Integrated Strategic Management

Read the Hankook case study (See Readings and Resources folder for this unit) and then complete a case study report

Write a 1000- word report to answer the following questions:

1 In Chapter 7 the text lists five strategic ways for a company to establish a competitive presence in the markets of other countries.

These are:

1. maintaining a national (one-country) production base and, from there, exporting goods to foreign markets

2. licensing foreign firms to use the company’s technology or produce and distribute the company’s products

3. employing a franchising strategy

4. Relying upon acquisitions or internal startup ventures to gain entry into foreign markets

5. using strategic alliances or other collaborative partnerships to enter a foreign market or strengthen a firm’ competitiveness

Which of these strategies did Hankook employ before 2013 and which one did it move to at that time?

2) What, in your opinion, were the key strategic motivations behind Hankook’s change of strategy in 2013?

3) Give your assessment of why Hankook did not pursue any of the other remaining “strategic ways” (as listed in #1

above) in 2013?

4) Let’s say that in 2013 the Korean currency, the Won, was exchanged at the rate of

US$=1000 Won. Now, after a long period of exchange rate stability, suppose that soon after the plant was established (say 2019)

there was a radical change in the exchange rate, so that by October 2020 the prevailing exchange rate had changed to US $1 = 500 Won.

Thinking purely of production costs and not overall profits, A) why might the company in 2020 consider changing the production levels

between its US and Korean plants? In which country would it increase production and in which would it decrease production? B) If,

at a later time, the rate was to change further to US$1=2000 Won, what would be the impact on country production then?

C) What does this tell you about the benefits to companies like Hankook of having production facilities in different regional currency zones?

5) Compare the investment approach of the Indian company, Apollo Tires, in the US market to that of Hankook. Which

strategy (from #1) did Apollo attempt to follow?

6) Why would Apollo and Hankook choose different paths, given that they were both Asian tire companies trying to

increase their US sales? List some of the benefits and drawbacks of each path.

