Chapter 7: Strategies for Competing in International Markets

Question 1

What are 5 reasons that companies may opt to expand into foreign markets?

Answer 1

1. Gain access to new customers
2. Achieve lower costs through economies of scale, experience, increased purchasing power
3. Gain access to low-cost units of production
4. Further exploit its core competencies
5. Gain access to resources and capabilities located in foreign markets

Question 2

What is a main reason that suppliers of companies may expand internationally?

Answer 2

If their major customers do so, to meet their needs abroad and retain their position as a key supply chain partner.

Question 3

What are the 5 reasons that strategy crafting is more complex when competing in foreign markets?

Answer 3

1. Home-country industry advantages
2. Location-based advantages to conducting particular value chain activities
3. Different political and economic conditions
4. Risk due to shifts in currency exchange rates
5. Differences in buyer taste/preferences

Question 4

What is the Diamond of National Competitive Advantage model?

Answer 4

Summarization of 4 factors that strong firms usually are grounded in (at least 1 of the 4)

Question 5

What are the 4 factors in the Diamond model?

Answer 5

1. Demand conditions
2. Firm strategy, structure, and rivalry
3. Factor conditions
4. Related and supporting industries

Question 6

What are the demand conditions in an industry’s home market?

Answer 6

Relative size of market, growth potential, nature of domestic buyers’ needs and wants.

Question 7

What are factor conditions?

Answer 7

Availability, quality, and cost of raw materials and other inputs (factors of production).

Question 8

What (3) things can the Diamond Framework be used to do?

Answer 8

1. Predict from which countries foreign entrants are most likely to come
2. Decide which foreign markets to enter first
3. Choose the best country location for different value chain activities.

Question 9

What must happen (according to the diamond framework) for an industry in a particular country to become competitively strong?

Answer 9

All 4 factors must be favourable for that industry

Question 10

What major manufacturing cost benefits can a company experience by locating plants in certain countries?

Answer 10

Lower input costs (especially labour), relaxed government regulations, proximity of suppliers and technologically related industries, unique natural resources.

Question 11

What are political risks?

Answer 11

Stem from instability or weakness in national governments and hostility to foreign business.

Question 12

By how much can the rates of exchange between different currencies fluctuate annually?

Answer 12

As much as 20 to 40 percent.

Question 13

What are the 2 reasons that sizable shifts in exchange rates pose significant risks?

Answer 13

1. Hard to predict because of the variety of factors involved and the uncertainties surrounding when and by how much these factors will change
2. They create uncertainty regarding which countries represent the low-cost manufacturing locations and which rivals will have the upper hand in the marketplace

Question 14

What happens if a currency in one country grows stronger in relation to another?

Answer 14

It makes goods more costly to produce in that country.

Question 15

When would a country experience falling demand for their goods in another country?

Answer 15

When their currency grows stronger relative to the other country’s currency

Question 16

When would a country experience rising demand for their goods in another country?

Answer 16

When their currency grows weaker relative to the other country’s currency.

Question 17

What type of shift (favourable or unfavourable) is a stronger US dollar for US based manufacturing plants?

Answer 17

Unfavourable exchange rate shift

Question 18

What is one of the biggest strategic issues that participants have to resolve when it comes to cross-country differences in demographic, cultural, and market conditions

Answer 18

Tension between market pressures to localize a company’s product offerings country by country and the competitive pressures to lower costs

Question 19

What are the 5 primary modes of entry to enter foreign markets?

Answer 19

1. Maintain a home-country production base and export goods
2. License foreign firms to product and distribute abroad
3. Employ a franchising strategy in foreign markets
4. Establish a subsidiary in a foreign market via acquisition or internal development
5. Rely on strategic alliances or joint ventures

Question 20

Which method of entering foreign markets is considered a conservative way to test the international waters?

Answer 20

Using domestic plants as a production base for exporting goods

Question 21

When is an export strategy vulnerable? (4)

Answer 21

1. Manufacturing costs in home country are higher than in foreign countries where rivals have plants
2. Costs of shipping are relatively high
3. Adverse shifts in currency exchange rates
4. Importing countries impose tariffs or erect other trade barriers

Question 22

Which firms do licensing strategies to enter foreign markets make the most sense for?

Answer 22

When a firm with valuable technical know-how, an appealing brand, or unique patented product does not have the capability to enter foreign markets.

Question 23

Who carries the risk in a licensing strategy? Who is likely to be the biggest beneficiary of upside gain?

Answer 23

A company generates income from royalties while shifting costs and risks to the licensee. The licensee is also likely to be the biggest beneficiary from upside gain.

Question 24

Which companies are better suited to franchising strategies for international expansion?

Answer 24

Service and retailing enterprises

Question 25

What is the biggest problem a franchisor faces?

Answer 25

Maintaining quality control.

Question 26

What is a greenfield venture?

Answer 26

Also called an internal startup, it’s a subsidiary business that is established internally from scratch.

Question 27

When does a greenfield venture make the most sense?

Answer 27

When a company already operates in a number of countries, has experience in establishing new subsidiaries and overseeing their operations, and has a sufficiently large pool of resources and capabilities to rapidly equip a new subsidiary.

Question 28

What are 4 conditions that combine to make a greenfield venture strategy appealing?

Answer 28

1. Creating an internal startup is cheaper than making an acquisition
2. Adding new production capacity will not adversely impact the supply-demand balance in the local market
3. When a startup subsidiary has the ability to gain good distribution access
4. When a startup subsidiary will have the size, cost structure, and capabilities to compete head-to-head with local rivals

Question 29

In which countries do greenfield ventures not work well in?

