Chapter 7: Strategies for Competing in International Markets

Question 1

Why do companies decide to enter foreign markets?

Answer 1

1) To gain access to new customers
2) To further exploit core competencies
3) To spread business risk across a wider market base
4) To achieve lower costs through economies of scale, experience, and increased purchasing power
5) To gain access to resources and capabilities located in foreign markets

Question 2

Reasons that crafting a strategy to compete in one or more countries of the world is inherently more complex because:

Answer 2

1) Factors that affect industry competitiveness varies from one country to another
2) The potential for location-based advantages in certain countries
3) The different government policies and economic conditions that make the business climate more favourable in some countries than in others
4) The risks of adverse shift in currency exchange rates
5) Cross-country differences in cultural, demographic, and market conditions

Question 3

Cross-country variation in factors that affect industry competitiveness

Answer 3

1) Demand conditions - home market relative size, domestic buyers’ needs
2) Factor conditions - availability, quality, and cost of raw materials and other inputs
3) Related and Supporting Industries
4) Firm Strategy, Structure, and Rivalry

Question 4

Reasons for locating value chain activities advantageously

Answer 4

1) Lower wage rates
2) Higher worker productivity
3) Lower energy costs
4) Fewer energy costs
5) Fewer environmental regulations
6) Lower tax rates
7) Proximity to suppliers and technologically related industries
8) Proximity to customers
9) Lower distribution costs
10) Available/unique natural resources

Question 5

The impact of government policies and economic conditions in host countries

Answer 5

Positives:
1) Tax incentives

2) Low tax rates
3) Low-cost loans
4) Site location and development
5) Worker training

Negatives:
1) Environmental regulations

2) Subsidies and loans to domestic competitors
3) Import restrictions
4) Tariffs and quotas
5) Local-content requirements (% of components to be local suppliers)
6) Regulatory approvals (prior to capital spending projects)
7) Profit repatriation limits (limit withdrawal of funds from the country)
8) Minority ownership limits

Question 6

Political risks stem from

Answer 6

instability or weakness in national governments and hostility to foreign business

Question 7

Economic risks stem from

Answer 7

the inflation rates and stability of a country’s monetary system, economic and regulatory policies, lack of property rights protections, and risks due to exchange rate fluctuation

Question 8

The risks of adverse exchange rate shifts

Answer 8

Effects of Exchange Rate Shifts:
1) Exporters experience a rising demand for their goods whenever their currency grows weaker relative to the importing country’s currency

2) Exporters experience a falling demand for their goods whenever their currency grows stronger relative to the importing country’s currency

Question 9

Multidomestic competition exists when

Answer 9

the competition among rivals in each country market is localised and not closely connected to the competition in other country markets - there is no world market, just a collection of self-contained local markets

Question 10

Global competition exists when

Answer 10

competitive conditions across national markets are linked strongly enough to form a true world market and when leading competitors compete head to head in many different countries

Question 11

Strategic options for entering and competing in international markets

Answer 11

1) Maintain a national (one-country) production base and export goods to foreign markets
2) License foreign firms to produce and distribute the firm’s products abroad
3) Employ an overseas franchising strategy
4) Establish a wholly owned subsidiary in the foreign market by either acquiring a foreign company or through a “greenfield” venture
5) Rely on strategic alliances or joint ventures with foreign companies

Question 12

Export strategies

Answer 12

1) Conservative way to enter foreign market (good for test international waters)
2) Does not require high capital cost
3) Contract foreign distributors/wholesalers to reduce manufacturer involvement
4) Advantageous when there are no/less foreign rivals/manufacturers
5) Unfavourable conditions: high manufacturing costs compared to foreign countries; higher shipping/distribution cost; adverse effect from currency exchange rates; high tariffs imposed
6) Cons: high tariffs imposed, inadequate control over distribution, cannot tap into local advantages like low-cost labour

Question 13

Licensing strategies

Answer 13

1) Pros: Avoid risks of committing resources to country markets that are risky
2) Generate income from royalties
3) Premium/differentiated products (software; pharmaceutical)
4) Cons: Copycat, loss of control over proprietary know-how, hard to quality control

Question 14

Franchising strategies

Answer 14

1) Pros: Franchisee bear most of the risks and costs
2) Commonly found in fast food chains, cafes, hotels, retail stores
3) Cons: Can be difficult to maintain control over quality, and suited to local taste dilemma