Strategy: Core Concepts and Analytical Approaches
Arthur A. Thompson, The University of Alabama
7th Edition, 2022-2023
An e-book marketed by McGraw Hill Education
Chapter 7
Strategies for Competing
Internationally or Globally
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, retired Chairman and CEO, Intel Corporation
[I]ndustries 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
What counts in global competition is the right strategy.
—Heinrich von Pierer, former CEO of Siemens AG.
A
ny company that aspires to industry leadership in the 21st century must think in terms of global, not
domestic, market leadership. The world economy is globalizing at an accelerating pace as ambitious,
growth-minded companies race to build stronger competitive positions in the markets of more and
more countries, as companies gain greater access to foreign markets, as country exports and imports increase,
and as rapidly growing Internet accessibility and usage erodes the relevance of geographic distance.
Typically, a company will start to compete internationally by entering just one or maybe a select few foreign
markets. Competing on a truly global scale comes later, after the company has established operations on
several continents and is marketing its products or services in many different geographic regions of the
world. Thus, there is a meaningful distinction between the competitive scope of a company that operates
in a few foreign countries (and whose strategy is to enter only a few more country markets) and a company
with production and/or sales operations in 50 to 100 countries (and whose strategy is to expand rapidly into
additional country markets). The former is most accurately termed an international competitor while the latter
qualifies as a global competitor.
This chapter focuses on strategy options for expanding beyond domestic boundaries and competing
internationally in a few countries or globally in a great many countries across the world. The spotlight is on
four strategic issues unique to competing across national borders:
1.
Whether to customize the company’s offerings in each different country market to match local
buyers’ tastes and preferences or to offer a mostly standardized product everywhere it operates.
2. Whether to employ essentially the same basic competitive strategy in all countries or modify the
strategy country by country to better match local buyer tastes and competitive conditions.
146
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Chapter 7 • Strategies for Competing Internationally or Globally
3.
Where to locate the company’s production facilities, distribution centers, and customer service
operations to realize the greatest location-related advantages.
4.
When and how to efficiently transfer some of the company’s competitively powerful resources
and capabilities from certain countries to other countries; such cross-border redeployment of
competitively potent resources/capabilities is useful for spearheading the company’s strategic
offensives to enter new country markets and more effectively battle local rivals for sales and market
share.
In the process of exploring these issues, we introduce such core concepts as multicountry competition,
global competition, and profit sanctuaries. The chapter includes sections on why competing across national
borders makes strategy-making more complex; the principal strategy options for competing internationally
or globally; the importance of locating value chain activities in the most advantageous countries; the strategic
value of profit sanctuaries; and the initiation of global strategic offensives.
WHY COMPANIES DECIDE TO ENTER FOREIGN
MARKETS
Companies opt to sell their products/services or to locate operations in some or many countries for any of
four major reasons:
1.
To gain access to new customers. Expanding into the markets of countries around the world becomes
an imperative when a company encounters dwindling growth opportunities in its home market or if
a company aspires to be among the world leaders in its industry.
2. To achieve lower costs and thereby become more cost competitive. Many companies are driven
to seek out foreign buyers for their products and services because they cannot achieve a big
enough sales volume domestically to fully capture manufacturing economies of scale or learningcurve effects and also increase a company’s bargaining power with suppliers because of its
increased volume of purchases. The relatively small size of country markets in Europe explains
why companies like Michelin, BMW, and Nestlé long ago began selling their products all across
Europe and then moved into markets in North America and Latin America. Many manufacturers
have located production facilities in foreign countries to take advantage of lower costs for labor and
other production-related activities and/or to avoid the payment of tariffs/duties on goods exported to
countries with relatively high tariffs/duties on imported goods and/or to mitigate the risks of adverse
shifts in currency exchange rates. International expansion can also increase a company’s bargaining
power with suppliers because of its increased volume of purchases. Companies in industries based
on natural resources often find it necessary to have operations in foreign countries since natural
resource supplies (oil, natural gas, minerals, coffee beans, and rubber) are located in many parts of
the world and can be accessed most cost effectively at the source.
3.
To further exploit competitively valuable resources and capabilities. A company with valuable
competitive assets can extend what may be a market-leading position in one or two countries into
a position of global market leadership. McDonald’s and Starbucks have leveraged their competitive
assets and operating expertise to enter geographic markets all across the world and have now
established themselves as strongly-positioned global leaders in their respective business segments.
4.
To spread business risk across a wider market area. A company distributes its business risk by
operating in many countries rather than depending entirely on operations in a few countries. Thus,
when a company with operations across much of the world approaches market saturation in certain
countries or encounters economic downturns or adverse competitive conditions in certain countries,
its performance may be bolstered by buoyant sales elsewhere. In general, a company’s business
risk is lower when it has a diverse collection of revenue streams coming from many countries rather
than being dependent on revenues generated in one or just a few countries.
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147
Chapter 7 • Strategies for Competing Internationally or Globally
148
In addition, the major suppliers of companies expanding internationally often do so in order to meet their
customers’ needs abroad and retain their position as a key supply chain partner. For example, when motor
vehicle companies have opened new plants in foreign locations, many of their big automotive parts suppliers
quickly opened new facilities nearby to permit timely delivery of their parts and components to the plant.
Most all of the major accounting firms in the United States have followed their clients into foreign markets.
WHY COMPETING ACROSS NATIONAL BORDERS
CAUSES STRATEGY MAKING TO BE MORE COMPLEX
Crafting a strategy to compete in one or more countries or regions of the world is inherently more complex
for five reasons: (1) the presence of important cross-country differences in buyer tastes, which present a
challenge for companies in deciding whether to customize or standardize their products or services; (2)
widely-differing competitive conditions from country-to-country, as well as differences in market sizes
and growth potential; understanding these differences is important to competing effectively and deciding
which countries offer the best market potential; (3) sizable cross-country differences in wage rates, worker
productivity, inflation rates, energy supplies and costs, tax rates, and other factors that impact the pros and
cons of locating company facilities in one country versus another; (4) differing governmental policies and
regulations that make the business climate more favorable in some countries than in others; and (5) the risks
of adverse shifts in currency exchange rates.
Cross-Country Differences in Buyer Tastes
Buyer tastes for a particular product or service sometimes differ substantially from country to country. In France,
consumers prefer top-loading washing machines, whereas in most other European countries consumers
prefer front-loading machines. Soups that appeal to Swedish consumers are not popular in Malaysia. Italian
coffee drinkers prefer espressos, but in North America
many coffee drinkers prefer milder-roasted coffees.
CORE CONCEPT
Northern Europeans want large refrigerators because
The tension between the market pressures to
they tend to shop once a week in supermarkets; southern
localize a company’s product offerings country by
Europeans are satisfied with small refrigerators because
country and the competitive pressures to lower
they shop daily. In parts of Asia, refrigerators are a status
symbol and may be placed in the living room, leading to
costs by offering mostly standardized products in
preferences for stylish designs and colors—in India, bright
all countries where a company competes is one of
blue and red are popular colors. In other Asian countries,
the big strategic issues that companies operating
household space is constrained and many refrigerators
in few or many country markets must address.
are only four feet high so the top can be used for storage.
In Hong Kong and Japan, the preference is for compact
appliances, but in Taiwan large appliances are more popular. Consequently, companies operating in a global
marketplace must wrestle with whether and how much to customize their offerings in each different country
market to match local buyers’ tastes and preferences or whether to pursue a strategy of offering a mostly
standardized product worldwide. While making products that are closely matched to local tastes makes them
more appealing to local buyers, customizing a company’s products country by country may raise production
and distribution costs due to the greater variety of designs and components, shorter production runs, and
the complications of added inventory handling and distribution logistics. Greater standardization of a global
company’s product offering, on the other hand, can lead to scale economies and learning-curve effects, thus
reducing production costs per unit and perhaps contributing to the achievement of a low-cost advantage.
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Chapter 7 • Strategies for Competing Internationally or Globally
Cross-Country Differences in Competitive Conditions,
Population Demographics, Market Sizes, and Growth Potential
Certain countries are known for having well-developed markets and competitively strong firms in particular
industries. For example, France is well-known for its competitive strength in fine wines, and Italy is known for
its strengths in high fashion apparel, wines, and olive oil. Chile has competitive strengths in industries such
as copper, fruit, fish products, paper and pulp, chemicals, and wine. Japan is known for having competitive
strength in consumer electronics, automobiles, semiconductors, steel products, and specialty steel. A
country’s competitively strong industries nearly always contain competitively successful companies with
valuable resources and capabilities, and are characterized by marketplaces:
•
Where competitive conditions, as a rule, are materially stronger than in the country’s less well-known
industries.
•
Where the local competitors are likely to have certain “home country advantages” not readily available
to a new foreign entrant—unless the foreign entrant has wisely entered into strategic alliances or
collaborative agreements with capable local enterprises to overcome or neutralize these advantages.
Understandably, differing population sizes, income levels, and other demographic factors give rise to
considerable differences in market size and growth rates from country to country. In emerging markets like
India, China, Brazil, and Malaysia, the potential for long-term growth in buyer demand for motor vehicles,
PCs and tablets, smartphones, steel, big-screen TVs, credit cards, and electric energy is higher than in the
more mature economies of Great Britain, Norway, Canada, and Japan. Owing to widely differing population
demographics and income levels, there is a far bigger market for luxury automobiles and high-fashion
apparel in the United States and Western Europe than in Argentina, India, Mexico, and Thailand. Cultural
influences can also affect consumer demand for a product. For instance, in China, many parents are reluctant
to purchase PCs even when they can afford them because of concerns that their children will be distracted
from their schoolwork by surfing the Internet, playing video games, and streaming music, movies, and TV
shows.
Similarly, there are country-to-country differences in distribution channels, competitive conditions, and other
market-related factors that impact a company’s strategy choices. In India, there are efficient well-developed
national channels for distributing trucks, scooters, farm equipment, groceries, personal care items, and other
packaged products to the country’s three million retailers; however, in China, distribution is primarily local
and there is a limited national network for distributing most products. The marketplace for certain products/
