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Chapter 7: Strategies for
Competing in Foreign Markets
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy University
“You have no choice but to operate
in a world shaped by globalization
and the information revolution.
There are two options: Adapt or
die.”
Andrew S. Grove
Co-founder and Senior Advisor, Intel Corporation
“Industries actually vary a
great deal in the pressures
they put on a company to sell
internationally.
Niraj Dawar and Tony Frost
Professors, Richard Ivey School of Business
The Four Big Strategic Issues
in Competing Multinationally
 Whether to customize a company’s 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 company’s production facilities,
distribution centers, and customer service
operations to realize the greatest locational
advantages
 How to efficiently transfer a company’s resource
strengths and capabilities from one country to
another to secure competitive advantage
Why Do Companies Expand
into Foreign Markets?
Gain access to
new customers
Obtain access to
valuable natural
resources
Achieve lower
costs and enhance
competitiveness
Spread
Capitalize
business risk across
on core
wider
competencies
market base
International vs. Global Competition
International
Competitor
Company operates in a
select few foreign
countries, with modest
ambitions to expand
further
Global
Competitor
Company markets products
in 50 to 100 countries and
is expanding operations
into additional country
markets annually
Factors Shaping Strategy
Choices in Foreign Markets
Cross-country differences in cultural,
demographic, and market conditions
Gaining competitive advantage based
on where activities are located
Risks of adverse shifts in
currency exchange rates
Impact of host government policies
on the local business climate
Cross-Country Differences in Cultural,
Demographic, and Market Conditions
 Cultures and lifestyles differ among
countries
 Differences in market demographics
and income levels
 Variations in manufacturing
and distribution costs
 Fluctuating exchange rates
 Differences in host government
economic and political demands
How Markets Differ from
Country to Country
 Consumer tastes and preferences
 Consumer buying habits
 Market size and growth potential
 Distribution channels
 Driving forces
 Competitive pressures
One of the biggest concerns of companies competing in
foreign markets is whether to 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.
Different Countries Have
Different Locational Appeal
 Manufacturing costs vary from country to country
based on
 Wage rates
 Worker productivity
 Inflation rates
 Energy costs
 Tax rates
 Government regulations
 Quality of business environment varies from country
to country
 Suppliers, trade associations, and makers of
complementary products often find it advantageous
to cluster their operations in the same general
location
Fluctuating Exchange Rates Affect
a Company’s Competitiveness
 Currency exchange rates are
unpredictable
 Competitiveness of a company’s 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 weaker
 Exporters are disadvantaged when
the currency of the country where
goods are manufactured grows stronger
Differences in Host
Government Trade Policies
 Local content requirements
 Restrictions on exports
 Regulations on prices of imports
 Import tariffs or quotas
 Other regulations
 Technical standards
 Product certification
 Prior approval of capital spending projects
 Withdrawal of funds from country
 Ownership (minority or majority) by local citizens
Two Primary Patterns
of International Competition
Multi-country
Competition
Global
Competition
Characteristics of
Multi-Country Competition
 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 attributes
 Sellers vary from country to country
 Industry conditions and competitive forces in
each national market differ in important
respects
Rival firms battle for national championships –
winning in one country does not necessarily signal the
ability to fare well in other countries!
Characteristics of Global Competition
 Competitive conditions across country
markets are strongly linked
 Many of same rivals compete in
many of the same country markets
 A true international market exists
 A firm’s competitive position in one country
is affected by its position in other countries
 Competitive advantage is based on a firm’s
world-wide operations and overall global
standing
Rival firms in globally competitive
industries vie for worldwide leadership!