Question 15

Acquisition strategies

Answer 15

1) Pros: High level of control and speed, useful when economic of scale and high entry barrier is an issue, gain core competencies of foreign firms
2) Cons: costly, post-acquisition issues (due to separation by distance, culture, and language)

Question 16

Greenfield Venture strategies

Answer 16

Conditions are favourable when:
1) Creating an internal startup is cheaper than making an acquisition

2) A startup subsidiary will have the size, cost structure, and resource strengths to compete head-to-head against local rivals
3) High level of control over venture is required
4) Capital costs of initial development is not an issue

Cons:
1) Costly capital investment, with high risk

2) Do not work well in countries that do not protect rights of foreign investors and legal protection
3) Slowest entry route

Question 17

Alliance and Joint Venture strategies

Answer 17

1) Gaining partner’s knowledge of local market conditions
2) Establishing working relationships with key officials in the host-country government
3) Reducing risks and facilitate scarce resources
4) Joining know-how, sharing distribution facilities, marketing efforts and dealer networks
5) Direct competitive energies more toward mutual rivals and less toward one another

Question 18

Cross-border alliances

Answer 18

enable a growth-minded company to widen its geographic coverage and strengthen its competitiveness in foreign markets; at the same time, they offer flexibility and allow a company to retain some degree of autonomy and operating control

Question 19

The risks of strategic alliances with foreign partners

Answer 19

1) Cultural and language (most prominent)
2) Costs of establishing the working arrangement
3) Conflicting objectives and strategies and deep differences of opinion about joint control, differences in corporate values and ethical standard
4) Loss of legal protection of proprietary technology or competitive advantage
5) Over dependence on foreign partners for essential and competitive capabilities

Question 20

The three main strategic approaches of competing internationally

Answer 20

1) Multidomestic strategy
2) Global strategy
3) Transnational strategy

Question 21

Multidomestic Strategy (Think Local, Act Local)

Answer 21

1) It is a strategy whereby a company varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. The decision making is decentralised to the local level
2) Produce different product versions for different local markets and adapting marketing and distribution to fit local customers, culture and industrial norms
3) Appropriate when the need for local responsiveness is high and the potential of standardisation in limited.

Question 22

Cons of Multidomestic Strategy

Answer 22

1) Hinders resource and capability sharing or cross-market transfers
2) Higher production and distribution cost because many different designs etc
3) Not conducive to a worldwide competitive advantage

Question 23

Global Strategy (Think Global, Act Global)

Answer 23

1) It is one in which a company employs the same basic competitive approach in all countries where it operates, sells much the same products everywhere, strives to build global brands, and coordinates its actions worldwide with centralised decision making and strong headquarters control.
2) It takes a standardised, global integrated approach to producing, packaging, selling company’s products and services worldwide. Sell under same brand names
3) Achieving standardisation benefits

Question 24

Cons of Global Strategy

Answer 24

1) Unable to address local needs precisely
2) They are less responsive to changes in local market conditions
3) Higher transportation costs and tariffs
4) Higher coordination and integration costs

Question 25

Transnational Strategy (Think Global, Act Local)

Answer 25

1) Incorporates elements of both a globalised and localised approach
2) Leverage benefits of multidomestic and global strategies

Question 26

Cons of Transnational strategy

Answer 26

1) More complex and harder to implement
2) Time consuming and more costly to implement
3) Conflicting goals may be difficult to reconcile and require trade-offs

Question 27

Strategy options for competing in developing-country markets

Answer 27

1) Prepare to compete on the basis of low price
2) Prepare to modify the firm’s business model or strategy to accommodate local circumstances
3) Try to change the local market to better match the way the company does business elsewhere
4) Avoid developing markets where it is too difficult or costly to accommodate local circumstances

Question 28

Strategies for local companies in developing countries to defend against global giants

Answer 28

1) Develop business models that exploit shortcomings in local distribution networks or infrastructure
2) Utilise keen understanding of local customer needs and preferences to create customised products or services
3) Take advantage of aspects of the local workforce with which large multinational companies may be unfamiliar
4) Use acquisition and rapid-growth strategies to better defend against expansion-minded internationals
5) Transfer company expertise to cross-border markets and initiate actions to contend on an international level