Strategies for Competiting in Foreign Markets

WHY COMPANIES EXPAND INTO FOREIGN MARKETS

Four major reason why company may opt to expand outside its domestic market:
1. To gain access to new customers
2. To achieve lower costs and enhance the firm’s competitiveness
3. To capitalize on its core competencies
4. To spread its business risk across a wider market base

FACTORS THAT SHAPE STRATEGY CHOICES IN FOREIGN MARKETS

1. Four important factors that shape a company’s strategic approach to competing in foreign
markets: The degree to which there are important cross-country differences in cultural, demographic, and market conditions;
2. Whether opportunities exist to gain competitive advantage based on whether a company’s activities are located in some countries rather than in others;
3. The risk of adverse shifts in currency exchange rates;
4. The extend to which the policies of foreign government lead to more favorable business environment in some countries than in other countries.

THE CONCEPTS OF MULTICOUNTRY COMPETITON AND GLOBAL COMPETITION

Multicountry competition exists when competition in one national market is localized and not closely connected to competition in another national market. When competition in each country differs in important respects, there is no gloval maret but rather a collection of self-contained country markets. Global competition exists when competition conditions across national markets are linked strong enough to form a true international market and when leading competitors compete head to head in many different countries. An industry can be in transition from multicountry competition to global competition.

STRATEGY OPTIONS FOR ENTERING AND COMPETING IN FOREIGN MARKETS

There are host of generic strategic options for a company that decides to expand outside its domestic market and compete internationally or globally:
1. Maintain a national (one-country) production base ande export goods to foreign markets,
2. License foreign firms to use the company’s technology or to produce and distribute the company’s products,
3. Employ a franchising strategy,
4. Use strategic alliances or joint ventures with foreign companies as the primary vehicle for entering markets,
5. Follow a multicountry strategy,
6. Follow a global strategy.

THE QUEST FOR COMPETITIVE ADVANTAGE IN FOREIGN MARKETS

Three important ways in which a firm can gain competitive advantage by expanding outside its domestic market:
1. Use location to lower costs or achieve greater product differentiation,
2. Transfer competitively valuable competencies and capabilities from its domestic markets to foreign markets,
3. Use cross-border coordination in ways that a domestic-only competitor cannot.

STRATEGIES TO COMPETE IN THE MARKETS OF EMERGING COUNTRIES

Strategy options for emerging-country markets:
1. Prepare to compete on the basis of low price.
2. Be prepared to modify aspects of the company’s business model or strategy to accomodate local circumstances.
3. Try to change the local market to better match the way the company does business elsewhere.
4. Stay away from those emerging markets where it is impractical or uneconomic to modify the company’s business model to accomodate local circumstances.

Strategies for local companies in emerging markets (defending against global giants):
1. Develop business models that exploit shortcomings in local distribution networks or infrastructure.
2. Utilize keen understanding of local customer needs and preferences to create customized products or services.
3. Take advantage of low-cost labor and other competitively important local workforce qualities.
4. Use acquisition and rapid growth strategies to better defend against expansion-minded multinationals.
5. Transfer company expertise to cross-border markets and initiate actions to contend on a global level.

Source: Crafting and Executing Strategy, Chapter 7