Strategy Options for
Competing in Foreign Markets
 Exporting
 Licensing
 Franchising strategy
 Strategic alliances or
joint ventures
 Multi-country strategy
 Global strategy
Export Strategies
 Involve using domestic plants as a production
base for exporting to foreign markets
 Excellent initial strategy to
pursue international sales
 Advantages
 Conservative way to test international waters
 Minimizes both risk and capital requirements
 Minimizes direct investments in foreign countries
 An export strategy is vulnerable when
 Manufacturing costs in home country are higher
than in foreign countries where rivals have plants
 High shipping costs are involved
 Adverse fluctuations in currency exchange rates occur
Licensing Strategies
 Licensing makes sense when a firm
 Has valuable technical know-how or a patented
product but does not have international
capabilities to enter foreign markets
 Desires to avoid risks of committing resources
to markets which are
Unfamiliar
Politically volatile
Economically unstable
 Disadvantage
 Risk of providing valuable technical know-how
to foreign firms and losing some control over its
use
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 foreign locations
 Franchisor has to expend only the
resources to recruit, train, and support
franchisees
 Disadvantage
 Maintaining cross-country quality control
Achieving Global Competitiveness
via Cooperative Agreements
 Cooperative agreements with
foreign companies are a means to
 Enter a foreign market or
 Strengthen a firm’s
competitiveness in world markets
 Purpose of alliances / joint ventures
 Joint research efforts
 Technology-sharing
 Joint use of production or distribution facilities
 Marketing / promoting one another’s products
Strategic Appeal of Strategic Alliances
 Gain better access to attractive country markets
 Capture economies of scale in production and/or
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marketing
Fill gaps in technical expertise or knowledge of local
markets
Share distribution facilities and dealer networks
Direct combined competitive energies toward
defeating mutual rivals
Take advantage of partner’s local market
knowledge and working relationships with
key government officials in host country
Useful way to gain agreement on
important technical standards
Pitfalls of Strategic Alliances
 Overcoming language and cultural barriers
 Dealing with diverse or conflicting operating
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practices
Time consuming for managers in
terms of communication,
trust-building, and coordination costs
Mistrust when collaborating in
competitively sensitive areas
Clash of egos and company cultures
Dealing with conflicting objectives, strategies,
corporate values, and ethical standards
Becoming too dependent on another firm for
essential expertise over the long-term
Localized Multicountry Strategy
or a Global Strategy?
Strategic Issue
 Whether to vary a company’s competitive
approach to fit specific market conditions
and buyer preferences in each host county
or
 Whether to employ essentially the same
strategy in all countries
Figure 7.1: A Company’s Strategic Options for Dealing with
Cross-Country Variations in Buyer Preferences and Market Conditions
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 preferences
and market conditions.
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-à-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
When Is a “Think-Local, Act-Local”
Approach to Strategy Making Necessary?
 Significant country-to-country
differences in customer preferences
and buying habits exist
 Host governments enact regulations
requiring products sold locally meet strict
manufacturing specifications or performance
standards
 Trade restrictions of host governments are
so diverse and complicated they preclude a
uniform, coordinated worldwide market
approach
Drawbacks of a “Think-Local,
Act-Local” Approach to Strategy Making
Poses problems of transferring
competencies across borders
Works against building a
unified competitive advantage
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.
Characteristics of a “Think-Global,
Act-Global” Approach to Strategy Making
 Same products under the same brand names are
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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
Figure 7.2: How a Localized or Multicountry
Strategy Differs from a Global Strategy
What Is a “Think-Global, Act-Local”
Approach to Strategy Making?
A company uses the same basic
competitive theme in each country but gives
local managers the latitude to
1.Incorporate whatever country-specific
variations in product attributes are needed to
best satisfy local buyers and
2.Make whatever adjustments in production,
distribution, and marketing are needed to
compete under local market conditions.
The Quest for Competitive
Advantage in Foreign Markets
 Three ways to gain competitive advantage
1. Locating activities among nations
in ways that lower costs or achieve
greater product differentiation
2. Efficient/effective transfer of competitively
valuable competencies and capabilities from
company operations in one country to
company operations in another country
3. Coordinating dispersed activities in
ways a domestic-only competitor cannot
Locating Activities to Build a
Global Competitive Advantage
 Two issues . . .
 Whether to
 Concentrate each activity
in a few countries or
 Disperse activities to
many different nations
 Where to locate activities
 Which country is best
location for which activity?
