PAK CHINA ECONOMIC CORRIDOR
Competing in the Markets of
• Why businesses Expand into Foreign Markets
• Factors that Shape Strategy Choices in Foreign
• The Concepts of Multicountry Competition and
• Strategy Options for Entering and Competing in
• The Quest for Competitive Advantage in
• Strategies to Compete in the Markets of
Why Do Companies Expand into Foreign
• Gain access to new customers
• Obtain access to valuable natural resources
• Achieve lower costs and enhance
• Company operates in few foreign countries,
with modest ambitions to expand further
International Competitor Company markets
Factors Shaping Strategy Choices in
• Cross-country differences in cultural,
demographic, and market conditions
• Gaining competitive advantage based on
where activities are located
• Risks of adverse shifts in currency
• Impact of host government policies on the
local business climate.
How Markets Differ from Country to
• Consumer tastes and preferences
• Consumer buying habits
• Market size and growth potential
• Distribution channels
• Competitive pressures
• Manufacturing costs vary from country to
• Wage rates
• Worker productivity
• Inflation rates
• Energy costs
• Tax rates
• Government regulations
• Quality of business environment varies from
country to country
Differences in Government Trade Policies
• Import tariffs or quotas
• Restrictions on exports
• Regulations on prices of imports
• Product certification
• Prior approval of capital spending projects
• Withdrawal of funds from country
• Ownership (minority or majority) by local
International Entry Strategies
Exporting and Importing
• Firms can export and import using two methods:
– Indirect involvement means that the firm
participates in international business through an
intermediary and does not deal with foreign
customers or markets.
– Direct involvement means that the firm works with
foreign customers or markets with the opportunity
to develop a relationship.
• Firms decide on the desired method by
implementing transaction cost theory.
• Importers and exporters often use international
intermediaries who provide assistance in:
– Identification of foreign suppliers and trading
– Providing business contacts
• Firms that specialize in performing
international business services for
other companies are known as
export management companies
• The two primary roles of EMCs are:
• Trading companies help firms by importing, exporting,
countertrading, investing, and manufacturing.
• The sogashosha of Japan are the most powerful trading
companies in the world for four reasons:
– They efficiently gather, evaluate, and translate market information
into business opportunities.
– Economies of scale give them preferential treatment.
– They operate around the world, not just Japan.
– They have vast quantities of capital.
• In the U.S., export trading company legislation is designed to
improve the export performance of small and medium-sized
• Facilitators are entities outside the firm that assist in
the process of going international by supplying
knowledge and information.
• Private sector facilitators include:
– Accounting firms
– Consulting firms
• Public sector facilitators include:
– Departments of commerce
– Export-Import Banks
– Educational Institutions
• A firm (licensor) in one country giving other
domestic or foreign firms (licensees) the right
to use a patent, trademark, technology,
production process, or product in return for
the payment of a royalty or fee
• Pepsi and Coca-Cola with bottle companies,
• Franchising is the granting of the right by a parent
company to another independent entity to do business
in a prescribed manner.
• The major forms of franchising are:
– Manufacturer-retailer systems such as car dealerships,
– Manufacturer-wholesaler systems such as soft drink,
– Service-firm retailer systems such as fast-food outlets.
• To be successful, the firm must offer unique products or
propositions, and a high degree of standardization.
Key Reasons for Franchising
Financial Gain Saturated Domestic
• A strategic alliance is an arrangement between two or
more companies with a common business objective.
• To better compete, many companies form strategic
alliances with suppliers, customers, competitors, and
companies in other industries to achieve goals.
• Reasons for interfirm cooperation include:
– Market development
– To share risk or resources
– To block and co-opt competitors
Reasons for Alliances
• Share and lower costs of
high risks, technology
• Lower costs by sharing the
large fixed-costs for
• Desire to learn another
firms technology, or
• Desire to participate in
evolution of competitive
activity in growing global
• Strategic alliance partners may join forces for R&D,
marketing, production, licensing, cross-licensing, cross-
market activities, or outsourcing.
• Contract manufacturing allows the corporation to
separate the physical production of goods from the R&D
and marketing stages.
• Management contracts involve selling one’s expertise in
running a company while avoiding the risk or benefit of
• A turnkey operation is a contractual agreement that
permits a client to acquire a complete system following
• A joint venture involves the participation of two or more
companies in an enterprise in which each party
contributes assets, has some equity, and shares risk.
• The 3 reasons for establishing a joint venture are:
– Government policy or legislation.
– One partner’s needs for another partner’s skills.
– One partner’s needs for another partner’s attributes or
• The key to a joint venture is the sharing of a common
(1) They typically involve a large
number of participants, and
(2) They frequently operate in a
country or market in which
none of the participants is
• Consortia are similar to joint ventures and could be classified as
such except for two unique characteristics:
• Consortia are developed to pool financial and managerial
resources and to lessen risks.
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