Chapter 7: Strategies for competing in international markets 1. WHY COMPANIES DECIDE TO ENTER FOREIGN MARKETS
1. A company may opt to expand outside its domestic market for any of these five major reasons: 1. To Gain access to new customers: Expanding into foreign markets offers potential for increased revenue, profits, and long term growth and becomes an especially attractive option when a company encounters dwindling growth opportunites in its home market. 2. To Achieve lower costs through economies of scale, experience, and increased purchasing power: Many companies are driven to seek out foreign buyers for their products and services because they cannot capture a large enough sales volume domestically to fully capture economies of scale in product development, manufacturing, or marketing. 3. To further exploit its core competencies: A company with competitively valuable resources and capabilities may be able to extend a market leading position in its domestic market into a position of regional or global market leadership by leverageing these resources further. 4. To gain access to resources and capabilities located in foreign markets: An increasingly important motive for entering foreign markets is to acquire resources and capabilities that cannot be accessed as readily in a company’s home market. 5. To spread its business risk across a wider market base: A company spreads business risk by operating in many different countries rather than depending entirely on operations in its domestic market. 2. In addition, companies that are the suppliers of other copnaies often expand internationally when their major customers do so to meet their needs abroad and retain their position as a key supplier chain partner. 2. WHY COMPETING ACROSS NATIONAL BORDERS MAKES STRATEGY MAKING MORE COMPLEX 1. Crafting a strategy to compete in one or more countries of the world is inherently more complex for five reasons. 1. Different countries have diferent home country advantages in different industries: this is due to four sets of factors that can be analyzed using proter’s diamond framework of national competitive advantage. 2. There are location based avantages to conducting particular value chain activities in different parts of the world. 3. Different government policies tax rates inflation rates and other economic conditions make the general business climate more favorable in some countries than in others. 4. Companies face risk due to adverse shifts in currency exchange rates when operating in foreign markets. 5. Differences in buyer tastes and preferences present a challenge for compnaines concerning customizing versus standardizing their products and services. 1. Porter’s Diamond of National Competitive Advantage
2. Certain Countries are known for their strengths in particular industries. 3. Demand Conditions
1. The demand conditions in an industry’s home market include the relative size of the market, its prowth potential, and the nature of demographic factors give rise to considerable differences in market size and growth rates from country to country. 4. Factor Conditions
1. Factor conditions describe the availablitiy, quality, and cost of raw materials, and other inputs that firms in an industry require to produce their products and services. 2. The relevant factors vary from industry to industry but can include different types of labor, technical or managerial knowledge, land, financial capital, and natural resources. 5. Related and Supporting Industries.
1. Robust industries often develop as part of a cluster of related industries, including suppliers of components and capital equipment, end users, and the makers of complementary products. 6. Firm Strategy, Structure, and Rivalry
1. Different country environments foster the development of different styles of management, organization, and strategy. 1. For example: strategic alliances are a more common stratgegy for firms form Asian or latin American countries...
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