Concentrating Activities to Build
a Global Competitive Advantage
 Activities should be concentrated when
 Costs of manufacturing or other value chain
activities are meaningfully lower in certain
locations than in others
 There are sizable scale economies
in performing the activity
 There is a steep learning curve associated
with performing an activity in a single location
 Certain locations have
 Superior resources
 Allow better coordination of related activities or
 Offer other valuable advantages
Dispersing Activities to Build a
Global Competitive Advantage
 Activities should be dispersed when
 They need to be
performed close to buyers
 Transportation costs, scale diseconomies, or
trade barriers make centralization expensive
 Buffers for fluctuating exchange rates, supply
interruptions, and adverse politics are needed
Transferring Valuable Competencies to
Build a Global Competitive Advantage
 Transferring competencies, capabilities,
and resource strengths across borders
contributes to
 Development of broader
competencies and capabilities
 Achievement of dominating depth
in some competitively valuable area
 Dominating depth in a competitively
valuable capability is a strong basis for
sustainable competitive advantage over
 Other multinational or global competitors and
 Small domestic competitors in host countries
Coordinating Cross-Border Activities to
Build a Global Competitive Advantage
 Aligning activities located in different
countries contributes to competitive
advantage in several ways
 Choose where and how to challenge rivals
 Shift production from one location to
another to take advantage of most favorable
cost or trade conditions or exchange rates
 Use online systems to collectively come up with
next-generation products
 Achieve efficiencies by shifting workload to locations
where personnel are underutilized
 Enhance potential to build a global brand name by
incorporating same differentiating attributes in
products in all markets where a company competes
Characteristics of Competing
in Emerging Foreign Markets
 Tailoring products for big, emerging markets
often involves
 Making more than minor product changes and
 Becoming more familiar with local cultures
 Companies have to attract buyers with
bargain prices as well as better products
 Specially designed and/or specially
packaged products may be needed to
accommodate local market circumstances
 Management team must usually consist
of a mix of expatriate and local managers
Strategic Options: How to Compete
in Emerging Country Markets
 Prepare to compete on the basis of low price
 Be prepared to modify aspects of
the company’s business model to
accommodate local circumstances
 Try to change the local market
to better match the way the
company does business elsewhere
 Stay away from those emerging markets
where it is impractical or uneconomic
to modify the company’s business
model to accommodate local circumstances
Strategies for Local Companies
in Emerging Markets
Develop business models that exploit shortcomings
in local distribution networks or infrastructure.
Utilize keen understanding of local customer needs and
preferences to create customized products or services.
Take advantage of low-cost labor and other
competitively important local workforce qualities.
Use economies of scope and scale to better
defend against expansion-minded multinationals.
Transfer company expertise to cross-border markets
and initiate actions to contend on a global level.
Chapter 8: Diversification:
Strategies for Managing a
Group of Businesses
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy University
Diversification and Corporate Strategy
 A company is diversified when it is in two
or more lines of business that operate in
diverse market environments
 Strategy-making in a diversified
company is a bigger picture
exercise than crafting a strategy
for a single line-of-business
A diversified company needs a
multi-industry, multi-business strategy
A strategic action plan must be developed
for several different businesses competing
in diverse industry environments
When Should a Firm Diversify?
 It is faced with diminishing growth
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prospects in present business
It has opportunities to expand into
industries whose technologies and
products complement its present business
It can leverage existing competencies and
capabilities by expanding into businesses where
these resource strengths are key success factors
It can reduce costs by diversifying into closely
related businesses
It has a powerful brand name it can transfer to
products of other businesses to increase sales
and profits of these businesses
Why Diversify?
 To build shareholder value!
