COMPETITION IN FOREIGN AND
MOHAMMAD IKRAM MUZAMMIL BIN IDRUS
NUROLL AZRIN BINTI KAMAROLL ZAMAN
Course: MSC. FINANCE
PROF. DR. RUSWIATI SURYA SAPUTRA
WHY COMPANIES DECIDE TO ENTER FOREIGN MARKETS
Competing in international markets allows companies to (1) gain access to new customers, (2) achieve lower costs through greater scale economies, learning curve effects, or purchasing power, (3) leverage core competencies developed domestically in additional country markets, (4) gain access to resources and capabilities located outside a company's domestic market, and (5) spread business risk across a wider market base.
WHY COMPETING ACROSS NATIONAL BORDERS MAKES STRATEGY
MAKING MORE COMPLEX
Companies electing to expand into international markets must consider five factors when evaluating strategy options: (1) cross-country variation in factors that affect industry competitiveness, (2) location-based drivers regarding where to conduct different value chain activities, (3) varying political and economic risks, (4) potential shifts in exchange rates, and (5) differences in cultural, demographic, and market conditions.
Reason for locating value chain activities for competitive advantages is lower wage rates, higher worker productivity, lower energy costs, fewer environmental regulations, lower tax rates, lower inflation rates, proximity to suppliers and technologically related industries, proximity to customers, lower distribution cost and available or unique natural resources.
The impact of government policies and economic conditions in host countries has positive impact which is tax incentives, low tax rates, low-cost loans, site location and development and worker training while the negative impact is environmental regulations, subsidies and loans to domestic competitors, import restriction, tariff and quotas, local-content requirements, regulatory approvals, profit repatriation limits and minority ownership limits.
Political risks stem from instability or weakness in national government and hostility to foreign business. Economic risks stems from the stability of a country’s monetary
system, economic and regulatory policies, lack of property right protection, and risks due to exchange rate fluctuation
Fluctuating exchange rates pose significant economic risks to a company’s competitiveness in foreign markets. Exporters are disadvantages when the currency of the country where goods are being manufactured grows stronger relative to the currency of the importing country.
The strategies of firms that expand internationally are usually grounded in h omecountry advantages concerning demand conditions, factor conditions, related and supporting industries, and firm strategy, structure, and rivalry, as described by the Diamond of National Advantage framework.
Two key strategic consideration for cross country differences in demographic, cultural and market conditions is to customize offerings in each country markets to match the taste and preferences of local buyers and to pursue a strategy of offering a mostly standardized product worldwide.
The pattern of international competition varies in important ways from industry to industry. At one extreme is multidomestic competition, in which the market contest among rivals in one country is not closely connected to the market contests in other countries—there is no world market, just a collection of self-contained country (or maybe regional) markets. At the other extreme is global competition, in which competitive conditions across national markets are linked strongly enough to form a true world market, wherein leading competitors compete head to head in many different countries.
STRATEGIC OPTIONS FOR ENTERING AND COMPETING IN INTERNATIONAL MARKETS
There are six strategic options for...