services is intensely competitive in some countries and only moderately contested in others. Industry driving
forces may be one thing in Spain, quite another in Canada, and different yet again in Turkey, Argentina, and
South Korea. Sometimes, product designs suitable in one country are inappropriate in another because of
differing local customs and standards. For example, in the United States, electrical devices run on 110-volt
electrical systems, but in some European countries the standard is a 240-volt electric system, necessitating
the use of different electrical designs, components, and cord plugs.
The managerial challenge at companies with international or global operations is how best to tailor a
company’s strategy to take all these cross-country differences into account.
Cross-Country Differences in Operating Costs and Profitability
Differences in wage rates, worker productivity, energy costs, environmental regulations, tax rates, inflation
rates, tariffs/import duties, and the like from country to country are often so big that a company’s operating
costs and profitability are significantly impacted by where its production, distribution, and customer-service
activities are located. Wage rates, in particular, vary enormously from country to country. For example, the
latest data available (from 2016) shows that hourly compensation for manufacturing workers averaged
less than $2.00 in India (2017), $2.06 in the Philippines, $3.60 in China, $3.91 in Mexico, $7.98 in Brazil,
$8.60 in Hungary, $9.82 in Taiwan, $10.96 in Portugal, $15.70 in Greece, $22.98 in South Korea, $26.46 in
Japan, $30.08 in Canada, $37.72 in France, $39.03 in the United States, $43.18 in Germany, and $48.62 in
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149
Chapter 7 • Strategies for Competing Internationally or Globally
Norway.1 Not surprisingly, the big cross-country differences in wages rates have turned low-wage countries
like China, India, Pakistan, Cambodia, Vietnam, Mexico, Brazil, Guatemala, Honduras, the Philippines, and
several countries in Africa and Eastern Europe into production havens for goods that can be manufactured
or assembled by a relatively unskilled labor force. Indeed, China has emerged as the manufacturing capital
of the world—virtually all of the world’s major manufacturing companies now have facilities in China. A
manufacturer can also gain cost advantages by locating its manufacturing and assembly plants in countries
with less costly government regulations, low taxes, low energy costs, and cheaper access to essential natural
resources.
Clearly, companies that locate production facilities in low-cost countries (or that source their products from
contract manufacturers in these countries) have a production-cost advantage over rivals with plants in
countries where costs are higher. In such cases, the low-cost countries become principal production sites,
with most of the output being exported to markets in other parts of the world. Likewise, concerns about short
delivery times and low shipping costs make some countries better locations than others for establishing
distribution centers. Many U.S. companies locate customer call centers in such lower wage countries as
Ireland and India, where English is spoken, and well-educated workers are readily available.
The Impact of Host Government Policies on the Local
Business Climate
National governments enact all kinds of measures affecting business conditions and the operation of foreign
companies in their markets. It matters whether these measures create a favorable or unfavorable business
climate. Governments of countries anxious to spur economic growth, create more jobs, and raise living
standards for their citizens (Ireland is a good example) usually make a special effort to create a business
climate that outsiders will view favorably. They may provide such incentives as reduced taxes, low-cost
loans, site location and site development assistance, and government-sponsored training for workers to both
foreign and domestic companies to construct or expand production and distribution facilities. When new
business issues or developments arise, “pro-business” governments make a practice of seeking advice and
counsel from business leaders. When tougher business regulations are deemed appropriate, they endeavor
to make the transition to more costly and stringent regulations somewhat business friendly rather than
adversarial.
On the other hand, governments sometimes enact policies that, from a business perspective, make locating
facilities within a country’s borders less attractive. For example, the nature of a company’s operations may
make it particularly costly to achieve compliance with a country’s environmental regulations. The governments
of emerging or developing countries often create uneven playing fields that give domestic companies an
advantage—they may enact policies to discourage foreign imports or provide subsidies and low-interest loans
to domestic companies to enable them to better compete against foreign companies or enact burdensome
procedures and requirements for imported goods to pass customs inspection (to make it harder for imported
goods to compete against the products of local businesses), and impose tariffs or quotas on the imports of
certain goods (also to help protect local businesses from foreign competition).2 In early 2021, the average price
of Tesla’s models S, X, 3, and Y was $59,350 in the United States versus $64,200 in Canada, $74,500 in Mexico,
$101,800 in Brazil, $65,200 in Iceland, $77,200 in Japan, $84,000 in China, $137,700 in Thailand, and $276,100
in Singapore (which imposed huge taxes on all motor vehicles to keep them off the road).3 Foreign governments
sometimes also specify that a certain percentage of the parts and components used in manufacturing a product
in their country be obtained from local suppliers, require prior approval of a foreign company’s capital spending
projects, limit withdrawal of funds from the country, and require minority (sometimes majority) ownership of
foreign company operations by local companies or investors. There are times when a government may place
restrictions on exports to ensure adequate local supplies and regulate the prices of imported and locally
produced goods. Governments controlled by newly elected left-leaning or socialist politicians often impose
very high taxes on large corporations to fund new government programs that benefit low-income families and
the disadvantaged. Such governmental actions make a country’s business climate unattractive, and in some
cases, may be sufficiently onerous to discourage a company from locating production or distribution facilities in
that country or maybe even selling its products in that country.
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150
Chapter 7 • Strategies for Competing Internationally or Globally
A country’s business climate is also a function of the political and economic risks associated with operating
within its borders. Political risks have to do with the instability of weak governments, growing possibilities
that a country’s citizenry will revolt against dictatorial government leaders, the likelihood that current or
future governmental leaders will pursue legislation or regulations that are onerous or burdensome to
businesses, and the potential for future elections to produce government leaders who are corrupt or
hostile to companies from certain foreign countries operating within their borders. For example, if socialist
politicians gain control of a country’s government, there’s a political risk that a company’s assets will be
nationalized and its operations taken over by the government. Economic risks have to do with the stability
of a country’s economy and monetary system—whether inflation rates might skyrocket, whether risky bank
lending practices could lead to large numbers of bank failures and economic disruptions, or whether outof-control government spending could spur a meltdown of the country’s credit rating, cause interest rates
on government debt to escalate, and cause prolonged economic distress. In some countries, the threat of
piracy and lack of protection for a company’s intellectual property pose substantial economic risks.
The Risks of Adverse Exchange Rate Shifts
When companies produce and market their products and services in many different countries, they are
subject to the impacts of sometimes favorable and sometimes unfavorable changes in currency exchange
rates. The rates of exchange between different currencies can vary by as much as 20 to 40 percent annually,
with the changes occurring sometimes gradually and sometimes swiftly. Sizable shifts in exchange rates
pose significant risks for two reasons:
1.
They are very hard to predict because of the variety of factors involved and the uncertainties
surrounding when and by how much the various factors affecting exchange rates will change.
2. They shuffle the cards of which countries—either temporarily or long term—represent the low-cost
manufacturing location and which rivals have a temporary or longer-term cost-based competitive
advantage because of the countries where their production operations are located.
To illustrate the economic and competitive risks associated with fluctuating exchange rates, consider the
case of a U.S. company that has located manufacturing facilities in Brazil (where the currency is reals—
pronounced ray-alls) and that exports most of its Brazilian-made goods to markets in the European Union
(where the currency is euros). To keep the numbers simple, assume that the exchange rate is 4 Brazilian
reals for 1 euro and that the product being made in Brazil has a manufacturing cost of 4 Brazilian reals (or 1
euro). Now suppose the exchange rate shifts from 4 reals per euro to 5 reals per euro (meaning that the real
has declined in value and the euro is stronger). Making the product in Brazil is now more cost competitive
because a Brazilian good costing 4 reals to produce has fallen to only 0.8 euros at the new exchange rate
(4 reals divided by 5 reals per euro = 0.8 euros). This clearly puts a producer of the Brazilian-made good in
a better position to compete against the European makers of the same good. On the other hand, should the
value of the Brazilian real grow stronger in relation to the euro—resulting in an exchange rate of 3 reals to 1
euro—the same Brazilian-made good formerly costing 4 reals (or 1 euro) to produce now has a cost of 1.33
euros (4 reals divided by 3 reals per euro = 1.33), putting a producer of the Brazilian-made good in a weaker
competitive position vis-à-vis European producers. Plainly, the attraction of manufacturing a good in Brazil
and selling it in Europe is far greater when the euro is strong (an exchange rate of 1 euro for 5 Brazilian reals)
than when the euro is weak and exchanges for only 3 Brazilian reals.
But there is one more piece to the story. When the exchange rate changes from 4 reals per euro to 5 reals
per euro, not only is the cost competitiveness of the Brazilian manufacturer stronger relative to European
manufacturers of the same item, but the Brazilian-made good that formerly cost 1 euro and now costs only
0.8 euros can also be sold to consumers in the European Union for a lower euro price than before. In other
words, the combination of a stronger euro and a weaker real acts to lower the price of Brazilian-made goods
in all the countries that are members of the European Union, which is likely to spur sales of the Brazilianmade good in Europe and boost Brazilian exports to Europe. Conversely, should the exchange rate shift
from 4 reals per euro to 3 reals per euro—which makes a Brazilian manufacturer less cost competitive with
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151
Chapter 7 • Strategies for Competing Internationally or Globally
152
rival European manufacturers—the Brazilian-made good that formerly cost 1 euro and now costs 1.33 euros
will sell for a higher price in euros than before, which will
CORE CONCEPT
weaken the demand of European consumers for Brazilianmade goods and reduce Brazilian exports to Europe.
Companies that export goods to foreign countries
Thus, the exporters of Brazilian-made goods are likely to
always gain in competitiveness when the currency
experience (1) rising demand for their goods in Europe
of the country in which the goods are manufactured
whenever the Brazilian real grows weaker relative to the
grows weaker relative to the currencies of countries
euro and (2) falling demand for their goods in Europe
to which the goods are being exported. A company
whenever the real grows stronger relative to the euro.
is disadvantaged when the currency of the country
Consequently, from the standpoint of a company with
where its goods are being manufactured grows
Brazilian manufacturing plants, a weaker Brazilian real is
stronger relative to the currencies of countries to
a favorable exchange rate shift and a stronger Brazilian
real is an unfavorable exchange rate shift.
which it is exporting its goods.
It follows from the previous discussion that shifting
exchange rates have a big impact on domestic manufacturers’ ability to compete with foreign rivals. For
example, U.S.-based manufacturers locked in a fierce competitive battle with low-cost foreign imports benefit
from a weaker U.S. dollar for the following reasons:
•
Declines in the value of the U.S. dollar against foreign currencies raise the U.S. dollar costs of
goods manufactured by foreign rivals at plants located in the countries whose currencies have
grown stronger relative to the U.S. dollar. A weaker dollar acts to reduce or eliminate whatever cost