1+1=3
 Diversification is capable of building
shareholder value if it passes three tests:
1. Industry Attractiveness Test — The industry
being entered presents good long-term profit
opportunities
2. Cost of Entry Test — Cost of entering is not so high
as to spoil the ability to earn attractive profits
3. Better-Off Test — A company’s different
businesses should perform better together than
as stand-alone enterprises, such that company A’s
diversification into business B produces a 1 + 1 = 3
effect for shareholders
Four Main Tasks in
Crafting Corporate Strategy
 Pick new industries to enter
and decide on means of entry
 Initiate actions to boost combined
performance of businesses
 Pursue opportunities to leverage cross-
business value chain relationships and
strategic fits into competitive advantage
 Establish investment priorities, steering
resources into most attractive business units
Strategies for Entering
New Businesses
Acquire existing company
Internal start-up
Joint ventures/strategic partnerships
8-47
Related vs. Unrelated Diversification
Related Diversification
Involves diversifying into
businesses whose value
chains possess
competitively valuable
“strategic fits” with value
chain(s) of firm’s present
business(es)
Unrelated Diversification
Involves diversifying into
businesses with no
competitively valuable
value chain match-ups or
strategic fits with firm’s
present business(es)
8-48
Core Concept: Strategic Fit
 Exists whenever one or more activities in
the value chains of different businesses
are sufficiently similar to present
opportunities for
Transferring competitively valuable
expertise or technological know-how
from one business to another
Combining performance of common
value chain activities to achieve lower costs
Exploiting use of a well-known brand name
Cross-business collaboration to create
competitively valuable resource strengths and
capabilities
Types of Strategic Fits
 Cross-business strategic fits can exist
anywhere along the value chain
R&D and technology activities
Supply chain activities
Manufacturing activities
Distribution activities
Sales and marketing activities
Managerial and administrative support
activities
Related Diversification
and Competitive Advantage
 Competitive advantage can result from
related diversification when a company
captures cross-business opportunities to
Transfer expertise/capabilities/technology
from one business to another
Reduce costs by combining
related activities of different
businesses into a single operation
Transfer use of firm’s brand name reputation
from one business to another
Create valuable competitive capabilities via
cross-business collaboration in performing
related value chain activities
Core Concept: Economies of Scope
 Stem from cross-business opportunities
to reduce costs
Arise when costs can be cut
by operating two or more businesses
under same corporate umbrella
Cost saving opportunities can stem
from strategic fits anywhere
along the value chains of different
businesses
Figure 8.4: Identifying a Diversified Company’s Strategy
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How to Evaluate a
Diversified Company’s Strategy
Step 1: Assess long-term attractiveness of each
industry firm is in
Step 2: Assess competitive strength of firm’s
business units
Step 3: Check competitive advantage potential of
cross-business strategic fits among
business units
Step 4: Check whether firm’s resources fit
requirements of present businesses
Step 5: Rank performance prospects of
businesses and determine priority for
resource allocation
Step 6: Craft new strategic moves to improve
overall company performance
Figure 8.5: A Nine-Cell Industry Attractiveness-Competitive Strength Matrix
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Strategies to Broaden a
Diversified Company’s Business Base
 Conditions making this
approach attractive
Slow grow in current businesses
Vulnerability to seasonal or
recessionary influences or to threats
from emerging new technologies
Potential to transfer resources and capabilities
to other related businesses
Rapidly-changing conditions in one or more core
industries alter buyer requirements
Complement and strengthen market position of
one or more current businesses
Retrenchment Strategies
 Objective
Reduce scope of diversification to smaller
number of “core “ businesses
 Strategic options involve divesting
businesses that
Are losing money
Have little growth potential
Have little strategic fit
with core businesses
Are too small to contribute
meaningfully to earnings
Options for Accomplishing Divestiture
 Sell it
Involves finding a company which views the
business as a good deal and good fit
 Spin it off as independent company
Involves deciding whether or not to retain partial
ownership
 Liquidation
Involves closing down operations
and selling remaining assets
A last resort because no buyer
can be found
Strategies to Restructure a
Company’s Business Lineup
 Objective
Make radical changes in mix
of businesses in portfolio via both
 Divestitures and
 New acquisitions
to put a whole new
face on the company’s
business makeup
Multinational Diversification Strategies
 Distinguishing characteristics
Diversity of businesses and
Diversity of national markets
 Presents a big strategy-making challenge
Strategies must be conceived and executed
for each business, with as many
multinational variations as appropriate
Cross-business and cross-country collaboration
opportunities must be pursued and managed