Chapter 7

The five general modes for entering foreign markets are:

(1) Exporting from a national base; (2) Licensing foreign firms to produce and distribute goods and services abroad; (3) Franchising involving local ownership; (4) Establishing a subsidiary via acquisition or greenfield development; and (5) Relying on strategic alliances, joint ventures, and other cooperative agreements with foreign companies

Why Companies Decide to Enter Foreign Markets

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

The four factors that influence each other and a company's home-country advantage are:

1.Demand conditions: home-market size and growth rate; buyers' tastes 2.First strategy, structure, and rivalry: different styles of management and organization; degree of local rivalry 3.Factor conditions: availability and relative prices of inputs (e.g. labor, materials) 4.Related and supporting industries: proximity of suppliers, end users, and complementary industries

Two key location issues to build competitve advantage

1.To customize offerings in each country market to match tastes and preferences of local buyers 2.To pursue a strategy of offering a mostly standardized product worldwide

Two key strategic considerations

1.To customize offerings in each country market to match the tastes and preferences of local buyers 2.To pursue a strategy of offering a mostly standardized product worldwide

Three ways to build competitive advantage in international markets are:

1.Use international location to lower cost or differentiate product 2.Share resources and capabilities 3.Gain cross-border coordination benefits

A grid is shown. The vertical axis

Benefits from Global Integration and Standardization, is labeled "high" at the top and "low" at the bottom

What is a primary drawback of a localized multidomestic strategy?

It hinders the transfer of a company's competencies and resources across country boundaries and hinders the pursuit of a single, uniform competitive advantage in all country markets where a company operates.

A grid is shown. The horizontal axis

Need for Local Responsiveness, is labeled "low" on the left side and "high" on the right

Transferring core competencies and resource strengths from one country market to another is

a good way for companies to develop broader or deeper competencies and competitive capabilities that can become a strong basis for sustainable competitive advantage.

Profit sanctuaries

are country markets that provide a firm with substantial profits because of a strong or protected market position.

The advantages of manufacturing goods in a particular country and exporting them to foreign markets

are weakened when that country's currency grows stronger relative to the currencies of the countries where the output is being sold.

A think-global, act-global strategic theme puts emphasis on

building a global brand name and aggressively pursuing opportunities to transfer ideas, products, and capabilities from one country to another.

A "think-global, act-global" approach to strategy making is preferable to a "think-local, act-local" approach when

country-by-country differences are small enough to be accommodated within the framework of a mostly uniform global strategy.

Market size and growth rates in different countries can be influenced positively or negatively by

differing population sizes, cultures, income levels, infrastructure, and distribution networks among countries.

The primary reasons that companies opt to expand into foreign markets are to

gain access to new customers, achieve lower costs, enhance the company's competitiveness, capitalize on core competencies, and spread business risk across a wider market base.

A globally competitive company

generally has a profit sanctuary in its home market and frequently has several other profit sanctuaries in those countries where it is a market leader and enjoys a strong competitive position.

A "think-local, act-local" multidomestic strategy entails

giving local managers considerable strategy-making latitude and often producing different product versions for different countries.

A strategy that incorporates elements of both multidomestic and global strategies is termed a "transnational" strategy, but sometimes it is referred to as a(n)

glocalization strategy.

A primary drawback of a global strategy is that it

involves higher coordination costs due to more complex tasks of managing a globally integrated enterprise.

An international strategy

is a strategy for competing in two or more countries simultaneously.

A greenfield venture

is a subsidiary business that is established by setting up the entire operation from the ground up.

A transnational strategy

is a think-global, act-local approach that incorporates elements of both multidomestic and global strategies.

Companies often implement a transnational strategy because it

is conducive to mass customization techniques that enable companies to address local preferences in an efficient semi-standard manner.

A "think-local, act-local" multidomestic type of strategy

is more appealing when the country-to-country differences in buyer tastes, cultural traditions, and market conditions are diverse.

A global strategy

is one in which a firm 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 strong headquarters control. It represents a think-global, act-global approach.

A multidomestic strategy

is one in which a firm varies its product offering and competitive approach from country to country in an effort to be responsive to differing buyer preferences and market conditions. It is a think-local, act-local type of international strategy, facilitated by decision making decentralized to the local level.

The strength of a "think-local, act-local" multidomestic strategy is that

it matches a company's competitive approach to prevailing market and competitive conditions in each country market, country by country.

The difference between political risks and economic risks is that

political risks stem from instability or weakness in national governments, while economic risks stem from the stability of a country's monetary system, and its economic and regulatory policies.

The approach of a firm using a "think-global, act-local" version of a transnational strategy entails

pursuing the same basic competitive strategy theme (low cost, differentiation, best cost, focused) in all countries where the firm does business but giving local managers some latitude to adjust product attributes to better satisfy local buyers and to adjust production, distribution, and marketing to be responsive to local market conditions.

The transnational approach of a firm using a "think-global, act-local" version of a global strategy entails

pursuing the same basic competitive strategy theme (low-cost, differentiation, best-cost, focused) in all countries where the firm does business but giving local managers some latitude to adjust product attributes to better satisfy local buyers and to adjust production, distribution, and marketing to be responsive to local market conditions.

Political risks

stem from instability or weaknesses in national governments and hostility to foreign business.

Economic risks

stem from the stability of a country's monetary system, economic and regulatory policies, the lack of property rights protections.

Cross-market subsidization

supporting competitive offensives in one market with resources and profits diverted from operations in another market—can be a powerful competitive weapon.

A global strategy allows for

the markets in various countries to be part of the world market and competitive conditions across country markets to be strongly linked.

When the same companies compete against one another in multiple geographic markets

the threat of cross-border counterattacks may be enough to deter aggressive competitive moves and encourage mutual restraint among international rivals.

Transnational strategy:

think global - act local. Mid-high benefits; mid-high need for local responsiveness.

Global strategy

think global, act global. High benefits; low need for local responsiveness.

Multidomestic strategy:

think local - act local. Low benefits; high need for local responsiveness.

Why do companies decide to enter a foreign market?

to capture economies of scale in product development, manufacturing, or marketing

Companies operating in an international marketplace have to respond to all of the following, EXCEPT

whether to buy a struggling competitor at a bargain price or pay a premium to gain entry to the local market. Companies operating in an international marketplace have to wrestle with whether and how much to customize

One of the biggest strategic challenges to competing in the international arena includes

whether to offer a standardized product worldwide or a customized product offering in each different country market.