advantage foreign manufacturers may have had over U.S. manufacturers (and helps protect the
manufacturing jobs of U.S. workers).
•
A weaker dollar makes foreign-made goods more expensive in dollar terms to U.S. consumers—this
curtails U.S. buyer demand for foreign-made goods, stimulates greater demand on the part of U.S.
consumers for U.S.-made goods, and reduces U.S. imports of foreign-made goods.
•
A weaker U.S. dollar enables the U.S.-made goods to be sold at lower prices to consumers in those
countries whose currencies have grown stronger relative to the U.S. dollar—such lower prices boost
foreign buyer demand for the now relatively cheaper U.S.-made goods, thereby stimulating exports
of U.S.-made goods to foreign countries and perhaps creating more jobs in U.S.-based manufacturing
plants.
•
A weaker dollar increases the dollar value of profits a company earns in those foreign country
markets where the local currency is stronger relative to the dollar. For example, if a U.S.-based
manufacturer earns a profit of €10 million on its sales in Europe, those €10 million convert to a larger
number of U.S. dollars when the dollar grows weaker against the euro.
A weaker U.S. dollar is therefore an economically favorable exchange rate shift for manufacturing plants
based in the United States. A decline in the value of the
CORE CONCEPT
U.S. dollar strengthens the cost competitiveness of U.S.based manufacturing plants and boosts foreign buyers’
Domestic companies facing competitive pressure
demand for U.S.-made goods. When the value of the
from lower-cost foreign rivals benefit when their
U.S. dollar is expected to remain weak for some time
government’s currency grows weaker in relation
to come, foreign companies have an incentive to build
to the currencies of the countries where the lowermanufacturing facilities in the United States to make
cost foreign rivals have their manufacturing plants.
goods for U.S. consumers rather than export the same
goods to the United States from foreign plants where
production costs in dollar terms have been driven up by the decline in the value of the dollar.
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Chapter 7 • Strategies for Competing Internationally or Globally
153
Conversely, a stronger U.S. dollar is an unfavorable exchange rate shift for U.S.-based manufacturing plants
because it makes such plants less cost-competitive with foreign plants and weakens foreign demand for
U.S.-made goods. A strong dollar also weakens the incentive of foreign companies to locate manufacturing
facilities in the United States to make goods for U.S. consumers. The same reasoning applies to companies
with plants in countries in the European Union where the euro is the local currency. A weak euro versus
other currencies enhances the cost competitiveness of companies manufacturing goods in Europe vis-à-vis
foreign rivals with plants in countries whose currencies have grown stronger relative to the euro; a strong
euro versus other currencies weakens the cost-competitiveness of companies with plants in the European
Union.
THE CONCEPTS OF MULTICOUNTRY COMPETITION
AND GLOBAL COMPETITION
Important differences exist in the patterns of international competition from industry to industry.4 At one
extreme is multicountry competition, in which there’s so much cross-country variation in market conditions
and in the companies contending for leadership that the market contest among rivals in one country is
localized to that country and not closely connected to the market contests in other countries. The standout
features of multicountry competition are that (1) buyers in different countries are attracted to different product
attributes, (2) sellers vary from country to country, and
CORE CONCEPT
(3) industry conditions and competitive forces in each
national market differ in important respects. Take the
Multicountry competition exists when
banking industry in Poland, Mexico, and Australia as an
competition in one national market is not closely
example—the requirements and expectations of banking
connected to competition in another national
customers vary among the three countries, the lead
market. There is no global or world market, just a
banking competitors in Poland differ from those in Mexico
collection of self-contained country markets.
or Australia, and the competitive battle going on among
the leading banks in Poland is unrelated to the rivalry
taking place in Mexico or Australia. Thus, with multicountry competition, rival firms compete for national
championships and winning in one country does not necessarily signal the ability to fare well in other
countries. In multicountry competition, the power of a company’s resources, capabilities, and strategy in one
country may have limited impact on its competitiveness in other countries where it operates. Moreover, any
competitive advantage a company secures in one country is largely confined to that country; the spillover
effects to other countries are minimal. Industries characterized by multicountry competition include radio and
TV broadcasting, consumer banking, metals fabrication, baking, and retailing.
At the other extreme is global competition, in which prices and competitive conditions across country
markets are strongly linked and the term global or world market has true meaning. In a globally competitive
industry, much the same group of rival companies competes in many different countries, but especially
so in countries where sales volumes are large and where having a competitive presence is strategically
important to building a strong global position in the industry. Thus, a company’s competitive position in one
country both affects and is affected by its position in other countries. In global competition, a firm’s overall
competitive advantage grows out of its entire worldwide
CORE CONCEPT
operations; the competitive advantage it creates at its
home base is supplemented by advantages growing
Global competition exists when competitive
out of its operations in other countries (having plants in
conditions across national markets are linked
low-wage countries, being able to transfer competitively
strongly enough to form a true international
valuable expertise from country to country, having the
market and when leading competitors compete
capability to serve customers who also have multinational
head-to-head in many different countries.
operations, and having brand name recognition in many
parts of the world). Rival firms in globally competitive
industries vie for worldwide leadership. Global competition exists in motor vehicles, television sets, tires, cell
phones, personal computers, copiers, watches, bicycles, and commercial aircraft.
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Chapter 7 • Strategies for Competing Internationally or Globally
It is also important to recognize that an industry can be in transition from multicountry competition to global
competition. In a number of today’s industries—beer and major home appliances are prime examples—leading
domestic competitors have begun expanding into more and more foreign markets, often acquiring local or
regional brands, integrating them into their operations, and expanding their distribution to more countries.
As some industry members start to build global brands and a global presence, other industry members
find themselves pressured to follow the same strategic path. As the industry consolidates to fewer players,
such that many of the same companies find themselves in head-to-head competition in more and more
country markets, global competition begins to replace multicountry competition. Global competition can also
replace multicountry competition when consumer preferences and/or uses of a product converge across
the world—as has been occurring in the market for smart phones, streamed entertainment, and LED lighting.
Less diversity of tastes and preferences enables companies to create global brands and sell essentially the
same products in different countries. But even in industries where cross-country consumer tastes remain
fairly diverse, global competition can emerge if companies are able to use cost-effective “custom mass
production” methods at one or more large-scale plants to economically produce different product versions
and thus accommodate the different preferences of people in different countries.
In addition to taking the obvious cultural and political differences between countries into account, a company
must shape its strategic approach to competing in foreign markets according to whether its industry is
characterized by multicountry competition, global competition, or a transition from one to the other.
STRATEGY OPTIONS FOR ESTABLISHING A
COMPETITIVE PRESENCE IN FOREIGN MARKETS
There are five strategic ways a company can establish a competitive presence in foreign markets:
1.
Maintain a national (one-country) production base and export goods to foreign markets.
2. License foreign firms to use the company’s technology or to produce and distribute the company’s
products.
3.
Employ a franchising strategy in foreign markets.
4.
Establish a subsidiary in a foreign market via acquisition or the creation of an entirely new
organization that performs many value chain activities internally.
5. Rely on strategic alliances or joint ventures with foreign companies as the primary vehicle for
entering foreign markets.
The following sections discuss these five strategy options in more detail.
Export Strategies
Using domestic plants as a production base for exporting goods to foreign markets is an excellent initial
strategy for pursuing international sales. It is a conservative way to explore competing in markets of foreign
countries. The amount of capital needed to begin exporting is often minimal; existing production capacity may
well be sufficient to make goods for export. With an export strategy, a manufacturer can limit its involvement
in foreign markets by contracting with foreign wholesalers experienced in importing to handle the entire
distribution and marketing function in their countries or regions of the world. Or, if it is more advantageous
to maintain internal control over these functions, a manufacturer can establish its own distribution and sales
organizations in some or all of the target foreign markets. Either way, a home-based production and export
strategy helps the firm minimize its direct investments in foreign countries. Such strategies are commonly
favored by Chinese, Korean, and Italian companies—products are designed and manufactured at home and
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154
Chapter 7 • Strategies for Competing Internationally or Globally
then distributed through local channels in the importing countries. The primary functions performed abroad
relate chiefly to establishing a network of distributors and perhaps conducting sales promotion and brandawareness activities.
Whether an export strategy can be pursued successfully over the long run hinges on the relative cost
competitiveness of a company’s home-country production base. In some industries, firms gain additional
scale economies and learning-curve benefits from centralizing production in one or several giant plants
whose output capability exceeds buyer demand in any one country market; obviously, a company must
export to capture such economies. However, an export strategy is vulnerable when (1) manufacturing costs
in the home country are substantially higher than in foreign countries where rivals have plants, (2) the costs
of shipping the product to distant foreign markets are relatively high, (3) adverse shifts occur in currency
exchange rates, and (4) importing countries impose tariffs or erect other trade barriers. Unless an exporter
can both keep its production and shipping costs competitive with rivals, secure adequate local distribution
and marketing support of its products, and effectively hedge against unfavorable changes in currency
exchange rates, its success will be limited.
Licensing Strategies
Licensing as an entry strategy makes sense when a firm with valuable technical know-how, an appealing
brand, or a unique patented product has neither the internal organizational capability nor the resources to
enter foreign markets. Licensing also has the advantage of avoiding the risks of committing resources to
country markets that are unfamiliar, politically volatile, economically unstable, or otherwise risky. By licensing
the technology, trademark, or production rights to foreign-based firms, a company can generate income
from royalties while shifting the costs and risks of entering and competing successfully in foreign markets
to the licensee. One downside of licensing is that the licensee who bears the risk is also likely to be the
biggest beneficiary from any upside gain. Disney learned this lesson when it relied on licensing agreements
to open its first foreign theme park, Tokyo Disneyland. When the venture proved wildly successful, it was its
licensing partner, the Oriental Land Company, and not Disney who reaped the windfall. Another important
disadvantage of licensing is the risk of providing valuable technological know-how to foreign companies and
thereby losing some degree of control over its use; monitoring licensees and safeguarding the company’s
proprietary know-how can prove difficult in some circumstances. But if the royalty potential is considerable
and the companies to whom licenses are granted are trustworthy and reputable, then licensing can be an
attractive option. Many software and pharmaceutical companies use licensing strategies to participate in
foreign markets.
Franchising Strategies
While licensing can work well for manufacturers and owners of proprietary technology, franchising is
