session 6 competing in global markets 19 nov 11(2)

8/3/2019 Session 6 Competing in Global Markets 19 Nov 11(2)

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19/011/2011Salah uddin 1

Competing in Global Markets

References:

Strategic Management by

Thompson & Strickland

The Borderless World by Ohmae, Kenichi


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1. Introduction

2. Why Expand into Foreign Markets

3. Cultural, Demographic & Market differences

4. Potential for Local Advantages

5. Difference between competing Internationally and competing Globally

6. Strategy options for entering & competing in Foreign markets

7. Multi- country Vs Global competition

8. Achieving Locational Advantage9. Strategies in Internet Era

Competing in GlobalMarkets

19/011/2011 2Salah uddin


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Any company aspiring for industryleadership must think in terms of globalmarket leadership, not domestic leadership

Globalization of the world economy is a

market condition that demands boldoffensive strategies to carve out new

positions and potent defensive strategies toprotect positions previously won.

Introduction



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Companies expand outside their domesticmarket for any of 4 major reasons:

To gain access to new customers: Foreignmarkets offer potential for increased revenues,

profits & long term growth. E.g. Intel, Sony, Nokia &Toyota

To achieve lower costs and enhance firmscompetitiveness: Sales volume achieved in

Domestic market not large enough to captureeconomies of scales & experience curve effects so asto improve cost competitiveness. E.g. small countrysize in Europe for Nestle

Why Companies Expand intoForeign Markets



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To capitalize on its core competencies:competitively valuable competencies & capabilities

lead to competitive advantage in foreign marketse.g. Nokia has global market leadership in mobilephone technology

To spread its business risk across a widermarket base: If economies of certain countries godown, a company may be sustained by buoyant salesin other countries

Companies in natural resource based industries viz.oil & gas, minerals, rubber etc. operate

internationally because of raw material supplieslocated in foreign countries



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Strategies deployed in foreign markets have to besituation-driven as cultural, demographic & marketconditions vary significantly:

Culture & Life style: Consumers in Sri Lanka do nothave same tastes, preferences and buying habits as

consumers in Pakistan, or China & India

Product Design: E.g. electrical devices in USA use 110Volt system while in Pakistan 220 Volt, necessitating use ofdifferent product design & components. North Europeanswant large Refrigerators compared to South Europeans

Cultural, Demographic &Market Differences



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Market Growth potential: market growth varies

from country to country. E.g. emerging markets havehigher growth potential viz. China, Brazil , Malaysia, ascompared to mature economies of UK, France & Canada

Strategic Dilemma to be resolved : Marketpressure to customize Vs competitive pressure to

lower costs

Customizing product country by country to match tastes& preferences may raise production & distribution costs dueto greater variety of designs & components. Greaterstandardization on the other hand leads to scale economies& experience curve effects thus achieving low costadvantage

Cultural, Demographic &Market Differences



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Differences in wage rates, workers productivity, inflationrates, energy costs , tax rates create sizeable variations inmanufacturing costs from country to country

Low cost countries become principal production sites, withoutput being exported to markets in other countries

E.g. Competitive advantage of low wage countries likeTaiwan, South Korea, Malaysia, Vietnam, Bangla Desh,Mexico for goods with higher labor content

Quality of Business climate: e.g. Ireland with low corporate

tax rate; Intel investment of $2.5 billion

Potential for Local Advantagesfrom Country-to-Country

Variations:



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Volatility of Exchange rates leads togeographic cost advantages or otherwise

Fluctuation of high magnitude can totally

wipe out a countrys low cost advantage A strong Euro makes it more attractive for

European companies to manufacture inforeign countries

Foreign Exchange Rates



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Local content requirements on goods made byforeign-based countries

Imposition of tariffs & quotas

Restrictions on exports to ensure adequatesupplies domestically

Regulations concerning product certification,remittances abroad, minority or majorityownership by locals

Subsidies & loans to domestic companies to

compete against foreign companies

Privileged market access to acquire new plants,jobs etc.

Host Government Restrictions



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International or MultinationalCompetition:

to compete internationally by entering justone or a select few foreign markets

Global Competition:

Competing on a truly global scale becomespossible after the company has establishedoperations in several countries and is racingagainst rivals for global market leadership.

Difference between CompetingInternationally & Competing

Globally



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Export strategies

Licensing strategies

Franchising strategies

Global strategies

Strategic alliances

Strategy Options for Entering& Competing in Foreign

Markets



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EXPORT STRATEGIES

Excellent Initial Strategy: maintain a national or onecountry production base & export goods to foreignmarkets

Minimizes risk & capital requirements, conservative way totest international waters

Products are designed & produced at home base &distributed thru local channels

Examples: China, Korea and Italian companies Success depends on relative cost competitiveness of

home country production base & shipping costs

Strategy Options for Entering& Competing in Foreign

Markets



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FRANCHISING STRATEGIES

Well suited to global expansion of Service & retailenterprises

Franchisee Bears cost & risks of establishing foreignlocations, franchiser has to expend only the resources to

recruit, train & support franchises E.g. McDonalds, KFC , Pizza Hut & Hilton Hotels used

franchising to build presence in foreign markets

Disadvantages: Problem in maintaining quality control,franchisees do not show consistency & standardizationbecause of local cultural differences

Strategy Options for Entering& Competing in ForeignMarkets



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Multi-country Competition: Nointernational or global market, just acollection of self-contained countrymarkets. E.g: life insurance, apparel, metalfabrication, many types of food productsand many types of retailing.

