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MT301: STRATEGIC MANAGEMENT
Week 3
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SEMESTER II: MT301
AGENDA FOR TODAY
Learning Objectives
Strategy Options for Entering andCompeting in Foreign Markets
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Learning Objectives
1. Develop an understanding of why companies that haveachieved competitive advantage in their domesticmarket may opt to enter foreign markets.
2. Learn how and why differing market conditions indifferent countries influence a companys strategy forcompeting in foreign markets.
3. Gain familiarity with the major strategic options forentering and competing in foreign markets.
4. Understand the principal approaches used bymultinational companies in building competitiveadvantage in foreign markets.
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Strategies for Competing inForeign Markets
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Global Strategy
A global strategy assumes the world to be a single
market (as opposed to several regional markets)
permitting the firm to offer the same standard and
uniform designs in every international market in
which it competes
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The Four Big Strategic Issues inCompeting Multi-nationally
Whether to customize a companys offerings in each different country market to
match preferences of local buyers or offer a mostly standardized product
worldwide
Whether to employ essentially the same
basic competitive strategy in all countries
or modify the strategy country by country
Where to locate a companys production facilities,
distribution centers, and customer service operations to realize the greatest
locational advantages
How to efficiently transfer a companys resource strengths and capabilities
from one country to another to secure competitive advantage
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Why Do Companies Expand intoForeign Markets?
Gain access tonew customers
Capitalizeon core
competencies
Achieve lowercosts and enhance
competitiveness
Spreadbusiness risk across
widermarket base
Obtain access tovaluable natural
resources
Source: Thompson, Strickland and Gamble, Crafting and Executing Strategy, 17 th Ed.
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Strategic Advantages of International Expansion
Growth opportunities
Increases the size of the potential market
E.g. Pepsi-Cola, Whirlpool expanding into developing countries
where markets are surging because of economic growth
Cost Advantages
Availability of cheaper inputs (e.g. labour/raw materials)
Tax incentives e.g. Irish corporation tax rate/IDA grants
Critical resources may only be available in certain parts of the
world e.g. software development in Bangalore in India, fashion
designing in Italy
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Strategic Advantages of International Expansion
Differentiation Advantages
Canon, Japanese maker of premium copiers and cameras chose Silicon
Valley for its R&D activity because it offered access to a large pool of
talented researchers in digital technology
Preempt or match competitor actions
Failure to do so can leave a firm vulnerable to attack
E.g. US television manufacturers
Panasonic went global, used additional revenue to cross-subsidize its
US television businessZenith stayed domestic
Forced in to a price war
Zenith lost significant share of the US market to Panasonic
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Strategic Advantages of International Expansion
Opportunities for worldwide learning
Exposed to diverse environments
Ability to gain new knowledge/skills
Different cultures = different ways of thinking
E.g. Proctor & Gamble used knowledge diversity arising from
global diversity to increase frequency of innovation
Volume production needs and capacity utilization
Larger market share helps a firm to run plants at full capacity
Companies with high fixed costs e.g. NIKE need to produce large
volumes to keep unit costs low
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Factors Shaping Strategy Choicesin Foreign Markets
Cross-country differences in cultural,demographic, and market conditions
Gaining competitive advantage basedon where activities are located
Risks of adverse shifts in
currency exchange ratesImpact of host government policieson the local business climate
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How Markets Differ from Countryto Country
Consumer tastes and preferences
Consumer buying habits
Market size and growth potential
Distribution channelsDriving forces
Competitive pressures
One of the biggest concerns of companies competing in foreign markets is whetherto customize their product offerings in each different country market to match
the tastes and preferences of local buyers or whether to
offer a mostly standardized product worldwide.
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Different Countries Have DifferentLocational Appeal
Manufacturing costs vary from country to country based on
Wage rates
Worker productivity
Inflation ratesEnergy costs
Tax rates
Government regulations
Quality of business environment varies from country to countrySuppliers, trade associations, and makers of complementary products
often find it advantageous to cluster their operations in the same
general location
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Fluctuating Exchange Rates Affecta Companys Competitiveness
Currency exchange rates are unpredictable
Competitiveness of a companys operations partly depends on
whether exchange rate changes affect costs favorably or
unfavorably
Competitive impact of fluctuating exchange rates
Exporters always gain in competitiveness when the currency of the
country where goods are manufactured grows weakerExporters are disadvantaged when the currency of the country
where goods are manufactured grows stronger
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Two Primary Patterns of International Competition
Multi-country
Competition
GlobalCompetition
Source: Thompson, Strickland and Gamble, Crafting and Executing Strategy, 17 th Ed.