often better suited to the international expansion efforts of service and retailing enterprises. McDonald’s,
Yum! Brands (the parent of Pizza Hut, KFC, and Taco Bell), Subway, Dunkin Donuts, Sport Clips, FastSigns,
Minuteman Press, Jani-King International (the world’s largest commercial cleaning franchisor), Roto-Rooter,
Anytime Fitness, 7-Eleven, Marriott, and Hilton Hotels have all used franchising to build a presence in foreign
markets. Franchising has much the same advantages as licensing. The franchisee bears most of the costs
and risks of establishing foreign locations; a franchisor has to expend only the resources to recruit, train,
support, and monitor franchisees. The big problem a franchisor faces is maintaining quality control; foreign
franchisees do not always exhibit strong commitment to consistency and standardization, especially when
the local culture does not stress the same kinds of quality concerns. Another problem that can arise is whether
to allow foreign franchisees to make modifications in the franchisor’s product offering to better satisfy the
preferences of consumers in the countries where they operate. Should KFC allow its 23,000 international
franchised locations to use substitute spices in the company’s chicken recipes? Should McDonald’s give
franchisees in each nation some leeway in what products they put on their menus? Or should the same menu
offerings be rigorously and unvaryingly required of all franchisees worldwide?
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155
Chapter 7 • Strategies for Competing Internationally or Globally
156
Forming Subsidiaries to Enter Foreign Markets Via
Acquisition or Internal Startup
Very often companies electing to compete internationally
or globally prefer to have direct control over all aspects
of operating in a foreign market. Companies that want to
direct performance of core value chain activities typically
establish a wholly owned subsidiary, either by acquiring a
local company or by establishing its own new operating
organization from the ground up. A subsidiary business
that is established internally from scratch is called an
internal startup or a greenfield venture.
Most companies elect to enter the market of
a foreign country by first establishing a wholly
owned subsidiary in the target country that
achieves entry either by acquiring a local
company and refurbishing its operations as
may be needed or by creating its own internal
organization from scratch.
Acquiring a local business is the quicker of the two options, and it may be the least risky and most costefficient me ans of hu rdling su ch en try ba rriers as ga ining ac cess to lo cal di stribution ch annels, bu ilding
supplier relationships, and establishing working relationships with key government officials and other
constituencies. Buying an ongoing operation allows the acquirer to move directly to the task of transferring
resources and personnel to the newly acquired business, integrating and redirecting the activities of the
acquired business into its own operation, putting its own strategy and valuable capabilities into place, and
initiating efforts to build a competitively strong market position.5
The first issue an acquisition-minded firm must consider is whether to pay a premium price for a successful
local company or to buy a struggling competitor at a bargain price and revamp its operations. If the buying firm
has little knowledge of the local market but ample capital, it is often better off purchasing a capable, strongly
positioned firm—unless the acquisition price is prohibitive. However, when the acquirer sees promising ways
to transform a weak firm into a strong one and has the resources and managerial know-how to do it, a
struggling company can be the more profitable approach.
Entering a new foreign country via internal startup makes sense when a company already operates in a number
of countries, has experience in getting new subsidiaries up and running and overseeing their operations, and
has a large pool of resources and capabilities to rapidly equip a new subsidiary with the personnel and what it
needs otherwise to compete successfully and profitably. Four other conditions make an internal startup
strategy appealing:
1.
When creating an internal startup is cheaper than making an acquisition.
2. When adding new production capacity will not adversely impact the supply–demand balance in the
local market.
3.
When a startup subsidiary has the resources and capability to gain good distribution access (perhaps
because of the company’s recognized brand name).
4.
When a startup subsidiary can quickly be infused with the resources and capabilities needed to
achieve the cost structure and competitive strength to successfully battle local rivals.
Collaborative Strategies—Alliances and Joint Ventures
with Foreign Partners
Entering into alliances, joint ventures, and other cooperaCollaborative strategies involving alliances and/or
tive agreements with foreign companies are a favorite
6
joint ventures with foreign partners are a popular
and fruitful strategic means for entering a foreign market.
way for companies to edge their way into the
A company can benefit immensely from a foreign
markets of foreign countries.
partner’s familiarity with local government regulations, its
knowledge of local buying habits and product preferences,
its distribution channel capabilities, and so on.7 Both Japanese and American companies are actively forming
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Chapter 7 • Strategies for Competing Internationally or Globally
157
alliances with European companies to better compete in the 27-nation European Union and to capitalize on
emerging opportunities in the countries of Eastern Europe. Many U.S. and European companies are allying
with Asian companies in their efforts to enter markets in China, India, Thailand, Indonesia, and other Asian
countries; alliances and joint ventures with Latin American enterprises are common as well.
A second big appeal of cross-border alliances is to capture economies of scale in production and/or
marketing—cost reduction can be the difference-maker in enabling a company to be cost competitive
in foreign markets. By joining forces in producing components, assembling models, and marketing their
products, collaborating companies can realize cost savings not achievable with their own smaller volumes.
A third reason to employ a collaborative strategy is to share distribution facilities and dealer networks,
thus mutually strengthening each partner’s access to buyers. A fourth potential benefit of a collaborative
strategy is the learning, expertise, and added capability that comes from performing joint research, sharing
technological know-how, studying one another’s manufacturing methods, and understanding how to tailor
sales and marketing approaches to fit local cultures and traditions. Indeed, one of the win-win benefits of
an alliance is to learn from alliance partners and implant the knowledge and know-how of these partners in
a company’s own personnel. A fifth benefit is that cross-border allies can direct their competitive energies
more toward mutual rivals and less toward one another; working together collaboratively may help them
close the gap on leading companies. And, finally, alliances can be a particularly useful way for companies
across the world to gain agreement on important technical standards—cross-border alliances have been
used to arrive at standards for assorted computer devices, Internet-related technologies, ultra-high definition
televisions, and 5G wireless communication systems.
Many companies believe that cross-border alliances and
Cross-border alliances enable a growth-minded
partnerships are a better strategic means of gaining the
company to widen its geographic coverage
preceding benefits (as compared to acquiring or merging
and strengthen its competitiveness in foreign
with foreign-based companies to gain much the same
markets, while at the same time offering flexibility
benefits) because they allow a company to preserve
its independence (which is not the case with a merger),
and giving a company some leeway in pursuing
retain veto power over how the alliance operates, and
its own strategy and retaining some degree of
avoid using perhaps scarce financial resources to fund
operating control.
acquisitions. Furthermore, an alliance offers the flexibility
to readily disengage once its purpose has been served or if the benefits prove elusive, whereas an acquisition
is a more permanent sort of arrangement (although the acquired company can, of course, be divested).8
The Risks of Strategic Collaborations Alliances and joint ventures with foreign partners have their
pitfalls, however. Sometimes local partners’ knowledge and expertise turns out to be less valuable than
expected.9 Cross-border allies typically must overcome language and cultural barriers and figure out how to
deal with diverse or incompatible operating practices. The communication, trust-building, and coordination
costs are high in terms of management time.10 It takes many meetings of many people working in good faith
over a period of time to iron out what is to be shared, what is to remain proprietary, and how the collaborative
arrangements will work. Often, partners soon discover they have different, sometimes conflicting, objectives
for their collaborative efforts and/or deep differences of opinion about how to proceed and/or important
differences in corporate values and ethical standards. Tensions can build up, working relationships cool, and
the hoped-for benefits never materialize.11 It is not unusual for there to be little rapport or personal chemistry
among some of the key people on whom success or failure of the collaborative efforts depends. And even if
allies are able to develop good working relationships, they can still have trouble reaching mutually agreeable
ways to collaborate in competitively sensitive areas or to launch new initiatives fast enough to stay abreast
of changing technology or shifting market conditions.
Even if an alliance proves to be a win-win proposition for its members, a company must guard against becoming
overly dependent on foreign partners for essential expertise and competitive capabilities. Companies aiming
for global market leadership usually need to develop competitively valuable resources and capabilities that
are internally controlled to be masters of their destiny. Frequently, experienced multinational companies
operating in 50 or more countries across the world find less need for entering into cross-border alliances
than do companies in the early stages of globalizing their operations.12 Companies with global operations
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Chapter 7 • Strategies for Competing Internationally or Globally
158
make it a point to develop senior managers who understand how “the system” works in different countries,
plus they can avail themselves of local managerial talent and know-how by simply hiring experienced local
managers and thereby detouring the hazards of collaborative alliances with local companies. One of the
lessons about cross-border partnerships is that they are more effective in helping a company establish a
beachhead of new opportunity in world markets than they are in enabling a company to achieve and sustain
global market leadership.
COMPETING IN FOREIGN MARKETS: THE THREE
COMPETITIVE STRATEGY APPROACHES
The issue of whether and how to vary the company’s competitive approach to fit specific market conditions
and buyer preferences in each host country or whether to employ essentially the same competitive strategy
approach in all countries is perhaps the foremost strategic issue companies must address when they operate
in the markets of multiple countries.13 Figure 7.1 shows the three strategy approaches a company can take to
resolve this issue.
Multicountry Strategies—A “Think Local, Act Local” Approach
The bigger the cross-country differences in buyer preferences and behaviors, cultural traditions, and market
conditions, the stronger the case for a “think local, act local” approach to strategy making that involves
customizing a company’s product offerings and perhaps
CORE CONCEPT
its basic competitive strategy to fit the specific buyer
preferences and expectations and market conditions
Multicountry or localized strategies involve
in each country where it competes. In such instances,
tailoring a company’s product offering and
employing a set of multicountry or localized strategies
competitive approach country by country to
calls for deliberately tailoring the company’s product
match differing buyer preferences, market
offering in each country to be relevant and appealing to
conditions, and competitive circumstances.
local buyers and undertaking whatever country-specific
strategic initiatives and market maneuvers are needed to
compete effectively against local rivals and produce good business results. In effect, localized strategies aim
at growing a company’s international sales and market share by addressing country-specific buyer needs
and expectations and by employing customized strategic approaches and actions to combat local rivals and
build local competitive advantage. A think local, act local approach to crafting strategy also becomes a good,
if not necessary, strategic option when host governments enact regulations requiring that products sold
locally meet strict manufacturing specifications or performance standards and when the trade restrictions
of host governments are so diverse and complicated that they preclude a uniform, coordinated worldwide
competitive approach.