Answer 29

Countries with strong, well-functioning markets and institutions that protect the rights of foreign investors and provide other legal protections.

Question 30

What are the (6) benefits of alliance and joint centure strategies?

Answer 30

1. Benefit from foreign partner’s familiarity with foreign market
2. Capture economies of scale
3. Share distribution facilities and dealer networks
4. Learning and added expertise by sharing research and studying each other
5. Allies can direct competitive efforts toward mutual rivals and less toward one another
6. Help companies globally to gain agreement on important technical standards

Question 31

What danger exists even if a foreign strategic alliance proves to be a win-win proposition for both parties?

Answer 31

Danger of becoming overly dependent on foreign partners. Companies aiming for global market leadership need to develop their own resources and capabilities.

Question 32

What is a firm’s international strategy?

Answer 32

Its strategy for competing in 2 or more countries simultaneously.

Question 33

What are the 3 approaches for competing internationally?

Answer 33

1. Global Strategy (Think global - act global)
2. Transnational strategy (Think global - act local)
3. Multidomestic strategy (Think local - act local)

Question 34

What is a multidomestic strategy?

Answer 34

One in which a company varies its product offering and competitive approach from country to country in an effort to meet differing buyer needs and to address divergent local-market conditions. It’s a think local, act local, type of international strategy.

Question 35

What are the drawbacks with a multidomestic strategy?

Answer 35

Hinders transfer of knowledge and capabilities across country boundaries, leading to lower innovation. Raises production and distribution costs. Not conducive to building a single, worldwide competitive advantage.

Question 36

What is a global strategy?

Answer 36

One in which a company employs the same basic competitive approach in all countries where it operates. It represents a think-global, act-global approach.

Question 37

When is a global strategy an appropriate strategic choice?

Answer 37

When there are pronounced efficiency benefits from standardization and buyer needs are relatively homogeneous across countries and regions.

Question 38

What are (4) drawbacks to global strategies?

Answer 38

1. Do not enable firms to precisely address local needs
2. Less responsive to changes in local market conditions
3. Raise transportation costs, may involve higher tariffs
4. Involve higher coordination costs

Question 39

What is a transnational strategy?

Answer 39

Sometimes called “glocalization”, it incorporates elements of both a globalized and localized approach to strategy making. It’s a think-global, act-local approach.

Question 40

When is a transnational strategy approach called for?

Answer 40

When there are relatively high needs for local responsiveness as well as appreciable benefits to be realized from standardization.

Question 41

What are the 3 ways a firm can gain competitive advantage by expanding outside its domestic market?

Answer 41

1. Use location costs to lower costs or achieve greater product differentiation
2. Transfer competitively valuable resources and capabilities across international borders
3. Benefit from cross-border coordination opportunities

Question 42

What issues must a company consider when deciding to use location to build competitive advantage?

Answer 42

1. Whether or not to concentrate some activities in only a few select countries and if so…
2. In which countries to locate particular activities

Question 43

In what conditions (4) is it advantageous for a company to concentrate its activities in a few locations?

Answer 43

1. Manufacturing costs are significantly lower in some geographic locations than in others
2. Significant scale economies exist in production or distribution
3. Sizeable learning and experience benefits are associated with performing an activity
4. Certain locations have superior resources, allow better coordination of related activities, or offer other valuable advantages

Question 44

When is it advantageous for a company to disperse its activities globally across many locations?

Answer 44

Buyer-related activities (distributing, marketing, after-sale service) usually must take place close to buyers, making it necessary to physically locate the capability to perform these activities in every country/region where a firm has major customers.

Question 45

How can a company achieve dominating depth in some competitively valuable area?

Answer 45

Transferring resources and capabilities across country borders which contributes to the development of broader or deeper competencies and capabilities.

Question 46

What are the 2 types of strategic movies that are particularly suited for companies competing internationally?

Answer 46

1. Strategic offensive by price cutting through cross-market subsidization, an advantage that international companies can have, but domestic ones don’t.
2. If a company finds itself under competitive attack by a rival in one country, it can conduct a counterattack against the rival in one of its key markets in another country.

Question 47

What is cross-market subsidization?

Answer 47

Supporting competitive offensives in one market with resources and profits diverted from operations in another market.

Question 48

What is dumping?

Answer 48

When a company sells goods in foreign markets at prices that are either well below the prices at which it normally sells in its home market or well below its full costs per unit.

Question 49

What is likely to occur if a company is dumping?

Answer 49

Almost all governments can be expected to retaliate against perceived dumping practices by imposing special tariffs on goods being imported from the countries of the guilty companies.

Question 50

What might be enough to encourage mutual restraint among international rivals?

Answer 50

When the same companies compete against one another in multiple geographic markets, the threat of cross-border counterattacks may be enough to encourage this.

Question 51

What are the ways a company can tailor its strategy to fit the circumstances presented in developing-country markets?

Answer 51

• Prepare to compete on the basis of low price
• Modify aspects of the company’s business model to accommodate unique local circumstances
• Try to change the local market to better match the way the company does business elsewhere
• Stay away from developing markets where it is impractical or uneconomical to modify the company’s business model to accommodate local circumstances

Question 52

What are the 5 strategies that have proved themselves in defending against globally competitive companies?

Answer 52

1. Develop business models that exploit shortcomings in local distribution networks or infrastructure
2. Utilize keen understanding of local customer needs and preferences to create customized products/services
3. Take advantage of aspects of the local workforce
4. Use acquisition and rapid-growth strategies to better defend against expansion-minded internationals
5. Transfer company expertise to cross-border markets and initiate actions to contend on an international level