Global Competition: where prices andcompetitive conditions across country

markets are strongly linked together. E.g:automobiles, television sets, tires,telecommunications, commercial aircraft.

Multi-country Vs GlobalCompetition


l i C Gl b l


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KEY POINTS MULTI COUNTRYSTRATEGY

GLOBALSTRATEGY

Strategic Arena Selected targetcountries & tradingareas

Most countrieswhere there is highdemand

Business Strategy Custom strategies

to fit circumstances

Same basic

strategy worldwide

Product linestrategy

Adapted to localculture & needs of

local buyers

Standardizedproducts sold

worldwide withmoderatecustomizationwhere necessary

Production Strategy Plants scatteredalong many host

Plants located onthe basis of max

Multi Country Vs GlobalStrategy


KEY POINTS MULTI COUNTRY GLOBAL


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KEY POINTS MULTI -COUNTRYSTRATEGY

GLOBALSTRATEGY

Source of Supply:raw materials &

components

Supply in hostcountry preferred

Attractive suppliersfrom anywhere in

the worldMarketing &Distribution

Adapted to practices& culture of eachhost country

Much more worldwide coordination

Cross countrystrategy connections

Transfer ideas,technologies,competencies,successful in one

country, to anothercountry

Use sametechnologies,competencies in allmarkets except new

strategic initiativessuccessful in onecountry aretransferred to othermarkets



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1. Exploit ability to deploy R&D, partsmanufacture, assembly, distribution

centers, customer service center andother activities among various countries ina manner that lowers costs or achievesgreater product differentiation

Pursuing CompetitiveAdvantage by Competing

Multinationally



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2. Efficient and effective transfer ofcompetitively valuable competencies andcapabilities from domestic markets to

foreign markets

3. A multinationals ability to broaden itsresources strengths and capabilities and tocoordinate its dispersed activities in waysthat a domestic only competitor cannot


Pursuing CompetitiveAdvantage by Competing

Multinationally

A hi i L ti l


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When the costs of manufacturing or other activitiesare significantly lower in particular geographicallocations than others. E.g. Athletic footwear made inChina & S. Korea due low labor cost; PCs in Taiwandue low cost & high caliber technical skills

When there are significant scale economies in

performing the activity. When there is a steep learning or experience curve

associated with performing an activity in a singlelocation. E.g. Samsung leading in memory chip by

establishing R&D in Silicon valley When certain locations have superior resources,

allow better coordination, of related activities, or offerother valuable advantages

Achieving LocationalAdvantages



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Profit sanctuaries are country markets in which acompany derives substantial profits because of itsstrong or protected market position. E.g. Japanbecause of trade barriers blocks foreign

companies competition Generally, a companys biggest and most

strategically crucial profit sanctuary is its homemarket, but multi-country & global companies

may also enjoy profit sanctuary status in othernations where they have a strong competitiveposition, big sales volume, and attractive profitmargins.

Profit Sanctuaries, Cross-MarketSubsidization, & Global Strategi

Offensives



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Strategic alliances can help companies inglobally competitive industries strengthentheir competitive positions while stillpreserving their independence.

More recently, companies from differentparts of the world have formed strategicalliances and partnership arrangements to

strengthen their mutual ability to servewhole continents and move toward moreglobal market participation.

Strategic Alliances and JointVentures With Foreign

Partners



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Picking a good partner

Being sensitive to cultural differences

Recognition that the alliance must benefit both sides

Ensuring that both parties live up to their

commitments Structuring the decision-making process so that

actions can be taken swiftly when needed

Managing the learning process and then adjusting

the alliance agreement over time to fit newcircumstances

Making the Most of StrategicAlliances with Foreign

Partners



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Impact on competitive rivalry

Impact on barriers to entry

Impact on buyer bargaining power Impact on supplier bargaining power &

supplier seller collaboration

Overall influence on an industryscompetitive structure

How Internet TechnologyReshapes the Competitive

Environment



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Internet represents an important newtechnological tool for companies to improveoperating efficiency and operating effectiveness

New distribution channel that greatly extends acompanys geographical market reach.

Opens up opportunities for reconfiguringcompany and industry value chains in ways that

yield big gains in supply chain efficiency, internaloperating efficiency and distribution channelefficiency.

Strategies in Internet Era



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2001: Estimated 400million people world wideused the internet. 167million - North America,105million Europe, 122million - Asia-Pacificregion, 21 million - Latin America, 7 million - rest

of the world 2003: Projections called for 600-700 million

internet users globally

Volume of business done on-line estimated to

$120 million by 2001, exceed $6 trillion by endof2005.

Demand for Internet Services



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Many traditional retailers, threatened by thepotential of consumers using the internet as asubstitute for shopping at local stores, haveopened their own online shopping sites

Combination brick-and-click strategies thatgive customers the option of shopping eitheronline or in stores can be an effective way ofcombating competition.

Brick-and-click gives retailers cost advantageover e-tailers.

Brick-and-ClickStrategies


I t t St t i f


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Strategic issues for a traditional company:

What specific internet applications to implement

How to make the internet a fundamental part of strategy

Internet-related strategy initiatives:

Operating a website that provides existing and potentialcustomers

Using online sales as relatively minor distribution channel

Employing brick-and-click strategy to sell directly

Making greater use of build-to-order manufacturing

Order fulfillment

Internet Strategies forTraditional Businesses



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session 6 competing in global markets 19 nov 11(2)

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