A think local, act local approach typically requires delegating considerable strategy-making latitude to local
managers who have firsthand knowledge of local market and competitive conditions. Localized strategies often
entail having plants produce different product versions for
different local markets and selling these different versions
The bigger the competitive strategy variations
under different brand names (to signal the presence of
from country to country, the more an internationa
different product attributes and avoid the potential for
competitor’s overall strategy becomes a collection
buyer confusion associated with using the same brand
of localized country strategies.
name for different product versions). Local managers
have responsibility for matching marketing, advertising,
sales promotion campaigns, and distribution channel emphasis to fit local cultures and circumstances. They
determine how best to respond to the fresh strategic initiatives and market maneuvers of local rivals, and
they decide which newly emerging local market opportunities to pursue.
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Chapter 7 • Strategies for Competing Internationally or Globally
FIGURE 7.1 The Three Strategic Options for Competing Internationally
Multicountry
Strategies—A “Think
Local, Act Local”
Approach
Employ localized strategies—one for each country market where the company
competes—and delegate lead responsibility for crafting strategy to local managers.
• Tailor the company’s product offering in each country to local buyers’ tastes and
expectations.
• Adopt country-specific strategic initiatives and market maneuvers to pursue emerging
local market opportunities, compete effectively against local rivals, and build a local
competitive advantage.
• Match marketing, advertising, sales promotion campaigns, and distribution channel
emphasis to fit local customs, cultures, and market circumstances.
Global Strategies—
A “Think Global,
Act Global”
Approach
Employ the same strategy worldwide and coordinate strategic actions from central
headquarters.
• Pursue the same basic competitive strategy theme (low-cost, differentiation, bestcost, or focused) in all country markets—a global strategy.
• Offer the same products worldwide, with only minor deviations from one country to
another should local market conditions dictate.
• Build a global brand name.
• Emphasize the same distribution channels and marketing approaches worldwide.
• Stress cross-country sharing of competitively valuable resources and capabilities and
be quick to transfer them to newly entered countries.
• Strive to build a global competitive advantage over other rivals that compete globally.
Hybrid Strategies—
”Think Global,
Act Local”
Approaches
Employ a combination global-local strategy orchestrated partly by headquarters and
partly by local managers.
• Pursue essentially the same basic competitive strategy theme (low-cost,
differentiation, best-cost, or focused) in all country markets.
• Give local managers the latitude to adapt the global competitive strategy as may
be required to accommodate local buyer preferences, be responsive to local market
conditions, and compete effectively against local rivals.
• Allow local managers the latitude to incorporate minor country-specific variations in
product attributes to better satisfy local buyers but try to sell these slightly different
product versions under the same brand name unless the versions are too dissimilar.
• Strive to build a brand name that is well-recognized and competitively potent in most
all countries; use local brand names only when necessary.
• Counter the actions of global rivals with global responses and the actions of important
local rivals with localized responses.
A number of companies employ a think local, act local approach to strategy making. Castrol, a BP-owned
specialist in motor oils and other lubricants, produces roughly 3,000 formulas of lubricants to meet the
requirements of different climates, vehicle types and uses, and equipment applications on land, at sea,
and in the air. In the food products industry, it is common for companies to vary the ingredients in their
products and sell the localized versions under local brand names to cater to country-specific tastes and
eating preferences. Government requirements for gasoline additives that help reduce carbon monoxide,
smog, and other emissions are almost never the same from country to country, requiring oil refineries to
use localized strategies in supplying gasoline with the required additives to service stations in different
countries. Motor vehicle manufacturers routinely produce smaller, differently-styled, and more fuel-efficient
gasoline-powered vehicles for European markets where roads are narrower and gasoline prices are two to
three times higher than in the North American market (where many consumers prefer larger vehicles); the
models they manufacture for the Asian market are different yet again—and local managers tailor the sales
and marketing of these vehicles to local cultures, buyer tastes, and market conditions as well.
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159
Chapter 7 • Strategies for Competing Internationally or Globally
160
However, think local, act local strategies have three important drawbacks:
•
Customizing a company’s products country by country may raise production and distribution costs
due to the greater variety of designs and components, the added time and expense associated with
shifting production over to each product version, and the complications of added inventory handling
and distribution logistics.
•
A collection of localized multicountry strategies is not conducive to building a single worldwide
competitive advantage. When a company’s competitive approach and product offering varies from
country to country, the nature and size of any resulting competitive edge also tends to vary (and in
some—maybe many—countries, a company will fail to achieve any meaningful competitive edge
over local rivals). At the most, localized multicountry strategies are capable of producing a group of
local competitive advantages of varying types and degrees of strength.
•
Localized strategies handicap a company in using its existing complement of resources, capabilities,
and product offerings to speed entry and competitive success in additional country markets. Because
a multicountry competitor’s various localized strategies are each structured around resources,
capabilities, and product offerings that are specific to competing in a particular country, its overall
resource/capability pool tends to be diverse but shallow with regard to any one specific resource
or capability. In entering new country markets, a company often finds its current pool of fragmented
resources, capabilities, and variety of product offerings does not match up well—in quantity or
quality—with those needed to support execution of still different customized product offerings
and strategies for the target countries it wants to enter. In such cases, the company has to retool
certain resources and capabilities, build others from scratch, and design/produce new versions of its
products.
Global Strategies—A “Think Global, Act Global” Approach
While multicountry or localized strategies are best suited for industries where multicountry competition
dominates and a fairly high degree of local responsiveness
CORE CONCEPT
is competitively imperative, global strategies are best
suited for globally competitive industries. A global
A global strategy is one where a company
strategy is one in which the key strategy elements are
employs the same basic competitive approach
fundamentally the same in all countries—a company sells
in all countries where it operates, sells much the
much the same products under the same brand names
same products everywhere, strives to build global
everywhere, uses much the same distribution channels
brands, and coordinates its actions worldwide with
in all countries, and uses the same set of resources/
strong headquarters control. It represents a “think
capabilities to power its strategy in all the countries where
global, act global” approach.
it competes. Although the company’s strategy or product
offering is sometimes slightly adapted to fit circumstances
in a few host countries, the company’s fundamental competitive approach (low-cost, differentiation, bestcost, or focused) remains intact worldwide and local managers adhere closely to the global strategy.
The use of highly similar, if not identical, cross-border strategies in every country enables a company to (1)
build global brands, (2) refine and strengthen the competitively valuable resources and capabilities that
underpin its global strategy, (3) grow the numbers of company personnel with experience and know-how
in implementing the strategy and conducting operations in foreign markets, and (4) tightly integrate and
coordinate the company’s strategic moves worldwide. Strategic initiatives to enter more countries nearly
always entail transferring sufficient supplies of these resources and capabilities (including experienced
company personnel with competitively important know-how) to the targeted countries to help power
successful market entry. Typically, companies employing a global strategy expand into most if not all nations
where there is significant buyer demand.
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Chapter 7 • Strategies for Competing Internationally or Globally
Whenever country-to-country differences are small enough to be accommodated within the framework of a
global strategy, a global strategy is preferable to localized strategies for several important reasons. A globally
standardized product offering better enables a company to capture scale economies in manufacturing
and focus on establishing a global brand image and reputation, one linked to the same product attributes
in all countries. A global strategy and product offering simplifies company efforts to build a deep pool of
competitively potent resources and capabilities suitable for entering and competing successfully in the
markets of countries across the world; as these resources are refined and strengthened, the potential
emerges to secure a sustainable low-cost or differentiation-based competitive advantage over other rivals
racing for world market leadership. Well-managed companies pursuing a global strategy are in a uniquely
strong position to transfer newly developed product enhancements, best practices in performing value
chain activities, and new production technologies from location to location and to make all of the company’s
operating units worldwide aware of recent successes, failures, and new ideas for strategic and operational
improvements.14 Figure 7.2 highlights the basic differences between a localized or multicountry strategy and
a global strategy.
Hybrid Strategies—“Think Global, Act Local” Approaches
Often, a company can be more effective in accommodating cross-country variations in buyer tastes,
local customs, and market conditions with a hybrid or combination “think global, act local” competitive
strategy approach. This middle-ground strategy entails using the same basic competitive theme (lowcost, differentiation, best-cost, or focused) in each country but allowing local managers ample latitude to
(1) incorporate minor country-specific variations in product attributes to address local buyers’ needs and
expectations more precisely, and (2) make whatever adjustments in production, distribution, and marketing
strategies are needed to create a good match with local market conditions and compete more successfully
against local rivals. Slightly different product versions sold under the same brand name may suffice to
satisfy local tastes, and it may be feasible to accommodate these versions rather economically in the course
of designing and manufacturing the company’s product offerings.15 Complete standardization of product
offerings and other strategy elements is not necessary, especially when some aspects of localization can be
accommodated easily and when it is more competitively effective to adapt an otherwise global approach to
better fit local needs and conditions. Even if local product versions in a few countries are different enough
to merit use of local brands, the benefits of striving to build and strengthen a mostly global brand name
elsewhere are unlikely to be impaired by very much.
Many Multinational Companies Employ Strategies That Are as Close to Global as Circumstances
Permit Many, if not most, multinational companies lean toward strategies with as many global elements
as buyer needs/preferences and market circumstances permit. But some degree of localization is common.
McDonald’s, KFC, and Starbucks have discovered ways to customize their menu offerings in various countries
without compromising costs, product quality, and operating effectiveness. Whirlpool has been globalizing its
low-cost leadership strategy in home appliances for more than 20 years, striving to standardize parts and
components and move toward worldwide designs for as many of its appliance products as possible. But
Whirlpool has found it necessary to continue producing different versions of refrigerators, washing machines,
and cooking appliances for consumers in various countries because local buyers’ needs and preferences in
these countries have not converged sufficiently to permit complete global standardization. Microsoft adapts
its software to accommodate cross-country differences in languages, spelling, and punctuation, but otherwise
its approach to competing is very similar. Video game developers localize their product offerings by designing