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International vs. Global Competition
InternationalCompetitor
GlobalCompetitor
Company operates in aselected few foreign
countries, with modestambitions to expand further
Company markets products in
50 to 100 countries andis expanding operations intoadditional country markets
annually
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Characteristics of Multi-CountryCompetition
Market contest among rivals in one country not closely connected to
market contests in other countries
Buyers in different countries are attracted to different product
attributesSellers vary from country to country
Industry conditions and competitive forces in each national market
differ in important respects
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Characteristics of GlobalCompetition
Competitive conditions across country markets are strongly linked
Many of same rivals compete in
many of the same country markets
A true international market existsA firms competitive position in one country is affected by its position in
other countries
Competitive advantage is based on a firms world -wide operations and
overall global standing
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Strategy Options for Competing inForeign Markets
Exporting
Licensing
Franchising strategy
Strategic alliances or joint ventures
Multi-country strategy
Global strategy
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Ownership/ control
risk
exporting
licensing
franchising
Strategic alliance
Joint venture
Wholly ownedsubsidiary
Modes of entry to international markets
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Export StrategiesInvolve using domestic plants as a production base for exporting to foreign marketsExcellent initial strategy to pursue international sales
AdvantagesConservative way to test international watersMinimizes both risk and capital requirementsMinimizes direct investments in foreign countries
An export strategy is vulnerable when
Manufacturing costs in home country are higherthan in foreign countries where rivals have plantsHigh shipping costs are involvedAdverse fluctuations in currency exchange ratesoccur
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Heineken110 breweries in 50different countries
Exports to over 170countries
Heineken is the worldnumber 1 beerexporter
http://images.google.ie/imgres?imgurl=http://www.laurabeamer.com/bottle_caps/caps/large/heineken.jpg&imgrefurl=http://www.laurabeamer.com/bottle_caps/caps.html&h=495&w=495&sz=45&hl=en&start=5&tbnid=Qxgna2DmpG6j-M:&tbnh=130&tbnw=130&prev=/images%3Fq%3Dheineken%26svnum%3D10%26hl%3Den -
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Licensing StrategiesLicensing makes sense when a firm
Has valuable technical know-how or a patentedproduct but does not have international capabilitiesto enter foreign markets
Desires to avoid risks of committing resources tomarkets which are
UnfamiliarPolitically volatileEconomically unstable
DisadvantageRisk of providing valuable technical know-how toforeign firms and losing some control over its use
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Franchising Strategies
Often is better suited to global expansion efforts of service and
retailing enterprises
Advantages
Franchisee bears most of costs and risks of establishing foreignlocations
Franchisor has to expend only the resources to recruit, train, and
support franchisees
Disadvantage
Maintaining cross-country quality control
Example: generally service firms e.g. Benetton
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Licensing/ Franchising
skill/ product licensed to
foreign firm
income from royalties
McDonalds Ireland
1st restaurant 1977
now 74 outlets
adding 3/ 4 outlets each year
40% company owned
60% owned by franchisees
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Achieving Global Competitivenessvia Cooperative Agreements
Cooperative agreements with
foreign companies are a means to
Enter a foreign market or
Strengthen a firms
competitiveness in world markets
Purpose of alliances / joint ventures
Joint research efforts
Technology-sharing
Joint use of production or distribution facilities
Marketing / promoting one anothers products
Example: A joint venture between Microsoft + Accenture = Avanade
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What Is a Think -Local, Act- Local Approach to Strategy Making?
A company varies its product
offerings and basic competitive
strategy from country to country
in an effort to be responsive to
differing buyer preferencesand market conditions.
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Characteristics of a Think -Local,Act- Local Approach to Strategy Making
Business approaches are deliberately crafted to
Accommodate differing tastes and expectations of buyers in each
country
Stake out the most attractive market positions vis--vis local
competitors
Local managers are given considerable strategy-making latitude
Plants produce different products for different local markets
Marketing and distribution are adapted to fit local customs and cultures
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What Is a Think -Global, Act- Global Approach to Strategy Making?
A company employs the same
basic competitive approach in all
countries where it operates.
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Characteristics of a Think -Global, Act-Global Approach to Strategy Making
Same products under the same brand names are sold everywhere
Same distribution channels are used in all countries
Competition is based on the same capabilities and marketing approaches
worldwide
Strategic moves are integrated and coordinated worldwide
Expansion occurs in most nations where significant buyer demand exists
Strategic emphasis is placed on building a global brand name
Opportunities to transfer ideas, new products, and capabilities from one
country to another are aggressively pursued
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What Is a Think -Global, Act- Local Approach to Strategy Making?
A company uses the same basic competitive theme ineach country but gives local managers the latitude to
1. Incorporate whatever country-specific variations inproduct attributes are needed to best satisfy local buyersand 2. Make whatever adjustments in production, distribution,
and marketing are needed to compete under localmarket conditions.
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Strategies for Local Companies inEmerging Markets
Develop business models that exploit shortcomingsin local distribution networks or infrastructure.
Utilize keen understanding of local customer needs andpreferences to create customized products or services.
Take advantage of low-cost labor and othercompetitively important local workforce qualities.
Use economies of scope and scale to betterdefend against expansion-minded multinationals.
Transfer company expertise to cross-border marketsand initiate actions to contend on a global level.
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The Quest for Competitive Advantage inForeign Markets
Three ways to gain competitive advantage
1. Locating activities among nations in ways that lower costs orachieve greater product differentiation
2. Efficient/effective transfer of competitively valuablecompetencies and capabilities from company operations in onecountry to company operations in another country
3. Coordinating dispersed activities in ways a domestic-onlycompetitor cannot
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Self Assessment
Identify Irish companies that have
expandedInternationallyConsider what approach each of themtookWere they successful or unsuccessful?
Why?
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NEXT LECTURE
When to DiversifyBuilding Shareholder Value: The Ultimate Justificationfor Diversifying
Strategies for Entering New BusinessesAnsoffs Matrix Choosing the Diversification Path: Related versusUnrelated Businesses
Combination Related-Unrelated Diversification StrategiesEvaluating the Strategy of a Diversified CompanyPortfolio Management
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THANKS