate change that negatively affects profitability in one or more
geographic regions, should you and your co-managers:
– Consider raising price or adjusting marketing efforts to
reduce/eliminate the negative impact on earnings?
– Consider temporarily curtailing sales and marketing efforts in
the negatively affected regions and boosting sales efforts in
regions where profits are favorably impacted by the exchange
rate shifts?
– Do nothing/ignore any adverse exchange rate impacts and
simply suffer the consequences of whatever adverse earnings
impact occurs?
Competing Internationally
• Five strategic ways to establish a competitive presence in a
foreign market:
1. Maintain a national (one-country) production base and
export goods to foreign markets
2. License technology /production / distribution rights to a
foreign firm
3. Employ a franchising strategy in foreign markets
4. Rely upon acquisitions or internal startup ventures to gain
entry into foreign markets
5. Rely on strategic alliances or joint ventures with foreign firms
as the primary vehicle for entering foreign markets
Export Strategy
• Potential advantages
– A conservative way to test the risks of international markets
– Can increase the utilization of existing production capacity
– The amount of capital needed to begin exporting is often minimal
• Potential disadvantages
– Home country manufacturing costs can be higher than in foreign
countries where rivals have plants
– Product shipping costs to distant markets
– Adverse shifts occur in currency exchange rates
– Importing countries impose tariffs or erect other trade barriers
Licensing Strategies
• Licensing makes sense when a firm
– Has valuable technical know-how or a unique product but lacks the
organizational capability or resources to enter foreign markets
– Desires to avoid risks of committing resources to markets that are
unfamiliar, politically volatile, and/or economically unstable
– Can earn considerable royalties from licensees who are trustworthy and
reputable
• Potential disadvantages
– 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 knowhow is not easy, especially when companies to whom licenses are granted
turn out not to be reputable or trustworthy
Localized Multi-country vs. Global
Strategy
Localized Multicountry Strategy
Global Strategy
• Customize the company’s competitive approach as
needed to fit market and business circumstances in
each host country—strong responsiveness to local
conditions.
• Pursue the same basic competitive strategy worldwide
(low-cost, differentiation, best-cost, focused low-cost,
focused differentiation)—minimal responsiveness to
local conditions.
• Sell different product versions in different countries
under different brand names—adapt product
attributes to fit buyer tastes and preferences country
by country.
• Sell the same products under the same brand name
worldwide. Concentrate on building global brands as
opposed to strengthening local/regional brands sold in
local/regional markets.
• Either design manufacturing plants to cost effectively
produce many different product versions or else
scatter plants across many host countries, each
making product versions for local markets.
• Locate plants on the basis of maximum locational
advantage, usually in countries where production costs
are lowest but plants may be scattered if shipping costs
are high or other locational advantages dominate.
• Use local suppliers when local governments have
local content requirements.
• Use the best suppliers from anywhere in the world.
• Adapt marketing and distribution to the prevailing
local customs, culture, and market circumstances.
• Coordinate marketing and distribution worldwide; make
minor adaptations to local countries where needed.
• Develop resources and capabilities appropriate to
each country’s localized strategy. Cross-border
transfer of resources is limited because of strategy
variability.
• Compete on the basis of the same resources and
capabilities worldwide. Stress rapid cross-country
transfers of new capabilities, products, and best
practices.
• Give country managers fairly wide strategy-making
latitude and autonomy over local operations.
• Coordinate major strategic decisions worldwide. Expect
local managers to stick close to the global strategy.
• Strive to gain local competitive advantages (the
nature of any such competitive advantages that are
achieved will tend to vary from country-to-country).
• Strive to achieve the same type of competitive
advantage over rivals in every country where the
company competes.
Hybrid of Multi-country and Global
Strategies
• Utilize the same basic competitive theme (low-cost,
differentiation, best-cost, or focused) in each country
but allow local managers leeway to:
• Incorporate minor country-specific variations in product
attributes to better satisfy local buyers
• Make adjustments in production, distribution, and
marketing strategy elements to respond to local market
conditions and to compete against local rivals
Questions for Simulation Company
Managers
• Which international strategy do you feel best
suits your firm? Why?
• What will you look for in your competitors to
determine which international strategy they
are pursuing?