games for specific cultures (like football for North America and soccer for Europe and South America) and
also for different devices (computers, game players, mobile phones, and assorted other handheld devices).
Multinational producers of motor oils and lubricants necessarily have hundreds or thousands of product
versions to accommodate different motor vehicle and machine requirements and widely varying climatic
conditions across the world, but many of the remaining strategy elements they employ are global in nature.
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161
Chapter 7 • Strategies for Competing Internationally or Globally
FIGURE 7.2 How a Multicountry or Localized Strategy Differs from a Global Strategy
Localized
Multicountry
Strategy
Country A
Strategies vary
according to local
conditions
Country B
Country D
Global
Strategy
Country C
Country E
Country A
Strategies are
nearly identical
everywhere
Country B
Country D
Country C
Country E
• Customize the company’s competitive approach as
• Pursue the same basic competitive strategy worldwide
• Sell different product versions in different countries
• Sell the same products under the same brand name
needed to fit market and business circumstances in
each host country—strong responsiveness to local
conditions.
under different brand names—adapt product attributes
to fit buyer tastes and preferences country by country.
• Either design manufacturing plants to cost effectively
produce many different product versions or else
scatter plants across many host countries, each making
product versions for local markets.
• Use local suppliers when local governments have local
content requirements.
• Adapt marketing and distribution to the prevailing local
customs, culture, and market circumstances.
• Develop resources and capabilities appropriate to
each country’s localized strategy. Cross-border transfer
of resources is limited because of strategy variability.
• Give country managers fairly wide strategy-making
latitude and autonomy over local operations.
• Strive to gain local competitive advantages (the nature
of any such competitive advantages that are achieved
will tend to vary from country to country).
(low-cost, differentiation, best-cost, focused low-cost,
focused differentiation)—minimal responsiveness to
local conditions.
worldwide. Concentrate on building global brands as
opposed to strengthening local/regional brands sold in
local/regional markets.
• Locate plants on the basis of maximum locational
advantage, usually in countries where production
costs are lowest but plants may be scattered if
shipping costs are high or other locational advantages
dominate.
• Use the best suppliers from anywhere in the world.
• Coordinate marketing and distribution worldwide;
make minor adaptations to local countries where
needed.
• Compete on the basis of the same resources and
capabilities worldwide. Stress rapid cross-country
transfers of new capabilities, products, and best
practices.
• Coordinate major strategic decisions worldwide. Give
local managers leeway to make minor adjustments to
the global strategy.
• Strive to achieve the same type of competitive
advantage over rivals in every country where the
company competes.
BUILDING CROSS-BORDER COMPETITIVE ADVANTAGE
An international or global competitor can strive to gain competitive advantage (or counteract disadvantages)
in two important ways.16 One, it can locate certain facilities and value chain activities in particular countries
to lower costs or achieve greater product differentiation. Two, it can build competitive advantage vis-à-vis
rivals by doing a better job than they do of sharing and transferring competitively valuable resources and
capabilities across the borders of the countries in which it competes.
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162
Chapter 7 • Strategies for Competing Internationally or Globally
Using Location to Build Competitive Advantage
To use location to build cross-border competitive
advantage, a company must consider two issues: (1)
whether to concentrate each activity it performs in a few
select countries or to disperse performance of the activity
to many nations, and (2) in which countries to locate
particular activities.17 The classic reason for locating an
activity in a particular country is low cost.18
Companies that compete internationally or
globally can pursue competitive advantages
in world markets by locating their value chain
activities in whatever nations prove most
advantageous.
When to Concentrate Activities in a Few Locations It is advantageous for a company to concentrate
its activities in a limited number of locations when:
•
The costs of manufacturing or other activities are significantly lower in some geographic locations
than in others. For example, much of the world’s athletic footwear is manufactured in Asia because
of low labor costs; much of the production of PC circuit boards is located in Taiwan because of low
costs and the high technical skills of the Taiwanese labor force.
•
Significant scale economies exist in production or distribution. The presence of significant economies
of scale in components production or final assembly means a company can gain major cost savings
from operating a few large plants (with output volumes big enough to fully capture scale economies)
as opposed to a host of small plants scattered across the world. Likewise, a company may be able
to reduce its distribution costs by using large-scale regional distribution centers serving multiple
countries (or maybe customers within a “large” radius) as opposed to having smaller distribution
centers serving a single country (or customers within a “small” radius).
•
Sizable learning and experience benefits are associated with performing certain value chain
activities. In some industries, a manufacturer can lower unit costs, boost quality, or master a new
technology more quickly by concentrating production in a few plants. The key to riding down the
learning curve faster is to concentrate production in a few locations to increase the cumulative
production volume at each plant (and thus the experience of each plant’s workforce), thereby
enabling quicker capture of the productivity gains associated with greater learning and experience.
•
Certain locations have superior resources, allow better coordination of related activities, or offer
other valuable advantages. A research unit or a sophisticated production facility may be situated in
a particular nation because of its pool of technically-trained personnel. Samsung became a leader
in memory chip technology by establishing a major R&D facility in Silicon Valley and transferring
the know-how it gained back to its operations in South Korea. When just-in-time inventory practices
yield big cost savings and/or when an assembly firm has long-term partnering arrangements
with its key suppliers, parts manufacturing plants may be clustered around final assembly plants.
A customer-service center or sales office may be opened in a particular country to help cultivate
strong relationships with important customers located nearby. Airbus established an assembly plant
for its commercial aircraft in Alabama because it had several major customers located in the United
States.
When to Disperse Activities Across Many Locations In some instances, dispersing activities is more
advantageous than concentrating them. Such buyer-related activities as distribution, face-to-face selling,
certain sales promotion and advertising activities, and after-sales service usually must take place close to
buyers. This means physically locating the capability to perform such activities in every country or region
where a firm has many buyers or important large-volume customers. For example, firms that make mining and
oil-drilling equipment typically have service operations in many international locations to enable quick spare
parts delivery, speedy equipment repair, and hands-on technical assistance wherever their major customers
have operations. Most multinational companies distribute their products from multiple geographic locations,
both to shorten delivery times to customers and economize on shipping costs. Large public accounting firms
have numerous international offices to service the foreign operations of their multinational corporate clients.
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163
Chapter 7 • Strategies for Competing Internationally or Globally
Dispersing performance of an activity to many locations is also competitively advantageous when smallscale performance of an activity is cheaper than performing the activity at a central location. All major motor
vehicle companies operate multiple assembly plants rather than a single giant assembly plant; very few
global companies would accept the penalty of long delivery times and high shipping costs associated with
using a single giant distribution center for shipping orders to customers worldwide. The presence of high
import tariffs in many countries can make it expensive to perform production and distribution activities
outside these countries; rather, it may prove cheaper to disperse performance of all activities from production
forward to end users to each of the high-tariff countries rather than incur the costs of their respective high
import tariffs. In addition, dispersing activities to multiple foreign locations helps hedge against the risks of
fluctuating exchange rates, supply interruptions (due to strikes or transportation delays), and adverse political
developments. Such risks are usually greater when activities are concentrated in one or just a few locations.
Even though multinational and global firms have strong reasons to disperse buyer-related activities to many
international locations, such activities as materials procurement, parts manufacture, finished goods assembly,
technology research, and new product development can frequently be decoupled from buyer locations and
performed wherever advantage lies. Components can be made in Mexico; technology research done in
Frankfurt; new products developed and tested in Phoenix; and assembly plants located in Spain, Brazil,
Malaysia, or South Carolina. Capital can be raised in whatever country it is available on the best terms.
Cross-Border Sharing and Transfer of Resources and
Capabilities to Build Competitive Advantage
When a company has competitively valuable resources and capabilities, it often makes sense to leverage
them further by expanding internationally and initiating a long-term strategic offensive to enter a number of
country markets. If its resources and capabilities prove potent in competing in newly entered country markets,
then not only does the company grow sales and profits but it extends its competitiveness and potential for
competitive advantage over a broader geographic domain, perhaps in time enabling the company to contend
for global market leadership. As an international or global company develops a market presence in many
countries, it should stay alert for opportunities to transfer some of its competitively powerful resources and
capabilities from countries where it has established competitively strong market positions to countries where
it is competitively weaker. Such infusions can be the extra boost subsidiaries with comparatively weaker
competitive strength need to battle local rivals on even terms, or better still, to begin to outcompete them.
Another way to enhance a company’s competitiveness internationally is to quickly transfer important new
technological know-how, recently developed core competencies, newly-implemented best practices,
and ways to improve/strengthen certain capabilities from its operations in one country to its operations
in other countries. For instance, if a company discovers ways to assemble a product faster and more cost
effectively at one plant, then that know-how can be transferred to its assembly plants in other countries. If a
company’s North American operations develop a core competence in speeding next-generation products
to market more quickly, it can communicate these methods to company operations elsewhere via Internet
conferencing or by transferring some of its North American personnel with the requisite expertise to its
operations in other parts of the world. Whirlpool, the leading global manufacturer of home appliances with
70 manufacturing and technology research centers around the world and sales in nearly every country, uses
an online global information technology platform to quickly and effectively transfer key product innovations
and improved production techniques both across national borders and across its various appliance brands.
Disney has been enormously adept at transferring its considerable expertise in all aspects of its theme
park operations in the United States to recently established Disney parks in Tokyo, Hong Kong, Shanghai,
and Paris. Disney’s cross-border transfers of its competitively potent resources and capabilities in theme
park design and operation, together with the universal appeal of the Disney name in family entertainment
products, have enabled it to achieve a global differentiation-based competitive advantage in theme parks
and family entertainment. Walmart’s international operations strategy involves transferring its considerable
resource capabilities in distribution and discount retailing to its retail units in 27 foreign countries. Televisa,
Mexico’s largest media company, used its expertise in Spanish culture and linguistics to become the world’s
most prolific producer of Spanish-language soap operas.
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164
Chapter 7 • Strategies for Competing Internationally or Globally
Companies like Rolex, Tiffany, Chanel, Burberry, and Gucci have used their powerful brand names to
successfully enter country markets far beyond their home-country origins.19 The luxury brand name of each
of these companies represents a valuable competitive asset that can readily be shared by all of the brand’s
international stores, enabling them to attract buyers and sell their products over a wider geographic area
than would otherwise occur.
Cross-border sharing of powerful brand names or important technological know-how and/or the transfer of
personnel with competitively valuable expertise from operations in one country to another country is a costefficient and competitively effective way of leveraging existing resources and capabilities into competitive
success in a growing number of geographic markets. The cost of sharing or transferring already developed
resources and capabilities across country borders is low in comparison to the time and considerable expense
it takes for a country subsidiary to build matching resources and capabilities solely on its own initiative.
Moreover, deployment of the company’s valuable resources and capabilities across many countries spreads
the fixed development costs over a greater volume of unit sales, thus contributing to low unit costs and a
potential cost-based competitive advantage in recently entered geographic markets. Even if the shared/
transferred resources or capabilities have to be adapted to local market conditions, this can usually be done
at low additional cost.
Furthermore, deploying a competitively valuable resource or capability to a growing number of geographic
markets contributes to the development of even greater resource depth and expert capability, especially
if company managers attend to the task of finetuning, updating, and enhancing its valuable resources
and capabilities. Resource/capability transfers, coupled with diligent internal efforts to refine and enhance
competitively powerful resources and capabilities, are a company’s two best approaches to achieving
dominating depth in one or more competitively valuable areas.20 Dominating depth in a competitively valuable
resource, capability, or value chain activity is a strong basis for sustainable competitive advantage over rivals.
However, cross-border resource-sharing and transfers of capabilities are not a guaranteed recipe for
competitive success in every market entered. Whether a strong resource or competitive capability can confer
competitive advantage in a different country depends on the conditions of rivalry in each particular country
market and on the extent to which lifestyles and buying habits vary internationally. While an entering firm
may well possess valuable resources and/or capabilities that yield a competitive advantage elsewhere, an
entering firm may find itself at a competitive disadvantage because local rivals have substitute resources and/
or capabilities that are even more competitively potent. Differing lifestyles and buying habits or preferences
can result in particular resources and capabilities being valuable in some countries and not so valuable in
others. Sometimes a popular or well-regarded brand in one country turns out to have little competitive clout
against local brands in another country because local buyers view the products offerings of local firms as
more appealing or because the national pride of local buyers causes them to support local firms over a
particular foreign entrant or because many local buyers are somehow “put off” by the ambience of a foreign
entrant’s local stores or its advertising or its merchandising techniques or some other factor.
PROFIT SANCTUARIES AND GLOBAL STRATEGIC
OFFENSIVES
Profit sanctuaries are country markets (or geographic regions) in which a company derives substantial
profits because of its strong or protected market
position. In most cases, a company’s biggest and most
strategically crucial profit sanctuary is its home market,
but international and global companies may also enjoy
profit sanctuary status in other nations where they
have a strong competitive position, big sales volume,
and attractive profit margins. Companies that compete
globally are likely to have more profit sanctuaries than
companies that compete in just a few country markets; a
domestic-only competitor, of course, can have only one
profit sanctuary.
CORE CONCEPT
Companies with large, protected profit
sanctuaries have an advantage in competing
against companies that don’t have a protected
sanctuary. Companies with multiple profit
sanctuaries have an edge in competing against
rivals with only a single sanctuary.
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Chapter 7 • Strategies for Competing Internationally or Globally
166
Nike, which markets its products in about 200 countries and had fiscal 2020 revenues of $35.6 billion, has
two major geographic profit sanctuaries: North America (where it reported 2020 operating profits of $2.9
billion) and Greater China (where it reported 2020 operating earnings of $2.5 billion). McDonald’s, with about
39,000 locations (93 percent of which are franchised) in 111 countries, has its biggest profit sanctuary in the
United States, which accounted for about 45 percent of the company’s operating profits in 2018 through 2020.
Starbucks’ two biggest geographic profit sanctuaries in 2018–2020 were in the United States and China.
Offensive Attacks on Global Rivals
While international or global competitors can fashion a strategic offensive based on any of the nine offensive
strategy options discussed in Chapter 6, there are two additional offensive strategies particularly suited for
companies competing internationally or globally:21
1.
Attack a rival’s profit sanctuaries. Launching an offensive in a country market where a key rival
earns a big percentage of its profits can put the rival on the defensive, forcing it to spend more
on marketing/advertising, trim its prices, boost product innovation efforts, or otherwise undertake
actions that raise its costs and reduce its profit margins. Such offensives are particularly attractive
when the attacker (1) has competitively valuable
CORE CONCEPT
resources and capabilities that it can divert from
other countries to help power its offensive attack
Cross market subsidization entails supporting
and (2) can draw upon the financial strength
competitive offensives in one market with
of profit sanctuaries in other locations to help
resources, capabilities, and profits diverted from
subsidize its razor-thin margins or even losses
operations in another market. Such competitive
in the country market where the rival is being
tactics can be a powerful weapon against a rival
attacked. Supporting an offensive with resources,
with only one profit sanctuary or limited resources
capabilities, and profits in other market locations
and capabilities.
is called cross-market subsidization. While
attacking a rival’s profit sanctuary violates the
principle of attacking competitor weaknesses instead of competitor strengths, such an attack can
nonetheless prove useful when it poses a serious threat to a rival’s business and forces it to devote
added time and attention to defending a market that is important to its competitive well-being and
overall profitability. To the extent that a major rival’s profits can be significantly eroded in an important
profit sanctuary, its financial resources may be sufficiently weakened to enable the attacker to gain
the upper hand and build market momentum in several geographic markets, not just in the market
where the offensive is being waged. The bigger the potential for such outcomes, the greater the
appeal of attacking a rival’s profit sanctuary.
2. Dump goods at cut-rate prices in the markets of rivals. A company is said to be dumping when it
sells its goods in certain countries at prices that are (1) well below the prices at which it normally sells
elsewhere or (2) well below its full costs per unit. Generally, dumping occurs because a company has
excess production capacity and is anxious to keep this capacity running rather than suffer the cost
penalty associated with idle capacity. Companies
that decide to dump goods at deep discounts
CORE CONCEPT
usually keep their selling prices high enough to
A company is said to be engaging in dumping
cover variable costs per unit, thereby limiting
when it sells its goods in certain countries at
their losses on each unit to some percentage of
prices that are either well below the prices at
fixed costs per unit. Dumping can be an appealing
which it normally sells elsewhere or else well
offensive strategy in either of two instances. One
below its full costs per unit.
is when dumping drives down the going price
so far in the targeted country that local rivals are
quickly put in dire financial straits (perhaps even forced into bankruptcy or driven out of business).
For dumping to pay off in this instance, however, the dumping company needs to have deep enough
financial pockets to cover any losses from its own sales at below-market prices, and the targeted rivals
need to be financially weak to begin with so the onset of dumping at below-market prices quickly
punishes their financial performance by a significant amount.
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Chapter 7 • Strategies for Competing Internationally or Globally
The second instance in which dumping becomes an attractive strategy is when a company with
unused production capacity discovers it is cheaper to keep producing (as long as the selling prices
cover average variable costs per unit) than to incur the cost burdens associated with idle plant
capacity. By keeping its plants operating at or near capacity, not only may a dumping company be
able to cover variable costs and earn a contribution to fixed costs, but it may also be able to use
its below-market prices to draw price-sensitive customers away from rivals, then attentively court
these new customers and retain their business when prices later begin a gradual rise back to normal
market levels. Thus, dumping may prove useful as a way of entering the market of a particular
country and establishing a customer base.
However, dumping strategies run a high risk of host government retaliation on behalf of the
adversely affected domestic companies. Most all governments can be expected to retaliate against
dumping by imposing special tariffs or duties on goods being imported from the countries of the
guilty companies. Indeed, as the trade among nations has mushroomed over the past ten years,
most governments have joined the World Trade Organization (WTO), which promotes fair trade
practices among nations and actively polices dumping. The WTO allows member governments to
impose tariffs or duties on the imports of companies that have engaged in dumping wherever there
is material injury to domestic competitors. Companies found guilty of dumping frequently come
under pressure from their own government to cease dumping, especially if the imposition of higher
tariffs or duties adversely affect innocent companies based in the same country or if the advent of
special tariffs raises the specter of a trade war.
KEY POINTS
Companies opt to compete in the world marketplace to gain access to new customers, achieve lower costs,
and thereby become more cost competitive, to better leverage their competitively valuable resources and
capabilities, and to spread their business risk across a wider market area. Four strategic issues are unique to
competing across national boundaries:
1.
Whether to customize the company’s offerings in each different country market to match local
buyers’ tastes and preferences or to offer a mostly standardized product worldwide.
2. Whether to employ essentially the same basic competitive strategy in all countries or modify the
strategy country by country to create a better fit with local market and competitive conditions.
3.
Where to locate the company’s production facilities, distribution centers, and customer service
operations to realize the greatest location-related advantages.
4.
When and how to efficiently transfer some of the company’s competitively powerful resources
and capabilities from countries where it has a strong market position (1) to countries where it is
competitively weak and (2) to countries it is preparing to enter—such transfers help company
subsidiaries in these countries more effectively battle local rivals for sales and market share.
Multicountry competition refers to situations where competition in one national market is largely independent
of competition in another national market—there is no “international market,” just a collection of self-contained
country (or maybe regional) markets. Global competition exists when 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.
There are five strategic ways for a company to establish a competitive presence in the markets of other
countries: (1) maintaining a national (one-country) production base and exporting goods to foreign markets, (2)
licensing foreign firms to use the company’s technology or produce and distribute the company’s products,
(3) employing a franchising strategy, (4) using acquisitions or internal startup to enter new foreign markets,
and (5) using strategic alliances or other collaborative partnerships to enter a foreign market or strengthen
a firm’s competitiveness.
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167
Chapter 7 • Strategies for Competing Internationally or Globally
A company has three strategic options for tailoring its international competitive approach and product
offering: (1) localized multicountry strategies based on a “think local, act local” approa…